What Makes The Billion Dollar Club Tick?
“Ethereum co-founder, Vitalik Buterin, is the and first crypto self-made billionaire.” A number of news outlets reported this as the price of ether continued to soar high amid the magical years for crypto and the stock market at large. What strikes my mind whenever I read such headlines is the phrase “self-made.” Bill Gates is self-made, Jeff Bezos is self-made, Jay Z is self-made but what exactly does it really mean to be self-made? Can anyone really be a self-made “anything” leave alone dollar billionaire?
After reading the book “Outliers: The Story of Success”, my summary for the entire book is we are a result of the society that has raised us. Nobody is self-made, no body becomes successful or great out of sheer effort or hard work but a lot of factors need to come into play to make a successful person tick. Gladwell, in the book, explains some of these factors and mentions the factors that came into play to make Bill Gates who he is, to make Asians great in math, to make the great hockey players of Canada and in all cases, effort was a big factor but without some of these other “out-of-control” factors, effort alone would never have led to the success of these outliers.
So, what makes the billion-dollar club tick? In my previous article, I did an analysis of the Forbes Billionaire list to try and find out which industries one should operate in to increase their chances of joining this fancy club. With the release of this year’s official list, I started asking myself a number of questions and one very important question was whether population of a country of residence would increase the chances of one becoming a billionaire. In this hypothesis, I considered two hypothetical startups doing exactly the same thing; one located in my country Kenya with a population of 50 million people and another located in India with a population of 1.3 billion. Part of my hypothesis formulation was that the startups would serve the entire population and that means that the startup in Kenya has access to only 50 million customers while the one in India has a total of 1.3 billion people in a contiguous land mass. For the startup in Kenya to bridge the market size gap, it’d have to navigate 54 political, cultural and legal hurdles to enter markets in the entire Africa so as to reach the same market size as the one in India. That’s what most expat founders don’t realize when they decide while in their countries to do a startup in “Africa”. They forget that Africa, unlike the United states, China and India is not a country but a fragment of 54 countries each with its own political and cultural settings. My assumption was then that the founder in India would be more likely to achieve higher success than the founder in Kenya based on the market size alone. Is population alone the key factor? What if the service is an online service with no geographic restrictions? What about the buying power of the population? To answer some of these questions, I decided to again analyze the Forbes list but this time from a different angle that involved looking at the effects of the country of origin: its population, size, GDP and GDP per capita.
There are a total of 2724 billionaires reported in the Forbes list emanating from only 70 countries in the world. The Unites States alone has a total of 717 billionaires, with China following closely at 610 with India, Germany and Russia closing to the top 5 with 138, 136, 116 billionaires respectively.
The total net worth of these individuals alone goes up to $4.5 trillion in the US, with China, Germany, Russia and India following and closing the top 5 respectively in a distribution that resembles the power law.
China, India and the United States also happen to be the most populous countries in the world with Russia, China and the United States also being one of the largest countries on the planet. The Unites States, China, and India also happen to be in the top 5 countries with highest GDP in the world. However, only the United States falls in the top 5 list of countries with the highest GDP per capita.
What is this data trying to tell me? To further qualify or nullify my hypothesis, I decided to do a correlation analysis and calculate the Pearson correlation coefficient for each of these factors in relation to the number and net worth of billionaires in each of these countries. The billionaires list dataset is from the Forbes Realtime Billionaires list while the country data on population, area, GDP and GDP per capita is from Word Bank and Our World in Data. Correlation, it is worth noting, does not denote causation but is rather a measure of dependence between any two variables. Correlation values range from -1 to +1 with -1 denoting a strong negative correlation and +1 a strong positive correlation. Some analysts only consider correlation values between -0.8 to -1 and +0.8 to +1 as being of significance. I will, however, place my significance levels in a range with 0 being insignificant, 0.5 being mildly significant, 0.8 being definitely significant and 1 being absolutely significant in the positive and negative sides of the number line. Below are my findings:
What the table tells me is that when it comes to being a billionaire while operating from your country of residence:
- Population of the country is only mildly significant in increasing your chances of being a billionaire while the significance is even lower in predicting how much you’d actually be worth in billions.
2. Size of the country is also only mildly significant and does not play a very huge factor in determining if you’ll be a billionaire or not
3. GDP of the country is definitely significant (almost absolutely significant) in determining if you’ll be a billionaire or not. Thus said, it is thousands of times easier to become a billionaire if you are operating in the US as opposed to if you are operating in Kenya.
4. GDP per capita is insignificant in determining whether or not you’ll be a billionaire which also speaks to the high income inequality in the countries with the highest number of billionaires
5. As a “by-the-way”, I sought to check if age is a factor but as we can see, it is an insignificant factor meaning you can become a billionaire at any age of your life (probably from a working age or around 18/19 onwards).
I expected that at the end of my analysis, I would have my hypothesis hold but the data speaks otherwise and it all seems to make sense. Whereas population is a big factor as it determines ease of market access, the general economic health of the country carries the day. A highly populated country of poor people has a less buying power than a less populated country of rich people thus a company might operate in Nigeria with a larger market but make less money than the one in the United Kingdom with less population but higher GDP and better economic policies. Another possible explanation is that the majority of the billionaires have made their wealth by building global conglomerates; companies that operate with no geographic borders and some like Facebook, Google, Microsoft that run in the cloud and therefore have less costs of expanding globally.
What I have learned here is that founders running companies that are hard to scale geographically have a tough journey to join the billion-dollar club if they come from countries with small populations. However, this hurdle is significantly reduced if their companies are easy to scale and can operate globally with little additional overhead costs.
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period, according to Investopedia definition. What the high correlation with GDP teaches me is that money follows the producers; a country that produces more, a company that produces more, an individual that produces more, is going to earn much more than its counterparts. Whether you are a TikToker, YouTuber, Social Media Influencer or running your startup, produce more and more you will earn. To close in Jeff Bezos’ words: “If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with.”
Money follows the producers. Produce more and more you will earn.