Wealth Building Step 1: Build a Cash Flow Business That Increases in Value

This is part of an ongoing series about how to build wealth. To read the rest of the posts in this series, go to paparelli.com and subscribe.

If there is a recipe for wealth-building that I’ve observed to be most successful over the years, it can be best summarized with these five steps.

Five Steps to Wealth Building

Step 1: Build a long-term business which provides cash-flow and increases in value each year.

Step 2: With the excess cash, invest in or start other businesses which produce cash and grow in value.

Step 3: Sell these businesses to other investors or companies who approach you and who want to buy them.

Step 4: Build your credibility with increased market exposure and public relations. People must conclude you are successful.

Step 5: Raise money from wealthy people who want to invest in you and your investment thesis. This will allow you to increase your personal cash-flow, take ownership of bigger deals, and realize higher dollar returns with far less personal risk.

David Cummings’ Story

Step 1: Build a long-term business which provides cash-flow and increases in value each year.

I met David Cummings soon after he moved to Atlanta from Raleigh-Durham. He was a recent Duke graduate and the owner of a business called Hannon Hill Corporation. David is a good networker, and the first place he went was to the most famous Duke alumni in Atlanta tech, John Yates. John is a prominent attorney in Atlanta who has been focused solely on technology from the beginning of his career.

Leveraging off John’s network, David became instantly credible in the Atlanta tech community. He had a successful cash-flow business in Hannon Hill, and he had a vision for helping entrepreneurs start and build businesses. He leased way too much office space for Hannon Hill with the idea of creating a shared workspace environment for other startups.

David is a wealth-builder.

From a very young age, after establishing Hannon Hill as his cash-flow engine, he was looking for the next deal. I’m not sure what his next deal was. In fact, having been through the process myself, I’m sure his next few deals didn’t work as expected. But he eventually started a company he called Pardot. Pardot focused on a new and fast-growing market called automated marketing technology.

But Pardot could not have happened without Hannon Hill. Every wealth-builder needs to be successful in Step 1 of the process. Hannon Hill provided David with the cash-flow he needed to provide for his personal growth and also his professional growth. It produced enough money to live on and enough money to invest. It also was the foundation of his credibility as a successful entrepreneur in his new city, Atlanta.

Getting started is the most difficult and personally challenging part of the wealth-building process.

David saw a big problem which needed to be solved. He clearly defined the problem and used all his programming talent and financial resources to solve it. As a great entrepreneur and leader who just stepped into a red-hot market, he built a fast-growth, profitable company. He eventually sold the company for over $90mm.

This is Step 2 of the wealth-building process. More on that in the next post.