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Do What You Love RUN THE NUMBERS and the Money Will Follow

January 05, 2024

KEY TAKEAWAYS:

  • Following your passion professionally is bad advice for many entrepreneurs because it doesn’t often result in becoming rich, let alone Super Rich.
  • Think of every business decision you make as a new venture—and create pro forma financial statements to make the ideal decision.
  • Be prepared to justify any decisions with numbers and logic—don’t fall in love with any initiative

We all love the adage “Do what you love and the money will follow.” It’s romantic and exciting to imagine that there’s a direct path to becoming seriously wealthy that requires our devotion to our deepest passions in life and doing only what fulfills us most.

Self-made billionaires, however, know that piece of advice is rarely true. Yes, you may be able to convert your passions into a very successful and profitable career. But it’s significantly more likely that building a business around your passions will lead to financial instability— not significant wealth. When you do what you love, the money might follow—but if it does, it will probably be so far behind that it will never catch up.

That’s not to say you shouldn’t focus on doing what brings you great joy. But if your main goal is to amass significant amounts of personal wealth—a goal shared by 94 percent of successful business owners we surveyed—simply following your passions is not at all likely to help you. Unless your passions center on activities that can be extremely well-monetized, they’re not going to propel you into (or even toward) the ranks of successful self-made multimillionaires and billionaires. In fact, there’s a strong likelihood that your passions will majorly detract from you ever becoming rich.

Here’s why.

Passion often doesn’t equal money

Passion requires monetization for the adage to be true.

For example, say you’re a managing partner at a successful hedge fund, or a top-ranked investment banker, or a world-renowned high-priced attorney, or the CEO of a major corporation who absolutely loves what you do—the day-to-day tasks fulfill you deeply. In that case, “Do what you love and the money will follow” is probably great advice. It will likely prove to be quite profitable for you.

These situations are the exception, not the rule, however. It’s more common to find people who adore working with teenagers and become dedicated teachers, or animal lovers who work as veterinarians, or car aficionados who work as mechanics. Now, you might have a hugely rewarding life, personally, if you follow your passion in a similar way. But chances are, you’ll never become seriously wealthy and join the ranks of the world’s most affluent in these types of careers.

Taking this one step further, let’s say you’re a biologist enthralled by searching for a cure for cancer, or a social worker devoted to turning around the wayward lives of teenagers, or a police officer dedicated to protecting people. In such cases, you may be ideally set up to change the world for the better. Still, you’ll likely never be rich.

And guess what? That’s okay! There’s a lot to be said for the happiness and accomplishments you can achieve by doing what you love. A life where there’s a great deal of satisfaction and pleasure in what you do as a career can be truly sensational. But again, most of these careers are usually unlikely to generate significant personal wealth creation. In more than a few scenarios, there’s even a pretty good chance you won’t make much of a living.

What’s so nice about “Do what you love and the money will follow” (and other aphorisms like it) is that it blissfully subtracts the difficulty and pain, the challenges and hard work, and the anguish and anxiety from what it really takes to become a self-made billionaire. (So for all those people who want to become seriously rich by doing what they love, but who cannot connect their business activities to making substantial amounts of money, we hear that the Brooklyn Bridge is for sale too. Act quickly or you’ll miss this once-in-a-lifetime opportunity.)

The better approach: Use pro formas for your business decision

One thing the Super Rich (those with $500 million or more) understand extremely well is that the ability to generate great wealth is maximized not by doing what you love, but by doing what makes the most sense financially

As a result, pro formas regularly play a key role in their decision-making—and should play a key role in yours too.

If you were starting a new venture, you would write a business plan and construct pro formas— projected financial statements. If you were looking for investors in your new business, you would recognize that they would concern themselves with your plan and the financials. While a lot of this is guesswork, the presumption is that it’s highly educated guesswork predicated on a solid logical foundation.

If you think of every business decision—from taking on a partner to working on a project— as a new venture, then it’s only logical to write pro formas for each venture. This is what most of the self-made Super Rich do consistently—they always “run the numbers.” Based
on meticulous calculations (or an instinctive familiarity with the financials that comes from extensive experience), they look at each initiative and derive their projected returns.

Here’s how some of the most successful among today’s self-made Super Rich approach running the numbers.

Step 1: Get a solid overview of the nature of the project. This is equivalent to reading the business plan for a new venture. You need to start with a broad and insightful understanding of the character and spirit of the venture.

Step 2: Construct the assumption set. In order to run the numbers, you’re going to have to base your math on a collection of assumptions that are relevant to the project. This regularly includes matters concerning the nature of the business, the competitive environment and the people involved. The assumption set is a function of circumstances for each situation, and therefore will change each time.

Step 3: Develop multiple scenarios. The future is multifaceted, so it makes good business sense to consider the various possibilities of any business endeavor. You are well-served to consider numerous possible outcomes over various time horizons.

Step 4: Identify the high-probability scenarios. The likelihood of each scenario occurring is not the same. You need to identify which outcomes are most likely to transpire—the high probability scenarios. Moreover, you need to be able to explain to any and all stakeholders the reasons for one scenario being more likely than another.

Step 5: Identify the worst-case scenarios. Any initiative can generate fabulous returns. While the Super Rich look for these quantum opportunities and no doubt envision the upside, they are equally interested in—and are superbly attuned to—the downside. They work the assumptions with an eagle eye to the probability of negative and even catastrophic consequences

Step 6: Determine how you fare under both the high-probability and worst-case scenarios. By carefully considering these two scenarios, you are then able to ascertain the extent to which they will enable you to reach milestones and your financial end goal. More important, you need to know the implications of your striving for great wealth if the worst case scenario came to pass. If the venture failed spectacularly, for example, how would you, your family and others be impacted?

Important: Consider your age and the stage of the business life cycle you’re in. If you’re in your 30s, you may very well have time to recoup big financial losses if your venture blows up. If you’re in your late 50s, however, the implications of the worst-case scenario could be dire.

Step 7: Triage. The Super Rich are nearly always looking at a multitude of opportunities, even ones as seemingly basic as hiring another person. Hence, the self-made Super Rich are always comparing different initiatives. The ones with the greatest returns, all other factors being equal, are the ones they will pursue. You need to do the same. By running the numbers, you’ll be better able to determine which business activities will give you the maximum opportunity to become fabulously wealthy, and then pursue them.

Three guidelines for running the numbers

The more often you construct pro formas for business decisions you make, the more proficient at running the numbers you’ll become. We spend a considerable amount of time deconstructing and reconstructing business decisions, and these experiences have enabled us to think through relevant issues with extreme agility and precision.

This comes in very handy in those cases when you might fall in love with an initiative and not be able to view it objectively. You can either personally become proficient, or work with others who are adept at running the numbers.

Developing pro formas for each business decision is uncomfortable for a lot of people. Nevertheless, this is a skill that needs to be mastered if one of your key goals as an entrepreneur is to amass significant personal wealth.

The following are three guidelines that can help you when constructing your pro formas.

1. Never fall in love with an initiative

“But it’s my baby.” We’ve heard this phrase quite a few times. When the strategic and financial returns are not there, the initiative should be dropped—fast. However, many people fall in love with their ventures and stick with them as they go over the cliff. When the numbers just don’t work, the top self-made Super Rich readily exit—even the ones who are risk takers.

Wealth creation implication: The financial end goal is wealth. Therefore, you need to stay attentive to amassing your desired level of wealth and not be too wrapped up in a specific initiative. Never drink your own Kool-Aid, and never believe your own hype.

2. Work the assumptions

Spreadsheets show the relationships between numbers. A competent MBA student can come up with any answer a professor wants. The self-made Super Rich very much recognize the need to understand the financial projections tied to initiatives they’re exploring. Underlying every financial projection are assumptions. The extremely wealthy spend demonstrably more time and effort working through various iterations of these assumptions.

Wealth creation implication: You need to explicitly note, define and test every assumption when you run the numbers. Then you need to manipulate each assumption and see the individual and interactive impact of the projections. In effect, you have to work the assumptions hard.

3. Be able to justify your assessments of various scenarios

We’ve observed that the self-made Super Rich are amazingly adept at logically justifying their assessments.

Wealth creation implication: There are reasons some scenarios are more likely to occur
than others. You need to be able to illuminate these reasons with enough facts to back them up—a rationale such as “because it is” doesn’t cut it. Precision and precise reasoning are requirements for being accurate about outcomes that can make you extremely wealthy.

Seek out like-minded entrepreneurs

One of the best ways to run the numbers so you can logically and honestly size up potential opportunities is to seek out assistance and insights from other top entrepreneurs like you. By enlisting the help of other like-minded business owners who aren’t involved in or tied to your company, you can get unvarnished advice and straight talk about whatever venture or initiative you’re evaluating—before you pull the trigger.

Entrepreneur mastermind groups and CEO groups can be excellent resources to connect with successful entrepreneurs who are looking to accelerate their results further.


Securities offered through LPL Financial. Member FINRA / SIPC. Investment advisory services offered through NewEdge Advisors, LLC, a registered investment adviser. NewEdge Advisors, LLC and Congruent Wealth, LLC are separate entities from LPL Financial

VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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