Bottom Line Up Front: Most of us are really two men; employees and independents. As employees, we work for someone else, but as men, we must serve ourselves. We must be disciplined, respectful, gracious and humble while someone else controls the resources our families need, but as free and independent men we owe it to our families to create options outside our day jobs. The ironic result? By developing our options, we improve at our job. We add value to the system we serve while we build systems that serve us and those around us in this remarkable growing global economy.
“Profits are better than wages.” – Jim Rohn
Employee, Self Employed, then Business Owner. A graduated path learning to leverage systems.
According to Kiyosaki’s Cash Flow Quadrant model, we can earn different kinds of money based on how we earn that money. The quality of money is different for Employees, the Self Employed, Business Owners and Investors. Here are examples of each:
Employee: Think of working in a fast food restaurant with systems all around you. You do simple, repeatable tasks in a franchise managed by someone else and owned by yet someone else. You start at minimum wage. Smile and whistle? You get a raise. If you don’t work, you don’t get paid. Your relationship to money is linear (meaning to make more money you must work longer hours) and you trade time for it.
Self Employed: Think of a plumber. He advertises and does the work himself. He may have formed a company and bought a truck. He does it all or supervises it all—the plumbing, the billing, the advertising. He may hire employees. If so, he is on the way to owning a true business if he can systematize all the tasks that accompany growth. If he has planned to do this from the beginning he can reach translational lift and break through. If not, it’s tough. A dirty little secret of the entrepreneurial world is that most business owners live from paycheck to paycheck (if they pay themselves at all). You can wager with confidence that men who live paycheck to paycheck either have a tortured relationship with money or have not learned to systematize themselves. The Self Employed who can’t systematize are also trading time for money and have a linear relationship with money.
Diplomatic Cocktail Party, Beijing, China, 2000. Capitalism, hygiene and quality:
Americans apologize, Africans say thank you
Success stories are great. Seeing others succeed is transformational and capitalism is revolutionary. Free market capitalism has liberated more people than any other economic system in the history of the world. It’s about profit, private property and upward mobility.
Why do Americans apologize for McDonald’s?
I was at the U.S. Embassy in Beijing as an Army Major, then as a Lieutenant Colonel. At a cocktail party hosted by a State Department colleague there was an unusual mix of political and military people from many nations. West Europeans, East Europeans, Africans, Asians, Latin Americans. We had it all, like Bogey and Bacall. It was one great party. A U.S. diplomat apologized for American fast food’s success around the world. He said,
“Yeah, well, I wish we were known for something other than McDonald’s and Levis.”
The room got quiet.
Don’t get me wrong. It’s understandable, being noble, and we’re all flawed human beings. Anyone serving in a diplomatic community knows what it’s like to say something he regrets. A little off or a little out of character. Too colorful, maybe, or too bold. Nobody worth his salt judges you quickly in diplomatic social circles because everyone is trying hard to say and do things just so. However, I did get the impression our State Department host had said something embarrassing for those around him. Beyond the mistake of apologizing on foreign soil for our country’s business success, he seemed unprepared for the spirited defense McDonald’s got from his guests.
The Safety of McDonald’s
More than one guest said that when they arrived in a foreign country with their families, the first thing they did was find the McDonald’s. Upon arrival, they couldn’t know where to get reliable and inexpensive food. Before they were confident about the safety of the food, the water, the hygiene, they’d be very careful. But they knew that if they could find a McDonald’s they could feed their family and be confident they wouldn’t get sick while they got their bearings and learned the local economy. McDonald’s is a treat for the children, is fun and McDonald’s promotes hand washing. Don’t even get me started about the earful he got about Levi’s.
Hong Kong, July 1992: I’d have starved to death without McDonald’s
I was the single father of a 2-year-old son in Hong Kong in 1992. We stayed in the JW Marriott in Central Hong Kong for 30 days. We lived like Roman Senators. It was that good. But then I had to move to an apartment in Hong Kong’s New Territories. I spoke Mandarin and English, but in the New Territories they speak Cantonese. I had to figure out how to survive with my child and couldn’t really rough it with a two-year-old. My solution: McDonald’s. We survived. We lived on Big Macs, sweet tea and French fries. What accounts for McDonald’s consistent quality, reliability, and price? Systems. McDonald’s has been so successful around the world, that even The Economist uses a Big Mac Index as a sort of universal economic indicator.
What’s the link? Systems make money for you while you sleep.
In Tim Ferriss’s excellent book, The Four Hour Work Week he essentially says, “Find something inexpensive and digital you can market to an international audience, put it on auto-pilot and get out of the way.”
A McDonald’s franchise owner has a system of systems working while he sleeps. Ray Kroc, the founder of McDonald’s, asked an audience he was addressing—each one of whom knew him as the founder of McDonald’s-- to tell him what business he was really in. They guessed many wrong guesses and the answer he gave was…
McDonald’s franchises are always on key real estate. So, it’s not just that the fries bin is an optimal distance from the ready bins or that the coffee makers are ideally positioned. McDonald’s (and WalMart) are systematic about everything they do, even how they choose their locations. Now, think of what it would be like to have a system based business working for you 24 hours a day, 7 days a week…globally.
Ask Mitt Romney: “What rules do you play by?” The advantages of being a business owner.
When Mitt Romney ran for president I was fascinated at how the media demonized him for playing by the rules. He definitely plays by the rules. The guy is squeaky clean. The problem is, he plays by a different set of rules than most voters. He plays by the rules for wealthy people. The good news? In the United States you get to choose the rules you play by. Must you be careful? Absolutely, because it’s a high stakes game. But is it possible to play by the same rules Mitt Romney, Bill Gates and Warren Buffett play by? Of course. But I can’t want it for you more than you want it for yourself.
I am not recommending a McDonald’s franchise but McDonald’s is the easiest example to understand.
So, just think about owning a McDonald’s franchise. Not because I think that’s the best way to go—I emphatically do not—but it’s a good first step in changing the way you think about business ownership if you are an employee working in a cubicle or an office somewhere. I am not sure what it costs to get into a McDonald’s franchise-- and it’s easy to look up— Google tells me: “Most McDonald's owner/operators have entered the corporation by purchasing an existing restaurant. To open a McDonald's franchise, however, requires a total investment of $1-$2.2 million, with liquid capital available of $750,000. The franchise fee is $45,000.” That’s a lot of money and you have to play by their strict rules, but it’s one of the closest things you can get to a guaranteed profit if it suits your situation. If you own the franchise you don’t run it. You hire a manager. He’s your employee. He’s The Man, working for you.
McDonald’s is system based.
The next time you go into a McDonald’s look at how efficiently it’s laid out. It’s really very similar to WalMart in the sense that McDonald’s has built a global distribution system. They started by selling hamburgers, milkshakes and french-fries. They used efficient sales and distribution to be first to market in the fast food niche. Then, once the distribution network was set up and they had a reputation for standards and quality, they realized they can pump anything they want through that global distribution system. For a while McDonald’s was threatening to cut into Starbuck’s market share. Once they had that figured out and went global (Ray Kroc bought the first McDonald’s restaurants from the McDonald brothers in his early fifties, by the way) they accelerated and have been doing well ever since, their recent troubles notwithstanding. They invented the drive through in 1975, by the way. Probably their biggest mistake? They didn’t patent it.
4 advantages of owning a system based business just off the top of my head.
Tax advantages. You get so many tax breaks it’ll blow your little mind. Ask yourself, “What must I change about the way I think to benefit from the tax rules of business ownership?”
Quality of money. You own something that generates a different quality of money than earned income. Wages—earned income— are the lowest quality of money… and they come at the highest cost. Taxes and inflation are out of your control. As an employee you have to accept them. And, for the privilege of being taxed at the highest rate for the lowest quality of money you surrender your most precious resource: your time.
You learn not to trade time for money, and that changes your relationship to money from a linear relationship to a non-linear relationship. You’re not doing a 1-for-1 exchange.
You learn the value of your time, which is your most valuable resource.
…set something up that can leverage time.
In the meantime do whatever you have to do to get started and don’t quit.
Call to Action: Three steps. First, today, go to a McDonald’s or a similar fast food restaurant. Look for the systems and watch how the employees work those systems. Second, within the next seven days try to go to two other fast food restaurants. Compare and contrast the systems they use. How do they differ? How is Five Guys different from Wendy’s? Burger King? Taco Bell? KFC? Third, go to a different business. Go to COSTCO, WalMart, Home Depot. Spot the systems. Congratulations. Buy yourself another beer. You’re thinking like a business owner.