Chapter 1: What Is the Difference Between an Employee and an Entrepreneur?

by Robert T. Kiyosaki and Sharon L. Lechter C.P.A.

The real secret to making money and reaching financial independence is not staying an employee, but starting a company and quickly developing it. Rich Dad's Before You Quit Your Job is for aspiring entrepreneurs who need to know how to take those first crucial steps. Read Chapter 1, "What is the Difference Between an Employee and Entrepreneur?"

Starting with the Right Mind-set

When I was growing up, my poor dad often said, "Go to school, get good grades, so you can find a good job with good benefits." He was encouraging me to become an employee.

My rich dad often said, "Learn to build your own business and hire good people." He was encouraging me to become an entrepreneur. One day I asked my rich dad what the difference was between an employee and an entrepreneur. His reply was, "Employees look for a job after the business is built. An entrepreneur's work begins before there is a business."

99% Failure Rate

Statistics show that 90% of all new businesses fail within the first five years. Statistics also show that 90% of the 10% that survive the first five years, fail before their tenth anniversary. In other words, approximately 99% of all startup businesses fail within ten years. Why? While the reasons are many, the following are some of the more critical ones.

1. Our schools train students to be employees who look for jobs rather than train entrepreneurs who create jobs and businesses.

2. The skills to be a good employee are not the same skills required to be a good entrepreneur.

3. Many entrepreneurs fail to build a business. Instead they work hard building a job that they own. They become self-employed rather than business owners.

4. Many entrepreneurs work longer hours and are paid less per hour than their employees. Hence, many quit out of exhaustion.

5. Many new entrepreneurs start without enough real life experience and without enough capital.

6. Many entrepreneurs have a great product or service but don't have the business skills to build a successful business around that product or service.

 



Laying the Foundation for Success

My rich dad said, "Starting a business is like jumping out of an airplane without a parachute. In midair the entrepreneur begins building a parachute and hopes it opens before hitting the ground." He also said, "If the entrepreneur hits the ground before building a parachute, it is very tough climbing back into the plane and trying again."

For those of you familiar with the rich dad books, you know that I have jumped out of the plane many times and failed to build the parachute. The good news is that I hit the ground and bounced. This book will share with you some of my jumps, falls, and bounces. Many of my failures and successes were small ones, so the bounce was not that painful-that is, until I started my nylon and Velcro wallet business. I will go into further detail throughout the book because I made many mistakes, and learned from them along the way. The success of that business was sky high and so was the fall. It took me over a year to recover from that powerful bounce. The good news is that it was the best business experience of my life. I learned much about business and about myself through the process of rebuilding.

The Crack in the Dam

One of the reasons I fell so hard in the nylon surfer wallet business was that I did not pay attention to the little things. There is some truth to the age-old statement, "The bigger they are, the harder they fall." My little surfer wallet business grew so fast that the business was a lot bigger than the capabilities of the three entrepreneurs who created the business. Instead of creating a business, we had created Dr. Frankenstein's monster and did not realize it. In other words, our sudden success was accelerating our failures. The real problem was we did not know we were failing. We thought we were successful. We thought we were rich. We thought we were geniuses. To the extent that we bothered to consult expert advisors (like patent attorneys), we did not listen to them.

As three successful entrepreneurs in our late twenties and early thirties, we took our minds off the business and partied into the night. We actually thought we had built a business. We actually thought we were entrepreneurs. We actually believed our own story of success. We started bragging. Champagne started to flow. It was not long before we each had fast sports cars and were dating even faster women. Success and money had blinded us. We could not see the cracks forming in the wall of the dam.

Finally, the dam broke. The house of cards started tumbling down around us. Our parachute did not open.

Too Much Success

The point in sharing my entrepreneurial stupidity is that many people think that it is the lack of success that kills a business. And in many cases that is true. The failure of my surfer wallet business was a valuable experience because I found out early in my career as an entrepreneur that too much success can also kill a business. The point I am making is that a poorly conceived business can fail whether it is initially successful or not.

Hard Work Covers Up Poor Design

A poorly conceived business startup may be able to survive as long as the entrepreneur works hard and holds the business together with sheer determination. In other words, hard work can cover up a poorly designed business and keep it from failing. The world is filled with millions of small business entrepreneurs who are able to keep their leaky business afloat with hard work, sheer willpower, duct tape, and baling wire. The problem is, if they stop working, the business breaks apart and sinks.

All over the world, entrepreneurs kiss their families good-bye and head off to their own businesses, their pieces of the rock. Many of them go to work, thinking that working harder and longer will solve their business problems- problems such as not enough sales, unhappy employees, incompetent advisors, not enough free cash flow to grow the business, suppliers' raising their prices, insurance premiums' going up, landlords' raising the rent, changing government regulations, government inspectors, increasing taxes, back taxes, unhappy customers, nonpaying customers, and not enough time in the day, to name a few of the daily challenges. Many entrepreneurs do not realize that many of the problems their businesses face today began yesterday, long before there was a business.

One of the primary reasons for the high failure rate of small businesses is sheer exhaustion. It's tough to make money and to keep going when so much of your time is tied up in activities that do not make you any money or that cost you money without offsetting income. If you are thinking about starting your own business, before you quit your job, you might want to talk to an entrepreneur about how much time he or she spends on non-income producing activities to run his or her business. Also ask how he or she handles this challenge.

As a friend of mine once said, "I'm so busy taking care of my business I don't have time to make any money."

Do Long Hours and Hard Work Guarantee Success?

A friend of mine quit his high-paying job with a large bank in Honolulu and opened a tiny lunch shop in the industrial part of town. He had always wanted to be his own boss and do his own thing. As a loan officer for the bank, he saw that the richest customers of the bank were entrepreneurs, and he wanted a piece of the action, so he quit his job and went for his dreams.

Every morning, he and his mom would get up at four o'clock to begin preparing for the lunch crowd. The two of them worked very hard, scrimping, cutting corners, in order to serve great-tasting lunches with generous portions at low prices.

For years I would stop by, have lunch, and find out how they were doing. They seemed very happy, enjoying their customers and their work. "Someday we'll expand," said my friend. "Someday we'll hire people to do the hard work for us." The problem was that someday never came. His mom passed away, the business closed, and my friend took a job as a manager of a fast-food franchise restaurant. He returned to being an employee. The last time I saw him he said, "The pay isn't great but at least the hours are better." In his case, his parachute did not open. He hit the ground before he built a business.

Now I can hear some of you saying, "At least he went for it." Or, "It was just bad luck. If his mom had lived, they might have expanded and gone on to make a lot of money." Or, "How can you criticize such good hardworking people?" And I agree with these sentiments. My intent is not to criticize them. Although not related to them, I loved the two of them dearly. I knew they were happy yet it pained me to see them work so hard and not get ahead, day after day. I only relate this story to make the same point. The business began to fail before there was a business. It was poorly conceived before he quit his job.

Page 2: Is Being an Entrepreneur for You?

 

 
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