The Rich Dad, Poor Dad author on how to avoid kissing too many frogs, the power of a good mentor and how to kick ass.
What qualities does an entrepreneur need to launch their business?
I come across guys’ ideas constantly, but unfortunately that’s all they are - ideas. They just lack the horse power to turn the idea into a business. They could come from big backgrounds - they could be accountants, lawyers or solicitors, but they lack business skills. The number one skill of an entrepreneur is to raise capital, that's my opinion. So in raising capital, I must know what the capital markets want and what do they look for in an idea? So I do cover some of it inside Midas Touch but not in the framework that you approach it. And the thing that keeps most people small is they lack the horsepower to take it big. So as you know in Australia and the US, most people wind up as small entrepreneurs and call it small business. The problem with being small is without them, there is no business and that’s the catch 22 there. So inside ‘Midas Touch’, the thing that has to be done is it has to be leveragable.
For years, I taught financial education but people only showed up to see me, and that was a limitation. There was only so much of me and so much time and so I figure, how do I leverage what I know? That's when I went into the cashflow game, so when the moment I took into a product versus a service, the step one is leveragble, so Kim and I designed the cashflow game, and that was now leveraged. It wasn’t dependent on me anymore, it was now a product form. The second thing is it must be expandable. Expandable means once it was produced, I can replicate it in all English speaking countries, Chinese, Japanese, French, Spanish. So now it’s expandable throughout the world markets, plus I was able to take it onto the web, where I could expand it even more.
The third phase is predictability. Can I forecast my returns given certain criteria? Like I’m out here, promoting my stuff and all this, but it’s predictable the amount of money that’s coming in every month, whether I work or not, money comes in. If ‘Rich Dad’ shut down, money would still come in. That’s what people - the finance people love that. It’s not dependent on me, it’s got an energy, a soul of its own, it’s moving.
The last component is it needs to be financeable. That’s what the capital markets look for.
Once I have all four of those components, and this is what I was taught - raising capital is essential to do. I’ve taken companies public that didn’t even exist because I covered those four things. So in the minds of capital markets, the stock markets primarily, they go, ‘this guy’s got i’. But if I was Joe Schmo and I had a hamburger stand and I was making the best hamburgers, they’d go, ‘Well we don’t need you because McDonald’s already has that one covered’. So that’s how I was taught. Next year, this time, we’re coming out with a new game. It doesn’t even exist. But we’ve already got commitments for $5million to do it.
What’s it going to be called?
I don't know, we haven’t created it. It’s a game for entrepreneurs. You know Farmville...? Our next game will go into the realm of Farmville. I’m not a techie, I have a techie do all those things for me. I just need to know what the capital market is looking for. And then around that, you need a business plan. Once you’ve got that, then our estimations of our income will be $15million a month coming in. Once we have that, money pours in. We don’t even have a name for the thing yet, but they know we know by our track records.
That’s what I was trying to say. That’s what Midas Touch was about. You have to have that resilience to fail and come back and fail and come back and you’ve gained your experience. The market knows you're for real.
What if you don’t have that reputation?
They either have to have a partner that does, or they have to have employees and pay for them.
Who should they be thinking about bringing on board first? An accountant, a lawyer?
It depends on the project of course. Inside the book is the BI Triangle. That's what makes up a business. I call them the 8 X of business. Either you give up equity, which is a partner, or you give up money, which is an employee, to hire those people. I wish I could say it was simple, but...
Thinking about bringing skilled people on board, how do you someone has that?
You don’t. How do you know if this is the right wife for you? You’d better have a pre-nuptial. You’d better have an escape clause pretty quick. I’m serious. You’d better have your exit strategy. Some people call it your buy/sell. You need to have that at the back of your mind. I know divorce is not pleasant, but it’s a reality. That's what Midas Touch was about. Number 4 was your ring finger which was your relationships. I’ve been very unlucky in marriage and unlucky in business. I’ve kissed a lot of frogs and it’s been terrible.
How do you see the frogs coming?
It’s the same thing. You have to interview a lot of people. In this next game project coming up next summer, we have the crème de la crème was far as partners in this deal, but you still don’t know. We’re still starting out, we’ve checked them out, we’ve done that. they seem OK, they seem to support the mission, but you still don’t know.
So when you’ve been checking them out, how do you do that?
One is reputation. When I designed the cashflow game, I couldn't afford anybody. We really didn’t have that much money, so I got lucky and I hired a CPA and a banker who was a computer geek, so I look for the synergies of his experience as an accountant, a banker and as a computer geek. If he was a computer banker artist, I wouldn’t really need him, but what I’m looking for is the synergies of not only educational experience but talent. If you look to me, I bring nothing to the table, because my experience - I’m a trained pilot, I flew for the military. So what do I bring? I didn’t bring much. It’s a bit of a tough position to be in.
As military officers, that’s what they drum into you. What's your mission? What’s your mission? What’s your mission? First day at the academy, this is your mission. You memorised it. It’s part of our thing. Business schools don’t have that, they don’t have mission-driven people. They have money-driven people, not mission-driven. Most business or BA guys are corporate guys. They’re here to make money. So when people say, ‘haven’t you made enough money?’ I made enough money a long time ago, but my mission’s not done yet. And my mission is to perform education for schools. I really hated school, I think they do a bad job of preparing people for the real world.
It’s my mission is to tirelessly I drive on. The other thing with military school is we’re taught to be team players. We sacrifice everything for the team. I meet most corporate guys: ‘No, it’s about me: - their jobs, their position. And you have to have leadership.
My whole background was about leadership, from the day I entered the Academy in 1965, that’s all we’re trained on. So I bring my context of the business together. My forte is communications, that’s why I can write and speak. What I’m looking for are other people who are strong in these areas also. My mistake has been hiring accountants and attorneys who are weak and are crooks. I hate to say that, but they were terrible. Id dint’ find out they were crooks for 10 years. They have weak character, they will screw their brother. It’s terrible. Everyone has a dark side - you don’t know until you’re in business with them. My attorneys and accountants have been weak and they're dishonourable people. It was tough. Then my systems guys right now the reason I can heavily go into systems is my new partners in this deal are IT guys. They’re fantastic. So that’s why I call them the 8 Integrities - if one is weaker than the other and drags down the whole balance inside the company...
So obviously you’re here on the communications side. My product was a game, I came up with the cashflow game. So the next product is our game that’s gone on the web. It’s the same process, making sure legal is tight...and we get better at it every year. I wish I could say I was smarter. I’m smarter today than I was two years ago.
But that’s what I’m saying about the entrepreneur. You’re never smart enough. You’re getting smarter.
I have to make a decision - do I want my attorney as a partner or do I want them as an employee? It’s best for them to be an employee because you can fire them fast. But when you’re first starting out, you don’t have money so you have to give away equity. It’s all dependent on your evolution as the entrepreneur. Now smarter and wiser and beat up...I can make better decisions.
Your culture is ‘have a go’. You guys party first, party second and party third. You’re a great party country, which I love. You have a good time, you laugh at yourselves and all this. The other thing you guys have is the Aussie battler. You really respect the little guys that battle. But your tragedy is you have a tall poppy. It’s almost like a self-deprecating sense of...you battle if you’re a tall poppy, then they tear you down. I've always thought that was an amusing culture.
It’s an interesting culture. You have ‘have a go’, the Aussie battler - you respect him, but if the battler gets too big you tear him down.
So given that’s the environment we have to deal with, how do we prepare ourselves as we rise up to cope with it?
You just be aware it’s there. It’s everywhere. You guys are more honest about it. In America, my concern is when I get wealthier, I become a target. Lawsuits...America is litigate, litigate, litigate. Americans tear you down differently but they’ll come after you. It’s not an Aussie thing, it’s human nature almost.
I just say it’s part of being successful. Congratulations, you’re successful now deal with it and make the best out of it. Learn from it. I just got sued by an old partner. He won $15 million, and all I said to myself and my team was, ‘OK we’re going to make that money in a month.’
That’s Midas Touch number one: ‘OK, sonofabitch, I’ll kick your ass’. If you don’t have that, you shouldn't be an entrepreneur, ‘cos you’ll take hits every single day.
I hate to be disappointing but every best guy’s got ideas. Ideas are cheap. I think the number one thing that Donald and I had were mentors. He had a rich dad, I had a rich dad. You’ve got to find a mentor who has already gone where you wanna go. One of my problems with teachers is I don’t respect them. They’re not people I would personally follow to the toilet, if you know what I mean., So all through my life, I’ve had a number of rich dads. My latest just turned 91 last week. He’s taught me so much about how to look at life and the world, he’s been there, done that. He’s an entrepreneur. The problem with people is they take advice from people who are bureaucrat, not entrepreneur. A bureaucrat is somebody who has authority but no financial risk. It’s not their money. If they lose it, it’s not their money. So I could be a supervisor in a company or a vice president, but I don’t have fiscal responsibility. Most people take advice from don’t have fiscal responsibility. When I start a business, I’m responsible for the chairs, the tables, the insurance, the overhead, the legal fees, the accounting fees, operational health and safety...Employees don’t have to worry about that. They don’t deal with the bankers...
It’s not the business, it’s around the business.
Sometimes we operate for three or four years without profit and you need to be able to rate enough capital to cover that. We call it the burn rate. What’s your monthly burn rate? I’ve got enough money to cover that burn rate. that’s what gets most entrepreneurs. they have a good idea but they don’t know how to pay off fast enough. if you own a restaurant, but if no-one shows up, you’ve still got to pay for them. you have to pay for the cooks, the chefs the food, the help, the insurance, the overhead - you’re still responsible.
In a business there’s four points. Number one is the project. So when someone pitches me a deal, what’s the project? The second thing is the project then determines the partners of the deal. I want to know who are the guys and women who bring expertise to make this thing work and are they going to put any money up? If they don’t put any money up, I don't want to talk to them. If they’re there to collect a fee, I don’t want to talk to them again. So partners are different to anybody else.
Everything has to have management and that’s where most of your employees and middle managers come from. If I have those four answers, hand it to me. But when most entrepreneurs come to me, they have an idea and I say - OK, who are your partners? what’s your financing? who’s your management? and they can’t’ answer those questions.
Almost none of them have those four covered. Or if they do, it’s only paper and they have no real bodies behind it.
Most people don’t make it. The streets are nasty. That’s why it’s called Wall Street, not Wall School.
You all have the characteristics, the attitude, let’s go battle, let’s have a go. It’s not an issue. you know you're going to do battle. In America, massage therapism - check out Clark’s Financial Planners, it was such a big business.
For CPAs, what are their strengths in helping business owners create wealth? What can they bring to the table?
The best CPAs go to the biggest law firms, like PwC. That’s where the best ones go. The worst go to the government. What happens in America is funny. As you know, you’ve got to be respectful to the tax guy, but they’re not the brightest guys.
What are the common weaknesses of accountants? Most aren’t investors, that’s the biggest prob. They're too, too cautious. I don’t invest in public markets, I don’t invest in stockmarket, I don’t invest in bonds, I stay out of it. I’m purely private equity.
Purely. And the reason is the tax breaks for the private guys are massive. The tax laws are written to make people rich, but unfortunately since most people are either employees of small businesses, they don’t enjoy the tax breaks the rich get. So in America and Australia, the tax laws are basically the same. Tax laws are incentives for biz to hire more people to create more biz to provide shelter, to provide energy, so in America, I’m virtually tax free because the tax laws support the entrepreneur who does what the government wants to have done. So I find the CPAs who are great with that. so many of them are afraid of the tax man - but they're the dumb shits at school, how can you be afraid of them? I came out with another book, Unfair Advantage, it’s how guys like me use debt and taxes to get rich. But I have really smart tax guys. GE pays no tax. So why should you? So the second smartest tax guys go to the big corporations. The worst guys in our country go to the IRS. So we treat them nicely and all this, but most of the time, we’re explaining the tax law to these guys. Most CPAs are afraid of an IRS guy. It’s ridiculous.
I stay out of public markets. I don’t like them. The biggest trend is the pendulum always swings, it never stops swinging. So when the pendulum is on its down, fear increases. When it’s going up, grade is increasing. And right no win the world, fear is at its all-time high, it’s the best time. Now’s the time to be greedy. I am buying more stuff than I ever have. I think it’s Christmas time. It’s the best time because the stupid and weak are getting blown out of the water. What’s going to happen in Australia. You have a company called Costco come into town? They’re going to blow the shit out of you guys. They're going to rip like you’ve ever seen. Every time Walmart, Costco or Home Depot comes to town, the little Aussie Battler gets their ass handed to them. The little guy gets crushed.
Why do you think that happens?
Rule number 5 of Midas Touch - it’s the little things they do. So when Walmart comes to town, small businesses die. When Costco comes to town, small businesses die.
Are there enough blind consumers so these duopolies can get out of it?
Rule number one of economics is price leads. If I’m selling gas for $10 a gallon versus $5 a gallon, that guy doesn’t care if he hates you, you’re bringing me $5 a gallon. Nobody cares. I’m just warning people of what I see in the States - that the little guy’s been crushed by the mega corporations. What happened in America is nobody cared because Walmart was in small remote towns but when they gained strength and momentum, they started medium and now they attack large and now they’re dominate. And the little guy, there's no way they can compete. Costco is the first American entry into this market. It’s going to hurt the little guy quite a bit.
America is we have whole shopping centres vacant. My brother-in-law ran hardware stores and the moment True Value comes into town, whoo - the business is gone. It’s kind of a franchise of small hardware stores. So when a corporate guy comes into town, which is Home Depot, they just blow the little guy out the water. It’s really hard to compete.
How might financial planners help take some out of the fear for their clients?
Unfortunately financial planners are limited to what they can sell. By law, they’re required to sell only certain products and most of them are securitised products. And what I do is I invest privately, so the financial planners have explained that. I’ll tell how I invest, because it’s never been different all my life. When you play Monopoly, one house is $10, two houses is $20. That’s it. It’s cashflow. Most people who are losing money invest in capital gains. They want the price of something to go up. All I ever wanted was a cashflow. So this year, I’m going to buy 1000 more units. I started with one, then it went to two, then it went to three. So the way I’d expect to them is cashflow versus capital gains in stocks, it’s called a dividend. And what's the price of that dividend. The problem with most stock guys is they go by PEs - price X ratios. i go strictly by dividend. So I'm getting a dollar in a dividend and it costs me $10 for a stock...
There's a lot of self-management in America but the trouble is without education, you don’t know the difference. What I say to most people is if you’re willing to invest in a financial education, then you can go to the big lie the financial planners tell you is the higher the return, the greater the risk. IT’s absolutely not true. You can get extremely a high return with zero risk but you need to know what you’re doing.
I shouldn’t have been saying this stuff but the easiest thing right now is I invest in private equity oil place, so it takes about $25,000 to get into that. I don’t buy oil stocks, I don’t buy Exxon, I don’t buy standard oil shipment. I find a little oil well who’s going to drill and I get a percentage of his. So for $25,000 I get my money back in four years plus I get tax breaks. So let’s say I have 200 oil wells. Every month they’re sending $1,000. That's $200,000 a month. It’s not Donald Trump money, but it’s a lot of money to me. Then I buy another one. Then I probably have about 5,000 apartment houses and every month, they’re sending me money and then from there I have gold and silver, so all my excess cash, I put into gold and silver. It’s never changed.
The other thing too is I don’t ever sell, I buy forever and I sell by the month. So I don’t flip houses. I just want the income from it for the rest of my life. I just bought the X ship in Montana for about 100 years, money will come. It’s just going to my charities. I don’t invest in stocks or shares, so I have a different strategy. Most financial planners, depending on the person’s income can only sell equities - stocks, bonds, mutual funds. That’s the unfortunate thing.