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00:00This is a story about your next-door neighbor.
00:02They may not look ultra-wealthy, like a Jeff Bezos or a Kim Kardashian,
00:07but sometimes behind that unassuming front door lives someone who's found the secret to attaining great wealth.
00:13Princeton economist Owen Zydar calls them everywhere millionaires.
00:18Our colleague Scarlett Foo had the opportunity to sit down with both an everywhere billionaire and a couple that aspires
00:24to be.
00:26You are one of the wealthiest people in America, but you keep a fairly low profile.
00:30I know that you are a known entity in Houston, but outside of Houston, there may not be a lot
00:35of people who know who Rich Kinder is.
00:37And that's just fine.
00:38Is that by design?
00:40That's just fine, yeah. I wouldn't say it's by design, but yes, I guess it is in retrospect.
00:47Rich Kinder didn't make his billions climbing the corporate ladder.
00:50Instead, Kinder created the bulk of his wealth by buying boring yet essential assets
00:55and then scaling them into what is now one of the largest pipeline companies in North America, Kinder Morgan.
01:01I like unglamorous businesses, so it never bothered me in the least to be in an unglamorous business.
01:08Kinder is part of a cohort of high net worth yet unassuming individuals that economists call the everywhere millionaires, or
01:15in his case, billionaires.
01:16Wealthy people don't answer surveys, and, you know, some of them are covered by the media, but that's only a
01:21small slice of what's truly there.
01:24There's basically a hidden world of everywhere millionaires.
01:27Owen Zeider is an economics professor at Princeton University who served on the Council of Economic Advisors during the Obama
01:33administration.
01:34He now focuses his research on tax policy as it pertains to high net worth individuals.
01:39His research will be published in a book titled The Everywhere Millionaire later this year.
01:44An everywhere millionaire is a private business owner who is wildly successful, but usually operates under the radar based on
01:52the place or the industry that he or she is operating in.
01:55So you should think of a local auto dealer who has a big vacation home and, like, a really nice
02:00boat.
02:01And there are a ton of them, and they're in basically every neighborhood in America.
02:06So the way we measure wealth is the two components.
02:10We look at assets and people's debts.
02:13And so there are five main types of assets.
02:17There's pension wealth, private business wealth, public business wealth, fixed income, and housing.
02:23And so we basically add this all up for different projects.
02:28Now on the debt side, most debt is housing debt.
02:31There's some student loans and car payments, that sort of thing.
02:35And what we do is we just take the difference at market values, and that's your net worth.
02:39According to Zyder's research, top earners derive most of their wealth from equity in businesses they founded or invested in.
02:46If you take dentists, dentists have more revenue than the total revenue of every professional sports team in America.
02:55So the NFL, the NBA, MLB, all of their revenue combined is smaller than the revenue dentists make.
03:02Manufacturing drives almost half of all corporate profits, but it makes up just a small share of the income going
03:07to millionaire-owned private businesses.
03:10Instead, these owners cluster in sectors like professional services, construction, and finance.
03:15What results is a quieter kind of wealth, earned through ownership stakes in privately held firms, rather than big publicly
03:22traded companies.
03:23Most people think you have to be like Jamie Dimon or Elon Musk, these really famous public company CEOs, to
03:30be really rich.
03:31But when you look in the data, there are a thousand private business owners who have at least $10 million
03:38in net worth for every public company CEO.
03:40You don't have to follow the traditional white-collar path.
03:44Kinder is one of those individuals.
03:46After studying law and serving in the JAG Corps, he transitioned to the private sector.
03:50He was general counsel of a small energy company that, through a series of mergers, later became Enron.
03:57He eventually headed up operations there, which consisted mainly of pipelines.
04:01After leaving Enron, Kinder decided to double down on that expertise.
04:05You bought pipeline assets from Enron, and at that time, the company treated it as kind of unwanted relics of
04:13the old economy.
04:14What did you see in the pipelines that perhaps others didn't?
04:18Well, I saw that there was an opportunity to take midstream assets, and if you ran them correctly,
04:24and really watched the bottom line carefully, had a good mix of debt and equity,
04:29that you could build those pipelines in a way that would allow your stock price to grow,
04:36and then you could use that stock price to make acquisitions of other companies.
04:40And that was really our game plan.
04:42Yeah, we started with really a tiny company.
04:44We had the market cap of the company, the value on the stock exchange, about $150 million,
04:50and we had about $150 million of debt.
04:54So overall, the enterprise value of what we started with was just a little north of $300 million,
05:01and we had 175 employees.
05:03We had this idea that we would look for assets, we would run them as efficiently as we could,
05:11we would bend over backwards to serve our customers, and we would provide a good return to our shareholders.
05:17And that's kind of the mantra that we've followed for almost 30 years now.
05:21And you built it through acquisitions?
05:23Built it through acquisitions and also just some build-out ourselves.
05:27We, today, for example, we spend about between $3 and $3.5 billion a year on building new pipelines.
05:37The trick is don't overpay, but do what's fair and right to produce an adequate return for your shareholders.
05:42Sounds like a very predictable business then.
05:45I think it is.
05:46It's, you know, no business without risk.
05:50And the old saying that it's the unexpected that always gets you.
05:54Who could have anticipated what we're going through in the Middle East today?
05:58Who could have anticipated COVID?
06:00But if your business is built on a solid foundation, you can weather whatever storms come along.
06:07We are partnering to develop a pediatric cancer center that's going to be a new 22-story building.
06:13Rischkinder made it into the ranks of the everywhere millionaires and beyond.
06:16But what about the rest of us?
06:18What are the chances we could join him?
06:21This was the, I think, second or third place that we saw.
06:24That's the plan for folks like Ray and Dana Cherry.
06:27The husband and wife team left their corporate jobs a couple of years ago.
06:30Popular for general handwashing.
06:32To buy a rather unassuming business in the San Francisco Bay Area, Monsam Portable 6.
06:37We assessed hundreds of businesses in this process.
06:40And when it came down to which ones we were going to buy, it was a very short list, maybe
06:44four or five.
06:45And for us, the focus was on the profitability of the company, that it had consistent profitability, that the business
06:54itself was near to where we live, and that the product or the service that it was offering was something
07:00that was unique and that we felt like we could come into and learn quickly and move to the next
07:06level.
07:07This is a business that was founded by a husband and wife team to solve a food and beverage service
07:12problem.
07:13They were selling funnel cakes to local festivals and fairs, and husband being an engineer, decided to build a unit
07:20like this in their garage to help them pass their health inspection.
07:2328 years later now, that couple's retired, and this business has since solved these types of problems for over 11
07:30,000 unique customers.
07:32And all of that just really excited us.
07:35I'm wondering what led you to leave these corporate jobs, these safe and steady corporate jobs, and decide to become
07:41owner-operators.
07:42It's a pretty big leap.
07:43We had really successful longstanding careers in the corporate world.
07:49I was in finance.
07:50Dana was in marketing.
07:51Entrepreneurship was always a really big goal of ours, and we'd considered different startup ideas over the years.
07:58We'd always thought, hey, wouldn't this be really cool if we could do something like this together?
08:01And we came across entrepreneurship through acquisition.
08:04We thought this was a great time for us to take a shot at ownership, some autonomy, and leveraging our
08:11own expertise to building a business on our own.
08:14This felt like a risk-adjusted path into entrepreneurship.
08:18The opportunity to purchase a business where there was already product market fit that was already established and had a
08:25path to having us come in and take it to the next level made perfect sense.
08:30We spoke with an economist, Owen Zeider, and he says that a lot of American wealth is built through private
08:36and what he calls boring, often overlooked businesses.
08:39Does that idea feel true to your life experience right now?
08:43Absolutely.
08:43As we've dug into this and you start to see which types of businesses are really running things in this
08:48country, that just became really clear to us the more time we spent in it.
08:52We're stepping into a world where there's a wave of small businesses and just businesses that are going to need
08:58to be transitioned as those owners retire.
09:00Basically, I think you better understand what you're walking away from and you better understand what you're walking into.
09:08And in my case, I understood very well what I was walking into.
09:11I knew those assets, didn't dream it would be as big as it would become.
09:16We've had a lot of luck along the way, but that's how I would view walking away from a corporate
09:22life.
09:23The Cherries are still in the early innings of building their business.
09:26And as they get ready to scale, established owner-operators like Kinder advise that doing your due diligence is the
09:32key.
09:33Generally, I've always believed that you shouldn't really invest in anything you don't understand.
09:38And if it's a business you understand and can run the numbers on and understand the strategic concept involved, I
09:49think you generally do okay.
09:51It's when you wade off into something that you don't really understand and you're relying on someone else to tell
09:57you,
09:58well, yeah, this is something that will really go, just stick with me.
10:02That's when you have to be, I think, very, very careful.
10:05What's your advice to someone who wants to build real wealth through their own company,
10:10but doing so without the attendant celebrity and white hot spotlight?
10:15I would say just pay attention to what you're doing and don't get carried away with PR or trying to
10:24be something you're not.
10:25How would you advise someone who has a real business idea but is perhaps afraid to walk away from a
10:31stable career to go pursue it?
10:34Well, I think it just depends on your tolerance for risk.
10:38You know, I don't think you want to jump out of a plane without a parachute.
10:42So I think you want to have a good understanding of that business that you're starting.
10:46And in my case, that worked out very well because I knew with the small set of assets we had,
10:53I knew we could make those work.
10:54You know, the first analyst call we had as Kendra Morgan, there were so few people covering us that we
11:01just had an open line.
11:03So there were four analysts on, all of whom I knew from my Enron days.
11:07And so one of them asked, he said, Rich, you know, you were COO of this big company, and now
11:12you're starting this little company you're starting now.
11:14What do you expect to accomplish?
11:15And I said, well, you know, I hope in four or five years this will be a billion-dollar company.
11:20And one of those four people I could hear went, ha, ha.
11:24I confronted all four of those people years later, and they all swear they didn't do it.
11:28But I know for sure one of them thought I was absolutely nuts.
11:32I know for sure one of them thought I was just a little bit.
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