from "Rich Dad's Before You Quit Your Job"
Chapter 1
<< Continued from Part 1 of this excerpt
What Kind of Entrepreneur Do You Want to Be?
Rich dad went on to explain that the world was filled with different types of entrepreneurs. There are entrepreneurs who are big and small, rich and poor, honest and crooked, for-profit and not-for-profit, saint and sinner, small town and international, and successes and failures. He said, "The word entrepreneur is a big word and it means different things to different people."
The CASHFLOW Quadrant
As I mentioned in the introduction, the CASHFLOW Quadrant explains that there are four different types of people that make up the world of business and they are often technically, emotionally, and mentally different people.
 |
E stands for employee.
S stands for self-employed or small business owner.
B stands for big business owner (over five hundred employees).
I stands for investor. |
For example, an employee will always say the same words, whether he or she is the president or janitor of the company. An employee can always be heard saying, "I'm looking for a safe secure job with benefits." The operative words are safe and secure. In other words, the emotion of fear often keeps them boxed in that quadrant. If they want to change quadrants, not only are there skills and technical things to learn, in many cases there are also emotional challenges to overcome.
A person in the S quadrant may be heard saying, "If you want it done right, do it yourself." In many cases this person's challenge is learning to trust other people to do a better job than he or she can. This lack of trust often keeps them small, since it's hard to grow a business without eventually trusting other people. If S quadrant people do grow, they often grow as a partnership, which in many cases is a group of Ss binding together to do the same job.
B quadrant people are always looking for good people and good business systems. They do not necessarily want to do the work. They want to build a business to do the work. A true B Quadrant entrepreneur can grow his or her business all over the world. An S quadrant entrepreneur is often restricted to a small area, an area he or she can personally control. Of course, there are always exceptions.
An I quadrant person, the investor, is looking for a smart S or B to take care of his or her money and grow it.
In training his son and me, rich dad was training us to first build a successful S quadrant business that had the capability of expanding into a successful B quadrant business. That is what this book is about.
What Kind of Business Do You Want to Build?
As part of my entrepreneurial training with rich dad, he encouraged his son and me to go out and study as many different types of business systems as we could. He said, "How can you be an entrepreneur designing a business if you do not know about the different types of businesses and entrepreneurs?"
Self-Employed Entrepreneurs
Rich dad was adamant in explaining that many entrepreneurs were not business owners but self-employed entrepreneurs-entrepreneurs who owned a job, not a business. He said, "You are probably self-employed when your name is the name of the business; your income stops if you stop working; if clients come to see you; your employees call you if there is a problem. You may also be self-employed if you are the smartest, most talented, or the besteducated person in your business."
He had nothing against self-employed entrepreneurs. He simply wanted us to know the difference between entrepreneurs who own businesses and those who own jobs. Consultants, musicians, actors, cleaning people, restaurant owners, small shop owners, and most small business people fall into owning jobs instead of businesses, or the S quadrant.
The main point rich dad was making about the difference between a selfemployed entrepreneur and a big-business entrepreneur was that many selfemployed businesses have a tough time growing into a big business. In other words they have a real challenge going from the S quadrant to the B quadrant. Why? Again the answer is that the business was poorly designed before there was a business. It was doomed before it was even started.
Rich dad himself started out as a self-employed entrepreneur in the S quadrant. Yet in his mind, he was designing a very large business, run by people much smarter and more capable than him. Before he started his business, he designed his S quadrant business to be able to grow into the B quadrant.
Professionals and Tradespeople
He also wanted us to know that many professional people such as doctors, lawyers, accountants, architects, plumbers, and electricians started a selfemployed style of business based on a profession or a technical trade. Many of these professions and trades require government licenses to operate. Also included in this category are professional salespeople, many of whom are licensed independent consultants, such as real estate, insurance, and securities salespeople. Many of these types of people are technically selfemployed entrepreneurs, aka independent contractors.
The problem with this type of business is that there is not really a business to sell because there really isn't a business outside the individual owner. In many cases, there really isn't an asset. The business owner is the asset. If he or she does sell, he or she will not typically get the higher multiples a true B quadrant business can command. In addition, he or she may have to agree to "stay on" for the successful continuation of the business. In essence they go from being the owner to the buyer's employee.
In my rich dad's mind, it made no sense to work hard and not build an asset. This is why he advised his son and me against ever wanting to become employees. He said, "Why work hard building nothing?"
Later in this book, we will go into some ways this type of entrepreneur can create a business asset-an asset they can build and maybe sell someday.
Mom and Pop Operations
A very large category of entrepreneurs is often referred to as Mom and Pop businesses. This type of business gets its name because many small businesses are family businesses. As an example, my mom's mom owned a little convenience store that the family took turns working in.
The challenge for growth in a Mom and Pop operation is nepotism. Many people put their children in charge of the business, even though their children may be incompetent, because blood is thicker than water. Often the children don't share the passion for the business that their parents had or they don't have the entrepreneurial drive to lead the business.
Franchises
A franchise, such as McDonald's, is in theory a turnkey operation. The entrepreneur sells a ready-made business to a person who does not want to go through the creative and development phase of starting a business. It's like being an instant entrepreneur. One advantage to some franchises is that banks are more inclined to lend money to someone who wants to buy a franchise than to a person who wants to start a business from scratch. The banks are more comfortable with the successful track record of other similar franchises and the banks value the mentoring programs that most franchises have to assist the new entrepreneur.
One of the biggest problems with big-name franchises is that they are generally more expensive to get into and have little flexibility for a want-to-be entrepreneur. Franchises are the type of businesses that typically face legal issues and often end up in court. These fights are some of the most vicious fights in the business world.
Reportedly one of the main reasons for fighting is that people who buy a franchise business do not want to run it the way the franchisor, the person who created the business, wants them to run it. Another reason is if the franchise does not do well financially, the franchisee wants to blame the franchisor for the lack of business success. If you do not want to follow the directions of the franchisor to a tee, it is best you design, create, and start your own business.
Network Marketing and Direct Sales
The network marketing and direct sales industry is recognized by many to be the fastest-growing business model in the world today. It is also the most controversial. Many people still have a negative reaction, claiming that many network marketing organizations are pyramid schemes. Yet in reality, the biggest pyramid scheme in the world is the traditional big business corporation, with one person at the top and all the workers below.
Everyone who wants to be an entrepreneur should take a look at a network marketing business. Some of the biggest Fortune 500 companies, such as CitiBank, Avon, Levis, and Smith Barney, distribute their products through a network marketing or direct sales system.
We are not members of any one network marketing or direct marketing business, but we do speak favorably of the industry. People who want to be entrepreneurs should consider joining one of these businesses before they quit their jobs. Why? Many of these companies provide essential sales, businessbuilding, and leadership skills not found anywhere else. One of the most valuable benefits from associating with a reputable organization is that it teaches the mind-set as well as the courage required to become an entrepreneur. You will also become more familiar with the systems required to build a successful business. The entry fee is typically quite reasonable and the education can be priceless. (To further explain the educational value of such types of business, we wrote a small book entitled The Business School: For People Who Like Helping People [Warner Books]. For more information on this book, please go to our website, www.Richdad.com.)
If I were starting my entrepreneurial career all over again, I would start with a network marketing or direct sales business, not for the money but for the real world business training I could receive, training similar to the type of training my rich dad gave me.
Copyright © 2000 by Robert T. Kiyosaki and Sharon L. Lechter
Excerpt Courtesy of Time Warner Book Group
Read More: Part 3 of this excerpt >>
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