You Can Have A Great Product And Not A Great Business
Albert Einstein once said: “Only two things are infinite—the universe and human stupidity. And I’m not sure about the former.”
I am living proof of Einstein’s insight. My stupidity is infinite.
My first major venture was bringing to market the first nylon and Velcro® surfer wallets in 1977. The name of our company was Rippers and we were based in Honolulu, Hawaii. We manufactured our products in Korea and Taiwan and warehoused and distributed from New York. In 1978, Rippers was voted the #1 new product in the sporting goods industry.
Rippers then began producing products for the Rock ‘n’ Roll industry. Rippers produced hats, wallets, and bags for bands like Pink Floyd, Duran Duran, Boy George, Iron Maiden, Ted Nugent and The Police.
Rippers went up like a rocket in 1978, life was good. We were millionaires on paper, which led to fast cars and faster women. As you might expect, we took our eye oﬀ of the business and by 1981 we hit bottom. The interesting thing is that I did not want to be in the nylon-wallet business. I fell into the business through my stupidity.
I learned I had a lot to learn. I knew I could thrive as an employee, sailing oil tankers or flying for the airlines. I wanted to give up as an entrepreneur, go back to school for my Master’s degree, get a job and a paycheck.
It was my rich dad who encouraged me to keep going. He reminded me that most great entrepreneurs failed many times.
But the most important lesson was that although we had a great product, we didn’t have a great business.
Product is the Least Important
Whenever someone wants to debate the importance of a product, I ask, “Have you ever eaten a McDonald’s hamburger?” Regardless of where I am in the world, most people tell me they have. Most people, at one time or another, have eaten at McDonald’s.
I then ask, “Can you make a better hamburger than McDonald’s?” Most say they can.
I then ask, “Can you build a bigger and richer business than McDonald’s?”
Most say, “No.”
I end by saying, “That is why the product is not that important to being an entrepreneur.” The ability to build a business is. Rich entrepreneurs work to build businesses, not hamburgers.
B-I Triangle for Success
Rich dad said to me, “If you are going to be an entrepreneur or an investor, fully understanding the B-I Triangle is essential to your success.” As a teenager, I did not believe or appreciate rich dad’s respect for the importance of the B-I Triangle. Today I do.
The B-I Triangle as a whole represents a strong system of systems, supported by a team with a leader, all working towards a common mission. It is made of eight vital components (or integrities), each of which is essential for success–the most important foundations being Mission, Leadership, and Team.
Many times individuals will say, “I have an idea for a great new product.” As you can tell from the B-I Triangle below, the product is only the tip of the iceberg.
You can think of the different aspects of a business as job descriptions or as specialists. To be successful, the business needs someone with the skills to fulfill each of those functions.
In simple terms, Product, Legal, Systems, Communications, and Cash Flow are all the elements required for a business to function successfully. If one or more of these elements is missing or is being done poorly, the business will struggle and often will fail.
Rich dad said, “Even if a person is a highly successful employee—let’s say in sales—that does not mean he or she will be successful in business.” The reason he said this was that selling is only one of many jobs required by a business.
His other point was that a struggling business is a business where a job or several jobs are not being done at all or are not being done well. He said, “An entrepreneur may be working hard but only working hard at one job at a time. That is why so many self-employed business owners struggle or eventually burn out from overwork. They may be working hard, but they may not be doing all the jobs a business requires.”
Three Elements That Give Business Its Structure
I always say the elements that give a business its structure are what I learned in military school. On the first day at the Merchant Marine Academy, we had to memorize the mission of the school. The next day we began learning to become leaders and to operate as teams.
This is the spiritual reason for the existence of the business. In religion, missionaries have a mission and focus on it. Too many corporations don’t recognize the importance of the mission. They create mission statements that are flat and uninspiring. They miss this massive opportunity to define the spiritual purpose of the business.
We can’t achieve much of anything on our own in this world, and that includes survival or success. So ironically, rather than foster cooperation, schools foster competition. Employees enter the workforce with a competitive, rather than a team-based, mindset. They compete for promotions, higher pay, bigger offices, more prestigious titles, you name it. One of the biggest challenges an entrepreneur faces is to break employees of their competitive, win/lose mentality and replace it with a team mentality. The mission goes a long way to make that happen. So does strong leadership.
Think about companies you’ve worked for. If a business is financially struggling with low morale, declining productivity, dropping sales, and increasing expenses, it is due to poor leadership. Leaders, true leaders, take responsibility for the success of the team and understand that they must also take responsibility for the failure. Too often entrepreneurs blame a lack of performance on employees, the economy, or competitors. However, the best entrepreneurs look at themselves first to uncover their own mistakes and learn from them.
Success Reveals Your Failures
Another of rich dad’s lessons was “success reveals your failures.” In other words, your strengths will reveal your weaknesses. Again, I did not know what he meant until my own business had become successful.
Our nylon surfer-wallet business was successful in two out of the five levels. We were successful at the communications level and the product level. The three partners had trained for years to be successful at those levels. The problem was that we were too well trained at those two levels and our success was too great too soon. It was like hooking up a plastic garden hose to a fire hydrant. As soon as international success put pressure on the system, the whole business blew.
Our strong points blew out through our weak points. Our strengths had revealed our weaknesses. Our success had revealed our failures. We had failed to strengthen the legal, the systems, and the cash-flow components of the B-I Triangle. We had them covered, but we failed to strengthen them as our success increased.
Editor, Rich Dad Poor Dad Daily