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| The Basics | 7 ways to make a million
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Take a chance
You may not have heard of Diane Warren, but you have probably hummed a few of her tunes. About 90 of Warren's songs have climbed the charts to the top ten, including "If I Could Turn Back Time" (performed by Cher), "How Do I Live" (LeAnn Rimes), "Un-break My Heart" (Toni Braxton) and, fittingly, "I Could Not Ask for More" (Sara Evans). Warren, 49, collects royalty checks averaging about $10 million a year.
Warren whistles a happy tune now because she protected her right to maximum royalties. To understand her story, you need to understand how the music business works. Publishers buy pop tunes from writers for a song and then sell them to record companies for a lot more. In 1983, after publishers had rejected her pieces for a decade, Warren landed a gig as a writer with publisher Jack White Productions, which paid her a salary in exchange for the royalties on her melodies and lyrics.
When a few of her ballads, such as "Rhythm of the Night," became hits, it was Jack White Productions that profited. Says Warren, "It was the difference between earning $350 a week and making millions of dollars a year."
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In 1986 Warren severed her relationship with Jack White and launched her own publishing company to cut out the middleman and collect full publishing royalties. She ponied up several thousand dollars for an office and an assistant, taking a risk because she wasn't yet established as a hit songwriter and Grammy winner. But her company, Realsongs, received a payment each time someone bought one of her songs, a radio station played one of her songs and a movie included her music on its soundtrack. So her earnings potential became much greater than that of a salaried employee.
Within a year, Warren knew she had made the right decision -- when she framed a copy of her first $1-million check from royalties on the overseas sale of several of her songs. "Before that, the largest check I had received for my music was $500," she says.
Warren has splurged on a home in the Hollywood Hills area of Los Angeles, a beach house and an Aston Martin. But she socks away much of her money in an array of stock-market and real estate investments. Her main retirement strategy is to live on the future income from the roughly 1,600 songs she has composed. Says Warren, "Music is like real estate in that its sales value goes up over time."
Forget stereotypes
In 1998, when he was 37 years old, Jeong Kim sold his telecommunications company to Lucent Technologies for $1.1 billion. It was a classic rags-to-very-great-riches story for the Korean immigrant, who lived in a subsidized housing project after he arrived in Maryland with his family at age 14, barely able to speak English.
By age 16 he was living in his high school math teacher's basement and supporting himself by working several jobs -- including the night shift at a 7-Eleven -- while attending school during the day. He graduated from high school a semester early but delayed going to college because he didn't have the money. He saved, applied for financial aid and went to Johns Hopkins University a year later to study engineering.
While at Hopkins, Kim worked full-time for a technology start-up founded by fellow students and professors. But after graduation he decided to join the Navy. "I wanted to pay back society," says Kim. "Maybe that's idealistic, but it felt right."
Serving for seven years on a nuclear submarine taught Kim about leadership, integrity and teamwork, he says. "When you're surrounded 24/7 by 120 other people, you learn to tolerate differences and appreciate other views."
Not incidentally, he also picked up strategies that have become central to his business philosophy. "I tend to say less and do more," says the soft-spoken Kim. "In a nuclear submarine we call it silent service. A show of force is not our mission. Our job is to be very effective." When he started his business, "I stayed in stealth mode for as long as possible so that when I came out, we were far ahead of our competitors."
His Navy experience also introduced him to a telecommunications switching problem that eventually became the basis for his business. Kim got an MBA from Hopkins while still in the Navy and a PhD in engineering from the University of Maryland while working full-time for AlliedSignal.
In 1992 he ventured out on his own as a consultant because the overhead was low, and he gave himself three years to change his mind. It took more than a year to land his first contract. When he eventually scored a $75,000 job to perform a nuclear-safety assessment, it gave him the cushion he needed to continue working on his switching technology.
Finally ready to break out of stealth mode, Kim introduced his technology and sold thousands of switches to AT&T, Verizon and other big companies. His own company, Yurie Systems, landed on the cover of BusinessWeek when it went public in 1997.
Even after the business was sold a year later, Kim didn't slow down. He managed Lucent's optical-networking business and doubled its revenue.
Kim, his wife, Cindy, and two daughters live in Potomac, Md., in a sleek and airy home that's stunning but not showy. He has given millions of dollars to both Johns Hopkins and the University of Maryland, where he returned as an engineering professor and where a building bears his name. He's a major supporter of Venture Philanthropy Partners, which enables community-based organizations to help low-income children in the Washington, D.C., area.
Last year Kim left teaching to become president of Bell Labs, and he commutes to New Jersey each week. "I don't know how to take time off," he says. "But I was never focused on the money. You work hard to have good times with your family." And Kim has a bit of fun himself: He's a co-owner of several professional sports teams. Displayed prominently in his office is a picture of himself with Michael Jordan, once a fellow owner of the Washington Wizards.
Simple ideas work
Paul Cloud's finances got off to a rocky start after he graduated from college in 1979. Three years later, he lost his job as a chemical engineer. Soon afterward, a severe allergy attack sent Cloud to the hospital for two days. With no health insurance, he charged his $2,500 medical bill to a high-interest credit card. "Being unemployed with no savings made a big impression on me," he says.
Cloud bounced back by trimming his expenses and investing in himself. He gave up his apartment and moved in with an elderly cousin rent-free. He returned to school full time to get his MBA, and he nabbed a part-time job as an accounting clerk to help pay down his debt. In 1984 he married his wife, Doris, who was studying to become a CPA and who shared his financial values: "Be as debt-free as possible, save consistently, and trust in the stock market."
Fast-forward to today. Paul, 48, is a vice-president with JPMorgan Chase in Houston. Doris, 45, is a project manager for the human resources firm Hewitt Associates. Last fall the Clouds' investment portfolio passed the million-dollar mark, not counting the $64,000 they've set aside to pay for college for their two teenage children, William and Elizabeth.
The Clouds have made it a habit to save a portion of every paycheck, automatically funding their 401(k) retirement plans and adding an extra $1,000 a month to their mortgage payment. A $44,000 inheritance boosted their savings, but for the most part they owe the size of their kitty to the 1990s bull market. Their tech stocks suffered during the recent bear market, but they pulled through, thanks to a diversified mix of mutual funds and stocks they selected by doing their own research. About 80% of their investments are in U.S. stocks, with the rest in foreign companies.
Firm believers in living beneath their means, the Clouds budget their expenses and occasionally have friendly disagreements over such things as whether to splurge on a hotel room with an ocean view when they take an upcoming vacation in Hawaii. For the most part, though, the Clouds see eye to eye on finances. And they are passing along their values to their children by giving Elizabeth a weekly allowance and requiring William to pay for his gas, CDs and other expenses.
The Clouds plan on retiring in eight years. By that time, they hope, they'll be millionaires two times over, with assets of $2.2 million that would generate $70,000 a year in earnings and allow them to pursue their leisure interests. Paul wants to spend more time sailing, and Doris would like to donate her accounting skills to a charitable organization.
Find your niche
Emily Mange and Doug Zell discovered just how risky a business start-up could be when they tried to drive the van that carried their new $20,000 coffee roaster under a too-low underpass in downtown Chicago. Says Mange, "We heard a horrible screeching and scraping" -- sure signs of a roof being peeled back.
The mishap cost Mange and Zell $4,000 -- and turned out to be a "small window" into what it would be like to run a business. "It's never what you expect," says Mange, "and it's ten times harder."
Ten and a half years later, Intelligentsia Coffee & Tea has grown into a business that generates $12.5 million in annual sales, with three coffeehouses in downtown Chicago, online retail sales and several hundred wholesale accounts. The company roasts about 1.8 million pounds of specialty beans a year and has added tea to its roster. Its coffees win consistently high marks from tastemakers, such as Coffee Review, which is an independent buying guide that conducts blind tastings.
Why did a pair of newlyweds, then 28, dare to take on Starbucks? After failing at a bottled iced-tea business in the early '90s, Zell trained at smaller coffee companies, such as Peet's and Spinelli, in San Francisco. "Both had been very successful against Starbucks in their own markets, so I knew it was possible," says Zell. Mange contributed her experience as a manager at Whole Foods to the brew. Their idea was to buy a top-notch product and roast it on-site. They figured that if they executed things well, they had a chance to make a go of it.
Zell was mostly tapped out financially when the tea business fizzled, but Mange and her parents contributed money, and Zell's parents were willing to spot the couple another loan. With a start-up fund of $300,000, they set up shop in Chicago, which at the time "was very overlooked from a regional specialty roaster's standpoint," says Zell. "No one was doing outstanding quality." Meanwhile, the food scene in general was "starting to take off." In addition to operating the coffeehouse, Intelligentsia was soon selling wholesale to high-end restaurants. It turned a profit in its second year, and Mange and Zell started paying themselves a salary -- $7 an hour. They hit the million-dollar mark in sales in 1998, when the wholesale side of the business gathered steam.
Intelligentsia slings a mean cup of coffee; baristas mix espressos with the care of chemists and add steamed milk to their lattes with a floral flourish. But the company's main claim to fame is its beans. About five years ago, Zell and Mange initiated relationships with small and midsize growers in Central and South America and in Ethiopia, which allowed them to develop signature coffees from the grounds up. "Our buyer spends about seven months a year at the source," says Zell. "We select coffee beans, screen them for size and work on how they're going to be dried. The emphasis is on quality and on paying a fair price."
Their success has allowed Mange to stay home with their 4-year-old daughter, Scarlet. The couple travel to Whistler, Vail and Snowbird for occasional skiing and enjoy buying contemporary art. But their greatest job satisfaction is still traveling the world and rubbing elbows with interesting characters in the coffee community. Their focus on quality, and their willingness to take on the competition, have kept Intelligentsia percolating nicely, even though Starbucks continues to dominate the beanscape. "Our goal was to be critically acclaimed and commercially successful," says Zell. "As the expression goes, make no small plans."
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