Build a profitable business- the baby steps part 24

Create an income stream. We are not talking about getting youself a second job here. What we are saying is that the sooner you manage ro get something going for you that generates a positive cash flow on  a consistent basis the sooner you are likely to become rich. If possible that positice cash flow should rely sa little as possible on you and your input. The best possible scenario is if you manage to create some kind of passive income. Why is that so important? It´s important because as soon as you get a regular positive cash flow stream coming in, you can use that cash flow stream to invest in other businesses or opportunities. Hopefully, some of those other businesses will someday also start creating a positive cash flow. and that is how you create an exponential type of growth. But you have to somehow create a positive regular cash flow in order to be able to accomplish this. We know several entrepreneurs who did this. One entrepreneur started out with one hot dog stand. Since it was a net cash flow positive business each year he started another one. That one made a positive cash flow as well. He got hooked. And he just kept going. His chain of hot dogs stands pretty soon became a national success and he eventually sold of for a hefty sum of cash. That´s just one story of many. Another example we know of is an entrepreneur that started a very popular bar. That bar was very successul and it provided him with a healthy positive net cash flow each year. After a couple of years he used some of that cash to invest in another enterprise that belonged to a friend of his. Another couple of years later he ran across another business opportunity so he invested in that one as well. Today he is worth a ridiculous amount of money. He owns businesses in a dozen different industries. Among his holdings are hotels, car wash establishments, restaurants, rental buildings, compartment stores and coffee shops. And it all started with that one bar. And the positive cash flow it created. Get some positive cash flow going for you. It could lead to great things.

There is another reason that the positive cash flow is likely to lead to great things. It allows the entrepreneur to be bold and take risk. Hell, you could even take on substantial risk. Say you are expecting a net positive cash flow of 100.000 dollars each year from a businesss you´ve created. Well, now you can take thos 100.000 and invest them in another business idea or opportunity. And you can afford to lose it. You´ve got another 100 grand comin up next year. You can afford to live a bit on the wild side. Now, we are not saying you should start splashing that cash around each year just becasue you can. We are simply suggesting that you can afford to have another look at a business idea you would have previously walked away from. You can afford to take on some risk. And we know from experience that some of the best investment opportunities out there come with a bundle of risk attached to them. It might be smart and calculated risk. But it is still risk. And there are precious few investors out there who will be willing to bet the house on something that carries a considerable amount of risk. Now, if you have a regular cash flow injection into your savings account each year that´s kind of a major game changer. Suddenly you can invest in that potential blockbuster business idea. In fact, you can probably invest in several of them over the years. the risk is ok. As long as it is smart and calculated risk you figure you should do well in the long run. We agree. So go get that first enterprise, idea, dividend yielding stock market portfolio, business entity or whatever off the ground and get a meaningful yearly cash flow stream in place. Then use that cash flow to take smart and calculated risk. It´s as simple as that. Really.

Don´t be that guy. The guy who values the company astronomically. The guy who is living in a dream world. The guy who wants to receive but is never prepared to give. Who has a naive view on what successful business is all about.  Who has no business plan . You don´t really need much of a written bussiness plan. Just a short document will do. IF you know what you are talking about. If you don´t have a clue about anything, you should probably do a more detailed business plan and write down all the neccessary actions you need to get done. You should also specify how much your gross sales and profit target will be over the coming years, and how exactly you are going to accomplish turning a profit.  Don´t be that guy when you pitch either. You won´t believe the number of times we get pitched business ideas that are so awful we almost feel embarassed on behalf of the supposed entrepreneur presenting the business idea. In some cases we sit through the meeting and try to be polite about it. That probably has to do with the fact that these meetings are very often set up or requested by mutual friends or aquaintances. So we say thank you, but no thank you. And then we go puke. Some of the pitches we have heard over the years are so ridiculous that we wonder how clearly intelligent people came up with them in the first place. Some people have offered us, and some other investors the “once-in-a-lifetime opportunity” to invest some $ 20 million in a new asian hotel. Our investment was going to fund the building of the hotel. And for that honour we would get a share of 15 percent of the hotel´s revenues over the first 10 years of business. When we fisrt heard the pitch we thought we had misunderstood something. Turned out we got it right. We took 100 percent of the risk. They took 85 percent of the profit (if there was any profit). They would let us have 15 percent of the profits during the first 10 years of the operation. They started out offering us only a 10 percent stake. But they ended up giving us a tad bit more just to sweeten the deal a little. Magnanimous souls. It´s all true. Some people won´t believe us when we tell them this story. The sad part is that gentlemen doing the pitching are actually entrepreneurs themselves. They operate pretty small enterprises, but still they are entrepreneurs. Kind of made us stop and think.

This kind of behaviour is actually not that uncommon. Over the years we have encountered so many “great opportunites” by otherwise quite intelligent people, where the punch line was that we took all the risk and they took all the reward. We got to put our money into the business. And they ended up taking any money coming out of the company. At least that was what their proposal stated. So how do you deal with braindead ideas like these. We try to be pretty straightforward yet polite about it. Now, the amazing part is that many (if not most) of these morons become quite angry about it. In many cases they are angry because they feel we are bad-mouthing their baby (idea). And in some cases they are simply angry because we don´t want to give them the money they need to become rich. We are cheating them from what is rightfully theirs to have. The fact that they have come before us with an “investment opportunity” that would leave us in financial ruin if we were to accept, doesn´t even cross their minds. That´s the beauty of these people. They have no problem at all with demanding something in exchange for nothing. They are delusional to the point where they think that everything is about them and making them rich. The world owes them. And to top it all of they figure they are way smarter than you are. In case you do not figure this out on your own they will find ways to convey this to you. Now, they don´t tell it to your face. They deliver the bad news in a more sophisticated matter. Some of them go to great lengths not to reveal their own brilliant minds or your own limited intellectual capabilities. It´s not uncommon for them to let hilarious comments slip such as “I am widely recognized for my expert negotiationg skills” or “I have lots of fantastic million-dollar ideas but this is the first I´ve acted on”. As you might guess most of them turn out to be terrible at everything they claim to excel at. We have spent the better part of out lives negotiating. We don´t claim to be “super-experts”, but we are certainly not bad at it. And we too have had an idea or two over the years. As a matter of fact each of our companies is based on an idea we had at one point in our lives. We know for a fact that ideas are a dime a dozen. Even some of the really good ones. Ideas are cheap, action is priceless.

I always love it when we ask these individuals how much of their own money they are going to invest in this fantastic business opportunity. The answer is pretty much always the same. “Not a penny. That´s why we came to see you”. When we press them on this particular issue and suggest they should at least risk some of their money into the idea just to show they are committed something amazing happens. They become very angry. Why on earth would they want to risk their own money. That is our job, don´t we see. They don´t wan to risk any money. They just want to collect all the profits. That´s their job. How could you even ask them of such a stupid thing? We are not overdoing it. Seriously. We´ve had almost this exact conversation with at least 7 or 8 people over the years. You´d be amazed at some of the offers we have received. One individual wanted us to fund his business 100 percent, pay him a grand salary (guranteed over the next five years) and for that we would get a 20 percent stake of his business. Problem is he had no business. He had an idea about a website. He had been thinking about that particular idea on and off for the past 3-4 years. And he figured that if we only gave him the cash he needed he could make his dream come true. We asked him what our investment would be used for. He knew the answer to that one alright. Half of the money would be needed to pay off a web designer and some consultants. He knew nothing about neither the web nor the particular industry he was about to enter. That´s why he needed to hire the neccessary expertise to get the website done and fill it with appropriate content. The other half of the money he wanted to keep as a nice backup for other brilliant ideas he might have and of course to ensure himself that he would have enough to pay himself salary over the next five years. When we asked him what he would be doing in the company we got one of the msot aggressive stares we have ever recieved in our lifetime. He was clearly provoked by our line of questioning. I genuinely think we hurt his feelings. He truly felt we had no right to question him or his motives. After all he had this great idea. The way he saw it we were just coming along for the ride. We were trespassers. He was in charge. He was the man in possession of the brilliant idea. And he could always take his great idea elsewhere. The way he figured it, others would fight to get a piece of the action he represented. When all had been said and done we politely declined his generous offer and in the end we all went our separate ways. We later learned he had told some of our friends that we were lousy bussinessmen with a bad and unprofessional attitude. That really made our day, and to this day we are still joking about it in our head office.

We don´t know what it is that creates such irrational behaviour among individuals who are clearly intelligent in other areas of their life. We believe it has to do with their intense desire to get rich quick. The desire to become rich easy. And the desire to “become or be someone”. We know from experience that money makes people do the funniest of things and these “You provide the cash and I take all the profit” kind of deals just might be one of the best examples for that particular observation of ours.

Don´t be that guy. We beg of you. Please don´t be that guy.