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Key insights from
The Business of the 21st Century
By
Robert Kiyosaki
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What you’ll learn
The twenty-first century has brought new economic tumult and
risks, but also new pathways toward gaining financial freedom. The problem
is that most people are still sold on popular myths about wealth creation
that prevent them from making the most of these opportunities for personal
enrichment. The Business of the 21st Century sets the record
straight, and explains surer, proven methods of building wealth than
conventional employment. This book is for anyone who is climbing the ladder
and tired of looking at the rear of the person just above him.
Read on for key insights from The Business of the 21st Century.
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1. The times have
changed: we need to drop Industrial Age thinking and embrace Information
Age thinking.
Your parents probably told you to study hard, get good
grades, graduate from a good university, and hope you land a good job in a
good company with good benefits. This was the conventional wisdom of the
twentieth century, but it has lingered into the twenty-first—to our
detriment.
Vanishing are the days of staying employed by the same
company for 30, 40, or 50 years which supplies you with insurance and a
comfortable pension. That kind of job security isn’t there anymore. The
truth is that Corporate America is a dinosaur on the verge of extinction.
Many thought that their 401(k)s were safe. How can these blue chip
companies and mutual funds fail? Well, the crash of 2008 revealed that
these financial safety nets are far more vulnerable than had been supposed.
The government is also increasingly incapable of helping you. Social
Security and Medicare are bloated and unsustainable relics.
In the twenty-first century, companies won’t save you.
Neither will the government. You’ll have to secure your future yourself.
This book is for people who are ready to get with the times and change
their thinking from the outmoded Industrial Age model to the that of the
Information Age; from twentieth-century thinking to twenty-first-century
thinking. To get control of your future, you need to get control of income
source. The best way to do this is to own your own business.
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2. An economy in
chaos is the best time for an entrepreneur to create something.
We live in tumultuous times. Things are constantly in flux.
There’s a great deal of uncertainty where there used to be security. Many
people think that this is the worst time to start a company. The truth is
that a recession is the perfect time to enter the market. When the economy
starts slowing down, entrepreneurship usually starts taking off. People
tend to become more creative and proactive about realizing alternative
methods of generating income when things are uncertain.
What do Disney and Microsoft have in common, other than
being wildly successful, multi-billion dollar companies? They both started
during economic slumps. So did more than half of the startups that have
become successful corporations.
To be clear, employment is not “bad.” It’s just that it’s
limited as a way of generating income. The best way forward into this new
century is the path of the entrepreneur. Maybe you don’t consider yourself
very entrepreneurial. Maybe your disposition is risk-averse right now.
Muhammad Yunus won a Nobel Prize in 2006 for his work in making microcredit
available to entrepreneurs in developing countries. His conclusion on the
matter of entrepreneurship is that all people are entrepreneurs, but most
either never have the chance or give themselves the chance to find out.
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3. It doesn’t
really matter which rung of the ladder you’re on if the ladder is propped
up against the wrong wall.
People often measure their success by income or net worth.
This is one indication, but more important than the quantity of income is
the quality of income. The quality of the income will depend on its source.
There are four possible sources of cash flow: employee (E quadrant),
self-employed (S quadrant), business owner (B quadrant), and investor (I
quadrant). Depending on which of the four quadrants cash flow comes from,
the person’s lifestyle will be very different.
The employee works for someone else and is paid only when he
works. The self-employed earns money through his own operations. The
business owner, in this context, is defined as having over 500 employees.
The investor uses money to generate even more money.
Most people live in the employee or self-employed quadrants.
Those in the employee quadrant probably grew up with the typical cultural
narrative about good grades and hard work as the best way to become
wealthy. The self-employed usually begin as employees but desire greater
freedom. They often think they have fired their bosses, but discover that
they’ve only switched bosses. They work for themselves, except
everyone else is on their backs, too: the customers, employees, the
government, and family. It’s often a thankless, stressful gig. Those who
switch to the self-employed quadrant tend to find more shackles than
self-determination.
The difference between the self-employed and business owner
is the difference between working for your business and your business
working for you. The investor quadrant allows for the greatest amount of
wealth at the smallest expenditure of time and effort. The I quadrant is
the one that takes significant time to develop, but, if done well, there is
an inverse relationship between time spent building revenue streams and
amount of revenue. In other words, developing revenue streams will
eventually mean less effort for far more revenue.
How fast you’re climbing the ladder is far less important
than the quadrant your ladder is in.
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4. Whether you
gravitate toward employment, self-employment, business ownership, or
investment says a lot about your values and primal mindset.
In which quadrant do you currently reside? The best
indication of this is not your job description, but your mindset toward
money. How do you think about finances? For people in the E quadrant, the
driving value is security. They want good job security and good benefits
that will protect them and their families. They are quick to fret and find
something risky in any course of action.
As mentioned earlier, those in the self-employed, or those
in the S quadrant, are motivated by a desire for independence. They want to
call the shots. These are the small business owners with great management
skills but undeveloped leadership skills. Moving from the S quadrant to the
B (business owner) quadrant is a huge adjustment because no one functions
well in the B quadrant without good leadership skills.
The cornerstone value for B quadrant residents is building
wealth. The people who go from rags to riches typically have a compelling,
all-consuming mission that they go after with everything they’ve got and
want to bring as many people along for the ride as possible. They value a
solid team of people and efficient operations. They might not be the
smartest people in the room, but then it’s not uncommon for straight-A
students to end up working for C students. Eventually, the machine runs
well without constant involvement. The business owner can reap the same
financial benefits while turning his or her hand to other things.
For those in the investor, or I quadrant, the chief goal is
financial freedom. This is not just picking stocks and hoping they do
well—that’s gambling. The investor wants his money to work for him instead
of him working for money.
Changing quadrants is not a simple matter of changing jobs.
It’s a shift in mindset, which makes it more comparable to changing
religion or political party. If you want to be wealthy, you have to change
your quadrant address.
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5. There are
significant risks in the quadrants most people run to for safety or
independence.
Are you ready to take control of your future? To do this,
it’s important to develop the builder as well as the building. If a bus
driver is behind the wheel of a Ferrari instead of a racecar driver,
there’s a fair chance that it could run off the track, or that it will not
be utilized to its full potential. The myth that keeps people in the E quadrant
is that working really hard will increase revenue streams. Obviously,
effort is required to build wealth and achieve financial freedom, but if
you work hard in the wrong ways, you might end up in rags instead of
riches. The grand irony of the E quadrant is that the people here are
seeking security, but it isn’t secure at all. People get fired all the
time. In some ways, the more insistent on security you become, the tighter
you pull the noose.
It’s good to move out of this quadrant. Operating in the B quadrant
is how most of the super rich achieved great wealth, but seeking to own
businesses carries its own drawbacks and risks. For one, it requires a
great deal of capital to get a business up and running. On average, it
takes about 5 million dollars. On top of that, there’s a great deal of
uncertainty. About 90 percent of businesses fail within the first five
years. The odds are better with franchises, but these still require a lot
of capital upfront to buy the rights, and then pay corporate for training and
advertising. Usually, there’s no profit for years. Two of three franchises
survive, which means there still a decent chance things won’t pan out.
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6. Network
marketing is the way of the future.
With all these complications, what is the best path forward?
The author and Donald Trump teamed up several years ago to survey numerous
businesses and evaluate their structures. The best businesses are the kind
that can, eventually, run themselves; they can generate revenue without
keeping the hand constantly to the plow. If you do air conditioning repair
on yachts, you will only get paid insofar as you continue to make repairs.
If you teach karate, you only get revenue insofar as you show up and teach.
It’s like a motion-sensor faucet: There’s a stream of water as long as your
hand is there, but the second it’s removed, the water stops flowing.
Network marketing is, hands down, the best up-and-coming
approach for anyone looking for an ongoing income. It’s been around since
the mid-twentieth century, but it was such a departure from the
conventional wisdom about how to do business that it was met with
skepticism. Even fifteen years ago, the major business and finance journals
would never have published a piece on network marketing. Now, Fortune
and other top journals are extolling its benefits, like consistent annual
growth, low start-up costs and overhead, high ROI, and great potential for
global expansion. Network marketing companies now make over 100 billion
dollars every year.
So what exactly is network marketing? Network marketing is
an approach that recognizes the power of relationships to achieve market
penetration. Word-of-mouth is the most effective way to get the word out
about a product. This is why companies spend so much money finding someone
who sounds just like your mom or your friend for their commercials.
Typically, network marketing companies will offer a commonly used product
of competitive quality and price through their representatives. What makes
network marketing a singular arrangement is that it provides a win-win
opportunity for the independent representatives and the company: The
company gets amazing exposure without having to pay mountains of money for
advertising, and the independent representatives talking about the products
generates potential of passive income streams for every relationship that
they build. So the more connections built, the more streams of passive
revenue. He teaches and trains those who are interested in joining his
network, and he benefits from whatever sales they make.
Economists have found that network growth tends to be
geometric rather than linear. If one person tells another about a product
or service, that person tells three more people, the network grows in
strength exponentially.
Many people would write the network marketing approach off
as a pyramid scheme, but there is a huge difference. Pyramid schemes
usually mean that the bottom feeders make very little and those at the apex
make money off of them. Unlike many other business models, where those at
the bottom of the pecking order will never make as much as people at the
top, network marketing is inherently democratic. It rewards people
according to their labor. If someone is introduced to a network, there’s
still the potential for that person to make more money than someone who has
been in the company far longer. It’s all about how diligent one is in
cultivating networks. This is a far cry from the corporate world, where a
cashier making 10 dollars per hour will never make as much money as the
CEO, even if he worked 24 hours a day, seven days a week. And no matter how
hard he works during his eight-hour shift, he will still only make 80
dollars.
Getting good at network marketing doesn’t require a business
degree or even significant business experience. It doesn’t require
perfectly-honed salesmanship, quitting your day job, taking out a second
mortgage or being rich. What it does require is honesty, the right mindset,
a commitment to growth, and building relationships.
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Endnotes
These insights are
just an introduction. If you're ready to dive deeper, pick up a copy of The
Business of the 21st Century here. And since we get a commission on
every sale, your purchase will help keep this newsletter free.
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