Robert Kiyosaki: Think Big, Think Expansion
I grew up with two dads, and two very different perspectives on money and investing. My poor dad, my real father, was a well-educated, hard-working man who served as the superintendent of education for the state of Hawaii. He was a well-paid employee who ultimately died broke. My rich dad, the father of my best friend Mike, quit school in grade school but used his street smarts and entrepreneurial spirit to become one of the wealthiest men in Hawaii.
My rich dad taught me about “thinking big,” even though he did not talk about it. Instead, the words he often used were leverage and expansion. When he taught his son and me to think about the differences between leverage and expansion, he used the McDonald’s franchise as an example. He would say, “When Ray Kroc bought McDonald’s from the McDonald brothers, he leveraged himself. When he franchised McDonald’s, he expanded his leverage.”
This idea brings me to the concept of the Cashflow Quadrant (see the image above). The letters in each of the quadrants represent:
B Business owner
Each of us resides in at least one of the four sections of the Cashflow Quadrant. Where we are is determined by where our cash comes from – pay cheques or passive income.
Though financial freedom can be found in all the quadrants, the skills of a business owner and investor will help you reach your financial goals more quickly.
When Kroc purchased the hamburger stand, he leveraged himself because the burger business could make money with or without him. And this is where most S-quadrant business owners stop: they keep their businesses small. When Kroc developed a franchise system for the small business, he expanded the hamburger business into the B quadrant.
You may notice I used the words franchise system, the key word being system. In my book Before You Quit Your Job, written for entrepreneurs, I write extensively about the B-I Triangle. The B-I Triangle is the diagram my rich dad used to focus my thinking and to teach me about the eight parts that make up a business.
Many entrepreneurs fail simply because one or more of the eight pieces of the B-I Triangle is weak or nonexistent. Whenever I look at a struggling business, I use the B-I Triangle as an analytical reference.
Notice that the word product is used to label the smallest section, and the word mission is one of the largest sections – as well as the foundation for the Triangle. This is because the product is the least important item in the B-I Triangle, and the mission is the most important. The mission is the spirit of the business; it is the heart of the business. Without spirit and heart, most entrepreneurs will not make it, simply because the road ahead is a hard one.
The world is filled with great products that fail. The products fail simply because they do not have the power of the B-I Triangle behind them.When you study most successful businesses, you will most likely find a complete and vibrant B-I Triangle in action. A great business will have a strong mission, great leadership, a competent team of managers who work well together, excellent cash flow and financing, clear and effective sales and marketing communications, systems that work efficiently, clear and tight legal documents and agreements, and of course, a great product.
Most of us can cook a better hamburger than McDonald’s. But few of us can build a better business system than McDonald’s – which brings us to the word system again. One of the biggest differences between an S-quadrant business owner and a B-quadrant business owner is systems. Typically, the S-quadrant business owner is the system, which is why he or she cannot expand.
Far too many businesses are people-dependent. McDonald’s, on the other hand, is system-dependent. And it has well-designed systems. Regardless of where you go in the world, the McDonald’s business is pretty uniform. Most important, the company’s business systems are often run primarily by people with just a high school education. That is how good and how sound the systems are.
I have looked at so many businesses that are top-heavy, staffed by highly educated and highly paid people who are working hard and accomplishing little. In most cases, these types of businesses focus primarily on people and not on developing great systems. A great team of highly paid people will fail without great systems.
What is the difference between an entrepreneur and a CEO? Making it as simple as possible, an entrepreneur is like a person who builds great race cars. A CEO is like the driver of the race car. If you have a great race-car driver but a poorly built race car, the great CEO will lose every race. Rarely will you find entrepreneurs who are great CEOs. Donald Trump is one of those people. So are Bill Gates, Michael Dell and Steve Jobs. These men can build great race cars and drive them.
In The Rich Dad Company – a Scotts-dale, Arizona, education business that teaches personal finance and business to people worldwide through books, seminars and educational products – we have three people who are both CEOs and race-car builders: Kim Kiyosaki, my wife and co-founder of the business; Sharon Lechter; and myself. Sharon, also a co-founder, is excellent at both building and driving the race car. Kim and I are better at driving, but we do build parts of the car. I often say that I am the horn of The Rich Dad Company, and Sharon is the engine. I would definitely say Rich Dad is a team enterprise.
I have met many people who have become very rich in the S quadrant. Many are small-business owners who are excellent builders and drivers of small businesses. There are also people in the E and S quadrants who become very rich attaching themselves to B-quadrant businesses. For example, Tiger Woods is an S (and, in his case, S stands for superstar as well as self-employed or specialist), but much of his wealth comes from his endorsements of B-quadrant businesses. The same is true with some movie stars. They are S-quadrant individuals but associate themselves with B-quadrant businesses, such as Sony or Warner Bros.
Donald Trump says “think big,” and he builds giant buildings and megahit television shows. My rich dad said to expand, and he meant expanding the way McDonald’s did. Both are forms of thinking big.
Donald Trump: Think Expansively
Robert’s explanation of “Think Big, Think Expansion” is great and totally on point. But let’s take it one step further. Let’s not just think big, let’s think expansively. To entrepreneurs, thinking expansively includes seeing what is possible and making it happen. Entrepreneurs see the vision and call it good sense and inevitable. The rest of the world calls it innovation.
Recently, I read with interest about an innovation that was attributed to me. I was surprised because I had never thought of it as an innovation; I considered it just a way to combine two elements that might work well together. Years ago, when I was doing the first Trump International Hotel & Tower at 1 Central Park West in New York City, I decided it might be a good idea to build a condominium and a hotel together. It turned out to be an amazing success and has been duplicated by me and many others since.
So many times, innovation really results from common sense put together with uncommon thinking. It’s creative, but it’s about innovative assembly more than anything else.
Thinking expansively is just another way to innovate. Sometimes I ask myself, “What else can I include in my thought process to make it more comprehensive? Is there anything I can add that might enhance the project or idea I’ve got spinning around in my head?” Many times, I will tell myself that something isn’t quite right yet, because that automatically opens the door for more ideas to enter. I ask myself, “What am I not seeing? What else is possible?” Sometimes the answers wind up being innovative ideas. It’s not necessarily some secret process, but it is a process, and it requires concentration.
Robert, Kim and Sharon recently visited me at my golf course in California. I shared this story with them: my club has a beautiful ballroom overlooking the Pacific Ocean and the number-one golf course in California, but the room held less than 300 people. We were unable to accommodate many events (such as weddings) because our capacity was too small, so my management team’s answer was to enlarge the building. They came to me with plans to remodel and expand the ballroom, which would cost millions of dollars and lots of time. We would have had to go through the permitting process and close for many months during construction, thus losing millions of dollars in business revenue – on top of spending millions of dollars to remodel!
As we were standing together looking around the ballroom, I noticed a woman having trouble getting out of her chair. The chair was very large, and she had difficulty moving it away from the table so she could stand up. In fact, the room was filled with these huge chairs. I had an immediate vision: we needed new chairs – smaller chairs!
This one idea not only saved me millions of dollars, it even made me money. We earned more money selling the old chairs than it cost us to buy the new gold Chiavari chairs. We are now able to comfortably seat more than 440 people in the ballroom and have increased the number of large events we host as well as the revenue we receive. No expansion of the building was necessary, and we had no downtime. So, I turned a project that could have cost me millions into a profit!
That’s the first step to visionary status – seeing something and knowing it could be different or better.
As I’ve said before, learn your lessons from as many sources as you can. Think and learn expansively. It won’t be expensive, but it can give you some big returns.
What A Grade 1 Sticker Business Taught Me About Business
It’s the very fundamentals that are frequently overlooked amid ambition and “blue sky thinking” – yet, these remain the most crucial element of any business.
When I was a kid, my father believed that instead of getting pocket money, my brothers and I should learn how to make money. Stickers were the school craze when I was in Grade 1, and we wanted a collection for ourselves, so Dad said if we wanted to buy the stickers, we needed to make the money. So, logically, we started a sticker trading business. Dad gave us the start-up money and took us through the basics of business.
We had a cash float for purchases, and learnt about cost price, mark-up and selling price – very basic accounting. We kept recycling that money, making extra and using it to buy more stickers. Then we worked out that if we increased the mark-up, we’d make a bigger profit – so why not make the mark-up as big as possible? The obvious happened. Our prices were too high, and we lost customers.
Valuable business lesson learnt, we came back down to a mark-up that other kids were willing to pay for.
More lessons to learn
Then people came to us and asked if they could take a sticker today and pay us tomorrow. We saw no reason not to trust them. Guess what? They didn’t pay us back. We had bad debt on our hands. When we sold out of stickers, we had cash-flow issues and couldn’t buy more stock. Dad was there to help us out, though, so we received another capital injection to get back off the ground. And this time, if we did extend credit, we loaded it for the privilege of “buy now, pay later” – another lesson learnt.
We ran a proper ledger for the business, tracking our inventory, sales and profit. Even if our “bank” account was a piggy bank, we had a clear record of what was going on. When I look back on it, none of what I learnt was irrelevant.
Today, I run a leading financial services company with billions of rand running through our bank accounts. Even though the finances of the business are run on a much larger scale, the principles of business – those basic principles that we learnt trading stickers – still power our company. And when I see entrepreneurial ventures failing, or when friends come to me for advice because their business is struggling, it’s almost always because they haven’t got these basics right.
One of the most important lessons I’ve learnt is that if you don’t fully understand how the money is being made, walk away. Whether you are dealing with stickers or financial services, the business principles should be straightforward: money coming in, money going out, and profitability.
Every day, I look at an Excel statement of my company’s forty bank accounts. Every day, I look at the cashflow, and unusual big-ticket items get a note so I know what’s going on. It’s just like that Grade 1 business, only on a bigger scale.
Once the other kids saw the success of our sticker business, they started to want to get in on the action, so they came to market with their own competing products. At first, we were able to innovate as the competition squeezed our margins and started to impact on our profits. Eventually, the whole situation got completely out of hand and the school banned sticker trading for profit.
While I didn’t become a sticker magnate, the lessons I learnt in Grade 1 remain central to every business I am involved with – get the basics right.
How To Handle A Director Who Always Says No
Diverse opinions on a board is a good thing — but is it boosting your business, or hindering growth and decisions?
Do you have that director on your board who always says ‘no’? Regardless of what the issue is, regardless of the context, who raises it or whether or not it is indeed a good idea, their response is either a simple ‘no’ or an elongated perspective on why they disagree? It can even feel at times that they are actively working against the company and against the board. Although they obviously do not see it that way.
Experienced directors will have multiple war stories related to this subject. Aspiring directors should be aware of how to approach these situations when they arise and how to avoid becoming the subject of such stories.
Develop a culture of trust, candour and professionalism
A board’s conduct must be characterised by trust, respect, candour, professionalism, accountability, diligence and commitment. It is the board’s collective responsibility to build this culture and to engage with one another in a productive and effective way.
Dissent should be welcomed when it is constructive and engaging. The idea of being the ‘devil’s advocate’ for the sake of it however, is not the best way to approach this. Dissent should be based on a real belief that the issue has not been fully debated or creates a real challenge for the company going forward.
If you have a director who genuinely believes a different path is right for the company, hear them out and engage in the discussion. In my experience, this often opens up an issue or changes a detail that when taken as part of the whole, improves the decision-making outcome for the board and the company.
Related: Contributing In The Boardroom
Remove the politics from the boardroom
At the heart of this issue is often politics. Politics between directors, who are also shareholders or executives. Politics between the ‘new guard’ and the ‘old.’ Regardless of the genesis, politics really do not have a place in the boardroom and directors who engage in it should be called out by the chairman or another senior director.
In local government I have heard stories of councillors who always vote ‘no,’ so that whenever something goes wrong, they can say “I told you so,” and show the public why they should be re-elected. But that is indeed politics. The boardroom is a very different space. It is private and discussions should be confidential.
Board rotation, a simple solution
While the removal of an errant director should never just be left to resolve itself, there is a simple solution that can support the easy removal of the most difficult directors. The challenge is that it requires forward planning prior to the appointment of any new director.
Directors should only ever be appointed for a predefined term, with automatic rotation at the end of that term. This does not stop you from reappointing a director for a further period. It is, however, always easier to ask someone to consider a further term than it is to tell them that their time has come and they should resign from the board.
Having a predefined term for a director essentially ensures an automatic resignation period. A simple rotation policy for directors is not just good governance, it is a practical step you can take to provide a way out of a sticky relationship.
Ultimately the board as a whole must address issues that detract from the board fulfilling its function as and when they arise. A rotation policy might provide an effective backstop. A high-performance board is one that will tackle the issue head-on.
Read next: How Diversity Drives Board Performance
The Power Pose: Using Body Language To Lead
Use the way you move and stand and interact with others to become a better entrepreneur and leader.
In 2012, the power pose became a global sensation. A Ted Talk by Amy Cuddy hit a staggering 46 million views and became the second most popular Ted Talk in history. The premise was simple – hold a powerful pose and it will not only affect the way you behave but it will even change your body chemistry. Since the talk, the power pose has met with heavy criticism and been labelled as nothing more than pseudoscience. Fortunately for believers, they were proven right. Amy Cuddy released further research this year and it fundamentally proves that this bold stance works exactly how she said it did back in 2012.
The power pose isn’t something that you’d adopt in a meeting or around the office but the science behind it shows how important it is to pay attention to your body language as it can fundamentally change how you are perceived.
Notice how you are noticed
People spend a lot of time reading one another’s body language and the way a person stands or holds their hands or moves can influence how others see them. It’s very natural to judge someone else’s posture, but what about the way they are judging yours? Few people look at how their body language is affecting the way people engage with them.
So, what are you supposed to do?
Fake it until you make it
Want to know how can you adapt to become a better leader? You can fake it.
The power pose isn’t the only way to change your mood. Research has shown that whether you laugh naturally or put on a smile and make yourself laugh, your body still releases the same levels of serotonin.
Whether you are really laughing or just pretending to laugh doesn’t matter – they both have the same impact on your demeanour.
Change how others see you
Think about the pose that every athlete adopts when they win a race or achieve something that’s been physically taxing. They hold their hands outstretched in the air. Even blind athletes hold the same pose. It’s big, it’s bold and it’s a physical manifestation of success.
Now consider the defensive pose. The tight hunched shoulders or inward curve of the spine. These poses immediately make a person look nervous, afraid and lacking in confidence. Like the porcupine curling in on itself for protection.
The same ideas apply to daily business life. While the power pose and the athlete pose are not necessarily a team activity, ensuring that you hold your body upright and with confidence means that you’re conveying an attitude of strength. You come across as confident and capable and positive. You are ready to take on anything and overcome the odds.
By contrast, if you are hunched and withdrawn, you come across as nervous and lacking in confidence and these are not the qualities you want associated with you as an entrepreneur and a leader.
Body language for entrepreneurs
- Shake hands like a hero. The way you shake hands with someone is very significant in terms of establishing equality. Be even, be firm but don’t pull people towards you or turn their hands under your own. This makes them feel like you are trying to establish dominance.
- Create an atmosphere of openness. Maintain eye contact, say hello to people with warmth while holding a strong posture. A warm and open greeting is essential to establishing trust.
- Do the power pose for two minutes before any meeting or interview. This will get those chemicals stirring and make you feel confident and in charge.
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