Rules of the Scrappy Capitalist: Rule 2 – Find a model that works for you

Success in business or the markets used to be impenetrable unless you looked and acted like Gordon Gekko.

But the internet has become the great leveller, allowing entrepreneurs, capital market investors, and real estate investors to break in and succeed like never before.

No longer is pedigree or the “old boy’s network” a factor. Today’s success stories come from scrappy capitalists who have broken the old rules and are building businesses or investing with new tools and new information… and guts.

A scrappy capitalist lives by a set of six rules. Here’s the second one:

SCRAPPY CAPITALIST RULE #2: FIND A MODEL THAT WORKS FOR YOU

I should note first that when I say “model” I could mean “business model” or “capital market investment model” or “real estate investment model” — and sometimes other people use words like “system” or “formula” or “algorithm” or “blueprint”. I also talk a lot about sales funnels on my blog, which are a way to talk about models for businesses.

Ultimately, you’re looking for a clear, simple way to analyze opportunities and act on them to profit. Think of it as a step-by-step operational plan that you follow regularly.

For a day trader, it might look something like this (Note: This is an incomplete example for illustrative purposes only):

  1. Use a stock screener tool to sort stocks based on fundamental parameters.
  2. Narrow search to the top 10 stocks to watch for the week.
  3. Watch technical indicators for specific technical events that signal opportunities.
  4. Trade with the goal of making a minimum of $500/day without dedicating more than 25% of my investable capital into any single stock
  5. Place trailing stop-buy or stop-sell triggers if the stock goes more than 20% in the wrong direction.

A freelancer’s model might look like this:

  1. Sort projects on Elance or Guru to find the top 10 projects that apply to me.
  2. Bid on 2 projects per day.
  3. Write a blog post and comment on a minimum of 5 other blogs per day.
  4. Spend a minimum of 6 hours a day doing billable work.

Now that I’ve showed you some really basic examples, here are some tips to help you find a model that works for you, whether you are a scrappy capitalist who focuses on business, the capital markets, or the real estate market:

  • Don’t start from scratch and don’t reinvent the wheel. Find what other people are succeeding with and use it as your starting point. Build from there.
  • When looking for a model to follow, start with the experts. If I were building a value investing model, I would pull my copy of Graham and Dodd’s Security Analysis from my bookshelf (one of the best books ever, by the way) and start there. Figure out the model THEY use to invest in undervalued stocks. I can always augment but they have a great approach. As a side note, remember to only build a model based on successful models. I used to take advice from someone I respected until I realized that they didn’t actually own a successful business. Once I started ignoring their advice, my business model changed and my business grew.
  • When building your model, augment it based on what you’re comfortable with and what your skills and strengths are. When I was first starting out, I had a lot of time and no money (just like every other entrepreneur! haha) so my business model was one that leveraged all of that time I had.
  • Build measurables into your model. Your model becomes a to-do list and a way for you to make sure that you are doing enough to succeed in whichever business/market area you’re in. Early in my business, for example, I knew that I needed to send out 2 proposals per day, 5 days a week. Based on my numbers, I knew that would give me the amount of business I needed.
  • Constantly test and refine your model. I just mentioned that I used to send out 2 proposals per day, 5 days a week. That was part of my model. But as I built my business, my proposals improved and so my close-rate improved and I no longer needed to send out quite as many proposals. Soon it was 1 proposal per day. Then 3 a week. Then even fewer. All of this comes from testing and making changes based on that testing. The same goes for capital market investing: Maybe you find that you have success in junior resource stocks and, as your investing continues, you discover that you do particularly well with junior resource investing stocks that specialize in gold. Your model changes slightly to reflect that. The same goes for real estate investing: Maybe at first you try various types of real estate investing and you refine your model. Soon you discover that you prefer wholesaling houses under 1500 square feet in the midwest. As you refine your model, your business becomes leaner and more profitable.
  • If your business doesn’t have positive cash flow, there is something wrong with your model. If your business is unprofitable, there’s something wrong with your model. Go back and look at each step in your model to find out what the problem is. Some examples: Businesses without positive cash flow might be invoicing clients too late; investors without positive cash flow might not be selling with fast enough turnover.
  • If you want to change your business, you have to change your model. For years, I wanted to work a little less (because freelancing can be VERY busy work!) but I never changed my model. I had to go back to basics and retool my entire model in order to change my business.

Scrappy capitalists create their own opportunity and claw their way to the top of the success ladder. They do this by finding a model that works for them and building on it.

Stay tuned. I’ll reveal the next rule of the scrappy capitalist soon.

3 reasons why I didn’t like “Rich Dad” Robert Kiyosaki… until now

I have a confession to make. There were many years when I didn’t like “Rich Dad” Robert Kiyosaki. Only recently have I become a fan but it’s taken me a while to come around.

Robert Kiyosaki is the creator of the Rich Dad brand, and author of a bazillion books like Rick Dad, Poor Dad and Cash Flow Quadrant. Kiyosaki’s message is: Poor people work for their money while rich people have their money work for them. And he uses a quadrant to illustrate his message, showing how poor or middle-class people are either employees or self-employed people who trade their hours for pay while rich people are business owners and investors who use their money to make more money.

I first read one of Kiyosaki’s books back in 2000 (I think it was his Cash Flow Quadrant book, although I can’t remember). The book was okay but I confess I didn’t love it and it took me years before I came around to appreciate and admire Kiyosaki.

Here are the reasons that I wasn’t a fan:

1. KIYOSAKI IS ALL SIZZLE AND NO STEAK

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His ideas about why someone should own a business or invest in real estate were good. But I felt that he lacked the “how-to-do-it” that I was looking for. He is the master of packaging ideas but they didn’t always fulfill a value quotient, in my opinion.

What changed for me recently was a book I picked up called The Real Book of Real Estate in which Kiyosaki’s name is splashed prominently on the front but he has 22 other people write the book… and their insights are really quite valuable. While reading the book, I realized that Kiyosaki doesn’t have to provide the steak. He provides the sizzle and other people can provide the steak.

2. KIYOSAKI’S IDEAS CONFLICTED WITH MY ASPIRATIONS

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I have always aspired to be a writer. That’s all I ever wanted to do. There are parts of being a writer that are “B” (Business owner) qualities, such as writing a book, and Kiyosaki’s advice would be to focus there. But there are parts of being a writer that are “S” (Self-employed), which Kiyosaki says are part of a less-than-ideal business model. The problem was, I really liked being a writer and enjoyed the “B” part of the business as well as the “S” part of the business. (Note: If you’re unfamiliar with Kiyosaki, he makes a distinction between being self-employed, where the business is entire dependent on you, and being a business-owner, where you grow a business that doesn’t require your input). It felt like Kiyosaki was discounting my aspirations.

What changed for me recently was re-reading Kiyosaki’s Rich Dad, Poor Dad book (as part of a project for a client). In that book, Kiyosaki makes the excellent point that people should work to learn rather than work for money, then they can use their education to build businesses and invest. I can live with that because it helps me to see that there is a legitimate balance between what I do on the freelancing side of my business and what I do on the book/e-book writing side of my business.

3. KIYOSAKI’S DISCIPLES DROVE ME CRAZY

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Yeah, that might sound harsh but in the past 12 years that I’ve been familiar with Kiyosaki’s ideas and worked with entrepreneurs and real estate investors, many of the biggest Kiyosaki disciples drove me crazy. I can’t tell you how many times I sat down with a prospective client who was stuck in a dead-end job and up to their nose in debt (while I ran my decently successful, debt-free business) only to have them lecture me about why my business needed to be a “B” business instead of an “S” business. And I’ve seen a bunch of aspiring real estate investors regurgitate the words “I want a cash flow positive property” without really understanding what it means, and while turning down potentially lucrative short-term deals because they didn’t meet their idea of a Kiyosaki-quality investment. And Kiyosaki’s emphasis on network marketing has created an army of pro-network-marketers who continue to make the same mistakes that lead to failure in their MLM businesses.

What changed for me was a client I’ve been working with who had me dig back into Kiyosaki’s work for some of his projects. He is an extremely successful real estate investor and lives out many of Kiyosaki’s principles in a way that most aspiring investors only dream of. I started to see Kiyosaki’s principles in action (something I hadn’t seen in the first decade of my familiarity with Kiyosaki’s work).

I’M TURNING INTO A KIYOSAKI FAN… SLOWLY

I’m not yet ready to go out and buy all of Kiyosaki’s books or get a Rich Dad tattoo or attend his seminars (PLEASE don’t invite me) but I have gained a new appreciation for Kiyosaki and I see the value that his platform can provide. I’m not quitting my “S” business just yet but (to use Kiyosaki’s own terminology), I’m building assets in the “B” and “I” categories of his quadrant. And I’m learning to respect his audience.

If you are a Kiyosaki disciple, here are some of my own thoughts for you:

  1. Kiyosaki has a good platform but he lacks step-by-step methodology and that might be holding you back. There are other resources out there that might be able to help you. Use Rich Dad as a springboard to do other research from other experts and don’t be afraid to move outside of the Rich Dad boundaries to see how other people are applying Kiyosaki’s ideas.
  2. If you’re an employee right now and you want to become rich, it can be hard to go from “E” to “I” in one step. Instead, make a plan to go from “E” to “S” to “B” to “I”. The steps are smaller and you can learn a lot along the way.
  3. Not every person aspires to be a real estate investor. There are other kinds of investments out there. You might be suprised.
  4. Remember that all of Kiyosaki’s ideas are only good if you actually act on them. If at this time next year you are still an employee and haven’t done anything else to move beyond that, then Kiyosaki’s ideas have no value for you. Action gets results. Figure out what is holding you back and address that.