Why Build a Business?

There are three reasons for building a business more than to simply create an asset

1. “To provide you with excessive cash flow” In the book How to Be Rich, J^. Paul Getty states that his first rule is that you must be in business for yourself. He goes on to imply that you will never get rich working for some­one else. One of the primary reasons people started so many businesses were that they had excessive cash flow from the other businesses. Normally, they also had the time because his businesses required minimal effort on the part. This al­lowed them to have the free time and extra money to keep in­vesting in more and more assets tax-free.
   
2. “To sell it.” The prob­lem with having a job is that you cannot sell the job, re­gardless of how hard you work. The problem with building a business in the small business is that there is usually a limited market that would want to buy it. For example, if a dentist builds a practice, generally the only other person who may want to buy it is another dentist. To rich dad, that was too narrow of a market. He said, “For something that valuable, there must be many more people than you who want it. The problem with a small business is that you are often the only person who wants it.An asset is something that puts money in your pocket, or it can be sold to someone else for more than you have paid for or invested in it. If you can build a successful business, you will always have a lot of money. If you learn to build a successful busi_­ness, you will have developed a profession that few people ever achieve.

   For example, you are sales person that was learning to sell Xerox machines; you came across a young man who owned four quick-copy print shops in Honolulu. The reason he was in the business of making copies was interesting. While in school, he had run the university’s copy shop and learned the business side of the operation. When he came out of school, there were no jobs, so he opened up a copy shop in downtown Honolulu doing what he knew best. Soon, he had four of these copy centers in four of the bigger downtown office buildings, all on long-term leases. A major copy shop chain came to town and made him an offer he could not refuse. He took their $750,000, a giant sum in those days, bought a boat, gave $500,000 to a professional money man­ager, and sailed around the world. When he returned a year and half later, the manager had grown his invest­ment to nearly $900,000, so the young man just sailed off again, back to the islands of the South Pacific.

   You were the guy who sold him the copy machines, and all you got was your small commission. He was the guy who built a business, sold it, and sailed away. Then, you never saw him again after 1978, but you have heard that he pulls back into town every so often, checks his portfolio, and sails off again. This story tells you that, as a business owner, you don’t have to be right 51% of the time. You need to be right only once.” He also said, “Building a business is the riskiest road for most people. But if you can survive and keep improving your skills, your potential for wealth is unlimited. If you avoid risk and play it safe on the E and S side, you may be safer, but you’ll also limit what you can truly earn.

3. “To build a business and take it public.” Normally investor that called as ultimate in­vestor can come out with this idea. It was building a business and taking it public that made Bill Gates, Henry Ford, Warren Buffet, Ted Turner, and Anita Roddick very, very wealthy. They were the selling shareholders, while we were all the buying shareholders. They were insiders, while we were outsiders trying to look in.