a 4A BRS CU BRIAN SHER VIKING an imprint of PENGUIN BOOKSviking Published by the Penguin Grosp Penguin Books Australia Lid 250 Camberwell load, Camberwell, Victoria 3124, Australia Penguin Books Lee ‘80 Strand, London WO2R ORL, England Penguin Putnam Inc 375 Hudson Street, New York, New York 10014, USA Penguin Books, 9 division of Pearson Canada 10 Alcor Avenue, Toronte, Ontario, Canada MAV 3E2 enguin Books (NZ) Lid Chr Rosedale and Airborne Roads, Albany, Auckland, New Zealand engin Books (South Afica) (Pry) Led 724 Sturdee Avenue, Rosebank, Johannesburg 2196, South Attica Penguin Books inca () ted 11, Community Centre, anchsheel Park, New Delbi 110.017, India "rst published by Penguin Books Australis 2002 so9s76sa321 Copyright © Baan Sher 2002 “The moral sight ofthe anthor has been asserted All sights reserved, Without limiting the sights under copyright reserved above, ‘no pat of this publication may be reproduced, stored in or introduced into a retrieval sysiem, or transmitted, In any form or by any means (electronic, ‘mechanical, photocopying, cording or otherwise), without the priar written Permission of both the copyright owner and the above publisher ofthis book. ‘Cover design by John Canty, Penguin Design Studio ‘Typeset in 10/15 Stone Serif by Post Pre-press Group, Brisbane, Queensland Printed and bound in Austeala by MePhetson’s Printing Group, Maryborough, Victoria ‘National Library of Australia (Cataloguing-tn- Publication data Sher, Brian ‘How to make money out of thin at ISN 0670 04069 X, 1, Sucoess in business Til 3367 ‘eve penguin.com.auDedicated to those who have travelled their own journey, who have suffered pain, loneliness and defeat, but eventually have experienced the joy of achievement, success and happiness. Most of all, though, this book is dedicated to Fi - you have a beautiful heart and are rich beyond your dreams.MONEY-BACK GUARANTEE ‘The ideas contained in this book are timeless and fool- proof. They have been tried and tested over and over again by thousands of people all around the world. Tam confident they will work for you as they have worked for me, if you are prepared to honestly go on and have a go. If indeed you have done this and can demonstrate these ideas did not contribute to improving your finan- cial prospects, I will be happy to personally refund you the purchase price of this book. Life is about constant learning and I look forward to hearing any comments or other thoughts from you. [can be reached directly at [email protected]. I hope I can include your success story in my next book.CONTENTS Introduction SPN ATE E 10. nas 12. Secrets of the rich How rich are you? Making money out of thin air If you want to be rich, don’t go to school ‘The fastest way to make money ‘My business successes and failures You need a rocket to reach the moon If you can't sell it, it’s not worth a thing ‘Twenty habits of the world's least valuable businesses ‘Twenty habits of the world’s most valuable businesses The world’s most successful and unsuccessful habits ‘Twenty-eight habits of the world’s least successful business people 12 18 22 26 31 35 40 47 61 87 9213. Forty-two habits of the world’s most successful business people 14. Twenty-six secrets to making money out of thin air 15. Will you become a millionaire? The beginning Selected reading o4 161 205 210 212“The credit belongs to the man who is actually in the arena... . who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.’ ‘THEODORE ROOSEVELT, in a speech at the Sorbonne, 1910INTRODUCTION Make money . . .and out of thin air! I can hear the critics sharpening their pencils and the cynics saying, ‘Oh sure, we've heard this all before.’ This is perfectly understandable, as on the surface making money out of thin air seems like an unbelievable claim. To be honest, I was cynical myself when I first learned of this practice. But what made me look beyond my initial distrust was that I did not want to work hard for a living. I wanted to work smarter and less ~ to enjoy the finer things in life and to have the time to enjoy them. While deciding how to achieve this, | remembered a statement my father once made: ‘Never work with your hands - it will never make you rich!’ Although Iwas not lit- erally working with my hands, I knew I was not far off this in the wealth-creation stakes, as I was working hard and was not exactly rich, I had a head full of great ideas and con- cepts, and was working at a frenetic pace, running around selling these ideas. ! earned a good living, but that was all. So, I needed to learn more. | needed to learn how and2 HOW TO MAKE MONEY OUT OF THIN AIR what the rich were doing that I wasn’t. There was obvi- ously a difference in the way we thought and how we operated, and while others loved my ideas, it was still them making the money and me just earning it! I set out to try to change all that by studying what they did, the way they thought and the way they operated. After a while I realised their habits were not rocket science and it was entirely possible to make money out of thin air. Please don't think I am suggesting a get-rich-quick scheme of any kind in order to make money. Nor is it an easy path to success, but it is certainly easier than work- ing hard for years and years with nothing to show for it in return. Too many people find themselves in this situ- ation far too late in life. If you wish to achieve success, it requires nothing more than changing your attitude as you approach your next business venture. And this simple change will be worth millions of dollars to you. How do I know, with such certainty, that it is pos- sible? Because what I am about to teach you is what the rich and super-rich do every day. I have encountered it many times in daily life, and read about it every day in the newspapers. The rich are masters at it, And if you read this book and take it all in you can become a master, too. WHERE TO FIND GOLD It took three years to get around to writing this book, after many requests to follow up my previous book,INTRODUCTION 3 What Rich People Know and Desperately Want to Keep a Secret. 1 did not succumb to these requests as I felt I could not add much to what I had said in that volume, or to what thousands of other business authors have said over the years. Literally billions of words have been written since Napoleon Hill’s Think and Grow Rich was first pub- lished in 1960, and if you were to go back and read this outstanding book, it’s all there ~ nothing more could be said about acquiring wealth, Until now. ‘As I met new challenges in my life over the interven- ing period, it became obvious to me that there are new ideas that can help make making money a little easier. And although every success principle has already been written about ad nauseam, becoming rich is obviously still a complex topic or everyone would be successful and tich. ‘The world is a fast-changing place, and riches are to be found not in knowing the principles, but in the clear, strong and definite application of those principles. The chronic failure rate of start-up business is a testimony to how important the application is. This is the focus of my book, as there are always new ways to apply timeless ideas. Welcome to making money out of thin air.chapter 1 SECRETS OF THE RICH ‘JUST MAKE MONEY’ How many times have you heard people use the words ‘make money’? I just want to make money. Or, I need to make more money. Thousands of times, I’ll bet, and you've probably said them to yourself. Although the words spoken might be identical, what ‘poor people’ (that is, people with a ‘poor’ mentality) mean when they say them is completely different to what the rich mean, The ‘poor person’ looks for ways to do the only thing he or she knows how - that is, to sell more of their time. And this can mean only one thing: working longer or harder. When a rich person speaks about making more money, what they mean is very different from the poor person. When rich people use the words ‘make more money’ they are talking about ‘creating wealth’. They never mean selling their time, By the time you reach the end of this book I amSECRETS OF THE RICH 5 certain you will agree that there are millions of dollars difference between these two identical statements — ‘making more money’ has a double meaning, and that meaning depends on who is saying the words. UNLEARN A ‘POOR’ MENTALITY Most of us are prepared from birth, by our parents and ‘our schooling, simply to conform. Society teaches us nothing more about money other than to go and get a job ~ that is, to sell our time. Whether we join one of the so-called professions (law, medicine, accountancy) or whether we sweep floors in a factory, it amounts to the same thing: when we stop working, it (the money) stops. ‘We spend thirteen years at school and leave knowing how to do little more than survive financially. Since the majority of us become employed and have ‘jobs’, the major- ity of us will simply sell our time for the whole of our lives. This ‘time sale’ keeps us ‘poor’ (or unrich). It was passed on to us by our parents, and we will it pass on to the next generation and the next... And so the ‘poor’ mentality continues. Ironically, though, every day we wake up and dream of being rich. We observe the guy or girl in the new car that ‘costs more than our house’. This sparks our desire to become rich, We imagine what it would be like to have more money than we know what to do with and, for a brief time, relieve ourselves of reality by playing make-believe and becoming a child again.6 HOW TO MAKE MONEY OUT OF THIN AIR For most of us, this is as close as we'll ever come to achieving riches. We soon snap back to the reality of mediocrity, held back by a fear of stretching the bound- aries. But the relative few who do not lose their dream in this way will set off on a different journey~a journey like no other they have ever experienced, a journey so challenging, so demanding, and yet so exciting, that it brings new meaning to the way they live their lives... ‘They decide go into business for themselves. Unfortunately, in the end, many of these dreams are shattered too, when a business ends in failure. The majority who fail do so not because of a lack of dream- ing, not even for a lack of desire, but for the lack of one simple thing . . KNOWING WHAT RICH PEOPLE KNOW ‘Those who go on to succeed do so because they know one thing that others don’t, and that is how to make money. What's more, they don't make money the hard way; they seem to do it effortlessly - out of thin air. ‘Making money out of thin air is possible if, and only if, you believe it is possible. And I will demonstrate to you throughout this book how this can be done, by any- one willing to practise the ideas that have made many people millionaires. Many people never stop to question what they are doing. They simply get up in the morning, go to work and do the same thing as they did yesterday. Then sud- denly one day they get the idea that they can becomeSECRETS OF THE RICH 7 overnight millionaires by investing in shares or property or get-rich-quick schemes. ‘The fastest way to make money and become rich is in fact not through shares or property investment ~ these are slower methods to create wealth. The fastest way to make real money is through starting or building a suc- cessful business. Here's an illustration of the average kind of return you can achieve from various types of investments per annum, Notice I have listed both income and asset growth, as it is mot the income but asset growth that creates wealth for you. Investment _Income return _Asset growth Bank 6% Property 57% Shares 10-15% Own business 100-200% ‘There is no doubt that the fastest way to get rich is by ‘making money out of thin air through building your own business asset. But not just any business will be prof- itable: some businesses are not worth anything, although they are undoubtedly successful, The business you start or build must become valuable to someone else in ‘order to make you rich. Take, for example, a brain surgeon who has his or her own medical practice. People go to this surgeon because of his or her skill and reputation. The surgeon may turn8 HOW TO MAKE MONEY OUT OF THIN AIR ‘over many millions of dollars per year and live well, yet this business is worthless to someone else and therefore not going to make the surgeon rich. Just going into any business for yourself is not a sure- fire way to achieve weaith. Indeed, for many it's a sure-fire way to quick failure and the loss of everything they have ever worked for. Statistically, about 90 per cent of people who start up a business make an elementary mistake, and this mistake is made well before the business ever begins. At best, this single error will end up costing hundreds of thousands of dollars; at worst it costs the entrepreneur everything. But this costly mistake can easily be avoided by learning from the mistakes of others before you. By the time you have read this book, you will know how two people can go into business at the same time, even expand their businesses at the same rate, yet within two to three years one business will be worth millions and the other worth virtually nothing. The same time, effort, energy, focus and care may be expended by the founders of the businesses, yet one will be millions of dollars richer, the other a lot poorer. This single idea is worth millions of dollars to any- one in business or contemplating going into one. The secrets of making money have never been revealed like this before, and have been kept a carefully guarded secret by those who know how to make money out of thin air.SECRETS OF THE RICH 9 STEALING FROM THE RICH TO GIVE TO THE POOR This book is based on my observations of rich and suc- cessful people. I have written it to provide you with a wealth of insights into the thought patterns, ideas and habits that are common to all those who have made a success of their business lives. It is different from every other book on creating wealth in one very important respect: it not only exposes you to multimillion-dollar ideas and ways of conducting your business and life that will richly reward you, it also provides you with a unique opportunity that no other book has ever offered before . . . It gives you a step-by- step formula so you can apply these ideas for yourself. It will not just leave you hanging in the air by telling you that you can and must do ‘it’. This book will specifically lead you to the only con- clusion you can make - and that is if you wish to achieve your goal of making more money in life, you have no choice but: * to think differently, and * to know what rich people know. And what do rich people know? That working harder is not the answer to making money - it’s learning how to make money the fastest way you can . . . and that is out of thin air,10 HOW TO MAKE MONEY OUT OF THIN AIR A SECRET FILE! Michael Wrubleski (founder of the Sydney Kings basket- ball team -the man who revolutionised the sport of basketball in Australia) on one occasion said, to my sur- prise, ‘Brian, there are no secrets in life. Everything is out there... If it’s a secret it’s just that you don’t know it yet, but others do.’ ‘As the founder and managing director of Vision Publishing, a major Australian business publisher, I came across timeless ideas that have directly and indirectly added greatly to my life. Over the past eleven years Thave been fortunate enough to come into contact with almost all the great business writers and self-development educators working in the field today. I have read hun- dreds of books on business success, and met many of their authors. I've created international seminars with some of the leading business and management thinkers in the world. It's not just meeting great minds and reading their books that has given me inspiration. I've also been lucky enough to build a successful business myself from scratch, to make it grow, and in the process to work with some of Australia’s leading business people—and, of course, make money out of thin air. Thave had successes and failures on a daily basis, as I still do today. (People are shocked to discover I still fail.) These great experiences mean that I've lived and worked both in a world of ideas and in the practical world of business, I've had the chance to taste both,SECRETS OF THE RICH «LL and to take what I can to make my life as successful as I can. This experience has allowed me to move on to new and exciting projects and opportunities asa per- son, with greater knowledge and fewer boundaries, All the while I have been making notes, collecting ideas and keeping them in a secret file (it’s a secret because only I know about it), Because of these opportu- nities I feel fortunate to be able to bring together my ideas in a new way in this book. I have connected these ideas ~ ideas of enormous value - and share them with you in a form that will hopefully give you a fresh way of thinking about money and success. So, let's begin right now with a critical question .chapter 2 HOW RICH ARE YOU? “We are, all of us, richer than we think we are.’ MICHEL DE MONTAIGNE I wish to restate my position on becoming rich so you understand my priorities in life. While being rich is important, it is not the most important thing - if you doubt this ask anyone in a cancer ward in hospital. What does being rich mean to you? Are you rich if you have more money than your par- ents? Your friends? Your neighbours? Or do you have to be as wealthy as Kerry Packer - or Bill Gates? Would you be rich if you could afford a new car or would it have to be a Porsche? If you could pay all your bills every month? Perhaps you wouldn't consider yourself rich until you never had to worry about money ever again. Being ‘rich’ can - and does ~ mean very different things to different people. Almost everyone you know wants to be richer than they are at the moment. Almost everyone wants to makeHOW RICH ARE YOU? 13 more money. But it is important to understand that being rich in life isn’t simply about making more money. Many people mistakenly believe this is the case. Money is something you can use to get things done and the more money you have the more things you can do. Many things are more important than money: a lov- ing partner, a supportive family, friends you can trust and depend on, a career you enjoy .. . You might be rich, but without these things you won't enjoy life as much as you could. Happiness is largely based on non-material things: your health, your attitude to life, your feeling of self- worth and your core values and beliefs. And living life to the full is about focusing your emotional energy in posi- tive channels, and directing this energy into everything do you, at work or play. I've often heard people say, ‘If I had more money, I'd be happy.’ But they are wrong. Don’t misunderstand me of course money makes life easier. With money you won't lie awake at night worrying about the bills and you will feel more secure. Money can give you opportu- nities, too, such as the freedom to move in circles barred to poorer people, or to have experiences out of the reach of others. Money cannot buy happiness. ‘Many people lose sight of this. They make enough money to afford an enormous house, but it doesn’t feel like a home. They can throw a successful party for dozens14 HOW TO MAKE MONEY OUT OF THIN AIR of acquaintances with expensive food and wine, but have no one to confide in when they feel lonely. In the end they realise —far too late! - that they have wasted their lives pursuing riches, when they wanted happiness instead. There is a big difference between being rich and being happy, and the difference is this: «being rich is Getting What You Want! * being happy is Wanting What You've Got! If you think accumulating money will bring happi- ness, think again. If you are rich in possessions but poor emotionally or spiritually, you are a bankrupt soul. Happiness is about a balance in all aspects of your life, material and emotional. Each individual must find the balance that is right for them. Only then will you be rich, If you are ‘financially rich’ you can pretend that you are happy, and may even mislead others into believ- ing it, but you cannot kid the most important person: yourself. WHO IS RICHER? This book has been written for those who are looking for a balance between happiness and wealth, who are will- ing to work to achieve this, and who can commit themselves to the effort necessary to become rich, Just remember, right now before you go on, that the world is full of people who are much poorer in material things than you but who are extremely happy nonetheless. ‘A wise man once said, ‘I do not envy people whoHOW RICH ARE YOU? 15, have more money than me, but I am envious of people who are happier than me.’ You can only be rich if you are happy, but you may not necessarily be happy if you are rich. People who pursue happiness through a mistaken belief that money will deliver it not only never reach their happiness goal, but the acquisition of riches actually takes them further away from this goal than they ever could have imagined. You can recognise these people, Tam sure ~ their friends and family are usually also mud- dled about money and happiness. Such people have very little understanding of true values, equating spending money with emotional satisfaction. Kenny Rogers, the famous country and western singer, said in an interview that to be rich you need to ‘love what you do, have somebody to love and have a future to look forward to’. A very powerful formula for everyone. A DARING ADVENTURE Helen Keller said: ‘Life is either a daring adventure or nothing at all!’ ‘There is no doubt that life is a daring adventure. And this is how the rich approach life. They see life as a game a game they wish to win. They are never left wonder- ing ‘what if?’. You must decide how you wish to live your life. This is your God-given right, and every day you wake up you make that choice for yourself. Some people choose to take the safe toad, and life for16 HOW TO MAKE MONEY OUT OF THIN AIR them is good when it is constant, structured and pre- dictable. Others choose to look on life as an adventure, hoping and praying - even needing ~ that each day will bring them new and ever more exciting challenges. This is what ‘turns them on’, this is what makes them tick, this is what gives them life and a reason to get up in the morning. For those who choose the predictable path, nothing could be more crazy, or stressful, than to live life this way, yet for those who choose an unpredictable existence, a life of structure and predictability would be worse than a prison sentence. Each to their own, However, [ assume you are read- ing this book because you are one of those restless souls who needs to seek adventure, although you will have regretted it many times, wishing you had not embarked ‘on such a risky course and promising yourself it would be the last time - yet, given half a chance, you will jump right into the next one. ‘To some this is a burden they carry around their whole lives, while to others it’s just what they have to do. Either way, these people are the ones that ‘make things happen’, risking failure, criticism and ridicule throughout their lives. Just a few hundred years ago they would have been bumed at the stake, or excommunicated. The world needs these people, as without them no progress would take place. If they were not prepared to risk everything to create something that nobody has envisaged needing or wanting, we would not have many of the great comforts and conveniences we take for granted today.HOW RICH ARE YoU? 17, Consider this. The chief engineer of the British Post Office said in 1876: ‘We don't need a telephone, we have plenty of messenger boys.” In 1943 the chairman of IBM, Thomas Watson, pre- dicted a world market for just five computers, ‘The chief engineer of IBM in 1968 commented about a microchip: ‘But what is it good for?’ Gordon Moore, co-founder of Intel, said in 1970 that home computers would be a waste of time. Both Atari and Hewlett-Packard turned down the idea of a personal computer presented by the devel- opers of Apple and told them to go back to college. ‘The great Bill Gates forecast in 1981 that personal computer memory of 640K should be enough for anybody. Be daring or be nothing at all.chapter 3 MAKING MONEY OUT OF THIN AIR WHAT YOU NEED TO SUCCEED To achieve success fifty or sixty years ago, even ten years ago, required a completely different way of thinking than it does today. Why? Fierce competition. Competition is everywhere now and it's growing fast. Today, business works more like the ‘law of the jungle’ than ever before. Only the fittest will survive. There is no room for complacency or second best. If your business is weak it will die or be chomped up by a stronger or more aggressive competitor. ‘To make matters worse, customers are more educated and demanding, and indeed your competition may not be who you believe it is any more. Your competitor is not just the rival business on the opposite side of the road that sells the same products as you, but every other business out there, whether or not they sell the same products as you. In the twenty-first century, ‘retail’ com- petes for the consumer's dollar with ‘entertainment’,MAKING MONEY OUT OF THINAIR 19 “Your competition is Disneyland, McDonald’s or Sears’. Your reaction to this may be the same as mine was. How can anyone suggest these companies, thousands of miles away, are competing with me when my business is absolutely nothing like theirs? ‘The answer is simple. Disneyland, McDonald’s and Sears (and thousands of others) set an incredibly high and ever-increasing standard in customer service and expectations. Once your customer has experienced their level of service, the service they were once happy with from you is no longer good enough. And your customer has thousands of other choices - unless you continually lift your game. ‘Yesterday's world records are today’s qualifying times.’ This is as true in business as it is in sport. We can no longer afford to be close enough to be good enough. We need to be good ‘enough to be good enough. HOW TO MAKE MONEY ‘There are only five ways to make money that I know of. You can: * inherit it or marry it~ if you are lucky enough * obtain it illegally, either by theft or fraud, both of which are risky as well as unethical * invest your savings - usually profitable, so long as you have the right financial skills, good advisors and. plenty of patience20 HOW TO MAKE MONEY OUT OF THIN AIR * work —but this won’t make you rich without lever- age, which I will cover later (see page 65) * go into business - which won't make you rich either, unless you know the right rules. John Paul Getty set out the basic rule of wealth cre- ation in his book How to Be Rich: you must be in business for yourself. He made it clear that you will never end up rich if you are an employee. People who have amassed wealth through a business have always understood this. But there is more to the point than meets the eye, and this is the entire purpose of my book: Going into business won't automatically make you rich, but it is the fastest way to achieve this goal ~ if you get it right! WHY SOME PEOPLE NEVER GET RICH Statistics predict that of those people in the workforce at present, only five per cent will be independently wealthy at retirement. Think about that statement: only five per cent of people aged sixty-five will be able to support themselves financially without a govern- ment pension or other assistance. How depressing! Age creeps up on you, especially as you approach forty or fifty and, in panic, you suddenly realise that you are not going to be in that five per cent. What are the reasons behind such a low percentage being able to retire comfortably? Why is financial independence so hard to achieve? The answer is simple —MAKING MONEY OUT OF THIN AIR 21. education has failed the vast majority of people. They have never learned: ‘+ how to make enough money + how to keep it «how to use it wisely.chapter 4 IF YOU WANT TO BE RICH, DON’T GO TO SCHOOL In high school there was a migrant boy in my class who quit school at thirteen. We all thought this kid was crazy. He was destined for a low-paying job, we all agreed! I had the good fortune to meet him later in life. I was happy to discover he was far wealthier than all my peers at school who had remained within the education system — including those who had joined the various professions. I discovered through this serendipitous meeting that if you finish school, get a degree, join the workforce at twenty-four and stay there, you will never financially catch up the ten years you would have had if you had begun work at fourteen! As children, everyone -in Western democracies ~ is given a basic education. We learn reading, writing, math- ematics. We are not taught many important life skills. However, we're expected to take our place in the world ofIF YOU WANT TO BE RICH, DON'T GOTO SCHOOL 23 industry or commerce and get a job—or join the dole queue if we're unlucky. We have no skills in entre- preneurship; no idea how to set up our own business. ‘The education system doesn’t prepare us to make our way in business. Schools require kids to learn formulas, not to do any independent thinking. The topics of mak- ing and keeping money just aren’t addressed at our schools and universities. Even so-called ‘business courses’ concentrate on management skills and reading spread- sheets rather than the nitty-gritty of making money. HOW DUMB PEOPLE BECOME RICH Is there any link between wealth and education? All the evidence seems to show that there isn’t. A university graduate may command more money in his or her first job than a sixteen-year-old apprentice, but when it comes to making serious money, education isn’t a factor. Never confuse lack of formal education with lack of intelligence or knowledge. People who make a lot of money, enough to be financially independent, are edu- cated. They may not have been taught what they know at school or university, but there’s another way of gaining an education, and I call it attending the ‘School of Wealth’. IT PAYS TO BE A DROP-OUT There are numerous stories of people who have become fabulously successful in business without a formal education beyond school.24 HOW TO MAKE MONEY OUT OF THIN AIR ‘Take Tom Monaghan. Tom opened a small pizza shop in 1962 when he was just twenty-three years old. He had no degree, no experience and just enough money to get started. Initially things did not look good: his first week’s sales were just $99. By 1987, however, Tom’s business had grown to 2500 stores around the world, and turned over $2.5 billion in sales. This grew to $500 stores and $3.5 billion in sales in 1997. In 1998 Monaghan sold 93 per cent of his business ~ now a chain of 6100 stores — and still had no ‘education’. So where did he get the knowledge that made him successful? Wealth education is about going out and try- ing things, not being afraid to take risks, learning from your mistakes ~ and your successes. SUCCESS IS SO SIMPLE Dave Thomas, founder of Wendy's hamburger chain, left school after year ten. He began his education at the age of twelve, working at a lunch counter. He spent time as a cook in the army, worked in sev- eral restaurants and as a manager of a KFC store, which led him to open his first Wendy's store in 1969. His stores today number more than 4020. Yet one thing he notes about education is that many people, especially those with degrees, out-think themselves. He maintains that success is not about complicated theories found in university lecture rooms, Success, he believes, is simply knowing what people want and helping them get their money's worth - simple!IF YOU WANT TO BE RICH, DONTGO TO SCHOOL 28 ‘I know how to make a great hamburger,’ he says. ‘We give customers good food, clean restaurants, polite service at a good price.’ Really! Do you need to go to university to know this? Of course not, but success is about knowing this deeply and intrinsically, and building your whole busi- ness based on these principles. How can you learn the principles? Study the successes. Successful people write autobiographies, and they gener- ally set out their business principles clearly there. It’s not an ideal way to learn. Face-to-face is better, but it is a place to start. As time goes by and you gain more experience, you will manage to meet your role models and learn more. It isn't a secret: throughout history students have assimilated what their masters have done, branched out on their own and improved on past practices. And it’s the only way you can fast-track your education. Don’t just concentrate on the successes of others, Learn from their failures too. Study how they spend their money as well as how they make it. Use others’ experience ~ it is invaluable.chapter 5 THE FASTEST WAY TO MAKE MONEY You can make money by playing the stock market or investing in property, yet the fastest way to get rich is by going into business for yourself. But going into business for yourself is not enough. You need to go into the right business and set it up in the right way from the start, or there is over 90 per cent chance that you will fail. ‘WHY PEOPLE DON’T MAKE MONEY — IN FACT, MOST LOSE MONEY The statistics published about new businesses are damn- ing: four out of five of such enterprises fail within five years. And of the remainder, four out of five of them will go under within the next four years. ‘This means that of the one million or so businesses now operating in Australia, only about 40 000 will still be open for business in nine years! It seems unbelievable, doesn’t it? But the rest, 960 000 of them, will have closed‘THE FASTEST WAY TO MAKE MONEY 27 their doors (voluntarily or through liquidation), merged with a competitor, been bought out or in some way have moved into another business. But that’s not the most worrying statistic: of those remaining businesses, most of them aren’t making a profit. It has been estimated that of the 40 000 still oper- ating, about 15 per cent-remember, that means just 6000 businesses from the original million — will be mak- ing a significant profit. The other 34000? Hanging on, breaking even, or losing money. Before you can ever hope to make money, you must understand why people lose money - 0 you can avoid repeating their mistakes. WHY DO SO MANY BUSINESSES FAIL? I've seen it all before. Probably so have you. People full of energy, full of dreams, who decide to give up their job, start their own business, become their own boss and become rich in the process. They know they are good at what they do, they understand the marketplace they are pitching their product at ~ why shouldn’t they succeed? They are full of enthusiasm and the desire to create wealth, That's their dream, usually to make a million or ‘two, enough to live comfortably, with a beach house, a boat and a fast car... It’s not unusual. Many thousands of people set up their own businesses every year. They start a company,28 HOWTO MAKE MONEY OUT OF THIN AIK offer a product or service and wait for success to roll their way. All too often, it doesn’t. The dream evaporates in front of their eyes. ‘What goes wrong? ‘The new entrepreneur sees others succeed, so believes that he or she can too. It can’t be that difficult, can it? Michael Gerber examined the reasons why busi- nesses fail in his insightful book The E Myth, and concluded that many were due to a condition he called ‘entrepreneurial seizure’. People who succumb to entrepreneurial seizure are often those who are very good at their job. They are excellent plumbers, architects, pastry cooks, computer sales people . . . They are trained to do their jobs and acquire skills through years of experience. But being the world’s best plumber doesn’t mean you have the skills to run a business. In business you need to cope with employing others, to find a niche in the market- place, to deal with the resultant paperwork, and to keep your vision alive and the business growing. Running a business is a skill, one that must be learned, and all the budding entrepreneur's previous skills and experience may be worthless when it comes to this new challenge. And those who suffer an ‘entrepreneurial seizure’ take big risks. Businesses don’t just need a telephone: they need premises, equipment or stock, furniture. All the little things add up~-new entrepreneurs need to consult lawyers and accountants, get letterhead and business cards designed and printed. To get the businessTHE FASTEST WAY TO MAKE MONEY 29, off the ground they either use their savings, or borrow the money. And the only security the bank will accept? Their home. It’s an exciting time and they get carried away with the setting up of the business, but haven't thought through the most critical points: + how they will attract customers in the first place + how they will keep them, and * if they do manage to succeed, is this business one they can sell profitably? The result: very quickly the budding tycoon realises that they haven't got a viable, expanding business. They have a job with no prospects. And it’s a job where they have to work harder, for less reward, than they would ever have dreamed of doing for an employer. They can’t take holidays, not even proper weekends off. If they don’t keep working at this increased pace, the result may be financial meltdown, bankruptcy, the loss of their house. Family life suffers from this stress. And there's no way out. It's usually far too late to start learning how to run a business when you've already made fundamental mis- takes. But if you don’t learn how to do it properly ~ and quickly ~ the business will fail. ONLY THE BRAVE OR FOOLISH GO INTO BUSINESS We've established that success or failure will depend not on how well you know your job, but whether you can30 HOWTO MAKE MONEY OUT OF THIN AIR master the skills of running a business. Let’s now take a realistic look at what ‘being in business’ really means. Most people who go into their own business simply have no concept of the problems that will arise. They have had no experience of running a business, so cannot prepare themselves for it. These skills are not taught at school! Coping with the day-to-day running of a business will be the most difficult challenge they have ever had in their lives. However successful a business looks from the out- side, it will have problems. No business runs itself, and these problems have to be addressed constantly. And the health of the business will depend on how you address these problems, and being able to move on despite them. Being in business is not all glitz and glamour. It’s a constant battle to overcome problems and obstacles. ‘This is the reality and don’t for one minute think it’s any different. That's why it's called business and not sport. However, it doesn’t hurt to think of the challenges of business in a similar way to how we view sporting chal- lenges. This can help alleviate some of the seriousness and negativeness that can creep into your day when you focus solely on problems. If you approach your business with a sense of fun as you would a sport, you will find you will enjoy the challenges more and find creative solutions a lot faster.chapter 6 MY BUSINESS SUCCESSES AND FAILURES Let me share my experience with you. I put the same effort into two businesses but experienced two very dif- ferent outcomes: one success and one failure. Some important lessons can be learned by contrasting these two experiences. Having begun a career relatively late in life, after studying at university and then travelling, I found myself behind my colleagues in the ‘getting a job stakes’ It was 1989, and there was a recession. People my age who managed to get the jobs that were available had more hands-on experience than I had. After months of doing the rounds, I realised 1 had little hope of getting a job, which led me to despair. The conclusion I came to, after trying conventional ways of seeking employment, was that the only alternative was to set up my own consulting business and become self- employed. Many people who find themselves in my situation do just this, It was great! I went from being unemployed to being,32 HOW TO MAKE MONEY OUT OF THIN AIR self-employed ~a better option. Very soon, however, I realised that I did not have a business after all, but sim- ply a job working for myself. This had some benefits, yet none of them were immediately going to help me reach a position of financial security or make me rich. This ‘business’ gave me much-needed cash flow, yet the income I earned was dependent on personal effort and the selling of personal time, which was no different to being employed in the conventional workforce. A SINGLE CHOICE THAT KEEPS PEOPLE POOR I did what many people do, and it keeps them in the cycle of poverty or running faster on the treadmill of life. ‘The worst possible option you can take in choosing how to become financially independent is to sell your time. It makes no difference if you are selling your time because you are employed in a job, or have your own consulting business, or any business where you sell your time to anybody else. This includes many professions, such as doctors, dentists, lawyers, plumbers, accountants — all well paid yet very poor at being able to get rich from their activities. People in consulting businesses can earn up to $500 000 per annum or more, and live well, yet are not‘MY BUSINESS SUCCESSES AND FAILURES 33. ‘wealthy. They depend on their ongoing ability to sell their time in order to maintain their expensive lifestyles. A nice car (leased) and nice house (heavily mortgaged), kids at private schools and maybe a little money left over to buy some shares - these people are no better off than someone earning less who is employed in a job. The con- sultant may drive a new BMW and the wage-earner may drive a new Ford but, frankly, there’s not a lot of dif- ference in their financial situation. Having had this life-changing realisation, 1 made a conscious decision that my consulting business was going to be short term until I could find a business that ‘was time leveraged. By ‘time leveraged’ I mean a business where the income that is earned is not directly linked to my personal effort. After approximately two years of looking I came across an opportunity, which I named Vision Publishing. This idea behind Vision Publishing was to summarise business books and sell these by subscription to busy executives (busy selling their time). This was a great busi- ness, as it had many of the attributes of some of the most valuable businesses in the world. (Much more on this later.) 1 built up the business, and five years later sold my shares to my partners. This single event taught me the biggest lesson about making money out of thin air, and one I wish to ram home to you throughout this book. It is a lesson that up to that point - even while expanding the business —I was not aware of.34 HOW TO MAKE MONEY OUT OF THIN AIR ‘The number one principle in creating wealth is: Never build a business — build a valuable asset to sell. ‘This is how you make money out of thin air. ‘The payment I received was the biggest cheque I had ever seen in my life. Receiving that money brought this point home to me loud and clear.chapter 7 YOU NEED A ROCKET TO REACH THE MOON Can you fly to the moon? Of course not. Or can you? If you had a rocket, and years of training, then it would be possible to fly to the moon. However, without a rocket it’s impossible. In fact, you cannot even fly next door without some sort of vehicle. And it has to be the right one. Imagine trying a moon launch in a 747 jet. It’s a great vehicle, but no matter what you do, a 747 just won't make it into space. In order to make money you need the right vehicle and that vehicle needs to be a business, but—as I have said before — not just any business. You need to be in a business that has many of the right attributes, one that will abso- lutely maximise your ability to make money out of thin air. THE FATAL ERROR THAT KEEPS PEOPLE POOR ‘Throwing off the shackles of a job, taking control of your life by becoming an entrepreneur and going out36 HOW TO MAKE MONEY OUT OF THIN AIR and laying it all on the line with your own business is not the answer. Not all businesses are equal and businesses do not get up and make money on their own. There is a lot more to it. This is like trying to reach the moon with a kite. Making money requires you to have the right skills, and the right vehicle. The fatal mistake many people make, either due to a lack of money or not thinking the process through, is to go into a business that requires ‘them to sell their time or to make money from their per- sonal effort. If you are contemplating going into business, there is ‘only one reason to do this - to create wealth. The success- ful achievement of this goal will give you absolute personal freedom, something everybody aspires to. In other words, essentially you want to get rich not for the sake of being rich but so you can choose how and when you work and how you wish to spend your time, freeing you for the things you really want to do in life, You could spend more time with your kids, your partner, play golf or tennis, relax, travel, or whatever it is in life that fulfills you. It is hard to argue that anyone wants to go into busi- ness for any other reason than to create wealth, in order to gain personal freedom to do what they choose. WHAT DOES ‘MAKE MONEY’ MEAN? ‘Make Money’. Let's get down to it - what does this mean? As | outlined earlier, ‘poor people’ get making money confused with earning money. The rich do not!Fi YOU NEED A ROCKET TO REACH THEMOON 37 ‘There is a big difference between the two. Making money is not achieved by focusing on eaming an income. It is done by focusing on building an asset. Anyone can start a business. But building this into a valuable business asset requires a totally different mind- set, which you need to have from the outset. What is the difference between a Business and a Business Asset? It is simple. * A Business is a money-producing organisation that is centred on a single individual and his or her personal efforts. My consulting business fell into this category. Any business selling time or products that is based on a single person’s effort - or unique skill - falls into this trap. * A Business Asset, on the other hand, is a money- producing organisation that is not centred on a single individual and his or her personal effort. It is centred on built-in systems that anyone can operate and administer. It is thus easily transferable or saleable without the purchaser needing special skills. ‘My publishing business fell into this category. There is a world of difference — and the difference is massive in terms of the wealth you will create and the life you will enjoy. Why am I spending so much time on this point? If you are going into business and about to make the biggest decision of your life to throw off the perceived security of a job, with its predictable weekly income, in favour of going out on your own and risking everything, working longer and harder, with more stress and financial38 HOW TO MAKE MONEY OUT OF THIN AIR risk then ever before, you may as well get paid as much as you can for this risk. Many people, however, do not! And the best way to get paid for this is to build the most valuable business asset you can. ‘What you do and how you do it is up to you. I will provide you with a powerful step-by-step approach to maximise your chances of success and to minimise your tisk in the following chapters. At this stage the point I do wish to make is... The only reason to go into business is to make ‘money out of thin air. ‘You must not accept any other reason for embarking on this perilous adventure, It is an adventure that can sap your energy, drain your emotions and put you into bankruptcy quicker than anything else if you get it wrong. Your goal in going into business is not to eam money. It is to make money out of thin air by doing two things simultaneously: * generate an income and + build a saleable asset. At first, it’s not even important to make a profit. Take Amazon.com: since its inception, Amazon.com has never made an annual profit, yet it is valued, as of February 2002, at AUS10-15 billion. Obviously, in order to build a saleable asset you need to generate an income. This means you must sell some- thing for a profit and continue doing this. Most importantly, though, you need to ensure you are buildingYOU NEED A ROC! sTTO REACH THE MOON 39 your business in a way that means it is fully systemised, by which I mean it does not rely on you or your personal effort to keep it running and generating income. If you are able to do this you will have successfully built a saleable asset.chapter 8 IF YOU CAN’T SELL IT, IT’S NOT WORTH A THING Consider this: what would your house be worth if no one wanted to buy it? What would it be worth if you discov- ered it had been built over a toxic waste dump? There would be no buyers- your house and land would be worthless, If you were going to build a house from the ground up, you would look for a piece of land that was in a great posi- tion, with views, close to transport, shops and schools, convenient for friends and family to visit. Then you would build a house that was appealing in looks, size and living areas and had all the modem conveniences. Why? Because you know houses like this are in good demand and, if and when you wanted to sell it, you would get more than it cost you to build, making a great capital gain. Just as you have a choice about where and what type of house you will build (or buy), the same thinking must be applied to your business. And in making this choice you need to consider upfront how you build a business for maximum resale.IF YOU CAN'T SELL IT, IPS NOT WORTH ATHING 41 For your business to become a saleable asset it, needs to be highly tradeable, and for it to be tradeable it needs to be fully systemised - able to run without your personal effort ~ or, better yet, without you being needed at all. Sounds simple? Yes, yet very, very few business people manage this, as not all businesses have this ability to be leveraged. Therefore you need to be careful about the type of business you select. For example, how do you sys- temise what a dentist, doctor or barrister does? Not easily. Therefore it is unlikely they would get much for their business, so, by definition, these businesses are not good saleable assets, and I would advise you not to go into these sorts of businesses Contrast this with Microsoft. Do you think Bill Gates goes in to work to develop the latest version of Windows? Microsoft is a great example of a business with huge saleable ~ ie. tradeable - value. Many businesses have great cashflow yet the owners are unable to sell them as they rely on, or are perceived as relying on, the efforts or reputation of one individual. This makes them almost worthless. Beware of falling into this trap when starting a busi- ness, as it will cost you a fortune. Thad a client who owned a chain of very successful jewellery stores that was worth far less than it should have been. Why? Because it was successful due to the reputation and the perceived personal touch of the owner. ‘The whole industry knew this and admired my client for42 HOW TO MAKE MONEY OUT OF THIN alk his success and sales productivity, yet it was difficult to find a suitable buyer. No competitors would buy the chain, and nor would venture capitalists, as they knew that under their management the stores would not pro- duce anywhere near their current turnover. So, despite its success, the client has been unable to sell this business at the price he works. ‘The net result is that the owner has an exceptionally good income as long as he continues to put in personal effort, but he has built an asset that is less valuable than he hoped it would be. Eventually he will sell this busi- ness, but for far less than it is worth. YOU MUST NOT SELL TIME, YOU MUST SELL BOXES ‘The world’s most valuable businesses all just make a product once and then sell it over and over again. They sell ‘boxes’. I do not literally mean boxes, although in many cases this is what you get. What T mean by this is that they all just make the product once and sell it many times over. Now consider musicians or sportsmen and women. They sell their time, right? Wrong! They package and leverage their time and sell boxes. Musicians record their songs once and sell these hundreds of millions of times over, and receive royalties. Rod Stewart has sold over 100 million albums. It would be impossible for him to have earned the type of money he has made by sell- ing tickets to concerts. Paul McCartney is the top UKWW YOU CAN'TSELL IT, IT'S NOT WORTH ATHING 43 music millionaire, with an estimated £500 million for- tune, again made up almost entirely of royalties. Boxers get paid tens of millions of dollars for a one- hour bout. How? Through leverage of time by the sale of the syndicated TV rights. A single world-title fight can be televised and viewed by hundreds of millions of people around the world — again, an example of highly leveraged time. Packaging and leveraging time is the quickest and smartest way of making money out of thin air. Making the product once and selling it again and again allows you to earn ten times, 100 times, even 1000 times what you could earn by selling your time and, most importantly, your business becomes a very valuable, saleable asset as a result. When I explain this concept at seminars, I always get strange looks and get asked about only ever making the product once. You should only ever design or make your product once, then let the system make it over and over again. You must ask yourself: is the system making your products, or are you? McDonald’s makes millions of hamburgers each day, yet the production of these ham- burgers is fully systemised and it is the system that makes them, not the founder Ray Kroc or the new own- ers today. Now, contrast this with a brain surgeon. The surgeon is obviously a brilliant person and gets well paid,44 HOWTO MAKE MONEY OUT OF THIN AIR but every time he or she operates, the product needs to be tailor-made for the patient. There is no asset created and therefore no ability to sell his or her business, nor the opportunity to make money out of thin air. I hope you are getting the picture. If you take an idea and build it into a business that is systemised and saleable because it is tradeable, and you do this in just a few years, consider what you have done. Correct! You have just made money out of thin air because you have taken nothing but an idea and turned it into an asset for which someone is prepared to pay you hundreds of thousands ~ or millions ~ of dollars. BECOME RICH BY EARNING LESS - EARN. $50 000 RATHER THAN $150 000! Let's assume you are earning $150000 a year in a job, and you give this up and go into your own business, but now you are only able to draw, say, $50 000. Many people would feel far worse off. You might think your venture into business has been a failure. However, if you are able to sell your business after three years for $600 000 you are in fact far, far better off. You have now earned $200.00 per year, not $150000 per year. What if you are able to sell your business for $6 million after three years? You do the maths. This is entirely possible if you adopt the advice in the follow- ing chapters.IF YOU CAN'T SELL IT, IT'S NOT WORTH ATHING 45 WHAT IS YOUR EXIT STRATEGY? This is a vital component of the value of your business. The last thing that goes through anyone's mind when looking to start a business is how they are going to sell it. There is enough to think about just trying to start it up and make it survive the first couple of years. Not one in a thousand people who start or go into their own business have any plan of how they might sell it until it’s too late. This is a very big oversight. It is somewhat under- standable, yet unforgivable if you are seeking to make ‘money out of thin air, From a ‘making money out of thin air’ perspective this question needs to be addressed not when you ate in business but before you get into business. If this is not considered up front, you will find it more difficult to attract seed or venture capital, as no one is going to invest in your business without an ability to get their money out in a two- to five-year period. OF course, once you have started your business you may decide that you never want to sell; however, if you struc- ture it well from the outset, at least you have a choice, and at best you have a very valuable asset if you decide to change your mind. BEGIN AT THE END Begin where many people don’t. Begin with the end in mind. ‘What this means is that you need to look at businesses that are the most saleable and the most tradeable - and46 HOW TO MAKE MONEY OUT OF THIN AIR therefore the most valuable. And ask yourself: What do ‘the most valuable businesses have in common? You can, as | have done, study the world’s most valu- able businesses and produce a list of the traits or attributes they have in common, that make them the ‘most valuable to a purchaser or investors. If you look at businesses such as Microsoft, McDonald's, Telstra, Starbucks or Wal-Mart, you will begin to identify traits or habits that make them so valuable. In contrast to this, you should also study businesses that are difficult to sell and therefore have no real value. ‘These will not help their owners make money out of thin air, And it is precisely these businesses that are the most common and are for sale everywhere. Just look in the classified section of any newspaper. It’s full of them.chapter 9 TWENTY HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES The bonsai shop in Bellingen has recently gone broke. Let me tell you about Bellingen. It is a small town 35 km inland from Coffs Harbour in northern New South Wales. The local population is 11 420 and, apart from a few celebrity neighbours like Russell Crowe and George Negus, it is not a high socio-economic area. It is therefore screamingly obvious that opening a bonsai shop reflected very little other than the owner's inter ests, not the needs of the typical local customer. It certainly went against everything I am teaching in this book. So, one wouldn't need to be a genius to predict the demise of this business even before it started. In my opinion, to make such a shop work you would need a far larger population catchment, one of at least 100.000 people, with a greater cultural diversity, as a bonsai business is addressing a niche market. Niche mar- kets typically only work in heavily populated areas ~ this48 HOW TO MAKE MONEY OUT OF THIN AIK is why we see extremely specialised stores in places such as New York, with a massive population base to sustain such a level of specialty. The smaller the population, the greater the need for diversity in the product or products you're offering. Now, while I am making an example of the bonsai shop that no doubt left its owner financially worse off, this example is no different to literally thousands of businesses all around the country that end in failure. Over the years, I have seen quite a bit of business failure. According to the Insolvency and Trustee Service of Australia, more than 26000 people filed for bank- ruptcy in 2001, making it the worst year on record, and many of the bankruptcies will have been caused by busi- ness failure. Failed businesses are always forgettable and have no real excitement or brand. And they all make the same mistakes, have the same bad habits (there are, of course, exceptions to every rule and you may find there are busi- nesses that defy my findings, but this is not common). ‘These are the habits you must avoid in your own business if you wish to make money out of thin air. So let’s look at these mistakes and at the world’s least valuable businesses. Their bad habits essentially fall into twenty different categories. 1. SMALL MARKETS There is nothing wrong with identifying a good niche market, as outlined above. In fact, that's how the best20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES 49) small businesses get a toe-hold in their marketplace, but there's a world of difference between a winner - like the Stanley Street Butcher in the Sydney suburb of St Ives - and the Bellingen bonsai shop. Whereas the bonsai shop had no target market, the Stanley Street Butcher sells kosher meat and brands quite familiar to people from South Africa which they can’t purchase anywhere else, and St Ives has a very large South African population. This gives the butcher a point of difference, which has enabled him to survive outside the mainstream. However, the world’s least-valuable businesses focus on a very small market segment, with very little growth potential. Examples may include your local motor mechanic, clothes shop, solicitor, watchmaker, shoe repairer and hamburger store. 2. COMMODITY ‘ME-TOO’ PRODUCTS ‘The world’s Jeast valuable businesses are usually sellers of products or services that have no real differences or advantages (or certainly none perceived by the cus- tomer) from commonly available big brands. They can only ever capture a relatively small percentage of the market and they can’t compete on margins. For example, you'll always be struggling if you are producing a cola drink, however pleasant, in a marketplace overrun by Pepsi and Coke.50 HOW TO MAKE MONEY OUT OF THIN AIK 3. POORLY LEVERAGED PRODUCTS SELL TIME Poorly leveraged businesses sell products that are made ‘over and over again, or they will be businesses that sell their time, Here are a few examples. © It takes twenty minutes to give a $15 haircut. And thirty to forty-five minutes to do a shampoo, cut and blow-dry. © It takes a real-estate agent approximately six to eight weeks to clinch a sale of $200 000 ot less. * It takes one month to hand-sew a $1000 patchwork double-bed quilt + It takes six months to build a house - three months of paperwork and council negotiations, and three months to build it. «It takes seven to ten minutes for a chef (in an Italian restaurant) to prepare a $13 dinner. 4, NO RESIDUAL INCOME Some businesses always ‘look for the next sucker’. The best examples come from big cities like New York and Hong Kong, where the owner-operator has to close a transaction fast because they know they will never see you again. There is no plan or ability to make repeat sales and the focus is on one-time-only sales. It might work in cities with a population of 20 million, but it won't work in Australia. I call these transactional-focused businesses, where20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES $1. they see their customers as a transaction, not a relation ship. These businesses have to bear a very high cost of acquiring new customers - they have to be situated in high-traffic and thus high-rent areas. Repeat business is a foreign concept to them, yet that's where the value of a business lies. 5. POOR SYSTEMS, LABOUR INTENSIVE Ihave mentioned this before in this book and will men- tion it again, as it is so critical, Businesses that create no value for their owners are ones that have no ~ or poor - systems in place to handle the processes of their busi- ness, It becomes far more time consuming, and therefore costly, to run and operate such a business, as it generally results in people with high skill levels performing tasks that could be done by less skilled, lower-paid people. It therefore requires a business to become far too depend- ent on a highly skilled labour force. 6, USUALLY DEPENDENT ON ONE OR TWO PEOPLE Businesses with no value are usually one- or two-person dependent for all or most functions of the business. I have heard people use the term ‘chief cook and bottle washer’. This is not far from the truth. If you plan on set- ting up a business that ends up like this, ask yourself: who would buy this from you? I think the answer is obvious.52 HOW TO MAKE MONEY OUT OF THIN AIR 7. PEDESTRIAN CUSTOMER SERVICE Poor customer service is the end result of the sort of busi- ness described above. In businesses that are unleveraged, and therefore unsystemised, customer service eventually suffers as the owner gets overrun with so many details that he or she forgets - or does not have the time -to attend to the customers. 8. NO BRANDS Low-value or no-value businesses have not built a brand or have no brand recognition. These businesses are usually known only by their generic type, such as ‘the pizza shop down the road’ as opposed to Pizza Hut, ‘the bread shop’ as opposed to Bakers Delight, or the ‘chicken shop’ as opposed to Nando or Oporto. I saw one of these nondescript bread shops going, broke once, in Melbourne's Glenhuntly Road, Caulfield. ‘The owners ‘did a runner’, They had sold cheap bread and they had no point of difference from other bread shops. There was no merchandising and no attempt at brand recognition. If there is any branding associated with such businesses it is usually signage provided by big companies whose product they sell. The small business covers their point-of-sale area with free promotional material provided by big corporations: this might make Coca-Cola even more famous, but the business loses its identity in doing so.20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES $3 9, FOLLOW THE LEADERS These businesses are characterised by their lack of out- standing features. They never seem to stand out. Instead they simply react, following their competitors’ lead, and never innovate or take the lead themselves. They don’t understand the dynamics of business and usually end up in the same place as the ‘horse and buggy’ ~ sooner rather than later. 10. ATTRACT ANYBODY STUPID ENOUGH TO WORK THERE Low-value businesses place little or no value on their employees, if they have any, and don’t spend much time training or attracting them. They usually have high staff turnover and low morale. These businesses see their staff as a necessary evil and an overhead they don’t want but put up with because they have to. They only have staff to do things they don’t want to do - ‘the dirty work’ — and offer no motivation or career opportunities. They usually end up with students, backpackers or transient staff looking for some short-term cash so they can move on as fast as they can. Such companies don’t realise the huge cost of this to their business. 11. REWARD POORLY ‘This very much overlaps with the point above, as low- value businesses don’t want to pay much, so end up54 HOW TO MAKE MONEY OUT OF THIN AIR staffed by people that can’t get a job elsewhere ~ i.e. with ‘someone nobody else wants’. This is not a great way to run a business. I’ve heard these business owners complain that they can never find good staff and there are no good people out there. This is simply @ poor mindset. Think about it. Why would talented people want to work in a dead-end job that is poorly paid and going nowhere? They don’t. If your business can’t afford to reward well, perhaps you should be thinking about the business you are in. 12. LOW MARGINS Low-margin businesses have nothing special that attracts a customer to shop there particularly. They sell mostly ‘me-too’ products and therefore price becomes impor- tant In the customer's decision to purchase. Such customers have no loyalty: they can — and will - simply switch to a competitor, as quick as a wink. Here's a great example we see every day. Think about your last petrol purchase. You probably made your deci- sion to buy fuel where you did because it was one cent cheaper than another service station's price fifty metres away, saving yourself a whole fifty cents on your pur- chase by making a switch. Low-value businesses lose customers for just a few cents, which forces them to cut their prices to keep customers returning. Being in this position drives margins lower and lower, until the point where a business is living on margins that are virtually break-even and the owners are working for free.20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES 5S 13. MANY COMPETITORS Using this service station example (don’t you think it’s ironic we still call them service stations when you get no service at all?), you can see the point becoming clear. ‘When you buy petrol you will generally go to your clos- est or most convenient service station. You don’t even think about the brand because you don’t care as long as it is cheap or cheaper than anywhere else. When you do shop there, you barely get greeted by the poorly paid cashier or owner who hates his busi- ness. This service station looks and feels the same as every other place you might visit. There is no attempt at up-selling or cross-selling (getting the customer to buy something extra on impulse by suggesting they might like to try it). When was the last time you went to a service station and they tried to sell you other products in the store you didn’t pick up yourself? ‘These low-value businesses have many competitors, are generic and customers will simply go anywhere to buy their fuel 14. STAGNATION When was the last time you drove into a service station and said to yourself, ‘Wow, I’m impressed’? Yl bet it wasn’t in the last ten years. They usually look a bit tired, dirty and run down, Many of them end up being bought by developers, as the land is more valu- able than the business. This is the only way service56 HOW TO MAKE MONEY OUT OF THIN AIR station owners have made money out of thin air in the past - if they were smart enough to become real-estate investors by owning their land and sitting on it long ‘enough to realise a capital gain. ‘Wouldn’t you be surprised if you drove into a station and someone ran over to fill your petrol tank, cleaned your windscreen, topped up your water and asked you if you needed anything from the shop before you got on your way? Would you pay a little more for that, or at least tip them and definitely go out of yous way to buy there again? Sure you would! But unfortunately it does not hap- pen, as these owners are so busy shaving their prices they see staff giving service as something they don't want or need. 15. NO THOUGHT ABOUT EXIT STRATEGY Let's say you are an accountant who has realised you've got little chance of becoming a partner in a Big-Five firm, So you decide to open a practice in Warragul, Victoria, How are you going to create a saleable asset out of this, especially if the business depends on your personal effort, or if the clients you have are there because they like you? The answer is you won't. You will feel good about having clients as friends but will have a business that is virtually worthless, with no chance of making money out of thin air. There are businesses like this peppered all over20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES 87 Australia. The owners have to work like mad to make them viable, The business pays a marginal wage and keeps the owner-operator in food and rent, with a simple lifestyle, but turnover can never build to a significant sum. 16. NO CUSTOMER BASE Like petrol stations, newsagencies have no brand loyalty. They cannot determine their fate. They have no identity. Newsagencies are literally not ‘allowed’ to put special- interest newspapers or magazines ahead of the Murdoch or Packer press. And no one would want them to. Furthermore, they have no unique selling point. ‘When was the last time you went into a newsagency and the person behind the cash desk collecting $1.20 for your newspaper attempted to get your name onto their mailing list? Even if they did, they would not know what to do with it. The poorest businesses simply don’t know who their customers are, so ask yourself: what have they got to sell? 17. POOR MARKETING The poorest businesses’ idea of marketing is to open up their stores in the morning and hope people come in, They don’t have the budget, or the knowledge, to develop their marketing. In fact ‘marketing’ is a word they have heard of, but they have never really bothered to find out how it can help them. It often amazes me, especially when I see it happening58 HOW TO MAKE MONEY OUT OF THIN AIR with bookstores. The owners have access to some of the greatest books in the world on business and, guess what? ‘They never even read them. This is like going into your local fitness centre, meeting the owner and discovering he or she is completely out of shape and in poor health ~it just doesn’t make sense. 18. CUSTOMERS ARE A HASSLE Ihave heard people in business saying, ‘Business would be fine if it weren’t for those damn customers’. ‘And they don't mean the odd one. These people are usually in low-value businesses and are overworked because they have no systems to handle any sort of vol- ume. Even normal customer requests for ‘service’ seem to be a hassle for them. They resent giving service as it saps their personal energy and they begin to hate their customers. They know it's time to get out, but can't. ‘They are trapped. They cannot simply leave, as their life savings are tied up in their business. Sooner or later their business will be forced to close, as the business ‘owner will run out of energy or customers ~ or both. 19. DON’T BUILD RELATIONSHIPS, JUST ‘DO TRANSACTIONS’ Would you be surprised if you bought a new car and received a follow-up call or visit from your car dealer six months later to ask if everything was still all right and whether you were enjoying your new car?20 HABITS OF THE WORLD'S LEAST VALUABLE BUSINESSES 59. I would. In fact, if | was sitting down I would fall off my chair. | have bought both cheap and expensive cars, and I can tell you this has never ever happened and probably never will. It’s no coincidence, then, that I have never bought a new car at the same place twice. Why does this happen? The sales culture of these organisations is not focused on building a relationship. The sales staff are purely interested in their commissions, get- ting the deal done, and moving on. The salesperson who sold you the car does not care that in two to five years you will want a new one and would retum if. relationship had been built, because by this time he or she is long gone from the dealership, selling something else as a one-off deal. 20. HARD SELL OR NO SELL Finally, in low-value businesses there may be a ‘hard-sell or no-sell’ strategy. Because low-value businesses have no great competitive advantages they usually need to employ such tactics: they try to sell quickly but if this doesn’t work, they then ignore the customer. These tactics are used by short-term-thinking people who are desperate to make a sale, Alternatively, they may just play the numbers game, not bothering to sell at all, just waiting for a customer to buy simply because of the cheapest price on offer. A car salesperson using such tactics can be charac- terised by a cheap suit and shoes that don’t look right with it, or as someone who does not attend to you when you walk into their showroom, summing you up as just another ‘tyre kicker’ there to waste their valuable time.60 HOW TO MAKE MONEY OUT OF THIN AIR CONCLUSION 1am sure by now there is not a single person who has not experienced all or some of these twenty habits of low-value businesses. Every time you are out shopping or come into con- tact with these sorts of businesses, you will be able to immediately identify one or more of the habits for your- self. Keep a look out as they are not hard to spot, and when you see them consider how much business their owners are losing by continuing to persist with these habits and what it must be costing them in sales... and in building value into their businesses.chapter 10 TWENTY HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES In contrast to the previous chapter, let's take a close look at the habits of the world’s most valuable businesses and what makes them so valuable. The wealthiest companies in the world are capi- talised in the hundreds of billions of dollars, which places a huge value on these businesses, and brings great wealth to the owners. However, total capitalisa- tion is not the most important thing to look at when you are assessing how valuable a business is: look instead at the price earnings ratio (p/e ratio), printed beside the stock price in the business pages of newspa- pers. You will see that most of these ratios are somewhere around 15-20, but some are much higher, even reaching the hundreds. At February 2002, Microsoft had a p/e of 55.26, Alliance Data Systems Corp a ple of 141.10, SmartForce a ple of 461.47, Precise Software Solutions Ltd a p/e of $44.75.62 HOW TO MAKE MONEY OUT OF THIN AIR ‘Whaat this means is that these companies are valued at $5, 141, 461 and S45 times their earnings. What this really means is that people are prepared to invest in or buy these companies at 55 or 545 times the current profit they are making. Investors are prepared to invest on the basis of waiting 55 or 545 years to get 100 per cent return on their money. Now, why would people be willing to do this, when many such investors won’t even be alive long enough to get the money they put in returned? The answer is the theme of this book. It Is the principle about making money out of thin air, and is one that you must learn well. ‘These investors are not after income return. They are after asset growth, and are investing their money believ- ing they will be able to sell their shares in a short period and make a capital gain. In other words, they buy and sell shares to make money out of thin air. ‘That's the game. That's what it’s all about. This is what stock traders do. They shuffle paper and make money out of thin air. Yet this is exactly what many people who sell their time or start a small business do not do ~ and therefore never get rich. ‘To make money out of thin air as a stock trader is a good way of getting rich, but you need to be very skilled at it and be prepared to risk losing a lot, too, as even the best cannot predict market sentiment and other factors affecting stock prices. Making money as a stock trader can be a lucrative business, yet nothing can beat the returns you will get by starting and building your own business from scratch.20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 63 Going into your own business, you should be doing what stock traders are doing with other companies’ shares, except do this with your own shares. Set your business up to become valuable and tradeable, and one day soon these stock traders will be buying your shares from you. And guess who would have made money out of thin air from these very traders? You, of course! Let me now share with you in this chapter some of the attributes that I have studied in the world’s most valuable businesses. We are going to look at many exam- ples of big companies and successful products, to illustrate the points being discussed. You may think these companies and examples don't apply to you, as they are so big and well funded that you cannot emulate what they are doing. If this is your thought process it is completely wrong. These companies were not always big. At one stage or another they were exactly the same size your business is now. They have simply grown big precisely because they have addressed the following habits. The world’s most valuable businesses have all or many of the following attributes in common — and your business should, too. 1, OPERATE IN LARGE MARKETS OR GROWTH MARKETS You should not simply go into a business because you like it and think it is a good idea ~ and your friends do, too. (Having said this, this strategy can work and has64 HOW TO MAKE MONLY OUT OF THIN AIK worked for others, but they have been fortunate and the growth has occurred by accident in most cases.) ‘You must think of your idea in context of the market you are entering and ask yourself: is this market a growth market that has worldwide potential? If the answer is ‘no’, then you're probably already limiting yourself and your ability to make money out of thin air. If, on the other hand, your answer is ‘yes’, then this is an exciting place to start The world’s most valuable businesses have in common the fact that they are operating in large and generally growing markets, So should you. 2. HAVE UNIQUE, TIMELY PRODUCTS Once you have considered your market potential you need to look at your products or services and ask your- self: are they unique or timely or are they commonly available already? If your answer is that they are not unique or timely, you will find your ability to capture a large market share is limited and this will thus limit your tradeable value. If your answer is yes, however, it will allow you the oppor- tunity to charge premium margins, attract many customers and allow you to expand rapidly. Let’s look at examples of this. Viagra is a drug that helps men with impotency problems. This product is unique - there is nothing else quite like it. It addresses a worldwide market and is timely. When this product was first offered for sale it became the biggest-selling lifestyle20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 65 drug ever sold, enormously adding to the value of its ‘owner, Pfizer Inc., a pharmaceutical company. 3. SELL ONLY LEVERAGED PRODUCTS. ‘The world’s most valuable businesses only sell leveraged products Generally they do not sell time as their prime offer- ing. They usually sell packages or packaged products they have only made once - the system takes over from there, It is essential that you heed this advice. No matter how big your market is or how unique your products are, if you do not sell leveraged products there will be a limit to how much you can sell and therefore a limit on the value of your business. ‘Take Microsoft again, as an example. They design unique state-of-the-art software (making it once), then sell as many copies as their factories can burn onto disk, ‘The disk costs a matter of a few cents, yet Microsoft sell the software for hundreds, even thousands, of dollars. What an outstanding business. You have no choice but to pay this price if you want the latest Windows product, as you can’t get it from anyone else. ‘Now, contrast this with our service station example in the world’s least valuable business section (page $4), and recall how quickly customers will shop elsewhere because they will save fifty cents. Which business would you rather be in?66 HOW 10 MAKE MONEY OUT OF THIN AIR 4, HAVE RESIDUAL INCOME This habit of the world’s most valuable businesses is what helps make them so valuable - having a residual income, If you want your business to be extraordinarily valu- able, tradeable and saleable you must have products that you not only sell once but can sell over and over again. Better yet is the situation where you only need to sell them once and after that your customers continue to buy at regular intervals from you: this is having residual income, Companies that do this make millions, if not bil- lions, in profits and are worth huge sums of money. Let’s look at a few. * Telstra, or any well-run telecommunication com- pany, supplies you with a phone and a phone line, then you pay them rental every day for having the right to use the phone line. They don’t have to sell to you again for years, and if they decide to put the price up, you just complain a little but pay their fees and charges. Having competition now in the market has made little difference to this scenario. * Banks. You open an account with your money, which you give to them, and they charge you every month for this, as well as charging you every time you want to make a deposit or withdrawal. What a great busi- ness! Bank loans are similar. The bank sells you a loan product once, yet you end up paying them for twenty to thirty years.20 HABITS OF THE WORLD'S MOST VALUABLE DUSINESSES 67. * Credit card companies, They sell you their card product once and you pay them every time you use it, for years and years. Now you know why these companies have thou- sands of employees, make huge profits and are able to pay the big-city rents. Speaking of rents... . landlords do the same thing. You buy the right to use their home or office space, and you pay them every month, for years in many cases. I am sure you can see the pattern here. Now, contrast this with the sales strategy of a car dealership, shoe shop or burglar alarm company. 1 am certain you are beginning to see the difference - and the resulting difference in values these businesses attract. 5. HAVE GREAT SYSTEMS Many people are confused about systems. What exactly are they and why are they so important? Systems are the only way that will allow you to guard your valuable time and use it to build the busi- ness, instead of using your time just to keep the business going. Systems move you from being paid for your labour to being paid for your ideas. They allow you to expand comfortably, or to step back from the business and let it run itself. Systems bring you the free- dom that probably attracted you to the idea of business in the first place. And with that freedom comes true success, Great systems are what ultimately make companies valuable. It is the fact that everything in a company is68 HOW TO MAKE MONEY OUT OF THIN AIR systemised that makes it possible for the owners to lever- age time and skill. By having great systems, companies can get a pre- dictable result with higher quality and lower costs. Great systems mean less-skilled people can be employed to per- form higher-skilled tasks — and this is what builds value into these businesses. The most valuable companies have everything sys- temised. Nothing is left to chance or guesswork, They have systems and procedures documenting just about everything for design and production, for administra- tion, distribution, hiring and firing, for customer service, sales and marketing . .. nearly every aspect of the busi- ness is systemised in one form or another. This is so important as it not only lowers the cost of running the business, but it also ensures that the busi- ness is not dependent on any one individual. Everyone is replaceable and dispensable, so the show will go on no matter what. Freeing a business from reliance on any individual is the goal, and this goal should be worked on from the very start. I mentioned earlier the success of Tom Monaghan of Domino's Pizza. Now, anybody can make a pizza. Yet what Tom set out to do was not to sell pizza at all, but to set up a world-class pizza-making system. There is a huge difference. Monaghan made a good product at a good price, yet his marketing - ‘there in thirty minutes hot, or it’s free’ ~ and distribution system —being first in home delivery - when others were just selling pizza in sit-down restaurants, gave him all the20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 69. edge he needed and a big head start in making money out of thin air, in the pizza market. When you run a business, you need a wide range of skills. Your time is valuable, you're highly productive. What systems free you up to do is to pass those skills on to others, through procedures and processes, so they too can perform high-value, high-revenue work at a much lower cost than you could. This in turn frees you up to develop your systems further, to make your business more profitable and to bring in new business and more revenue. 6. GREAT CUSTOMER SERVICE. No company can grow big, become great and succeed without great customer service, especially early in their life cycle. It's one of the main reasons customers prefer to deal with a small company rather than a large one, as gener- ally small companies can excel in the area of customer service. When you call a small company you usually get the phone answered by a person, not a machine. When you have a problem you usually speak to a person who can make a decision to fix it, rather than someone who listens but does not have the authority to make a decision and adds to your frustration. Unfortunately, in many cases this area of business does slip when companies become big. The world’s most valuable businesses still need to offer great customer serv- ice, because this is what keeps their customers coming70 HOW TO MAKE MONEY OUT OF THIN AI back and adds to their value. As your business grows, this aspect must never be forgotten or it will cost you millions. Not all large companies lose their focus on customer service: look at the legendary examples of excellent cus- tomer service given by major businesses such as Disney, the big US retailer Sears and the Ritz-Carlton hotels, among many others who have gone to great lengths to ensure customer satisfaction. ‘There have been examples of customers coming back to Sears complaining about a product and receiving a refund, only to discover they did not even purchase the product from Sears in the first instance. You don’t have to go this far. However, your level of customer service needs to equal, if not better, that of great world-class companies in whatever business you do. 7. POWERFUL BRANDS ‘The world’s most valuable businesses have powerful, instantly recognisable brands. In fact, many of the most valuable businesses have brands that can contribute as much as 50 per cent of the value of their entire company. Billabong is one such brand where the name com- prises 50 per cent of its value. Hey, you can buy an unbranded T-shirt for $5-10 at Target. The Billabong name increases the value at least fourfold. This is the power of building a brand. ‘Telstra's brand is valued at approximately $9.4 billion. Talk about making money out of thin air.20 HABITS OF THE WORLD'S MOS VALUABLE BUSINESSES 71 A brand is thin air. It’s nothing more than the cumulative meaning that a particular product or service has achieved in a customer's mind. Coca-Cola is one of the world’s most valuable brands. In 1993-94 its value stood at US$35.9 billion, while Nescafé was valued at US$11.5 billion, Kellogg’s US$9.3 billion, Gillette USS8.2 billion. Harley-Davidson, Rolls-Royce, Xerox, Kleenex, Nike, Sony, Honda, Harvard, Kodak, Mercedes-Benz and Levi’s are amongst the world’s most powerful brands, yet people forget these businesses were not always this way. Many of them have emerged only in the last forty years, built from one-man businesses into companies that have enormous value. Now, how does this help you if you are just starting out and don’t have millions of dollars to spend on brand building and advertising? Even when starting out you need to develop a brand of your own, and to be very clear what that brand stands for and why you think customers will want to buy your brand. If you are not clear about this from the start it will only confuse your customers and lessen the value of your brand. There is an excellent book by Al Reis and Laura Reis called The 22 Immutable Laws of Branding which covers this topic at length. I recommend that you read it. 8. NOT DEPENDENT ON ONE PERSON This point has already been discussed and at this stage it should be clear that there are enormous advantages72 HOW TO MAKE MONEY OUT OF THIN AIR in building a business that is not dependent on one person. This does not only apply to small businesses, although they are the most susceptible. Even large busi- nesses that are seen to be heavily dependent on one person can have major shifts in their value from one day to the next. Newscorp, for example, was made enormously success- ful by Rupert Murdoch, and is certainly one of the world’s most valuable businesses, with a market capitalisation of nearly $73 billion, Murdoch's influence on the future of the company results in massive stock price shifts at the first sight of his ill health. This is a bad sign for this company and companies like it, as it affects their value greatly. Many great com- panies have this problem and the owners’ work hard to ensure they let the market know their heirs and succes- sors are equally capable. Sometimes, however, even this does not have the full effect they are looking for and does not protect the company’s value. 9. USUALLY FIRST IN THE MARKET -— MARKET LEADER History has proven that the first established company into the market usually remains dominant for years to come. Once you are the established brand leader it is hard to lose your leadership. ‘A widely publicised study of twenty-five leading brands in twenty-five different product categories in20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 73 the year 1923 compared with the present situation showed that twenty of the same twenty-five brands are still leaders today. In the last seventy-eight years only five have lost their leadership. Most new customers naturally gravitate towards the leading brand. Federal Express? The first in overnight delivery. Domino's Pizza? The first in home-delivered pizzas. These are great examples of companies that were first in the market, or that created a new market category and dominated it. They have become worth billions of dollars in a relatively small number of years. 10. ATTRACT THE BEST AND BRIGHTEST PEOPLE The world’s most valuable businesses are usually places that are dynamic, exciting, stimulating places to work, with changes happening all the time due to growth. This provides endless opportunities for people join- ing the company to learn and grow personally. They are offered ongoing training, promotion opportunities and clear career paths over a number of years. Employees are trusted, given responsibility and encouraged to make mistakes without fear of failure or punishment, These are places where people say they love their jobs, and they do. They come to work early, leave late and are respected and appreciated for their contri- bution. This type of environment attracts the best and brightest people. Why is this important to help you make money out74 HOW 10 MAKE MONEY OUT OF THIN Aik of thin air and why should you develop this type of cul- ture in your business from day one? Your people are your greatest asset, not your equip- ment or products. They are the ones who make your products or services, find your customers, sell to them, and do everything else that makes your business a business. Yet at about 5 p.m. each night your assets get up and leave, and may not even return the next day, When you realise this, you realise business is all about people - nothing else. Look after your people and the business will look after itself. This sounds quite fundamental, I know, but not one in a thousand businesses does this well. No matter how good your product or service is, your entire business depends on people creating, producing and delivering it to the customer. In this process many things can, and will, go wrong. It’s only the skill and care that your people take in your business that will give your company the edge. If your people are sloppy, careless, underskilled or unmotivated, this will show up in the way they deliver your product or service, and in the way they deal with your customers. A state-of-the-art manu- facturing facility is worthless if your receptionist doesn't answer the phone properly, or upsets customers. What good will the best-looking storefront be, if your sales assistants are ignoring the customers? If your people are switched on, motivated and totally focused on serving the customer, you are way ahead. Your competitors will never copy the effect of a business whose staff enjoy their work, have fun and genuinely care about customers.20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 75 No matter what your competitors do, they can’t go out and create this just because they've seen you have it. Getting and keeping good people is one of the most dif- ficult things in business. It’s also one of the most valuable, because it puts you so far ahead of your com- petition and helps keep you there, Giving someone a job is easy. Making sure they are the right person for the job is much harder, but much more important. Those people you employ create your business, They create its culture, its service, its quality, its reputation and, ultimately, its profit. ‘The basic principle is: if you hire someone great, you become great, and your life will become easier. But if you hire the wrong person you undermine your lifestyle and the value of the business. Hire people with better skills and a bigger vision than you have, and you create a great business. ‘To be able to hire the right people, you have to know how to select them, how to test their qualities and how to get the most from them. Like marketing, hiring (especially for key positions) is too important to leave to other people—make sure you do this yourself. 11. REWARD BASED ON PERFORMANCE NOT LONGEVITY/TIME This is one of the most important habits of a successful business: rewarding people based on performance and responsibility, not on their period of employment.76 HOW 10 MAKE MONEY OUT OF THIN Au In other words, there should be no such thing as automatic annual pay rises or Christmas bonuses. Increased pay, or for that matter any basis of pay, should be based on performance, attitude and contribution. This should be explained to all employees before they start and they should understand what behaviour will reward their performance and what behaviour will relo- cate them back to the dole queue. In Michael Leboeut’s book The Greatest Management Principle in the World, he talks about rewarding only those outcomes you wish to achieve. Now, think how simple yet powerful this is, yet so many companies do not do it. Paying someone an hourly rate is a huge mistake. It is the exact opposite of what Michael Leboeuf suggests, and indeed opposite to what many of the most valuable businesses do. Your people should be incentive driven and paid as much as humanly possible for achieving a result, not for taking an action. Achieving results is what customers pay for. You should never pay someone simply for showing up and going through the motions. You must have them set goals or you must set these for them, so everybody knows what is expected. Paying someone on an hourly basis is simply rewarding him or her for showing up and working slower. Think about this: if someone is getting the same amount to process say ten applications that they would get if they processed eight, why would they work up a sweat trying to process the ten?20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 77 Sounds simple, yet very few businesses understand this. 12. HAVE HIGH MARGINS If your business addresses worldwide growth markets and offers unique and timely products, then this makes you something of a monopoly, albeit a small one at first. This monopoly status means that if your customers want your products, they have no other choice but to go out of their way to buy them from you. It allows you to charge higher prices due to the demand and supply equation working in your favour and this means healthy margins, which allow you to afford to fund your rapid growth. Conversely, if you do not select to go into a business with the habits T am outlining for you here, you will find it difficult to grow because you cannot afford to, and it will greatly affect your ability to make money out of thin air. 13. HAVE FEW REAL COMPETITORS Being a monopoly by pure definition means you do not have any real competitors, and the most valuable busi- nesses structure and protect themselves to hold this position, through continually innovating and keeping ahead of the game. When you first start out you may have a competitive edge if you are the only one in the market doing what78 HOW TO MAKE MONEY OUT OF THIN AIK you are doing ~ your only competition is customer apa- thy. However, as you get bigger and more successful, You must expect competition and you will need to ensure you are always leading and your competition is always playing catch up. Holding this position makes your business far more valuable. 14, KEEP INNOVATING - A FLOW OF NEW PRODUCTS ‘The best companies make this intrinsic in their growth strategy from day one. Their motto is innovate or die, as this is exactly what will happen sooner or later. When you first start out you may appear to have a competitive edge because no one can be bothered chal- lenging a tiny niche business -until it starts making inroads into the marketplace. No matter how unique your products are at the beginning, as soon as the mar- ket realises the speed at which you are growing and the profits you are making, competition will arrive—and fast. In an attempt to emulate (or steal!) your success, they will begin by trying to copy you. It is important that you anticipate this happening before it occurs and have ver- sion or model 2, 3 and 4 ready to go before they have launched their model 1 This thinking will secure your market dominance and leadership position, and still offer you the opportu- nity to maintain margins and growth.20 HABITS OF THE WORLD'S MOST VALUABLE BUSINESSES 79 15. HAVE AN INVESTOR ENTRY AND EXIT STRATEGY Most start-up operators have no idea what they will do with the business once it is profitable. They have no exit strategy. This is one of the weakest aspects of most start-up or small businesses. I have said this before but I'll say it again, as it is the key point in making money out of thin air. Making money out of thin air requires you to build a business asset and sell it for a profit. However, if you can- not sell it you cannot enjoy getting rich this way. The world’s most valuable companies have built this strategy in from day one. Furthermore, if you need investor money to start and build your business, remember that investors will never put their money in if they can’t get it out at a profit within a reasonable number of years. If you don’t have an exit strategy, I can assure you no one is going to invest in your business, and neither should you. This does not mean you have to sell your business, or that investors will want to exit. It simply means you must always have this option from the very start. Very, very few start-up or small businesses do this, or even think about this, and that is why they find it diffi- cult to attract investors or make money out of thin air. 16, HAVE A BIG CUSTOMER DATABASE Generally, if you are addressing worldwide growth mar- kets, you have the potential to attract a large number of