workmen’s compensation coverage on the employee. So the worker’s attorney was suing both he and the homeowner to cover the large medical bills. The homeowner was furious at being sued, and was now suing Bud for indemnification. The homeowner was also telling all of Bud’s other clients that Bud was without coverage. They were canceling their contracts. Worse yet, Bud had failed to incorporate so now all his personal assets, meager as they were, were exposed to the worker’s claims. He was nearing bankruptcy, which would prevent him from getting back into business for an uncertain amount of time.
Leif was sympathetic to Bud’s plight. But it served to further remind him of the benefits of planning instead of running head long into doing. He had learned that a business plan is not only a road map, but a checklist of things that must be done in their proper order. A checklist is found in Appendix “A”. By analyzing and planning, Leif had learned the importance and the risks of failing to incorporate and obtain insurance coverage. By going step by step through the business plan process he was alerted to many different types of business risks before he got into business.
What did Leif and Bud learn?
Bud didn’t plan to win. Even though taking action is the most important part of starting a new business, failing to educate yourself on at least the basics of owning a business in a particular field forced him to painfully gain a real world education of what happens when you don’t do your homework.
Leif plans to win, so he began by first preparing himself to be a business owner. He kept a job not for the paycheck, but for what he could learn, and he surrounded himself with advisors who had experience and a track record of success. Which of the two would you invest in?
Let’s take a look at Rich Dad’s Cashflow Quadrant to explain how Bud is operating in the “S” or self-employed quadrant and Leif is operating in the “B” or business quadrant. People in the “S” quadrant want to do things their way (solo players). They believe they are the only people with the ability to get the job done. They often achieve strong early results and then come to the painful realization that rather than the business of their dreams they actually created a job for themselves. By building a business that relies solely on their time and ability, people in “S” quadrant cannot remove themselves from their business without losing cash flow. The only way to grow is to personally work more and more. This difficult trap could have been avoided if they would have planned differently at the beginning.
People in the “B-quadrant” want to work less and less to make more and more. Like the “S-quadrant” person, they typically work very hard during the early stages of a business, but they work on very different things than someone in the “S” quadrant. They focus on creating assets that deliver passive cash flow or can be sold. “B-quadrant” people build teams of employees, advisors and mentors that grow businesses without them (team players).
As you begin formulating your winning plan, be wary of some of the common traps new entrepreneurs fall into:
Trap #1: Failing to plan is planning to fail
Effective planning means more than writing goals on a piece of paper. It means taking personal responsibility to prepare you emotionally and practically to be a business owner. Unrealistic assumptions and poorly written plans communicate a lack of preparation to investors.
Trap #2: Plan your exit – do you want a business or a job?
Many novice entrepreneurs create businesses that become their jobs rather than provide the freedom and passive income they dreamed of. As a result of poor planning, many new businesses generate little to no cash flow and require the full time effort of the owner. If your dream is to have both personal and financial freedom, plan to build a business that can at some point run itself and provide excessive cash flow. Recognize that it often takes many years of blood, sweat and tears to get to that point.
Trap #3: Many novices want to “do it their way”
By failing to educate themselves in the basics of operating a business, new entrepreneurs fail to surround themselves with a competent team of employees, advisors and mentors. They are solo players instead of team players.
Trap #4: A winning business plan is not an academic exercise
Many businesses fail despite having beautifully written plans complete with optimistic projections. A business plan is not a school term paper. Yes, to get your plan read it needs to be virtually perfect in appearance, format, layout and grammar. Unfortunately, in the real world, earning an “A” in appearance and forgetting to emphasize the thought and substance of a plan often results in an “F” in the area that matters most – a business with excessive cash flow that serves a purpose greater than money.
Trap #5: I have the best product!
The world is full of great products and short of great entrepreneurs. Successful businesses require great people first, great systems second and great products third. Think about companies like Microsoft (Bill Gates), Dell Computer (Michael Dell) and McDonald’s (Ray Kroc). Their success is a result of the passion of their entrepreneurs and the uniqueness of the business systems they created. In many cases, wildly successful companies have products that are high quality but not the best in the market. They achieve their growth because they have superior people and business systems with sustainable and unique advantages.
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Rich Dad Tips
• A great product doesn’t make a business successful. Great people make a business successful.
• The problem with being a solo player is that you are an individual competing against a team.
• If you’re the smartest person on your team, your team may be in trouble
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“We live in an age of haste.Some people look at an egg and expect it to crow.”– Orison S. Marden
You may be in a hurry to put together your business plan. But don’t confuse the frenetic blur of activity with thoughtful preparation. There are some major issues to discuss in your plan, and you’ve got to think them through.
Winning business plans map out the major W’s of your proposed business – who, what, when, why and where – to help you figure out that all important H – how. Who are the major players? Who are the owners, personnel, advisors, customers, competition, even the target audience for the plan itself? What do you want to achieve? What is your sustainable advantage? What do you offer? What do you produce? When did (will) the business start? When do you want to meet particular goals? Why are you in business? Why would customers want your product or service? Where is the business located? Where is the target audience? Where do new opportunities lie? And finally, how do you get from where you are now to where you want to be?
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Rich Dad Tips
• Money follows management. Investors typically look first at the people involved in the company. The experience, education and track record of management and advisors need to be given great emphasis.
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