If you learn anything about business, make sure it’s this…

John Liston
Director | Adviser
September 1, 2018


Last month in the early hours of Saturday morning, I flicked on the TV, and a familiar face and name came on the TV screen.   It was Robert Kiyosaki, the author of Rich Dad, Poor Dad, one of the bestselling business and wealth books of the last 20 years.  

As I turned up the volume, it soon became apparent that Kiyosaki was on the show to plug his new seminar ‘The Wealth Masters’.  He was predicting a “financial hurricane” would be happening this year.  Unfortunately, this prediction is a common marketing tactic of ‘wealth experts’.  Predict a financial apocalypse, and voila, suddenly there is a need for the seminar they are promoting that month.  The media loves these sorts of headlines too, as it creates a stir and grabs the attention of the everyday investor.  The problem is, no one ever holds these ‘experts’ accountable to the prediction about the end of the financial world.  They keep making them until eventually, one of the experts gets it right.  As they say, even a broken clock is right twice a day.  

Zoom in on the below graph which highlights predictions of financial disaster over the last 6 years:  

$SPX vs pundits

Usually, this would be my cue to turn off that TV, but the problem with writing off Kiyosaki is that Rich Dad, Poor Dad is a damn good book. A genuine classic. I was curious to see what other lessons he was now teaching.  I grabbed my phone and googled his seminar ‘The Wealth Masters’.  

Unfortunately, the agenda read like a cross between a get rich quick scheme and a doomsday prepper.    

'How the Government is stealing your savings' – really?  

‘Why Robert advises everyone to get their money out of the banks’ – come on, surely not.

“What you must know about investing in cryptocurrency” – now that's just being silly.

As I was ready to close the browser, the next point was ‘How to transition from an Employee mindset to a Business owner's mindset.’  

Ah ha!  

While most of his other points are hard to take seriously, this is one of those rare lessons that has stood the test of time.  This insightful teaching from Kiyosaki is as relevant today as it was 20 years ago.  To explain the concept clearly, he uses a diagram called ‘the cashflow quadrant.’  

The cashflow quadrant.

the cashflow quadrant

Kiyosaki uses the quadrant to explain the different mindsets of how people earn money, and what it takes to transition through the quadrants.  

The E quadrant stands for Employee.

Generally, this is where everyone starts.  You earn money by holding a job and working for someone else.

The S quadrant stands for Self-Employed.

Some people decide that employee life is not for them and strike out on their own, to start their own business. They become self-employed entrepreneurs.  This S quadrant is the majority of businesses in Australia and the world.  The café owners, tradesman, professional services or consultants.  You are your own boss, and while the rewards are greater – so are the risks.  Often the self-employed have all their personal assets tied up in the business.  If the business goes downhill, they risk it all.  

The B Quadrant stands for Business Owner.

Only a few of the Self-employed make the leap to business owner.  How do you know if you are in the B quadrant or the S quadrant?  Easy. Just ask yourself this one question: "Can you walk away from the business today without it impacting the performance of the business?".  If the answer is no, you are in the S quadrant.  If the business doesn’t rely on you turning up every day, you are a business owner.  You might even have a manager or CEO who runs the business for you.  You have systems and processes in place so that the performance of your business is the same with or without you there.  Getting to the B quadrant not only takes a lot of hard work and focus but a mindset of delegating responsibilities and ownership to others.  You have to be willing to hire people smarter than you and get out of their way.

The I Quadrant stands for Investor.

Even fewer people transition into this quadrant.  An investor is someone that earns the majority of their money from investments.  In other words, their money makes money. They are considered financially free.  That is, choosing to continue to work only if they want to.  The irony of the I quadrant is that the majority of people who make enough money to live off their investments rarely want to stop working. They have generated large amounts of wealth because they genuinely love what they do.  More often than not, true financial freedom is when you can operate in both the I quadrant and the B quadrant.

Our approach as a firm isn’t too dissimilar to this framework.  After working with small business for over 40 years,  we developed a methodology to help clients progress through three key steps with the end goal being “Get Free” or like Kiyosaki refers to it “The I Quadrant”.  

The key to the above quadrant is remembering that there are specific steps that you must work through before financial freedom is possible.  Being honest with yourself and understanding your weaknesses and where you sit in the quadrant is precisely what will help you progress forward.  

Watch this video from Kiyosaki for his own explanation.