Why I Invest in Business
The following are some excerpt from the book Rich Dad's Retire Young, Retire Rich: How to Get Rich Quickly and Stay Rich Forever! by Robert T. Kiyosaki. It's a great book that I highly recommend that you read and apply. I am going to share the passage that summarizes the reason I invest in business.
“A few months ago, a noted investment advisor from a famous bank and I were being interviewed on a radio program. The noted advisor was brought in to challenge the ideas I wrote about in Rich Dad Poor Dad. He started out,
“Robert Kiyosaki states that people should start their own businesses if they want to be rich.
What Mr. Kiyosaki fails to realize is that most people cannot start their own businesses. Starting a business is far too risky. Statistics show that nine out of ten businesses fail in their first five years. That is why Mr.
Kiyosaki’s ideas are risky. Ask him what he has to say about those facts.”
The radio commentator, happy to have some controversy on his show, asked me in a gleeful tone, “Well what do you have to say about those facts, Mr. Kiyosaki?”
Having heard this many times before, I was ready to take on the verbal challenge, calmly. Pausing a moment, I cleared my throat and said, “I have seen and heard those same statistics quoted before . . . and from my experience, I would say those statistics are accurate. I have seen many businesses fail before their fifth anniversary.”
“So how can you recommend people start their own businesses?” asked the noted advisor with a hint of anger in his voice.
“First of all,” I replied, “I do not recommend people start their own businesses. I state that everyone should mind their own business. When I say
‘mind their own business,’ I mean they should mind their investment portfolio. That does not necessarily mean start their own business, although a well-run business is often the asset that makes the rich very rich.”
“So what about the risk?” asked the noted financial advisor. “What do you think about the nine out of ten businesses that fail?”
“Yes. What about that?” asked the commentator a little less gleefully after realizing the discussion was not escalating into an on-air argument.
“First of all, while nine out of ten do not make it, notice that one out of the ten does make it. Once I realized that the odds were nine out of ten do not make it, I knew that I needed to be prepared to lose at least nine times.”
“You were prepared to lose nine out of ten times?” asked the financial advisor with a sarcastic tone.
“Yes,” I replied. “In fact, I have been part of the nine that did not survive.
In fact I have been that nine out of ten that did not survive twice, but then I made it on my third try.”
“So how did you feel when you failed?” asked the investment advisor, who was an employee of the bank and not an owner of a business. “Was it worth it?”
“I felt terrible the first time I failed. It felt even worse the second time. But yes, to me, it was worth it. If I had not failed twice, I would not have retired eighteen years early nor would I be financially free today,” I replied. “It took me a while to recover each time.
Yet even though I felt bad, I was mentally prepared to keep going ten times, even twenty times, if I had to. I did not want to fail that many times, but I was willing.”
“It sounds too risky for me and it is too risky for most people,” said the advisor.
“I agree,” I replied. “It is especially risky if you are not willing to fail or fail only once before you quit. It’s even worse if you think that failing is bad. I was taught by my rich dad to understand that failing is part of winning. Even though I was successful in the past, I still realize that the odds remain the same. Every time I start a business, I continue to be aware that nine out of ten do fail.”
“Why do you say that?” asked the commentator.
“Because I always need to remain humble and respect the odds. I have seen too many people build a business, make a lot of money, get cocky, and start another business thinking the odds are now in their favor. While their odds may have improved a little because of their past experience and success, we all need to be humble enough to know that the odds remain nine out of ten for all start-up businesses.”
“That makes sense,” said the commentator. “So today when you start a new business you still remain cautious. You still respect the one-out-of-ten possibility for success.”
“That is correct,” I replied. “I have had several friends get cocky and put all the money from their last business into a new business and then lose it all.
If you want to be successful in life, you need to always be respectful of the odds, regardless of how successful you were in the past. Every professional blackjack player knows that just because they drew an ace and a king their last hand, it does not change the odds for their next hand.”
“I’ll keep that in mind,” said the commentator.
“I still think it is too risky,” said the advisor. “You and your book are dangerous. Most people cannot do what you do. Most people are not prepared to run their own business.”
“Do you agree?” asked the commentator.
“There is some truth in that statement also,” I replied. “Our school system trains people to be employees rather than to be business owners and that is why most are not prepared to run their own businesses. So I would agree with our noted advisor.”
Pausing, I let my comment of agreement settle in. I was doing my best to not get into an argument, even though I felt provoked by the investment advisor. Continuing on I said, “Yet I will remind you that less than 100 years ago, most people were small independent businesspeople. Many of us had relatives who were farmers or owners of small businesses. They were all entrepreneurs. People 100 years ago were strong enough to run their own businesses in spite of the risks. It was only until people like Henry Ford began building mega-businesses that more and more people became employees. Yet even with the advent of mega-businesses like Ford or General Electric, small independent businesses continue to thrive.
“In fact, small businesses are responsible for almost all of the job growth and are responsible for a large portion of all taxes collected. So in spite of the risks, more and more people continue to start their own businesses. Without them, there would be much higher unemployment. Without these individuals willing to take risks, we would be a financially backward nation. Free en-terprise gives us all the opportunity to take risks and grow. If these individuals did not take risks, our nation would not be as prosperous as it is today. People who take risks increase prosperity.”
The interview went on for another ten minutes. There was no resolution and no agreement. It was obvious we came from different realities. As the conversation without agreement continued, I could hear rich dad saying,
“Many arguments in real life are caused by differences in reality.”
The Risk-Reward Ratios Are in Your Favor
One of the things I wanted to say to the advisor was that the risk-reward ratio was in my favor. But that would have certainly led to an argument . . . a test to see who was right and who was wrong. I did not make my point on the radio, but I want to explain my point to you . . . the point that there is risk in what I do but it does not have to be risky.
Years ago, rich dad explained to his son and me the importance of knowing the risks, the rewards, and having a winning strategy . . . a winning strategy that included losing. Rich dad was aware of the nine-out-of-ten failure rate of most start-up businesses. He was also aware that the reward for making it only one out of ten times far outweighed the risk of losing nine out of ten times. Rich dad further explained his position by saying, “Most people think only in the realm of what is smart and what is risky.
Financially intelligent people think in terms of risk and reward. In other words, instead of immediately saying something is too risky, or right or wrong, good or bad, financially intelligent people weigh the risks and they weigh the rewards. If the rewards are great enough, they will come up with a strategy or a plan that will increase their chances of success regardless of how many times they will lose before they will win.”
“A few months ago, a noted investment advisor from a famous bank and I were being interviewed on a radio program. The noted advisor was brought in to challenge the ideas I wrote about in Rich Dad Poor Dad. He started out,
“Robert Kiyosaki states that people should start their own businesses if they want to be rich.
What Mr. Kiyosaki fails to realize is that most people cannot start their own businesses. Starting a business is far too risky. Statistics show that nine out of ten businesses fail in their first five years. That is why Mr.
Kiyosaki’s ideas are risky. Ask him what he has to say about those facts.”
The radio commentator, happy to have some controversy on his show, asked me in a gleeful tone, “Well what do you have to say about those facts, Mr. Kiyosaki?”
Having heard this many times before, I was ready to take on the verbal challenge, calmly. Pausing a moment, I cleared my throat and said, “I have seen and heard those same statistics quoted before . . . and from my experience, I would say those statistics are accurate. I have seen many businesses fail before their fifth anniversary.”
“So how can you recommend people start their own businesses?” asked the noted advisor with a hint of anger in his voice.
“First of all,” I replied, “I do not recommend people start their own businesses. I state that everyone should mind their own business. When I say
‘mind their own business,’ I mean they should mind their investment portfolio. That does not necessarily mean start their own business, although a well-run business is often the asset that makes the rich very rich.”
“So what about the risk?” asked the noted financial advisor. “What do you think about the nine out of ten businesses that fail?”
“Yes. What about that?” asked the commentator a little less gleefully after realizing the discussion was not escalating into an on-air argument.
“First of all, while nine out of ten do not make it, notice that one out of the ten does make it. Once I realized that the odds were nine out of ten do not make it, I knew that I needed to be prepared to lose at least nine times.”
“You were prepared to lose nine out of ten times?” asked the financial advisor with a sarcastic tone.
“Yes,” I replied. “In fact, I have been part of the nine that did not survive.
In fact I have been that nine out of ten that did not survive twice, but then I made it on my third try.”
“So how did you feel when you failed?” asked the investment advisor, who was an employee of the bank and not an owner of a business. “Was it worth it?”
“I felt terrible the first time I failed. It felt even worse the second time. But yes, to me, it was worth it. If I had not failed twice, I would not have retired eighteen years early nor would I be financially free today,” I replied. “It took me a while to recover each time.
Yet even though I felt bad, I was mentally prepared to keep going ten times, even twenty times, if I had to. I did not want to fail that many times, but I was willing.”
“It sounds too risky for me and it is too risky for most people,” said the advisor.
“I agree,” I replied. “It is especially risky if you are not willing to fail or fail only once before you quit. It’s even worse if you think that failing is bad. I was taught by my rich dad to understand that failing is part of winning. Even though I was successful in the past, I still realize that the odds remain the same. Every time I start a business, I continue to be aware that nine out of ten do fail.”
“Why do you say that?” asked the commentator.
“Because I always need to remain humble and respect the odds. I have seen too many people build a business, make a lot of money, get cocky, and start another business thinking the odds are now in their favor. While their odds may have improved a little because of their past experience and success, we all need to be humble enough to know that the odds remain nine out of ten for all start-up businesses.”
“That makes sense,” said the commentator. “So today when you start a new business you still remain cautious. You still respect the one-out-of-ten possibility for success.”
“That is correct,” I replied. “I have had several friends get cocky and put all the money from their last business into a new business and then lose it all.
If you want to be successful in life, you need to always be respectful of the odds, regardless of how successful you were in the past. Every professional blackjack player knows that just because they drew an ace and a king their last hand, it does not change the odds for their next hand.”
“I’ll keep that in mind,” said the commentator.
“I still think it is too risky,” said the advisor. “You and your book are dangerous. Most people cannot do what you do. Most people are not prepared to run their own business.”
“Do you agree?” asked the commentator.
“There is some truth in that statement also,” I replied. “Our school system trains people to be employees rather than to be business owners and that is why most are not prepared to run their own businesses. So I would agree with our noted advisor.”
Pausing, I let my comment of agreement settle in. I was doing my best to not get into an argument, even though I felt provoked by the investment advisor. Continuing on I said, “Yet I will remind you that less than 100 years ago, most people were small independent businesspeople. Many of us had relatives who were farmers or owners of small businesses. They were all entrepreneurs. People 100 years ago were strong enough to run their own businesses in spite of the risks. It was only until people like Henry Ford began building mega-businesses that more and more people became employees. Yet even with the advent of mega-businesses like Ford or General Electric, small independent businesses continue to thrive.
“In fact, small businesses are responsible for almost all of the job growth and are responsible for a large portion of all taxes collected. So in spite of the risks, more and more people continue to start their own businesses. Without them, there would be much higher unemployment. Without these individuals willing to take risks, we would be a financially backward nation. Free en-terprise gives us all the opportunity to take risks and grow. If these individuals did not take risks, our nation would not be as prosperous as it is today. People who take risks increase prosperity.”
The interview went on for another ten minutes. There was no resolution and no agreement. It was obvious we came from different realities. As the conversation without agreement continued, I could hear rich dad saying,
“Many arguments in real life are caused by differences in reality.”
The Risk-Reward Ratios Are in Your Favor
One of the things I wanted to say to the advisor was that the risk-reward ratio was in my favor. But that would have certainly led to an argument . . . a test to see who was right and who was wrong. I did not make my point on the radio, but I want to explain my point to you . . . the point that there is risk in what I do but it does not have to be risky.
Years ago, rich dad explained to his son and me the importance of knowing the risks, the rewards, and having a winning strategy . . . a winning strategy that included losing. Rich dad was aware of the nine-out-of-ten failure rate of most start-up businesses. He was also aware that the reward for making it only one out of ten times far outweighed the risk of losing nine out of ten times. Rich dad further explained his position by saying, “Most people think only in the realm of what is smart and what is risky.
Financially intelligent people think in terms of risk and reward. In other words, instead of immediately saying something is too risky, or right or wrong, good or bad, financially intelligent people weigh the risks and they weigh the rewards. If the rewards are great enough, they will come up with a strategy or a plan that will increase their chances of success regardless of how many times they will lose before they will win.”
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