Let’s have some fun and dream big, and I mean astronomically big! Is your goal to develop a new product, get it to market, and then sit back and watch the money roll in?
And I don’t mean just making a good living (which is a fine goal too).
No, instead I’m talking about making multiple millions up to hundreds of millions or even billions! I mean the level of wealth that allows you access to the world of mansions, yachts, private jets, and Ferraris. Or better yet enough wealth to fund all of your favorite charities and to help everyone financially that you care about.
Disclaimer: Nothing in this article is about quick riches. In fact, the steps I outline are the Mount Everest of business goals. It’s hard to imagine many things more difficult than accomplishing all of the steps outlined in this article. But many entrepreneurs do, although many more fail.
Disclaimer #2: I’m an engineer with start-up business experience. I’m not an attorney, get rich expert, acquisitions advisor, or financial advisor. I have no formal education in these topics, and have not personally gone through the entire process I outline, but I know the process. Be sure to consult the necessary experts for further details.
I suspect most entrepreneurs have fantasized about becoming multi-millionaires from their product. Although it’s never been my primary goal, to be honest, it is something I too have daydreamed about some in the past. My dreaming of riches happens mostly when I have to fly somewhere, and the convenience of flying on a private jet pops into my mind. I’m not really into stuff, but I am into experiences and convenience!
Developing and selling a successful product seems like a pretty big dream, right? Although you probably won’t hear this very often, you may not be thinking big enough if you want to become super wealthy.
Selling a product can make you a very nice income, but it will rarely get you to the level of private jets and yachts. This is true whether you license your product to another company, or sell it yourself. This type of business is typically known as a lifestyle business. With a lifestyle business your focus is on generating enough income to give you the quality of life you desire right now, and not on building something with immense value at some point in the distant future.
On the other hand, if your goal is to make millions then developing a product and getting it to market is only the first step! I know, I know, developing and marketing a new product can seem like an overwhelming goal. And now I’m telling you that your big dream may not be big enough?
I’m suggesting that you must think very long-term if you want to make it to the point of being ultra-wealthy. The only way to gain that level of wealth is to sell a company, not a product. You don’t have to necessarily sell the entire company, just a big part of it.
Nearly all of the wealthiest people in the world got there by one of two methods: they either inherited it, or they built and sold a company. Since most of us will never inherit millions that leaves you with the option of building and selling a company.
Let’s review the 5 steps to achieving this goal. Keep in mind that each of these 5 steps are huge obstacles and can be broken down into numerous sub-steps. Realistically, these steps will take you at least 5 to 10 years to accomplish. So don’t expect it to happen quickly. This process is a very long grind.
That being said, if you accomplish any of these steps (even just one) you have done something amazing and will be considered a spectacular success. But to achieve extreme wealth you need to succeed at all five steps outlined.
Step #1 – Develop and sell a successful product
Most entrepreneurs focus all of their efforts on this first step. Developing and selling a successful product is extremely difficult, but it’s really only the beginning.
The key word here is successful. Regardless of how great your product is, or how many years of hard work it took you to develop, if the product doesn’t sell like you expected then you will rarely make it to the next step.
Don’t make the mistake of rushing past this step. It’s not uncommon for entrepreneurs to try growing their product line and company before they’ve fully made the first product a success.
If your first product proves itself as a home run, then you can focus your efforts on making more home runs. It’s always best to take many small steps, as quickly as possible, instead of taking a few huge steps. Not only will this reduce your risk, it will increase your chances of ultimate success. In many cases you’ll have to take one step forward, then one step back, before eventually proceeding forward.
Step #2 – Build a company around your product
You probably have already legally created your company during product development, for both branding and tax purposes. If you haven’t, do that as soon as possible.
However, the legal business structure you chose initially while developing the product may not be the best structure as your company becomes profitable.
At least in the U.S., there are three options for legally structuring your business: sole proprietorship (or partnership), LLC, and corporation. The simplest structure is a sole proprietorship or partnership, and the most complex is a corporation.
Usually your best option is to begin by making your company an LLC (Limited Liability Company). Similar to a corporation, choosing LLC as the legal structure for your company will protect your private assets if your company should ultimately fail or be sued.
Unlike a corporation though, an LLC also has the advantage of allowing you to deduct any business losses on your personal income tax form. The odds are your business will be operating at a loss for at least the first couple of years. You’ll want an LLC structure during this time so you can deduct these losses on your personal income tax return.
Once your company becomes profitable, and if you plan to sell part of it one day, then you should probably switch to a C-corporation legal structure.
A C-corporation is the best structure to allow you to sell parts of your company in the future. But don’t rush into a C-corporation before you are confident that your company is profitable.
This is because as a C-corporation you won’t be able to deduct any losses on your personal income. You can only deduct losses from the corporation’s potential future income.
Step #3 – Grow the company
It’s time to grow and scale your company if you have accomplished the following: you have your first product on the market, it is selling successfully, and you are making a profit that can be reinvested into your business.
There are various ways to grow a product based business, including obtaining more customers, expanding your product offerings, increasing your sales prices, and/or reducing your costs. In most cases you’ll need to do a little bit of all these strategies.
Getting more customers should be your first priority. Expanding the number of products that you sell is one way to get more customers. In fact, you may find that when you try to strike deals with big retailers you run into what is known as the one-product wonder barrier.
Many of the largest retailers and distributors simply don’t want the hassle of adding a new manufacturer that only sells one product. Adding a new vendor creates a lot of paperwork, headaches, and risk for a retailer. Retailers may not think it is worth the effort for just a single product.
One way around this barrier is to sell your product to them via a distributor that already sells them other products. Although many distributors also shun taking on suppliers that only offer a single product.
For this reason you’ll eventually need to focus on expanding your product into a full line of products. Sometimes this expansion can be as simple as offering your product in different quantities or colors. For example, a single product could also be sold as a 3 pack, thus creating multiple SKU’s that may appeal to retailers.
Each new product you introduce should be simpler to develop and sell than the first. You already understand the entire process and all of the obstacles. This will allow you to be much more efficient with additional product offerings compared to your first product. As I always tell my son, knowledge (and experience) is power!
Another reason for creating a whole line of related products is you will gain more brand visibility in the retail environment. A single product surrounded by numerous other products may get lost on a retail shelf. However, if you have an entire line of products to display, your brand will become much more visible and sales will typically increase.
Depending on your profit margins you’ll also want to begin working on lowering your production costs so your profit increases. During step one you should focus on minimizing your development costs and risks, not maximizing your profit margins.
But once you reach step three you need to optimize your manufacturing process to minimize your production costs.
This is also the stage where you’ll need to expand your team beyond just yourself and your co-founders if you wish to grow your company quickly.
Step #4 – Organize the company to operate without you
Once you have a successful product line and a full management team in place, it’s finally time to begin removing yourself from the day-to-day activities of the company. This is necessary because it’s very difficult to sell a company that is completely dependent on the founder.
Removing yourself from the equation is definitely a requirement if you plan to one day sell the entire company. If your company still depends on you for its survival, you will never gain top dollar for it. In such a case, any buyer is likely to require what is known as an earnout.
An earnout is when part of the purchase price is contingent upon you sticking around and making sure the company meets certain financial targets. In most cases, its best to avoid the requirement for an earnout period.
Ultimately, you need to ensure that the company can survive without you by putting a competent management team in place. I’m not saying you have to be completely removed from the company. You can still serve as the CEO if desired, but you need to make sure you are replaceable and that a professional CEO could be brought in to take over your role.
Step #5 – Sell that company or at least part of it
You finally have a company that is growing, is profitable, and can operate independently from you personally. Now it’s finally time to sell that company. It will no doubt take you many years to reach this point, typically at least 5-10 years. Although you may hear in the news of startup founders selling much sooner, that is exceptionally rare.
When you do make the decision to sell your company, you’ll need a good Mergers and Acquisitions advisor (M&A advisor) to help you sell your business and to be sure you get the best price possible.
If you’ve achieved the goal of creating a thriving company with a large product line and a full management team, then an M&A advisor is your best choice. The alternative is a business broker, but they focus on smaller, less complex businesses like Mom-and-Pop stores.
Need some motivation that this is all truly possible? Then check out this story about Ring, a hardware startup that recently sold for over $1 billion (after they were originally told on Shark Tank their product would never succeed!).
My final piece of advice is to make sure you have goals beyond just selling your business and becoming wealthy. You’ll need a new goal to keep your mind occupied after you’ve divested yourself from your baby.
Perhaps you’ll follow in the footsteps of someone like Elon Musk. He sold PayPal to become a billionaire, but now focuses his time and energy on even bigger goals like putting a person (or a colony) on Mars, or building a high-speed underground hyperloop for quick travel between San Francisco and Los Angeles.
Personally, one of my big dreams is to one day own a wildlife sanctuary for large predators like bears, tigers, lions, and hyenas (bet you didn’t expect me to say that!).
If you want to learn more I highly recommend the book How to Build a Business and Sell It for Millions by Jack Garson.Finally, don't forget to download your free PDF: The Ultimate Guide to Develop Your New Electronic Hardware Product. You will also receive my weekly newsletter where I share premium content not available on my blog.
Other content you may like:
- Why You Need to Stop Over-Focusing on Your Product
- Why You Must Avoid Invention Promotion Firms (and Never Use the Word Invention or Inventor)
- Rules for Success I Learned Bringing My Own Hardware Product to Market
- The 6 Parts of a Hardware Startup You Must Conquer to Succeed
- 12 Requirements to Succeed with a Hardware Startup