Which Entrepreneur Did the Better Job?

[Esquire]

Two men with full-time jobs try their hand in business after-hours ... in pursuit of the Fastlane:

January 1:

Person # 1: Starts with $1,000.00
Person # 2: Starts With $1 Million (received from an inheritance)

Both men invest all of their money into their businesses.

December 31:

Person #1: Ends the Year with $5,000.00
Person #2: Ends the Year with $1.2 Million

Which outcome impresses you more?

Which was the more "successful" of the two?

 

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[theag]

#2

 

[Digamma]

Clearly #2. Yes, the first one made a higher percentage of the investment, but it doesn't mean anything: he made less than minimum wage.

That said, none of the two looks all that stellar to me.

 

[Charmander]

Clearly better "system" was used in the first option, since it got a 500% return.

Option 2 didn´t have much work put in it.

Option one again - seems to have generated more value. Unlucky for him though, he only had 5000 $(1000 at start)
_____________
Which was the more "successful" of the two?

So option 1 was more "successful" in creating value.

 

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[Esquire]

Clearly #2. Yes, the first one made a higher percentage of the investment, but it doesn't mean anything: he made less than minimum wage.

That said, none of the two looks all that stellar to me.

Well ... the poll is not really about whether either of them did a "stellar" job ... what I am really inquiring about is perspective.

Being as the early results seems to be leaning in favor of Person #2 ... I'll offer a counter-argument in favor of Person #1.

I think Person #1 is far more impressive.

1) It is infinitely easier to make money with money. If person #2 needs to fund a advertising campaign ... acquire software or services ... make use of business travel ... or do just about anything else .. he or she just writes the check. Person #1 (conversely) has to figure out how to build a metaphorical airplane ... with a stick of bubble gum ... a box of matches ... and a used sheet of aluminum foil. He has to figure out how to do more with less. Kinda like Bear Grylls in the woods.

2) Notwithstanding these handicaps ... Person #1 got resourceful ... and found a way to to multiply his money five-fold. Imagine what will happen when he too acquires meaningful access to capital and resources ...? Think of it like a runner training up the mountains. Huffing and puffing for want of oxygen. We all know what happens when he comes down from the mountains and competes at sea level. No different here. As he too acquires access to resources (oxygen) ... I expect him to kick serious a$$.

3) Despite all these advantages ... Person #2 only netted a 20% R.O.I. What's his excuse?

If you asked me ... which of these two would be the first to make $10 million ... my money is on Person #1.

A 500% R.O.I. ... is 25 times more productive than a 20% R.O.I.

If I was a venture capitalist with money to invest ... I'd hand it to Entrepreneur #1.

 

[AndrewNC]

I think Person #1 is far more impressive.

But person #2 got a cohabitation agreement, and #1 didn't.

What now?

 

[Esquire]

But person #2 got a cohabitation agreement, and #1 didn't.

What now?

LOL ... Well Played!

 

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[Guest3722A]

Without more details it's hard to decide. The part that doesn't sit well with me is someone risking a million bucks by trying his hand at something when he is clearly a professional elsewhere.

1 knocked it out of the park but will that momentum be maintained? Who built the better foundation?

 

[Unknown]

Turning 1000 into 5000 is easy, and involves a whole 1000 risk.

For person two to compete he'd have to risk his entire million trying to turn it into 5 million.

They are both impressive, but person two has way more to lose, so I have to go with two.

 

[Hooked]

#2. I'm more impressed with someone who can quickly put that much capital to work successfully than someone who can hustle for $4k in a year.

 

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[davedev]

Person #1 got resourceful ... and found a way to to multiply his money five-fold.

I'm with you @Esquire, compound that with the lessons in the trenches Person #1 acquired as well. That knowledge can compound along with his successful ROI.

 

[townhaus]

Two men with full-time jobs try their hand in business after-hours ... in pursuit of the Fastlane:

January 1:

Person # 1: Starts with $1,000.00
Person # 2: Starts With $1 Million (received from an inheritance)

Both men invest all of their money into their businesses.

December 31:

Person #1: Ends the Year with $5,000.00
Person #2: Ends the Year with $1.2 Million

Which outcome impresses you more?

Which was the more "successful" of the two?

If Person 1 does it a second year...then i'd be impressed.

Person 1 fails to satisfy the commandment of scale. Instead of focusing on how to generate 500% returns (some would argue the odds of these returns are extremely slim...especially if your talking on a consistent basis) on his meager capital, he'd be much better off focusing on raising more.

Whats easier?
Borrowing $1k and generating 500%
or
Borrowing $1m and generating 0.5%

 

[H. Palmer]

Person 1 offered a small loan to a friend who did a property rehab with it on the condition that if the friend sold the property Person 1 would get a percentage of the profit. Because of this deal there was a lot of leverage.

Person 2 put his money in the stock market, which happened to rise 20 percent in that year. No leverage.

I guess what is really important is HOW Persons 1 and 2 did it.

To what extent were their actions repeatable, scalable and under their control and how much time they were required to put into the deal?

So it's not the outcome that is decisive for which of the two is better, it's the process.

 

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[vinylawesome]

It depends on how much time each had to spend in their respective business's.

If equal amount of time has been spent then # 1 would have achieved a better return on capital than # 2.

However, the more capital you have the more difficult it is to get 100% plus returns. 20% returns yearly would be great at such capital levels.

 

[Luffy]

Person #1 did a better job.

 

[Digamma]

1) It is infinitely easier to make money with money.

You are assuming that this scales linearly, which it doesn't. Turning 1k in 5k in a year is not hard, come on. You can do it by flipping used puppets on ebay. Or, well, drinking away your 1k in January and working at McDonalds until December.

2) Notwithstanding these handicaps ... Person #1 got resourceful ... and found a way to to multiply his money five-fold. Imagine what will happen when he too acquires meaningful access to capital and resources ...?

Of course it depends on how it did it.

3) Despite all these advantages ... Person #2 only netted a 20% R.O.I. What's his excuse?

He made 200k in profits. Two hundred thousand dollars in profits in the first year.

You can't judge this stuff by one metric. You can't. Nope nope nope. That's how people get swindled.

 

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[1step]

Person 1 is not impressive to me, it would be extremely easy to sell a service and make an extra $4000 per year. You have to make $300 per month, the numbers alone don't tell me he is a success. Now, tell me his story and maybe I will view it differently. On paper, person 2 is way more successful because only a small percentage of people could be given a million dollars and make 200k in a year.

 

[Esquire]

You are assuming that this scales linearly, which it doesn't. Turning 1k in 5k in a year is not hard, come on. You can do it by flipping used puppets on ebay. Or, well, drinking away your 1k in January and working at McDonalds until December.

Good point ... time invested is a variable.

If Person #1 spent hundreds of hours ... or worse yet ... hundreds of days ... flipping that $1000.00 into $5,000.00 ... yeah ... I can see your point.

But ... if he spent hundreds of minutes ... or ... hell ... hundreds of seconds ... I might be beating down his doors in search of the secret formula.

So what's a used puppet going for on e-bay these days ...? Been a while since I flipped one.

 

[LibertyForMe]

Assuming he inherited the money, that means he might not have had any previous business knowledge. To invest the money to get a 20% ROI is legit for someone who just came into that money, instead of just spending it like a sidewalker.

Person #2 gets my vote without a doubt.

 

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[randomnumber314]

It's impossible to objectively define who "done better," and there are merits to each start and outcome. I would say, for this audience, the first person's results are the best to shadow. Here's why.

Most people won't have the luxury of starting with $1m to play with and make mistakes. Most people can only afford to risk $1k. So if the first person risks $1k and ends the year with $5k, they've succeeded.

It's also important to think of both party's learning during the year. I would imagine that the person with $1m had more mentoring, more experience, and in-all more resources--whereas the person starting with $1k sounds more "average." So to contrast:

• #1 finds a product/service that can take $1 and turn it into $5 in a year.
• #2 finds a product/service that can take $1 and turn it into $1.20 in a year.

Assuming they are both able to continue on this path for the first five years of their venture, at the end of five years:

• #1 has grown to $3,125,000 after five years.
• #2 has grown to $2,488,320 after five years.

That's nearly $700k in difference (this is admitting speculation, linear extrapolation from hypothetical data, and being Friday some alcohol) I'd prefer to invest in #1.

I think the most normal reality, given the initial investment numbers, is that #1 begs, borrows, and deals their way to turning $1k into $35--whereas the person somehow endowed with $1m hires, fires, and builds a company that does $50m in a few years, but still needs further investment to "flush out" the idea--at least that's my experience--it's hustlers vs. data people.

The data people can pull giant revenues, but never get to profit--whereas the hustlers just start hustling and find a way to turn a dollar into a grand.

 

[Ecom man]

I agree with the thinking that person #2 did better. If you can't find a way to take a grand and turn it into at least 12-15k in a year you really aren't trying very hard. You can make a grand a month using just craigslist and eBay or many other ways. Heck, I picked up stuff people had out for trash and made 500 bucks in a couple hours a couple years ago. Netting 200k a year in profit... Much more meaningful.

 

[Esquire]

Netting 200k a year in profit... Much more meaningful.

Well ... no doubt ... $200k is more "meaningful."

But I am still left scratching my head ... wondering why I should be more impressed with Person #2 ...?

I mean ... suppose there was a third person ... Person #3 ... the son of a deceased billionaire.

And Person #3 ... puts $1 Billion is a savings account ... earning 1%.

At the end of the year -- Person #3 finishes $10 million dollars richer.

Applying this logic ... Person #3 should be the most impressive of them all.

And yet ... dollar for dollar ... Person #1 was 5000 times more productive.

Again ... I am making no assumptions on how much time and effort was required to achieve that return ... as that certainly plays a role.

But in the most general sense ... I am far more impressed with the R.O.I. relative to the initial investment.

That takes more talent.

 

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[randomnumber314]

I'm inclined to agree with @Esquire. Take some real world examples:

• Mark Cuban sold broadcast.com to yahoo for $5b. He made them believe it was worth that and got that much money.
• In 2008 Microsoft offered to buy Yahoo for $44b, they said NO. Yahoo is now valued at $11b

Which company would you prefer to have invested in? Let's stick with Shark tank examples:

• Barbara Corcoran started with $1,000 and turned it into $66 million.
• Donald Trump got his start by working for his father's company. His first "deal" bought an apartment complexe using $500k of his fathers money. He used that launchpad to repeatedly wheel and deal--and declare bankruptcy--to grow his networth to between $778m and $3b. (his actual networth is unknown, and he will sue you if you low-ball the amount)

Which entrepreneur do you hold in higher esteem? Barbara who is honest and humble about her path to success--or the Donald who is known to sue at the drop of a hat--he once took investment for a project, didn't move forward with that project, then sued the investors who wanted their money back, in order to keep their money, for nothing.

I, personally, will gladly buy a beer for anyone who hustled their way from $0 to $10+ million before I'd glad-hand some schmuck who turned their inherited $100m into $200m. To add an example, does anyone here find the Walton heirs especially entrepreneurial?

 

[Bila]

I agree with @Esquire ( for once )

The 1M has greater leverage power than $1000, so in this scenario i think it was underleveraged .

Not very impressed with # 1 but still think did better

 

[Ecom man]

Well ... no doubt ... $200k is more "meaningful."

But I am still left scratching my head ... wondering why I should be more impressed with Person #2 ...?

I mean ... suppose there was a third person ... Person #3 ... the son of a deceased billionaire.

And Person #3 ... puts $1 Billion is a savings account ... earning 1%.

At the end of the year -- Person #3 finishes $10 million dollars richer.

Applying this logic ... Person #3 should be the most impressive of them all.

And yet ... dollar for dollar ... Person #1 was 5000 times more productive.

Again ... I am making no assumptions on how much time and effort was required to achieve that return ... as that certainly plays a role.

But in the most general sense ... I am far more impressed with the R.O.I. relative to the initial investment.

That takes more talent.

In your example you said both of them started a business and in one year the results were 4,000 profit and 200,000 profit. It is much more difficult to make a 20% gain on a million dollars than to make a 500% gain on a thousand. Anyone that has any entrepreneurial sense can take a grand and turn it into 10-15 in a year's time. When I was 14, I needed to make money for college. My older sister and I started a lawn mowing business after school each day. My dad would drive us around and help us out as well. We took around 1,000 and made about $10,000 our first year. We made 1,000% return on our money! Amazing right? Not really because the next year we did the same thing and made 12-15k. We never even came close to person number 2 accomplishing profit of 200k. If you would have handed us a million dollars we would not have been able to make more than the same 10-15k. If person number 1 can be outdone by two teenagers with lawn mowers.... That's not talent.

 

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[GuestUser113]

I'm inclined to agree with @Esquire. Take some real world examples:

• Mark Cuban sold broadcast.com to yahoo for $5b. He made them believe it was worth that and got that much money.
• In 2008 Microsoft offered to buy Yahoo for $44b, they said NO. Yahoo is now valued at $11b

Which company would you prefer to have invested in? Let's stick with Shark tank examples:

• Barbara Corcoran started with $1,000 and turned it into $66 million.
• Donald Trump got his start by working for his father's company. His first "deal" bought an apartment complexe using $500k of his fathers money. He used that launchpad to repeatedly wheel and deal--and declare bankruptcy--to grow his networth to between $778m and $3b. (his actual networth is unknown, and he will sue you if you low-ball the amount)

Which entrepreneur do you hold in higher esteem? Barbara who is honest and humble about her path to success--or the Donald who is known to sue at the drop of a hat--he once took investment for a project, didn't move forward with that project, then sued the investors who wanted their money back, in order to keep their money, for nothing.

I, personally, will gladly buy a beer for anyone who hustled their way from $0 to $10+ million before I'd glad-hand some schmuck who turned their inherited $100m into $200m. To add an example, does anyone here find the Walton heirs especially entrepreneurial?

I agree.

 

[Esquire]

It is much more difficult to make a 20% gain on a million dollars than to make a 500% gain on a thousand. Anyone that has any entrepreneurial sense can take a grand and turn it into 10-15 in a year's time.

Well ... that assumes your time and labor is free. But we all know ... it really isn't.

The reason it is easier to flip $1k into $5k over a year's time ... is because your time and labor has a fair market value.

In other words ... if I take $1k ... and "invest" an additional $4k worth of "unpaid labor" ... then the real value is derived from the labor.

Trading time for money.

In that example ... all Person #1 would be doing was getting paid (indirectly) for his time.

In which case ... it really doesn't matter how he earned it ... via a business ... or a job. Same end result.

But suppose you only had 48 hours ... and I challenged you to turn $1k into $5k ... or ... to turn $1 million into $1.2 million.

Which would you rather do ...?

In that context ... where your labor is in limited supply ... I dare say a 20% return on $1 million would be far easier.

Flipping a 500% return on $1k investment is only "easier" ... if you have plenty of time ... and you value your time at zero.

So I suppose the real question is ... how much time and labor did each invest ...?

A little ... or a lot ...?

In which case ... I suppose it could go either way.

 

[Esquire]

Yeah ... that's it.

Time is the magic variable.

By analogy:

Person #1 earns $100,000
Person #2 earns $50,000

Who was more successful ...?

Assuming they worked that same number of hours ... easy ... Person #1

But if Person #2 earned his $50k in a week ... and took the other 51 weeks off ... and Person #1 earned his $100k working 50 weeks ... then Person #2 is clearly more successful.

Time is the key variable.

So I suppose there is no right or wrong answer ... unless you know how much time each of them invested.

 

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[Kak]

I don't trust the system used in scenario #1 will hold up to scale. The term demninishing marginal returns comes to mind.

Scenario #2 actually has a decent sample size. I would probably put another million in that.

 

[randomnumber314]

I don't trust the system used in scenario #1 will hold up to scale. The term demninishing marginal returns comes to mind.

Scenario #2 actually has a decent sample size. I would probably put another million in that.

This is actually a really great point. You have to have profit in whatever you invest time into building. Otherwise you're going to get very busy, and stay that way forever. This entire post keeps reminding me of MJ's analogy of the two brothers building pyramids: you have to build a scalable system, and part of that is profit so you can hire someone to replace you.