skills, but with little leadership ability. For example, a friend of a friend came to me because he wanted to raise some money to start his own restaurant. He is a brilliant and well-trained chef with many years of fine dining experience. He had a unique new concept for his restaurant, a well-written business plan, great financial projections, a great
location already selected, and a clientele that would follow him to his new restaurant. All he needed was someone to invest $500,000.
It has been five years since he wrote his business plan. It is a great plan, but everyone he has asked to invest in his business plan, including me, has turned him down. Today, he is still working in the same restaurant as an employee; he is still a great chef; and he is still looking for the $500,000 in start-up capital. I do not know why the other investors did not invest with him, but I can tell you why I did not invest. The following are the reasons I did not invest:
Reason #1: Although he had experience, charm, and charisma, he lacked the leadership skills to inspire confidence. Although he could start a restaurant and run it successfully, I doubted if he could make it a big restaurant chain. His lack of confidence said, “I’ll be successful, but I will always be small.” In other words, he has great management skills, but I doubt if he has the leadership skills required to make his plan work. I do not doubt that he could manage 10 restaurants, but I doubt if he has the leadership skills to build a business that built 10 restaurants. He needs a business partner with the leadership skills and the business skills, but being a typical person moving from the E to the S quadrant, he does not want partners. He wants to build his dream business on his own.
Reason #2: When you look at the CASHFLOW Quadrant, the difference between the S and B quadrants in size. For example, if you heard someone say, “I want to open a hamburger stand on corner of 6th Street and Vine Street,” you would know that this person would most likely be stuck in the S quadrant for a long time. Now if you heard someone else say, “I want to open a hamburger stand on every major street corner in every major city throughout the world, and I will call this business McDonalds,” you would instantly know that this person plans to open the same hamburger stand, but this person plans to build a business in the B quadrant. In other words, it is the same hamburger business but from different quadrants. My rich dad would have said, “The difference in the number of street corners is the difference of leadership.”
Therefore, I did not invest because I doubt if I would have ever gotten my investment back. It wasn’t because the business would fail, but I doubted that I would get my money back because he would have probably always remained small, though successful. In addition, if he did pay it back, it might take a long time to get it back. If you ask most professional investors, they are not interested in how good a restaurant is. They want to know how big the restaurant chain will grow.
Reason #3: The third reason I did not invest is that if he was to remain small, then why should I invest? I would be excited to invest if he was going to be big, and possibly turn my $500,000 into tens of millions of dollars. By lacking the leadership skills to make the restaurant big, it was doubtful that he could turn my $500,000 into millions of dollars. That is the price of lacking the leadership skills to take a business from the S quadrant into the B quadrant. As my rich dad said, “Money does not go to the business with the best products or service. Money flows to the business with the best leaders and management teams.”
Reason #4: The fourth reason for not investing with him was because he had to be the smartest member on his team. He had an ego problem. As my rich dad often said, “If you’re the leader of the team and you’re also the smartest person on the team, your team is in trouble.” What my rich dad meant was that in many S quadrant businesses the head of the business is often the smartest person. For example, you go to see the doctor or dentist – not the receptionist – for your medical and dental needs.
In a B quadrant business, leadership skills are important simply because the B person has to deal with people who are much smarter, more experienced, and more capable than he is or she is. For example, I saw my rich dad – a man without any formal education – deal with bankers, lawyers, accountants, investment advisors, etc., in order to do his job. Most of them had master’s degrees and some doctorate degree. In other words, to do his job, he had to lead and direct people who were far more educated and educated in many different professional fields. In order to raise money for his business, he often had to deal with people who were far richer than he was.