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People tell me their business ideas all the time. They usually want to start a restaurant, or sell something they made, or give their advice as a consultant or coach.
But those businesses don’t scale. The only way people get rich is by developing a product or service that can help a LOT of people, not just a few.
If each person that you help requires your personal time then there’s only so many you can help, and you probably won’t get rich doing it. (Even if you don’t care about getting rich and just want to help people, helping individuals is still an inefficient use of your time, more on this later.)
Sure you can make quite a bit of money in the right job working hourly. Doctors and lawyers get a high hourly wage. But they still have to help each person individually which is why they can never be as rich as someone like Bill Gates who has a scaleable business. His software gets written once, and then distributed to millions of people with very little additional effort for each person who is helped. Bill Gates makes money from his software while he sleeps, whereas doctors and lawyers still have to keep putting in the hours to get paid.
Scaleable businesses require much more work up front, but once they are off and running they require little or no additional time per person. That’s power because once your business system is in place, your time is still “preserved” for you to work on your next business idea and help even more people.
Compare each of the following. Which one scales better?
Even if you don’t care about making money and just want to help people, I’d still argue that you need a system that scales. You can do the same kind of comparison for non-profit work…
It might give you a warm fuzzy feeling to help an individual, but in general I think you’re setting the bar too low when you do that and selling yourself short. Spend your time on something that will really have an impact.
Making a scaleable business is not easy (otherwise everyone would do it).
While working hourly, you can see a paycheck in as little as a few days or weeks. It’s dependable. But while building a scaleable business, you can see zero return for months or years (or maybe never). All the work is up front.
It’s the old linear vs. exponential growth. That’s why most people don’t get rich. They don’t want to put the time in up front to see the big payoff down the road.
The next time you have a business idea, try to think about how it will scale and if it could ever really help a TON of people. If not, is it really worth pursuing?
Here are some links to various articles I’ve found interesting in the past week…
The Inner Game Of Starting Your Own Business
Entrepreneurship is very, very, very emotional. The emotional rollercoaster is such a substantial part of the entrepreneurship. I haven’t seen any entrepreneurship textbooks address this extremely important issue. If you’re doing anything you’re actually passionate about, this is a necessary requirement. You have really high highs, and really low lows.
Persistence isn’t using the same tactics over and over. That’s just annoying.
Persistence is having the same goal over and over.
Eben Pagen on How Small Changes In A Name Can Make All The Difference
Answer this question, FAST:
Which of these two book titles sells more copies…Book #1: “A Thinking Person’s Step by Step Guide to Weight Loss & Exercise Program”
Book #2: “Skinny Bitch”
A Thinking Person’s Step by Step Guide to Weight Loss & Exercise Program
was written by two Ph.D.s and based on empirical research by guys with doctorate
degrees.Skinny Bitch was written by an ex-model and an ex-modeling-agent (if that’s
how you say it).Time’s up. Which one sells more?
Well, according to Amazon.com, A Thinking Person’s Step by Step Guide to
Weight Loss & Exercise Program is their #437,317th best-selling book, whereas
Skinny Bitch comes in at #56.My question for you is…
WHY?
Amazing People Don’t Have (Or Need) Resumes
How about three extraordinary letters of recommendation from people the employer knows or respects?
Or a sophisticated project they can see or touch?
Or a reputation that precedes you?
Or a blog that is so compelling and insightful that they have no choice but to follow up?Some say, “well, that’s fine, but I don’t have those.”
Yeah, that’s my point. If you don’t have those, why do you think you are remarkable, amazing or just plain spectacular?
Why corporate mentality is based on military culture, and an incredibly innovative alternative.
A lot of people shy away from any talk about “finance” or “accounting” because (1) its boring (2) it involves math and (3) its hard work.
Well it’s not as bad as you think. I’m going to show you how to understand financial statements in about 5 minutes. Then I’m going to give you some Excel templates to create your own. (See the video demo at the end.)
But first…
Why Should You Create A Personal Financial Statement?
If you wanted to lose weight, you’d have to weigh yourself right? If you wanted to be a great race car driver, you’d have to time your laps.
Well if you want to get rich (or become financially free), you have to create financial statements.
You are a business. You have money come in and you have money going out. You have things that you own and things that you owe.
If you don’t have a way to MEASURE progress and COMPARE what works and what doesn’t, then you are just wandering blindly in the dark.
Robert Kiyosaki talks a lot about this, how rich people are “financially literate” and how this should be taught in schools. That way we wouldn’t have so many Americans in credit card debt, losing their homes, and retiring flat broke only to become a burden on their families.
But that is another story. The thing to remember is that something MAGICAL happens when you start to measure your progress. Your success rate goes through the roof.
If you aren’t looking at your financials about once a month then you quite simply AREN’T serious about becoming rich. (You can pay a bookkeeper or accountant to do it as well if you don’t want to go through the process below.)
Understanding Financial Statements In 5 Minutes
I’ve tutored about a dozen people in MBA level finance and accounting courses. Here is the explanation that seems to work the best.
There are only two types of financial statements that you really need to know: a balance sheet and an income statement.
BALANCE SHEET
Click the thumbnail to the right to see an example. As you can see, the money in your bank account, the market value of any property you own, your car (if you own it outright), and stocks are all examples of assets. Mortgages, car payments, credit card debt, and other loans are all liabilities. The difference is your net worth. Notice how it says a specific day in January and not just “January 2008″ because a balance sheet refers to one moment in time, not a period of time like a month.
February and March haven’t been filled out yet, but if you spent a few minutes once a month putting in those numbers you can see how easy it would be to track your progress month to month.
INCOME STATEMENT
Again, click the thumbnail to the right to see an example income statement. For most people the primary source of income is their job so you might have that first. After that you can see the income from those two properties listed on the balance sheet, as well as income from a small business you started, just as an example. Secondly, you see expenses broken down by category and net income at the end. I’ll show you how to quickly categorize your expenses in a minute.
Notice how in the second month your cash flow is negative and the number appears red. Negative cash flow is bad! It means you are spending more than you’re earning, and that is the way toward bankruptcy, not financial freedom. If you hadn’t made your financial statement that month would you have ever know this? Probably not.
Thats it. Not as scary as you thought right? On corporate financial statements you will sometimes see some strange terminology, but the basic concept is the same as for this personal financial statement. Balance sheet: what you own, what you owe. Income statement: what you made, what you spent.
Why Quicken and Microsoft Money Suck
Read the rest of this entry »
It bothers me when I see people using the touch pad on their laptop while at a desk for long periods of time. I’ve never seen an official study done on it, but I’d guess that you are 25 to 30% faster using a regular external mouse instead of a touch pad. The touch pad is only there for when you are on the move and don’t have access to anything else!
Ask someone what the three most important things in their life are, and in some order you will probably hear: health, wealth, and relationships. The later includes friends, family, and lovers.
Is your job helping you improve each of these areas?
Health: Chances are your job is the biggest source of stress in your life, could be preventing you from getting enough sleep, and forces you to eat unhealthy food while on the go.
Wealth: The story that we’ve all been told as children (work hard in school, get a good job, work and save for 40 years) is a lie. More than 80% of Americans end up flat broke in old age, totally dependent on others, and praying that they die before their money runs out. Having a job is a way to make a living, not build wealth.
Relationships: Spending 1/3 of your life at work means you can form great relationships with colleagues (although you rarely get to choose which colleagues you spend time with), but also means your time is limited with the others in your life.
Starting to work for yourself instead of being a slave to your job poses some interesting opportunities:
Hey Brian,
I absolutely love your real estate articles. I have studied Rich Poor Dad’s stuff as well as many other books and REI programs.
Can you elaborate on how you are finding deals?
Thanks, K.T.
Hey K.T.,
I am finding deals two ways.
First, I am finding them on basic old har.com (Houston’s MLS website, your city probably has something similar). Some people assume there is a magical list of deals somewhere that isn’t accessible to the general public. But there are great deals showing up regularly on the biggest public website. They don’t last long, so you’ve go to know what to look for and move quickly. I’ve put together a little video that shows the process I actually go through here:
Most of these techniques I’ve learned from a group of real estate investors here in Houston. Most major cities has an MLS website like har.com in Houston were 95% of all residential real estate listings end up. You can find yours most likely by typing “mls real estate [your city name]” into Google or asking others in the real estate industry.
Brian, from a personal viewpoint I would love to see more on turning an idea for generating passive income into reality. I have dabbled with a few small things and had no success.
-David
David,
I sympathize with your comment, and I believe many people have the same frustration. Unfortunately there are a ton of people out there marketing the IDEA of financial freedom, without being able to deliver on the results.
The way I evaluate any claim behind a method of building wealth or generating passive income is this: how many people can I find who have used this method to accomplish what I’m trying to do?
Let’s take a look at some common areas that promise the dream of passive income, and I can give you some thoughts on each. Most if not all of these I have dabbled in myself just as you have, with mixed results.
First a quick note: to “break free” you don’t necessarily need to generate passive income. Breaking Free is first about finding work that you really enjoy (which for many people means having the freedom of owning your own business). However, achieving what I call “financial freedom” (your passive income exceeds your expenses and you no longer need to work unless you want to) is another step beyond that which is more challenging and often more rewarding.
Blogging
I like the idea of blogging, I’m a blogger myself, and I think it is doing brilliant things for social media around the world. But let’s not mince words: blogging does not generate passive income.
Blogging is work. Granted it’s very enjoyable to some people and doesn’t feel like work, but it certainly can take up a significant amount of your time.
People love to cite Steve Pavlina as a case study in successful blogging, primarily because he earns over $1000/day. That is a lot of money, but Steve still “works” on the site making regular posts and has stated that “I happen to agree with those who say that 99% of people who try to generate serious income from their blogs will fail.”
The numbers tend to agree with him, and don’t look good by my evaluation standard I mentioned at the beginning. There aren’t very many bloggers earning even six figures (perhaps fewer than 20 in the world) and you could probably count the number of blogging millionaires on one hand. Moreover, the bloggers who are most successful seem to spend a huge amount of time (which by definition is not passive) reading, posting, and marketing just as I did when I first marketed this website.
There are exceptions. Yaro Starak is one person in particular who I’ve seen try to making blogging more passive with a site he purchased called SmallBusinessBranding.com. All of the posts are by guest authors, meaning he doesn’t write them himself. The site is growing and I don’t have any idea how much of his time it takes, or how much money it makes him (probably $500/month if I had to guess) but it’s an interesting experiment in making blogging more passive.
As of yet I remain unconvinced on blogging as a passive income tool. Should you start a blog though? Absolutely, I think everyone should because it has a number of benefits. Just don’t plan on having it pay your bills without putting some serious work into it on an ongoing basis!
Stay tuned for part 2, 3, 4, and 5 as I explore other methods of generating passive income (eBooks & Info Products, Virtual Real Estate, MLM & Network Marketing, Options, and Physical Real Estate).
It’s time for a follow up to see how effective my sales page redesign was from a few weeks ago.
First lets take a snap shot of the two weeks prior to changing the sales page, July 11th through July 25th.
I’ll skip the 26th since that was the day I made all the changes. So let’s look at July 27th through August 9th (almost a full two weeks) as the next snap shot:
Most people will jump to an incorrect conclusion when seeings numbers such as these.
I’ve gotten some good mentors lately in real estate. One of them is the CEO of the largest commercial real estate firm in Houston, and I’m also working with a whole group of investors at LifeStyles Unlimited, several of which own thousands of units and are multi-millionaires.
I’m not an experienced investor yet (working on my second deal now), but here are a few misconceptions I had about real estate that have been completely shattered for me lately.
Myth #1: Debt is bad. Pay off your mortgage so you can own your property!
Most of us have heard this since we were little. Don’t get into debt! This statement was true, but it didn’t tell the whole story.
You see, consumer debt is what can be bad. We have a nation full of people who can’t pay off their credit cards driving around in cars they can’t afford, and it’s terrible thing.
But in investing, debt is actually a good thing because it gives you an incredible power called leverage. Let’s say you put $10k down to buy a $100k house that earned $200/month in cash flow.
You’d get $200 * 12 = $2,400 per year on your $10k investment for a 24% return.
But if you put 20% down instead or slowly paid off the mortgage over the years until you had $20k in the property. You get the same cash flow of $200/month but $2,400 on $20k is only a 12% return. That’s half as good.
The more of your money that’s tied up in the property, the worse return you will get. Any time you can borrow money at a lower interest rate, and use it to get a higher rate of return, you should stay in debt. Debt is a great tool for building wealth.
I’m really starting to embrace this passive income idea. Right now I’m relaxing by the pool with my laptop and my only goal for the entire day has been to cook some pan cakes, watch some Entourage, and go to a birthday party tonight.
But I thought I’d take a minute to write a quick post here about a game I’ve been playing lately called Cash Flow (aff).
It’s an educational board game created by Robert Kiyosaki, of Rich Dad Poor Dad fame, that is designed to teach you financial literacy. People get intense when playing it, pulling out calculators, and negotiating deals…sort of like monopoly on steroids.
I don’t recommend buying the game, because it’s expensive and you’ll probably have trouble finding people who want to play it with you anyway, but you may want to check if there is a cash flow Meetup.com group in your area that plays it.
When I first played it, I underestimated how complex it was (it seemed too easy).
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