When Entrepreneur sat down on a crisp autumn morning in Johannesburg with world-renowned investor, author and motivational speaker Robert Kiyosaki and his wife and business partner Kim Kiyosaki, we had three goals in mind. Firstly to find out something about them most people don’t know, secondly, to explore the concept of the Cashflow Quadrant and thirdly to highlight the importance of the B-I Triangle in building a successful business.
Robert Kiyosaki developed his unique outlook on economics as a result of his exposure to two very different people: his own highly educated but financially unstable father, and the multimillionaire eighth grade drop-out father of his closest friend.
The lifelong monetary problems experienced by his “poor dad”, whose salary was never quite sufficient to meet family needs, pounded home the counterpoint communicated by his “rich dad” that “the poor and the middle class work for money,” but “the rich have money work for them”.
“At one point five of the six members of our family were in hospital and we were so poor that we could not afford the cost of medical care,” recalls Robert. “At the same time, my father was studying medicine.” Robert himself was suffering from a severe bout of chicken pox that nearly killed him; his mother had rheumatic fever; one sister had developed a serious allergy while the second had a growth in her neck; and a brother had hurt himself badly falling out of a tree.
“Eventually we moved from Honolulu to Hawaii where my dad took on a job at a school district as assistant to the assistant, earning $250 a month. I was seven at that stage, and to me that was a lot of money,” says Robert. As he was the eldest, his mother sat him down one day and explained the family budget to him. He saw that that she did not have money to pay the bills and this affected him profoundly. ”I wanted to protect my mother,” he says frankly. “She was emotionally and financially broken.”
“Many entrepreneurs are people who experience disadvantaged childhoods in the form of paternal loss through death or separation, or paternal inadequacy of some economic or psychological nature.”
It was in Hawaii that Robert met his “rich dad”, the father of his best friend Mike. “My rich dad taught me that he who owns the gold makes the rules,” he says, recounting the story of how his rich dad agreed to pay him and Mike to pick up cigarette butts from the grounds around his hotel and restaurant. “The deal was $5 per gallon can. When we had collected three full cans, we went to claim our money. My rich dad said he would pay us the following week. When we returned, he again said that he would only pay us the week after. This went on for a while until we cried and he asked us if we would accept $5 if he paid us there and then. We agreed. The lesson, he told us was: “If you don’t have money, you will always work for less.”
It was a lesson that has stayed with Robert throughout his life. “The point is that you must never need money,” he says.
In her book Rich Woman, Kim Kiyosaki recounts an early days “year from hell” in which the pair sold everything they had so that they could begin building an education company focused on entrepreneurship in southern California. Despite hitting an all-time low during which they had no money, they resisted the exhortations of friends to get a job while they were building the business. “We knew that if we had to go out there and earn a salary, it would be a step backwards,” Kim says. “We wanted to focus all our efforts on building a business that focused on new and innovative methods of teaching.”
But times were hard. The turning point came when they eventually had their backs against the wall. One night in a cheap and nasty motel, over a bucket of Kentucky Fried Chicken, Robert became angry at himself for having landed up in the same position as his father. “I was not taking care of my sweetheart,” he says. “I was just like my dad.”
The experience of being totally broke turned out to be life-changing. Robert realised the reason they were doing so badly was because of their partners. “You cannot do good business without good partners. If you allow people to beat you up, you will be beaten,” he says, paraphrasing his good friend Donald Trump. “It’s really that simple. I cut the bad partnership immediately, and we found a new associate the same day.”
“This was the beginning of my journey from WIMP (Where is my pay cheque?) to PIMP (Put it in my pocket!)”
Robert’s philosophy focuses largely on the importance of generating passive income by means of investment opportunities, such as real estate and small businesses, with the ultimate goal of being able to support yourself by such investments alone.
He defines assets as “things that generate money”, such as rental properties or businesses, and liabilities as “things that cost money”, such as house payments and cars. He stresses what he calls “financial education” as a means of obtaining wealth.
“Life skills are often best learned through experience. These are important lessons not taught in school. Formal education is really for those seeking to be employees or self-employed individuals. To obtain true financial freedom, you must be either a business owner or an investor, generating passive income.”
The Cashflow Quadrant
“The Cashflow Quadrant is a conceptual tool that aims to describe how all the money in the world is earned,” explains Robert. Depicted in a diagram, this concept entails four groupings, split by two lines, one vertical and one horizontal. In each of the four groups there is a letter representing a way in which an individual may earn income:
- E – Employee: Working for someone else
- S – Self-employed: Where a person owns their own job and is their own boss
- B – Business owner: Where a person owns a “system” of making money, rather than a job to make them money
- I – Investor: Spending money in order to receive a larger payout in return
Those on the left side of the divide, E and S, may never obtain true wealth according to Robert. Those on the right side are following the road to true wealth. The main reason is that the rich use their money to buy assets (such as paper assets, businesses, and real estate) while the poor buy liabilities.
“Very few people in the Cashflow Quadrant make it into B,” he says. That is why the principles of the B-I Triangle are so critical. It demonstrates that an S will never achieve financial freedom because that person is in charge of the whole business. If you are the business, you are essentially owned by your job. That is not the way to generate passive income.”
The B-I Triangle
Working in tandem with the Cashflow Quadrant is the B-I Triangle, a diagram Robert uses to explain the eight aspects that make up a highly successful business.
Leadership, Mission, Team Robert notes that S’s are generally the A students at school, while B’s are the drop-outs. “I hire S’s all day long. They are the lawyers, the accountants, the auditors. That is because, as a B, I know that the B-I Triangle demands that I hire the best team possible.”
The B-I triangle also highlights the fundamental importance of mission. “Mission is the foundation of everything,” says Robert. “If your mission does not align with the true values of the organisation and all who work in it, you will get nowhere.” This is a lesson Robert learned while serving in the Marines as a helicopter gunship pilot, where he earned an Air Medal in Vietnam.
Both he and Donald Trump are military school veterans who know the importance of a crystal clear mission. “In the marines, your mission is to defend and kill. Pure and simple. And military school teaches you that mission comes first, team second and individual third. That is how we run our organisation today.”
On the inside of the B-I Triangle are the skills that are taught at business school. “Lots of S’s lack leadership skills and a strong mission. The result is that you have companies being run by accountants and attorneys who want to control everything.”
Kim agrees. “S’s need to learn the value of having a great team in place. It has taken us a long, long time to get there.” She notes that as a financial education company, their team members are passionate about finance. “They show up at all our workshops; they understand the importance of mission, leadership and team. They understand when we say to them that our job is to empower them to leave the company one day because they no longer need to work.”
So what are the benefits of having a great team in place? At the base of the B-I Triangle, Robert explains, is cash flow. “A great team is all about cash flow, which is the bottom line. It leads to loyal customers and, if you have a truly great company, to a cult following. Think of Harley Davidson, Lamborghini and Apple as examples.
Robert and Kim both emphasise the importance of internal and external communication. “As an entrepreneur I have to understand many different languages so I can talk to all kinds of people,” says Robert. “I have to speak computer language, legal language, product language. None of the speakers of these languages can talk to each other – my role is that of interpreter. Think of doctors – they are so specialised they can’t speak to anyone,” he laughs.
They both note that good communication also paves the way for viral marketing, with customers becoming an organisation’s best sales people. Robert believes that one of the worst things a business can do in tough times is to stop advertising. “When business is slow, advertise and promote. The worst thing you can do is to stop communicating.”
The production line is a key component of the B-I Triangle. Why? Because a business is a system of systems, Robert says. “Think about it. In the human body no system is more important than any other; there isn’t one that you can do without. An entrepreneur must believe in the system of systems.
When one system is malfunctioning, others will suffer. The reason S-owned businesses have a hard time is because the S’s themselves insist on being the system instead of putting together the teams that operate the systems. They think in terms of specialities, not generalities.”
Kim notes that she made a call to their office a few days after arriving in South Africa, and was troubled by the fact that their receptionist did not answer the phone in the same way she always had. “I immediately got on the line to the person in charge of that area of the business to make sure that we fixed the system.”
It is key to have agreements in place, even if they are based on a handshake. “Remember, however,” says Robert, “a contract will not turn a bad partner into a good one. If you cannot trust someone on a handshake, you should not do business with them.”
Product or Service
Surprisingly, Robert sees product as the least important component of the B-I Triangle. Accordingly, it occupies the smallest section. He recalls Henry Ford’s comment: “Thank God for customers. They buy the product when it is not quite ready.” Another Fordism worth remembering on this note is: “A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
“S’s focus on product,” says Robert. “Who cares if you have the best product? What you actually want is the best business. Anyone can make a better burger than McDonalds, but few have a better business. The result is a brand loyalty that few companies can emulate.”
Concluding on a controversial note, Robert says his job these days is to disturb people. “I recently wrote an article about how the lottery is a better investment than mutual funds. That is because mutual funds are the biggest rip-off.” Eschewing this investment option because of lack of transparency, ongoing fees and hidden expenses, Robert is a firm believer in real estate. “It’s the only investment for which bankers will lend you as much cash as you want.”
What you don’t learn at school
Robert Kiyosaki retired at age 47. Rich Dad, Poor Dad, written with consultant Sharon L Lechter, lays out the philosophy behind his relationship with money. His book compellingly advocates the type of “financial literacy” that’s never taught in schools. Based on the principle that income-generating assets always provide healthier bottom line results than even the top jobs, he explains how those assets might be acquired so that the jobs can eventually be shed.
In another aside, Robert notes how important it is to not be all things to all people. “I don’t buy Porsche anymore since it introduced the four-seater.”
Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not! (2000)
The central concept of the book is an anecdotal comparison of his “two fathers.” His “poor dad” was his biological father, who became superintendent of the Hawaii State Department of Education but had very little real net worth. Contrasted with this is his “rich dad,” who became “the richest man in Hawaii” by investing his smaller income into income-producing investments. The book aims to help people rethink their idea of money and especially their concept of themselves as employees who will gain financial rewards from conformity and education.
Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom (2000)
In this book, Robert discusses the cashflow quadrant, a grid consisting of the letters E, S, B, and I. The cashflow quadrant itself is just an illustrative tool to show the difference between Employees, Self Employed/Small Business owners, Business owners (not directly involved in the day-to-day operation of the company), and Investors. Kiyosaki discusses the differences between concepts and ideas characteristic of each quadrant, particularly as they relate to passive income and tax advantages.
Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not! (2000)
Rich Dad’s Guide to Investing gives the reader a roadmap to becoming the Ultimate Investor, one who uses other peoples’ money to create investments that people want to buy into. While the first two books use broad strokes, this one goes into much more detail about actually implementing some of the strategies mentioned in this article.
Rich Kid, Smart Kid (2001)
Rich Kid, Smart Kid is a retelling of Kiyosaki’s views, condensed and clarified to try and help parents better understand and teach their children key financial concepts. It includes a series of activities that a parent can do with their child to make them aware of property, finance and the various ways and places businesses make money.
Rich Dad’s Prophecy (2002)
Rich Dad’s Prophecy predicts that the market will crash around 2010 when the oldest Baby Boomers start cashing out their retirement plans. Individuals whose savings are locked into these plans will suffer because they are not flexible and do not do well in a bear market.
Why We Want You To Be Rich co-authored by Donald Trump (2006)
This book encourages individuals to become financially literate to combat the increasing problems facing the American and global economies; such as the shrinking middle class and the entitlement mentality. It’s an incisive, good read that motivates personal wealth creation.
(Infographic) The Financial Advice Millennials And Gen Zers Want To Know
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful. And that starts with getting the right advice.
Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.
In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.
Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.
According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.
Having a grasp on your financials is tricky, but it’s crucial if you want to be successful and comfortable. To learn more, check out Comet’s infographic below.
This article was originally posted here on Entrepreneur.com.
14 Ways To Make Quick Cash On The Side
If you need money quickly, here are some solid ideas.
Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?
Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.
If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.
Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges
Why should financial democracy matter to entrepreneurs?
Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.
What is financial democracy, exactly?
It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.
Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.
For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.
In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.
That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.
We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.
Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.
Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.
There is significant financial savvy in all social strata.
In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.
The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.
How do you take strategic advantage of this democratisation?
- Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.
- Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.
- Remember, the ultimate loyalty reward is equity.
Your financial democracy business plan
Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.
That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.
What does such an exchange look like?
It has fintech capabilities. So:
It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.
It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.
It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.
It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.
It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.
It operates a principles-based regime. So:
It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.
It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.
It obviates the need for expensive specialist listings advisors.
It focuses on financial inclusion and access. So:
Shares can be bought and sold for no more than R1 000. See economy building point above.
The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling
Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.
Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.
As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?