Unlike most top executives of very large corporations, the small business owner (SBO) puts his or her personal capital at risk into a business; and it is often the SBO's very life savings at stake.  The person making business decisions that critically affect his or her life savings is the person that an aspiring capitalist should consider learning financial lessons from (and partnering with when possible).  Alternatively, aspiring capitalists should look askance at many of the practices, prognostications, and general blather that is spewed in press releases from executives of large, publicly-traded corporations.  The reason is simple enough: they make decisions based upon spending other peoples' money. 

Professors Stanley and Danko published a financial classic in the mid-1990s, The Millionaire Next Door; their book revealed that approximately two-thirds of non-retired millionaires owned small businesses.¹  The fact that a super-majority of non-retired millionaires are SBOs is highly instructive for an aspiring capitalist.  There is much to be learned from the person who is forced each and every day either to make a profit or perish.  No profit, no livelihood.  Large corporation executives know the same lesson; however, they merely risk the inconvience of losing a job, turning to friends, and getting another lucrative job.  They do not risk their personal life savings.  And the difference in risk perception leads to significantly different practices.  The small business owner focuses on profit and reviles wasteful spending, whereas some executives of large corporations may perceive an absolute necessity in spending other people's money for corporate artwork, charter jet travel, and ultra-high-taste dining.   This is all-too-often the result of one person (or a very small group of people) gaining control of a very large treasure trove of other peoples' money.  Self-appointed autocrats did the same thing in the Middle Ages; and self-appointed dictators do it today.  Some of the worst offending modern CEOs who engage in these practices simply raid the shareholders' money and then put forward sophistry that amounts to "all the other CEOs have 'X' [toy/frivolous expenditure], and so we must too." 

By contrast, successful SBOs are cost-cutting, frugal, low-spenders by nature.  They know that there are only two ways to make a profit: increase income or cut spending (or both).  Oftentimes profits are attained from greatly constrained spending.  Profits are then channeled into one of two pipelines: they are either reinvested into the enterprise for greater operations (expansion of inventory, additional employees, additional stores, etc.), or they are used to purchase investment assets, such as stocks, bonds, and real estate.  The upbuilding of these reinvested profits into still more profitable exansion or rise in value of investment assets is what leads the disproportionate rate of SBOs in the American millionaire population.

The key to understanding why SBOs significantly over-represent millionaires in the U.S. is that anyone who scrapes and struggles 10,12, and 14 hours per day to wring a profit out of their business (the illustrative "Mom and Pop" store) cannot help but apply the very same financial principles at home.  Why break your back to extract a profit during the day, if you are only then going to engage in frivolous spending when you get home?  As a noteworthy aside, the typical salaried individual is not so intimately tied to the daily profit question (with his or her own life savings); and it is the distance from the daily profit grind that may be encouraging so many to engage in wasteful spending and keep themselves from achieving the same wealth of the SBOs.  

In the final analysis, the aspiring capitalist should look to the best practices of small business owners, particularly those who have become so successful that they took their enterprise public.  If the business culture that led to the tremendous success has been maintained, and the entrepreneur continues to run the enterprise, the aspiring capitalist may find a wealth of partnering opportunities (purchase equity shares in the very rare company that maintains this position) with those businesses.  Alternatively, despair awaits he who partners with those who think that frivolously spending other peoples' money is both their divine right and perogative.

Notes:

1. Thomas Stanley and William Danko, The Millionaire Next Door (1996), pg 8.

Tiffany's Comments:
Really interesting concept!  I've read The Millionaire Next Door, and have always worried that because I'm not a SBO, I couldn't become as wealthy.  Its good to know that a lot of it has to do with the perspective that they have, which is something I can adopt myself.  Thanks!