America's Real Rich Are Lawyers, Car Dealers and Oilmen, Not Tech Billionaires

Ask most people to picture the rich and they will name a tech founder, a hedge fund titan or a legendary stock picker. According to a new book by two economists, that picture misses where most of the money sits.

In The Everywhere Millionaire, Owen Zidar and Eric Zwick argue that America's "Main Street Millionaires" collectively hold more than 13 times the wealth of the Forbes 400. The authors, who spent years studying how much tax American business owners pay, focus on households worth more than $5 million, roughly the top 4%. The average net worth in their data is $25 million.

The wealth is concentrated in pass-through businesses such as LLCs, S-corps and partnerships. The top five industries are legal services, financial investment activities (venture capital, private equity and hedge funds), independent auto dealerships, professional and technical services including management consulting, and oil and gas extraction. Two things stand out. These firms operate in every region, not just Silicon Valley or Manhattan. And no megafirm dominates them. Thousands of independent owners share each market, which is why the authors call them "everywhere" millionaires.

The typical owner is older, male, married and White. Among business owners worth $10 million or more, 90% are married and the median age is 62. Time matters, since building a firm of that size usually takes decades. Education also matters. About 80% of these owners hold a college degree and 40% have a postgraduate degree, roughly twice the general population's rate. Even so, they are less likely to be degreed than decamillionaires who do not own businesses, which suggests ownership can partly substitute for credentials.

Inheritance plays a smaller role than many assume. Census data from 2007 show 46% of Main Street Millionaire firms were still owned by their founder and 32% by someone who bought the business. Only 7% were inherited outright, and about 25% involved some form of inheritance once gifts and family transfers are counted. Family background still helps: people from the top 1% of income are 2.4 times as likely to found a firm as those at the 90th percentile. But 70% of founders come from outside the top 10%, and a third come from the bottom half.

One of the more practical findings concerns first jobs. Starting a career in an entrepreneurial field such as computer systems design, accounting or building equipment contracting raises the odds of later founding a company and succeeding at it. The authors estimate that differences in early career industry explain 20% to 50% of gaps in business creation by income, race and gender.

The data carry a survivorship warning. Only about 5% of founders build a firm worth more than $5 million within ten years, and around half of firms cease to be stand-alone entities within five. Failure is not usually ruinous, though. More than half of founders do as well as comparable people who never started a company.

For investors, the takeaway is that a good income, a high savings rate and steady investing can carry a household into the $1 million to $10 million range. Getting to $10 million and beyond usually takes ownership, whether founded or bought, along with patience. As Nick Maggiulli of Of Dollars and Data put it in his review of the book, there are no shortcuts in this game.