As a Certified Public Accountant that works predominantly with entrepreneurs and startups, I’ve been lucky enough to rub elbows with some highly successful business men and women.  What often intrigues me when I consider both my most successful clients and some of the clients who struggle to maintain a sustained level of success is their reaction to success, particularly monetary windfalls resulting from a successful year.  In an outsourced CFO role, I’m often approached by clients after they secure a huge contract, establish a lucrative partnership, or experience a windfall growth year.  The topic, at least at first, usually centers around tax strategies, but also dips into discussing the near and long term utilization strategy for their newfound capital.  In my experience, this is where great entrepreneurs shine, and where others begin their descent.
I think we can test the aptitude of an entrepreneur who may find him or herself in this situation by asking the following question:

g question:

“If your business suddenly had a million dollars of profit in the bank, what would you do?”

I think there are, in general, three answers to this type of question.  Each answer type, in my opinion, is strongly correlated with the prospects of long term sustained success for the entrepreneur in question.

Entrepreneur #1

The first type of entrepreneur will tell you that they plan on buying a new house, put a down payment down on the newest Tesla model, and go on an extravagant vacation to celebrate their accomplishments.  These are the types of entrepreneurs I’ve seen become insolvent a year later, or sometimes sooner.  The key defining characteristic to highlight is that they view their newfound capital as a means to consume personal luxuries.
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Entrepreneur #2

The second type of entrepreneur will show a bit more discipline, but will still splurge (to an extent) to celebrate their success.  They may upgrade their living situation modestly, or use the capital on personal consumption, but they don’t overdo it.  They express interest in re-investing in their business slightly, but only to achieve the short term objectives of their business.  These entrepreneurs maintain their success, and experience a comfortable lifestyle.  This is probably the most common approach, and while there is nothing inherently wrong with this approach, these aren’t the entrepreneurs who are remembered for years to come.

Entrepreneur #3

The third type of entrepreneur won’t say a single word about using their business income for personal consumption.  They view their capital as a means to reinvest in their business, and do so aggressively.  They’ll invest in human capital, explore new solutions to pain points within their business, and use the remaining cash to invest in the future vision of the company.  They’ll evaluate their industry, and use their capital to beat their competitors to the next big innovative product or approach.  These are the entrepreneurs who become multi-millionaires and dominate their respective markets for years to come.

In essence, the behavior of the three types of entrepreneurs we’ve discussed comes down to two defining characteristics: discipline and vision.  If an entrepreneur can see past the temptations of personal consumption, they open themselves up to even greater gain in the future– it simply takes discipline and vision.

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