Robert Kiyosaki, the author of “Rich Dad Poor Dad,” discussed the value the game Monopoly had in his education when he wrote that “You buy four green houses and trade them in for a red hotel.” The message here is that to have a successful business you don’t buy the red hotel right out of the gate. You build up your tacit business knowledge so that when you can afford the red hotel, you are more likely to be successful.
Many clients that I speak to share their BHAG (Big Hairy Audacious Goal) for their first foray into the business world as an entrepreneur. They want that red hotel business on their first attempt at becoming a business owner yet they have not earned the required business knowledge to make the red hotel a success.
Before meeting with me, they more than likely shared their BHAG for their business with their friends and family, who confirmed their business idea and encouraged them to go for it. Unfortunately, friends and family members that make up our support networks are not the best sources of unbiased feedback. In most cases, these people have never started a business or have any idea of the changes a new business owner will face getting the venture off the ground.
One of my first business mentors shared a valuable piece of advice when I was starting out. He said, “Fail small.” He added, “Failure will be your best teacher.” Each green house is part of what I call an affordable loss strategy that provides the entrepreneur with another set of lessons. While each green house may not end with failure, the key is not to go all-in on the red hotel without at least testing parts of the BHAG in stages.
My first small business experience was with an Invisible Fencing franchise. My wife and I operated the business while I continued to maintain a full-time job. At that time in my career, I worked for a computer company that was falling on hard times. I considered myself under-employed and the Invisible Fencing business was a side hustle. It was both my parachute in the event my day job went south and was my laboratory to learn about business. I lost that business, but since it was not my only source of income, I was able to recover. During that time, I learned a lot about marketing, my first green house, and sales, my second green house.
As the company where I was still employed full-time continued to experience hard times, my bosses were moving on and I rose quickly through the ranks to take on more and more management and financial responsibility. These were my next two green houses. So, by the time I quit my day job and started my first employer-based business with about a dozen employees from my former company, I had earned the knowledge to trade in my green houses for my first hotel.
1, Access to Capital 2, Business Acumen 3, Energy 4, Industry Knowledge 5, Idea
Most would-be entrepreneurs I see have some degree of the bottom three items (Energy, Industry Knowledge, and an Idea) but have little if any money or business acumen.
So how does one get money and business acumen? Start small with a green house.
If your idea is to open a restaurant, why not open a mobile hot dog stand first, like the ones in front of Home Depot? That sort of business costs a lot less to start up, and if you manage to mess it up, you’ll learn some valuable lessons along the way without breaking the bank.
In addition to the knowledge you gained, if you’re successful, you might now have the start-up capital you need to open your restaurant.
When it comes to building a successful business, buy four green houses before you buy that red hotel.
