In every company there is a mythical “ladder” that each employee hopes to climb. Usually, the higher you climb, the more you are rewarded. This corporate hierarchy is actually a microcosm of all business and industry and plays out in virtually every financial endeavor. The more successful you are at your chosen profession, the more financial rewards you will receive.
The problem with the visually imagery of a financial ladder is that it is two-dimensional. It posits that there is one spot for each rung on the ladder. A more accurate analogy might be the financial “pyramid”. Consider the sport of baseball as an excellent illustration of this concept. Imagine every kid that ever signed up to play on a Little League baseball team as the base of the pyramid. A large portion of those potential superstars never advance to the next level, usually Junior League baseball, so the next step up the pyramid gets smaller. Then high school. Then college. Then professional baseball leagues. Even professional baseball leagues experience the contractions of the pyramid as players move from Single A, to Double A, to Triple A, and finally…THE BIG SHOW – Major League Baseball.
As the next level of baseball approaches, and the competition increases, the total number of players drops. Until finally, you reach the top of the financial pyramid. Even the top of the pyramid continues to segregate as you get closer and closer to the pinnacle. In this case, the financial pinnacle is currently inhabited by Clayton Kershaw, who made over $32,000,000 in 2016 pitching for the Los Angeles Dodgers.
Although the size and shape of the pyramid varies from industry to industry, this financial pyramid repeats itself over and over again. The world is full of starving actors and actresses, while Tom Cruise commands $40,000,000 per movie. Countless scribes have attempted the great American novel and have never received so much as a phone call from a potential publisher. Alternatively, James Patterson grossed over $95,000,000, in 2016 alone, for putting the correct sequence of words together on a piece of paper.
The restaurant business is a classic study in the extremes of the financial pyramid. According to a study by Ohio State University, approximately 60% of restaurants go out of business in their first year of existence and 80% are gone in the first five years. As the pyramid climbs, Joe’s Stone Crab Restaurant in Miami grossed a whopping $37,000,000 in 2016, good for the number two spot on the list of highest grossing restaurants in the United States. While quite impressive, these numbers seem rather pedestrian compared to the Tao Asian Bistro in Las Vegas, which grossed $48,000,000 for the same year.
The beauty of the financial pyramid is the fact that it is an extremely efficient structure built exclusively by the free enterprise system. The owners of major league sports teams, that pay what might seem like astronomical salaries to its stars, are neither benevolent nor stupid. They are successful businessmen that understand very basic economics: winning sports teams generate substantially more money than losing teams. This bounty is manifested in ticket sales, concessions, merchandise, and television revenue. The parallels continue with movie producers, book publishers, and almost every other titan of industry.
In its simplest terms, the free enterprise system rewards quality and the creation of value. So, Wildcatters, as you grab your briefcase and head to the battlefields of your chosen industry, always remember that the top of the pyramid is the best real estate to own. And, to paraphrase Gaston in Beauty and the Beast, “the top of the pyramid is the best…and don’t I deserve the best?!!”