Unfair Advantage -The Power of Financial Education (32 page)

There are hundreds of millions of people around the world involved in this type of business.

The I Quadrant

I stands for investor, those who understand the art and science of raising capital. When you can build a business in the B quadrant and raise capital, you are a capitalist.

• Bank financing
  

When you borrow money from a bank to invest in real estate, you are operating in the I quadrant. This is why rich dad insisted I take classes on real estate, not just to learn about real estate and taxes, but to learn to manage debt. Today, I have hundreds of millions of dollars in good debt, all producing income for me—most of it tax-free.

If you use debt to finance your home or car, you are a consumer, not a capitalist.

• IPO
  

In
Unfair Advantage,
I wrote about taking a company public through an IPO, an initial public offering. Taking a company public was my goal when I started out to become an entrepreneur. It took me 30 years. It was a tough process, but I learned a lot and grew up in the process.

To qualify to raise capital via an IPO, the securities market must be assured that you have a B-quadrant business or have the ability to build a B-quadrant business.

• Private placements
  

Obviously, private is opposite from public. The term “private placement” is used when offering the sale of a security that doesn’t involve an offering to the public. Private placements are used for raising small amounts of money or for raising money from a few qualified investors. Private placements are not for the general public.

The general public invests in “common shares,” securities deemed safe enough for the uneducated, unsophisticated public.

When I was in my twenties and thirties, I used a number of private placements to raise capital for oil and gas partnerships. I did it more for the experience than the money. I worked long and hard, earning very little, but learning a lot.

Today, what I learned years ago makes me a lot of money in oil and gas partnerships, validating the Laws of Compensation and the power of compounding education.

• Franchise offering
  

A franchise offering is also a security and follows strict rules and regulations. A franchisor allows a franchisee to use their product or service, brand, trademarks, systems, advertising, and trade secrets. Again, McDonalds uses a franchise model to grow their business. McDonalds also uses the stock market to raise additional capital. I have never completed a successful franchise offering and would like to someday, primarily for the experience. Launching a franchise is a much more sophisticated venture than an IPO because a franchisee sells a turnkey business, often to people who are not entrepreneurs. Creating a business that can be run profitably by the average person is a monumental task.

FAQ

Will I learn about the B quadrant and I quadrant in GEO?

Short Answer

Yes. That is the purpose in creating GEO.

Explanation

The world is filled with E’s and S’s. The world needs more B’s and I’s, which is why Rich Dad is creating GEO. The first step in becoming an entrepreneur is to learn how to build a true asset in the S quadrant.

Remember, most people in the S quadrant are self-employed. They cannot stop working because their business is not an asset that can run without them. Once the person has built a sustainable asset in the S quadrant, they may decide to move on to the challenges of the B quadrant.

FAQ

In the GEO program, does a person have to move on to the B and I quadrants?

Short Answer

No.

Explanation

A person can stop anytime. I suspect most people will be very happy with a business in the S quadrant.

FAQ

Why wouldn’t a person go on to the B and I quadrants?

Short Answer

Each quadrant presents its own challenges and the going gets harder as you move into the B and I quadrants. Success on the right side of the CASHFLOW Quadrant requires more education and dedication, and greater leadership skills.

Explanation

As I stated earlier, I went to flight school to become a pilot. I did not become a pilot until I finished flight school. Once I completed my training, then I chose the aircraft I wanted to fly. As the performance of my aircraft increased, so did the requirements related to my skill level—especially in combat situations.

The same process of skill, training and educational development is involved in GEO. Start small in the S quadrant and learn the skills to be a successful entrepreneur. You can then decide to move on to the B quadrant and then to the I quadrant. Or you can stop and start your own business.

Some may find that moving into the S quadrant proves to be too challenging. While anyone can be an entrepreneur, becoming an entrepreneur is not for everyone.

FAQ

Do I have to quit my job to join the GEO program?

Short Answer

No.

Explanation

As I have often said, “Keep your daytime job and start a part-time business.” The reason most small businesses fail in the first five years is because the fledgling entrepreneur cannot earn enough money to support the business, themselves, and their families. Learning to become an entrepreneur takes time.

FAQ

Why won’t most people move to the B quadrant and then to the I quadrant?

Short Answer

It’s not easy. Changing quadrants means an increase in knowledge and personal discipline.

Explanation

Most people become entrepreneurs because they want to “do their own thing” or “do things their way.” Even if profitable, the business they create is often too dependent upon the unique talents of the entrepreneur and fails to evolve into a business.

The reason the B-I Triangle is called “The 8 Integrities of a Business” is because the definition of the word
integrity
is whole, or complete.

S-Quadrant Doctor

Let me give you an example. I have a doctor friend who is a genius, a magician. He is also a loner. He answers his own phone, makes his own appointments, does his own taxes, and cleans his own office.

Since he has very few expenses, he makes a lot of money. The problem is, he is the entire B-I Triangle for his business. He is the business. He is so smart that he has the ability to do the tasks of many people. But he cannot stop working because, if he does, his cash flow stops.

While this is an extreme example, the world is filled with self-employed entrepreneurs like my doctor.

Although he was a genius in medical school and does well in private practice, he is stuck in the S quadrant, with little hope of building that business into a B-quadrant business or continuing on to the I quadrant. He is an S-quadrant doctor.

B-Quadrant Doctor

There is another doctor I know who does not see patients. In spite of that fact, he affects the well-being of thousands of patients each year. Rather than spending his time one-on-one with patients, he spends his time building hospitals. He has hospitals in the United States and China.

Because he can build profitable hospitals that employ thousands of people, he receives giant tax breaks and is able to raise money from rich private investors as well as public investors through Wall Street via publicly-traded stocks. This doctor operates in the B and I quadrants.

His B-I Triangles are hospitals, which operate in integrity. This means that the eight integrities of the B-I Triangle operate synergistically, whole and complete, and in compliance legally, ethically, and morally.

This is what GEO will teach and train entrepreneurs to do. As you become a successful entrepreneur, you can build businesses around any product or service you choose. Keep in mind that the product is the least important part of the triangle. Once an entrepreneur knows how to build a B-I Triangle, the products or services are interchangeable. Today, I am an entrepreneur in education, real estate, gold, silver, media, and oil.

FAQ

Which quadrant is the hardest?

Short Answer

They all are… at the start.

Anything is difficult if you do not know how to do it. Take walking for example. A baby struggles to learn to stand, falling down many times. Yet once they learn to stand, they want to walk, then run. Once a baby knows how to run, he or she can take on the world.

Explanation

I recommend starting in the S quadrant, then moving to the B, and then the I quadrant. It is the same process as a baby learning to stand, then walk, then run.

FAQ

Why don’t most entrepreneurs make it to the B and I quadrants?

Short Answer

Lack of discipline.

Explanation Success requires discipline. More success requires more discipline. Most entrepreneurs want to do their own thing or do things their way, so they never make it out of the S quadrant.

The B quadrant requires more rules and more discipline.

The most disciplined quadrant is the I quadrant. It has the most rules and the least freedom.

FAQ

Why does the I quadrant have the least freedom?

Short Answer

Because you’re using OPM, other people’s money.

Government regulations are extremely strict when you use OPM. In the United States, there are agencies like the SEC, the Securities and Exchange Commission, that regulate and monitor I-quadrant activity.

FAQ

Is the I quadrant where you find most of the financial corruption?

Short Answer

Yes.

Explanation

The I quadrant breeds financial corruption.

This is where Bernie Madoff lived. He was never really a B-quadrant entrepreneur. He was an I-quadrant entrepreneur, a guy who pulled off the second-biggest Ponzi scheme in history. The biggest Ponzi scheme of all time, in my opinion, is the U.S. government’s Social Security program, also an I-quadrant scam.

Many small entrepreneurs break the laws of the I quadrant out of ignorance. They raise money when they do not yet have a business — when they have no business raising money.

Simply put, if you are going to raise money in the I quadrant, it is best that you know how to build a sustainable business in the S or B quadrant before raising capital. This is also why rich dad required me to take real estate investment courses. He wanted me to practice using a banker’s money to fund my real estate business. He wanted me to use a bank’s money before I used OPM, money from friends and family, to fund my businesses.

As rich dad often said, “When you lose a person’s money, you lose a part of their life.”

Once I learned to raise money from bankers for real estate investments, I began raising funds for oil and gas limited partnerships via PPM, private placement memorandums. I did this in the 1970s and 1980s.

In 2004, I sold my first business via an IPO, an initial public offering. I went from bankers’ money, to private offerings to public offerings. It was all part of my financial education in the I quadrant.

FAQ

Will I learn to raise capital in GEO?

Short Answer

It depends.

Explanation

Remember: You should know how to build S-and B-quadrant businesses before raising capital in the I quadrant.

There are many people who are so desperate for money that they focus on the I quadrant, and not the S or the B quadrant. This is why frauds, scams, and rip-offs abound in the financial world.

These people want to raise money, but are not entrepreneurs.

Before we will teach people about the I quadrant, Rich Dad wants to make sure the person is a well-trained, disciplined, ethical, and moral entrepreneur. If you know how to build a B-quadrant business, money from the I quadrant will find you.

Bonus FAQ #8: What’s the Big Win?

FAQ

What is the greatest benefit from Rich Dad’s financial education?