Why Build A Business? (Excerpt from “Rich Dad’s Guide To Investing”)

I apologize that I have to deviate from my preset outline. I was supposed to discuss in this post reasons why businesses fail. However, when I was browsing through my knowledge "assets", I stumbled upon Rich Dad’s Guide To Investing book (I highly suggest you read the Rich Dad series) and saw this particular chapter (Chapter 30) titled “Why Build A Business?” I then found it better to share Rich Dad’s view on why set up your business prior to the article on why businesses fail. Some of the parts of this article are direct quotations from that book.

As I mentioned in my first post, Preface, I went to business for a variety of reasons. All those reasons are not just related to living a luxurious lifestyle but also for some noble reasons. No matter what the reason, business for me is the vehicle to achieve those FASTER and less EFFORT spent. Reading this book made me understand how the successful businesspersons think in terms of why they build their businesses. These reasons are not their ROOT reasons but they are the guides they followed in building truly successful ventures.

Robert Kiyosaki said that his Rich Dad had three reasons why he thought it was essential to build a business:

1. “To provide you with excessive cash flow”

An excessive cash flow will allow you to have more choices; choices that you can’t make if you have to WORK FOR money. Having a business allows you to create more businesses/assets and therefore more excessive cash flow (that is if you have built a successful business).

John Paul Getty, a great billionaire and philanthropist, wrote in his book “How To Be Rich” that his first rule is that you must be in business for YOURSELF. He implied that YOU WILL NEVER BE RICH WORKING FOR SOMEONE ELSE.

2. “To sell it”

Robert Kiyosaki further tells here that the problem with a JOB is that you cannot sell it regardless of how successful you are at it. This is another reason why a business is an asset. Aside from it putting money in your pocket (through regular cash flow), it can also be sold for FAR MORE MONEY THAN YOU INVESTED IN IT. If you CAN build a successful business, you will always have lots of money. (Note: However, let me again stress that MONEY alone may not be the root reason why successful businessmen like Bill Gates created vast wealth. They knew the importance of money but they never got trapped LOVING money. They used money for noble causes, such as Gates’ philanthropic initiatives.)

Kiyosaki had this good example of how powerful a business is:

“In 1975, while I was learning to sell Xerox machines (Kiyosaki was previously employed at Xerox Corp.), I came across a young man who owned four quick-copy print shops in Honolulu. The reason he was in the business of making copies was interesting. While in school, he had run the university’s copy shop (as the copy shop’s employee) and learned the business side of the operation. When he came out of school, there were no jobs, so he opened up a copy shop in downtown Honolulu doing what he knew best. Soon, he had four of these copy centers in four of the bigger downtown office buildings, all on long term leases. A major copy shop chain came to town and made him an offer he could not refuse. He took their USD 750,000, a giant sum in those days, bought a boat, gave USD 500,000 to a professional money manager, and sailed around the world. When he returned a year and a half later, the manager had grown his investment to nearly USD 900,000, so the young man just sailed off again, back to the islands of the South Pacific.

I was the guy who sold him the copy machines, and all I got was my small commission. He was the guy who built a business, sold it, and sailed away. I never saw him again after 1978, but I have heard that he pulls back into town every so often, checks his portfolio, and sails off again”

The lesson in the above example is that had that man chosen to struggle to find a job (perhaps outside Hawaii) he would not have achieved such lifestyle. The power of having a business is that, whatever your goal is, you can achieve it faster with less effort spent. This example shows that selling your business (and not falling in love with it) is also a very good option, if the deal is right.

3. “To build it and take it public”

This is Kiyosaki’s Rich Dad’s idea of becoming what he called an ULTIMATE INVESTOR. He further went on to say that “It was building a business and taking it public that made Bill Gates, Henry Ford, Warren Buffet, Ted Turner and Anita Roddick (of Body Shop) very, very wealthy. They were the SELLING SHAREHOLDERS, while we were all the BUYING shareholders (through the stock market). They were INSIDERS, while we were outsiders trying to look in.”

I find lots of my ex-officemates and other friends very much excited about trading in the stock market. In fact, here in the Philippines, the Securities & Exchange Commission is even giving free courses to the public to promote investing in the stock market. Now it is a good idea to invest in the stock market ONLY if the person understands the volatility of the market (look at what's happening now at Wall Street). There is, however, a better way to benefit from the stock market -- have millions of shares of stocks. To acquire this number of shares, you cannot be just the "outsider" in the company. You have to be an "insider" as Kiyosaki states. How then can you be an "insider?" There are a number of ways but the best way is build the business that you will take public.

Think now, if you currently have a business: Is your business giving you excessive cash flow? Can you sell your business for a good amount? Can you take it public or do you see it going public in the near future? Maybe this will open to you truths about the current business you have.