Robert Kiyosaki’s “Cash Flow Quadrant” has a big lesson for business owners.
You are being challenged to decide if you have an “S” type business, one where you exchange your time for money or if you have a “B” type business, one where your system delivers you freedom of time and rewards you with a constant supply of money.
Let’s hear Robert describe his concept:
The difference between S-type and B-type companies
I often hear people say, “I’m going to start my own business.” I hear that a lot these days, especially, with unemployment so bad.
Many people tend to believe that the way to financial security and happiness is to do your own thing or to develop a new product that no one else has. So, they rush out and start a new business. Usually they move from being an employee to being self-employed—moving from the E quadrant to the S quadrant, the left side of the CASHFLOW® Quadrant.
While one is not necessarily better than the other, S-type businesses and B-type businesses have different strengths, weaknesses, risks, and rewards. Many people who want to start a B-type of business wind up with an S-type of business and become stalled in their quest to move to the right side of the CASHFLOW Quadrant—the B for big business and I for investor side.
Many people attempt to move from the S quadrant to the B quadrant, but only a few who attempt it actually make it. Why? Because the technical and people skills required to be successful in each quadrant are different. You must learn the skills and mindset required by a quadrant in order to find true success there.
S-type vs. B-type business skills
If you own a B-type business, it’s possible to go on vacation for a year, come back, and find your business more profitable than when you left it. In an S-type of business, if you take a one-year vacation, you’ll have no business to come back to.
What’s the difference?
Saying it simply, an S-type of business owns a job. A B-type of business owns a system and then hires great employees to operate that system. This is why if a B-type business owner is on vacation, income still comes in.
To be successful, a B-type business owner requires:
- Ownership and control of a system, and
- The ability to lead people
For S’s to evolve into B’s, they need to convert who they are and what they know into a system, and many people aren’t able to do that…or they’re often too attached to their self-contained system to let go and let other people in.
Can you make a better hamburger than McDonald’s?
To illustrate my point, I’ll share a technique I use to determine whether someone is an S or a B when they ask me for advice on starting a business.
Usually, these people tell me they have a great idea for a new product or idea. I listen, usually for about 10 minutes, and within that time I can tell where their focus is, whether it’s a product or a system. In those 10 minutes, I usually hear words like these:
- “This is a far better product than XYZ makes.”
- “I’ve looked everywhere, and nobody has this product.”
- “I’ll give you the idea for this product; all I want is 25 percent of the profits.”
- “I’ve been working on this product for years.”
At this point, I usually ask one thing: “Can you personally make a better hamburger than McDonald’s?” So far, everyone has said yes. They can all prepare a better hamburger.
I then ask, “Can you personally build a better business than McDonald’s?”
The burger vs. the business
Some people see the difference immediately…and some don’t. The difference is whether a person is fixated on the left side of the quadrant, the E and S side, which is focused on the idea of a better burger; or on the right side of the quadrant, the B and I side, which is focused on the business system.
I do my best to explain that there are lots of entrepreneurs who offer a better product or service, just as there are billions that can make a better burger than McDonald’s—but only McDonald’s has created a system that has served billions.
If people begin to see this truth, I suggest to them to visit a McDonald’s, buy a burger, and sit and observe the system that delivers that burger. Take note of the trucks that deliver the beef, the rancher that raised the beef, the buyer who bought it, and the TV ads that sell it. Notice the training and the employees. See the decor, the regional offices, and the whole corporation. If they can begin to understand the whole picture, then they have a chance of moving to the B-I side of the CASHFLOW Quadrant.
The reality is that there are unlimited new ideas, billions of people with products and services to offer, and only a few people who know how to build an excellent business system.
The question is, which side of the CASHFLOW Quadrant do you want to be on?
Thanks to Robert Kiyosaki for his article. You can find more about him on his website.