Income Models

In the early 1990’s, I was becoming well established professionally and academically. I had already achieved what I thought was appropriate for the time. I had received my Bachelor’s Degree in Business Administration, I had a good position at a good company working for a reasonably good salary, I had earned technical certifications in my field of expertise, and I was getting two nice vacations a year.

I began to think to myself, “What do I do next?”

I thought about starting my own business, but I didn’t feel prepared for it … mainly because I never received any training or education in how to start my own business. I was only taught how to be an employee in someone else’s business in college.

Therefore I thought I needed more business-oriented education. What seemed to be the next logical step for me was to get my Master’s Degree. So for two years, I worked full time during the day and went to school nearly full time at night to earn my MBA. Because it had taken me seven years to get my Bachelor’s degree, I had no intentions of taking a lengthy amount of time to get my Master’s.

I then completed the MBA program and earned my graduate degree. While I did think I was better off for the experience … I really didn’t feel any more equipped or qualified to launch my own business than what I did two years earlier!

It then occurred to me the reason why that was! They didn’t teach me the skills of entrepreneurship … a very special breed of business. All the education I received was provided by teachers … who were employees themselves … and the purpose of the education was to teach us to be even higher paid employees! They did not teach us how to become better entrepreneurs; they taught us to be better corporate and professional employees.

It was this realization, in addition to my growing discontent with working as an unappreciated employee that eventually led to my departure from the corporate world later that summer.

Even as I had launched my own business later that year, it took another three years of working as a highly paid self-employed “expert” before I realized that what I was doing and the model I was working under was fundamentally flawed for what I wanted to achieve in my life.

The biggest flaw I was working under was working under a Limited Income Model. I realized that my income was entirely labor-based. If I stopped putting my labor in, my income would almost immediately stop.

But I was also limited on how much income I could make because what I got paid was largely based on how much time I put in. It didn’t matter whether I got paid by an hourly, weekly, or project rate … it was all the same. It was all based on how much production that I alone could generate. And unfortunately, that limit was often reached very quickly.

That is why achieving a six-figure income for most people is still so highly regarded … whether you are an employee or self-employed expert. It is relatively a great challenge for most people to get some employer or person to agree to pay you a six-figure salary year after year. You have to demonstrate a very significant value for a company before this would ever occur.

The interesting thing is that if I wanted a six-figure income, I knew what I had to do. I had to work much harder and to work more hours! I had to be willing to sacrifice more of my personal time and energy.

The problem was, based on my calculations, I would still have to work well into my 50’s to achieve personal freedom and comfortably maintain the lifestyle I wanted.

And once I got there, how long could I hold on to that six-figure income? Many people in recent years found out the hard way that it is one thing to talk someone into hiring you at a great salary; it is another thing to talk someone into keeping you indefinitely.

Many “fallen angels” have learned this hard lesson after being thrown into the streets by downsizing or bankrupt companies. Regardless, many still cling to the old ways. They know of nothing else to do!

During this time, I realized that if I continued with my way of thinking about trying to negotiate better salaries and better contractor rates, I would make a better living … but I wouldn’t necessarily live a personally freer and more enjoyable life.

I would be like many other higher-income workers I saw: own nice cars, have a big house, and an even bigger overhead to support. They would continue to grind for 40 to 60 hours a week to maintain that lifestyle until they were 65. And if they ever stopped working for any length of time beyond their predetermined vacations … their livelihoods would come to a speedy end.

Many people have learned the hard way what it means to not have income layers and working exclusively under a limited income model.

In my view, having income layers is a significant step to gaining personal freedom. And if that is all you did, you could lead a very comfortable lifestyle.

However, part of generating streaming income is creating incomes that have few or no income limitations.

The reason so much conventional advice today stresses on saving money is because the advisors’ own income is in fact limited and scarce. There is only so much income that one person can generate. There is an artificial cap based on what an employer will agree to pay for one person’s services and labor. But can you blame them? After all, there is a limit to how much labor any one person can put in. That is why you may hear people taking on second jobs … yet at the same time you rarely hear of anyone with a third job. There simply is no more time and energy a person can put in for a third job. Ultimately, their time and their income are limited.

The ability to increase your income and create income layers is largely determined by the underlying system that you are building on.

For example, when I buy investment houses, I do not depend solely on my own ability to qualify for financing. The reason for that is because it is much too limiting. I can only qualify for so many loans before a lender will stop me from purchasing more properties. Lenders are risk-averse. They won’t risk that I could lose all the properties and go broke. In reality, what are the chances of every tenant picking up and leaving my investment properties they have called home? From my point of view, it is very slim chance indeed.

As such, I find ways of financing that do not require my own credit and borrowing power. I use owner-financing, as well as financial partners and investor financing. There is no limit to how many owner-financed properties I can take on … just like there is no limit to the number of financial partners and investors I can potentially work with. Therefore, I do not have a limit to how many investment properties I can buy.

Another example is that I prefer online businesses to physical storefronts. Physical storefronts require too much capital and physical maintenance. While there are certainly physical aspects to every online business, online businesses reach a worldwide market and can be in operation 24 hours a day, 7 days a week. The actual attendance and support on the backend of an online business can be controlled at your discretion. However, the digital storefront that people see on their computer screens can continually accept orders and payments all day and night.

Online businesses are flexible enough for me to sell $500 items as easily as a $5 item. The work involved to sell either is relatively the same. Thus, I can generate far more revenue moving the same amount of merchandise with the same amount of work. Please keep in mind that this is only one simplistic example of thinking and working outside of a limited income model.

I like the publishing business. For example, this book that you have in your hands was written once. However, the potential reward for this book can last a lifetime through book sales and enhanced personal credibility. I can be paid over and over again for a onetime piece of work. Whereas I would never consider being a newspaper writer … the reward for one newspaper article usually results in only one paycheck.

Ironically, so many college graduates have had to write term papers, but they have never managed to put those skills to work for them. In many ways, this book has been easier to write than most term papers because there are not many set rules or formats that must be used within a book. I have some artistic and creative freedom here. And yet, this book has the potential to live on even I after I am deceased. It is all in how you see things and how you apply your skills. I am an author, yet I do not consider myself a writer … much less a very good one. My editor helps make my words sound and flow better.

Likewise, I consider many aspects of websites a form of online publishing. You do it once, but it continues to live on and produce for you.

Prior to writing this book, I produced a few audio programs for business associates. But I never worked for a fee. The problem with working for a fee is that you only get paid once. I would simply produce the programs for free in exchange for the opportunity to sell and promote their products … but also create goodwill with them for my future projects when I may need their assistance.

The opportunity to sell and create goodwill is unlimited. Simply getting paid for my labor and time is very limited.

At the center of most unlimited income models is your ability to sell. Whether you are selling yourself, your products, services, or credibility, your ability to sell and reach out to the marketplace is paramount. Unlike what they taught in school, salesmanship today is not about cold-calling or being a used car or door-to-door salesman. It is about your ability to communicate, demonstrate, educate, captivate, inspire, and motivate.

The examples I have given you are but a very few ways that I work in an unlimited income model. There is no limit to how many of these types of projects and businesses you can take on because there are always ways to accommodate the growth … whether it is through hiring others, automation, computerization, investors, or partnering.

Unlimited income models allow you to not only give yourself personal freedom; it allows you to become wealthy … and even rich! While you have the option to cut expenses, unlimited income models actually work better by increasing your expenses. If you increase the right expenses, you can actually generate far more income than if you were simply being stingy or frugal.

Limited income models allow you to be comfortable; rarely will it allow you to be rich. In fact, that is why the emphasis on cutting back on expenses is so important. There are simply few options.

The questions I generally ask myself in any project or business I work on are as follows:
1. How much personal time and energy do I have to put in?
2. How much money do I have to invest? How much can I use of other people’s money?
3. What is my payoff? Is it financial rewards, credibility, or goodwill?
4. How much of it will I get in return? How often will I get a return? Is it only one time, many times, or infinite?
5. How much do I have to put in to maintain it? Weekly, monthly, annually?
6. How scalable is it? Are there ways to grow it without requiring much of my personal time and energy? Can I outsource it?

If I must use my personal time and energy to work, I generally work on projects that have unlimited income potential with many types of payoffs (financial, credibility, goodwill).

Compensation & Rewards

When I started my journey towards personal freedom, I realized that it was difficult to do everything on my own. I needed to recruit acquaintances and allies to my cause. Please note that I did not say my family and friends. (Unless you have very open-minded and supportive family and friends, it has been my experience that you will get very little support from them.)

Many did not understand my need to achieve personal freedom. Most of those “so-called” friends and family thought I was crazy for doing so … especially when in their eyes I had to take such extreme risks. But the way I saw it, they were not extreme risks … they were calculated risks. I knew I would inevitably encounter some financial challenges along the way … and I prepared for them.

It was likewise important to realize that I had to think more openly with greater vision than my employee or self-employed friends. These people believed that other people would only be motivated by money and fixed compensation. Just because they won’t do anything without an agreement of pre-determined compensation doesn’t mean that others won’t. That is why they are simply employees. They are trained only to do something for pay. They are not trained to see opportunity. All they can do is provide their labor for compensation.

In the world of entrepreneurship and investing, there are more factors than just money as compensation. Potential for opportunity, goodwill, and credibility are almost just as important.

For example, when dealing with successful entrepreneurs, I know that they don’t want cash handouts. While they are in the business of making money, they don’t want to make money through charity handouts. They want to earn the business. So what they want and value are patronage, referrals, and endorsements of their business.

A good way to reward a successful entrepreneur is by providing patronage, referrals, endorsements, and other opportunities for future business. With the exception of my patronage, this financially costs me nothing … but can win me an incredible amount of goodwill and exchange of services and favors.

When I deal with investors, they also do not want cash handouts. They too want to make money … but they don’t want charity handouts. Investors want good investments and good deals that they can put their money into. They also want good management, credibility, and a track record … as well as a good return on their investments.

Therefore, when I deal with investors, I don’t need to bribe them to work with me. I simply present the fact that there are many investment opportunities with good returns, while also selling myself on management, credibility, and a track record. When I successfully sell myself on my management ability and track record, dealmaking becomes much easier.

By using my example, you don’t have to pay for investors. Investors will pay you and come to you. You can then attract investors and financial partners to your projects.

With other people, I provide education and information as a form of reward and compensation. These people know that the value of wisdom and experience cannot be easily bought. Even so, if they can in fact buy it … it is often very expensive. One of the ways I have offered rewards is by freely providing my expertise and insights in the area of computers, networking, and the Internet.

While I am no longer in the information technology business, I am still well versed in the usage, language, and mindset of technology … all of which people, especially my business associates, value.

I have also developed an expertise in real estate investing and financing. As such, I offer that information as a form of reward and compensation. The nice thing about providing education and information is that it costs me very little - but its perceived value is large.

For people who are “up and coming,” I offer publicity, recognition, and exposure to those I trust and believe through my online and print publishing ventures. Again, the financial costs to me are very small … but the perceived value is quite large.

Entrepreneurs sometimes want the opportunity to resell your product, or they may want a piece of the action. If you are starting out and have few financial resources, these are opportunities to expand your business without directly paying out of your wallet.

Goodwill

One of the most valuable rewards I work for is creating goodwill. It has often been said that, “it is not what you know, it is who you know.” That well-known saying means your personal network of contacts will have a greater influence on your success rather than relying solely on your intelligence, expert knowledge, and hard work.

Having worked in both the accounting and information technology industries, I was often surrounded by people who measured their self-worth by how much they knew. They believed that sheer intelligence and expert knowledge were the keys to success.

What I discovered was that it does lead to a certain degree of success and recognition, but in the end you still have to do the work. You are also limited to how much you can personally accomplish.

Now before I am taken out of context here, I am not saying that developing your intelligence and becoming an expert will not help you succeed in achieving personal freedom. Of course it will! But it is how you use and direct your expertise that will make the fundamental difference.

However, it will be very difficult if you have to be an expert in everything and have to do everything on your own. It simply cannot be done.

Another key to my achieving personal freedom was to enlist the help, sponsorship, and friendship of others.

There are some people who say that people can be bought, while others say they cannot.

I have found that you can purchase personal services and influence people’s perception of you with money, but the people whom I most respect and admire and would like on my side cannot be directly bought with money.

They can only be “bought” with goodwill.

It is not my intent to be derogatory or manipulative. However, it does illustrate what it takes to win people over.

I figured out very early on that throwing money directly at people was not an effective way to create long-term friendships and relationships. However, what I did realize was that everyone wants to be recognized for what they do and for simply being the person they are.

People want to be acknowledged and appreciated. To truly acknowledge and appreciate someone means I had to show it … not simply talk about it. I had to be willing to give my personal time and energy.

Because I value my time greatly, I am quite selective to who and how I give my time. I use discretion and judgment to decide whether I want to reach out and be giving of my time and energy.

The act of giving, acknowledging, and appreciating others allows me to create goodwill. Goodwill is a general term I use to create positive feelings of affinity, trust, friendship, camaraderie, and kinship. When I create enough goodwill with someone, I generally find that what I get in return transcends any financial or material reward ever imaginable.

Fundamentally, goodwill is not a tangible object. It is an emotion that exists within all people. When you create enough goodwill around the people you deal with, you are rewarded with opportunity, business, referrals, endorsements, and trust.

The power of endorsements, referrals, and trust from the right people can provide you opportunities you had never even thought of. I have had enough successes in my life to understand that goodwill is an instrumental part of creating the opportunities I want in order to achieve personal freedom.

Many of my business associates were initially shocked by my offers to help them with no formal contracts or agreements. When they asked why I would do such a thing, I would reply honestly – in saying that I wanted to create a relationship and goodwill with that person … and that the way to do that was for me to take money out of the equation to prove myself. I demonstrated my willingness to take a chance on them by allowing them to leave the relationship anytime they wanted. It required me to spend time with them, to be of service to them, and to offer my support to them in their dream projects.

I often decline initial offers for payment for my services … mainly because payment for my services can sometimes reduce or distract them from the goodwill I am trying to create. Also, I make it clear that I am not in the relationship for a one-time payoff. I tell them that I have faith that things will work out and that they can reward me in a different way sometime in the future.

Some people have criticized me by saying that I am too generous or that I am short-selling myself by not negotiating financial compensation upfront. The problem with that is in the early stages of most business relationships, the financial opportunity is simply too small and too limited in scope. The larger opportunity often comes later, but I have to be patient enough to let it develop and trust in the relationship building process. To force a predetermined compensation plan would inevitably lead to extinguishing or minimizing the opportunity before it even starts.

My purpose for creating goodwill is to reap the rewards of a long-term friendship or business relationship … not just a one or two-time payoff.

In looking at the people who have criticized me for “working for free,” I have seen that opportunities are not always abundant in their own lives. And while they may be compensated well, few people are going out of their way to assist them in their own endeavors. They have to do it all on their own, and they believe that everything is tit for-tat. After all, people generally only give after you have given … and only if you have set that example.

People are so accustomed to negotiating the terms for every business relationship that they end up only getting a one-time payoff. Consequently, because a payoff has already been negotiated, there is very little goodwill created. The pre-negotiated compensation negates the underlying emotion of appreciation and gratitude needed to create goodwill.

Please understand me … this does not mean that I don’t value my time, experience, or services I provide. That is far from the truth. I value it so much that I generally refuse to accept a quick one-time payoff. I insist on keeping our options open to mutually beneficial arrangements.

Nor does it mean that I am doing charity work for people I look to create relationships with. It simply means that in order to make myself extraordinary in their eyes, I have to be willing to do something extraordinary for them. And that in turn has allowed me to set myself apart from others.

In today’s world, the concept of “working for free” to create goodwill on a personal level is a very foreign concept for most people … but nonetheless extraordinarily leaves a great impact. We have been taught that if you do work for someone, you should always be financially compensated for. You see … that is the essence of the employee mind-set. The fact is that I do get paid … I get paid in ways that cannot easily be seen or measured, but I am often paid many times over. And yes, it eventually results in financial reward.

If you have the initiative to offer to do something of true value for someone unexpectedly, your potential to receive long-term rewards can be tremendous.

The question that inevitably comes up at this point is, “How do you know who to create goodwill with?”

To that, my answer is there is no set way of determining who is “worthy” of your time and who isn’t. For me, I generally get an intuition about someone whether they are people of good character and are generally appreciative of life and other people.

I occasionally try to create goodwill with certain people but with unsuccessful results. Either the relationship doesn’t work right or they are simply leeches. Overall, the price for my failure and disappointments are small. After all, how much can I lose by doing a good deed or a favor for someone?

And yet, the rewards for my successes in generating goodwill and opportunity consistently outstrip the efforts I put in.

Exercise:

_ Identify a list of people who you believe could truly benefit from the giving of your talents, services, referrals, and endorsements.
_ Out of those people, who do you think would truly appreciate what you did?
_ If you were to create goodwill with them, what do you think your long-term rewards would be?

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