Log of Lessons Learned

In the late 1980's, the real estate market in the Southwestern part of the US collapsed. As many
of my friends and business associates were experiencing the inevitable catastrophic aftermath of
one of the greatest real estate booms in the history of mankind, we collectively decided to record
a log of lessons each of us learned.
We had made scores of millions in the preceding 6-7 years and subsequently had successfully
lost every last penny we had, and then some. We truly had unmanageable debt loads, no cash or
cash flow and personal liability which far exceeded the market value of our assets.
Of even greater significance was the hit our egos had taken. We had our identity wrapped up in
our financial success. When the success vaporized, so did our sense of who we were and what
our place was.
We were anxious to get this phase of our careers behind us, lick our wounds and get on with our
lives, but we instinctively knew that if we weren't careful, we would repeat the errors which
caused the problem to begin with. We wanted to make sure that we accumulated twenty years of
experience and not one year's worth of experience twenty times. Without learning the lessons,
we would be doomed to repeat them, which was an unacceptable outcome given the pain we
were in.
Historians will tell you that history may not repeat itself, but it sure does rhyme. The economic
reality of 2008-09 has many of the same characteristics of 1989-1991. Imagine over 3,500 banks
disappearing in a four year time period, which is what happened in the late 1980's verses fewer
than 100 banks in the current meltdown. Imagine commercial property being sold for 20% of
replacement cost and rents for Class A office buildings being less than the taxes/insurance and
Common Area Maintenance fees. This was our reality in 1989.
We wanted to be certain that we NEVER had to experience this kind of disaster again. The
thinking was NOT that we could somehow control the economy or interest rates.... We can't. But
what we could control was the thinking and strategies that allowed us to get caught in the
tsunami in the first place.
As you read the lessons collected twenty years ago, you might be tempted to say this doesn't
apply to me because I'm not in the real estate business. I can assure you the lessons are
applicable regardless of the industry. You might be tempted to think these lessons don't apply
because you didn't really have any debt or investments during this current crisis. The best time to
learn the lessons is prior to making the mistakes.
Interestingly, most of us avoided repeating these mistakes in the ensuing 20 years.... Not because
we were smart, but because the pain of the lessons twenty years ago was severe enough that we

disciplined ourselves to avoid using our emotions to make what should be intellectual decisions.
We established a set of rules and followed them maniacally.
Herewith are a few of my favorite lessons on Financing as collected during the week of May 23,
1989....
Strategy
Emotions, when mixed with unbridled greed, produce economic disasters.
Land eats three meals per day.
A good market tends to hide mistakes. Nothing takes the place of being actively engaged in
the running of your business and being thoughtful as well as skeptical about the future.
Doing a marginal deal to keep the staff busy is stupid. Do not do marginal deals.
Last week's marketing report has absolutely nothing to do with where the market is headed,
what the economy is doing or what the demand will be next year.
How you run your business during the good times is the only true predictor of how well your
business will cope with the bad times.
You must keep a conservative strategy during the good times because you generally don't
know you're in a bad time until it's too late.
No team has ever won the game with an 'offense only' strategy. Great teams, the ones who win
championship rings, all have fantastic defenses.
Not all progress is measured by ground gained.... Sometimes progress is measured by losses
avoided.
True wealth is built slowly. Speed and greed necessitate aggressive leverage and increase the
odds of catastrophe.
It is better to go slower and avoid the do-over's.
The successful people we admire are not the ones who made it.... We admire the ones who
kept it.
Partners MUST be hands on and involved in every aspect of the business.
Do not be afraid to say, "NO!". Too many deals got done because it was easier to say yes.

It is a mistake to believe the quality of our people and the quality of our projects can overcome
a bad market. Our occupancy is 30% above market, our rental rates are 50% above market and
we are still 75% below pro-forma.
Litigation is expensive, time consuming and to be avoided.
The best way to avoid losses and to stay financially healthy is to "sell too soon." The old real
estate maxim of, "In the history of the world, the seller is always wrong" is outrageously stupid!
Don't fall into the trap of believing you can get more for it tomorrow. Regardless of which
direction the market is moving, never hesitate to sell for a fair price today.
Never buy something because you think you might need it someday. Have a definite purpose
or use in mind TODAY!
Keep working all your alternatives until something closes.
Putting all your energy and focus on one lender or one buyer or one tenant is a disaster if the
one you were focused on disappears.
Success does not make you invincible or bullet proof.
What success does best is it makes you complacent and egotistical, which by themselves are
sufficient to create disaster.
The euphoria of a hot market usually results in ignoring marketplace fundamentals.
Prudently gathering and evaluating market based economic information is the only
prescription for avoiding smoking your own exhaust.
Never delay taking corrective action once the problem has been recognized. Hoping for better
conditions in the future so the problem will solve itself is a fool's game.
Failure to recognize reality is delusional. You might be smarter and better than your
competition, but when the market shifts, you're still broke. Don't confuse ability with economic
reality.
Never rely on only your consultant's recommendations....
Do the study and analysis yourself based on your familiarity with the market.... If you don't
have the familiarity, don't do the deal.
A lack of rules and discipline caused every mistake we made.

We did not run our business as a business, but rather as a series of discrete events which we
assumed had little bearing on each other. We did not pay attention to the aggregate fundamentals
of the business.
We did not narrow our focus when we knew times were getting worse. This was due to two
things: 1. The distraction of our prior track record and 2. A lack of maturity necessary to
drawback and review the situation with a discerning eye and thus gain control of our direction.
A small percentage of a large number is a large number.
Deals
Just because rents have gone up 5% per year for the last 5 years doesn't mean they can't go
down 25% in one year.
Lease first, then build.
Control your inventory.
The easiest sale is to another salesman.
Have an ongoing asset disposition program in good markets. Sell something.... Not every asset
or building can be a core holding.
Sell when the market is good because when the market is bad, there are NO buyers... at any
price.
Holding off on selling based on last year's prices or what your pro-forma said is stupid.
Do not follow the market down.... Lead the market. Make cuts quickly.
Work renewals hard and early.
Beware of tenants with good stories.... Be skeptical.
Don't let what your competition is doing influence your decisions.
Do what you think is right based on the facts. You can't erect a fence to keep the competition
out.
It's better to start a building two months late and miss a deal than to start it two months early
and face a shrinking market.
Secondary locations can sit empty no matter how low rates go.

No credit, no deal.
New projects must be based on current rooftops and existing infrastructure, not future
population growth.
Do not inventory land at retail prices for future projects. A 20% increase in land price is only a
2-3% increase in total project cost.
Do fewer deals and do them better. You can be more profitable by having more time to focus
on the few and you get the added benefit of keeping overhead low.
Too many deals dilute time and attention away from the good ones.
It takes 5 good deals to make up for one bad deal.
When a bad deal surfaces, 90% of management's time is siphoned off from the rest of the
business to deal with the problems of the bad deal. The result: The bad one is still bad and the
good ones are now mediocre or troubled as a result of a lack of attention. 90% of management's
time should be spent on nurturing the good ones. Easy to say, hard to do.
The first markdown in price is the smallest. The mistake is to hold off on selling at today's
prices in the belief the market will come back.
Financing
Debt gives the illusion of wealth. True wealth is assets, cash flow and no debt.
Doing a marginal deal just because the money is available is stupid.
Take your personal guarantee seriously.... You only bring two things to the table.... Cash and
your guarantee, neither of which has an unlimited supply.
Don't rely on inflation to make a deal work.
Never finance long-term assets with short-term debt.
We covered a lot of mistakes with access to easy money and credit.
Easy credit, lots of liquidity and too much money makes you stupid.
A knack for innovative financing, a little bit of money and unbridled greed will produce truly
crippling debt.
Personnel

Bench strength is critical. Hiring weak people begets weak results. Find the best people and
compensate them VERY well. It saves money in the long run.
The tougher the times, the better the people you need. There is no way to survive a bad market
with weak people.
Mediocre people are easy to hire and difficult to fire.
Always be upgrading your talent and never be afraid to pay them what they need to make.
Any fool can make money in the good times.
One superstar is of greater value than an unlimited number of mediocre performers.
Never wait to address personnel issues or mediocre performance.
Either they are doing a great job, or they arent. If they arent, take action. My job isnt to
babysit or beg people to do their jobs.
The cost of being long suffering with an incapable or misplaced employee is far greater than
the discomfort of having a tough evaluation and speedy termination.
A culture rooted in past successes, growth at all costs and aggressive bonus structures will
produce employees who dont think, who arent skeptical and who ignore risks.
Overhead
Stay lean even if you can afford to get fat. Keep overhead low!
Watch your cash VERY closely. Ask yourself, Do I really need this?... Will this help me
make more money? Once you spend it, the cash is gone.
Each line item of your financials should be scrutinized on a continuous basis to make.
Conserve cash, especially during the good times. Spending money to look like a big deal is not
the same as being a big deal.
When youre out of cash, youre out of business. Cash is truly KING.
When the market shifts, you cant cut overhead fast enough.
It is easy to over pay or beef up when the world is viewed from only an upside perspective.
Cut overhead early and hard. Pride and hubris kept us from cutting our overhead in a timely
manner.

Fancy offices, hot cars, lots of staff and high overhead are signs of significance, not success.
Knowing your numbers, what it costs to run each aspect of your business and having timely
information, is critical to success.
Focus on the costs of doing business and not just the revenue potential.
Bringing consultants/outside services in house (architects, land planners, engineers etc) is a
bad idea. The temptation is to look for busy work to justify the overhead and when the market
shifts, they are expensive to cut. Contract out as much of the work as possible

Mann Gulch
This is a great story with a terrific message for each of us.
In 1949, thirteen of sixteen men died battling a relatively small blaze that turned deadly in Mann
Gulch. Upon investigating the circumstances of why most of the smoke jumpers died while three
lived, Norman Maclean wrote a book entitled Young Men and Fire, which is the true story of the
smoke jumpers, (firefighters who parachute into the back country to fight fires in Montana).
Maclean found some startling facts. Mann Gulch is surrounded by steep canyon walls with the
northern slope at a 75% incline. When the wind turned on the smoke jumpers, they were in a race
with the fire up those steep walls. Also, most forest fires feed off dry grass, but the north slope of
Mann Gulch was mostly tall grass. Unexpectedly, the fire started to spread much faster than
anticipated.
One of the amazing things the author discovered was that the thirteen who died had carried their
tools heavy poleaxes, saws, shovels, as well as very heavy back packs while attempting to
out run the fire up those steep walls. In other words, the thirteen had run as far as they could with
all their equipment, even though that equipment was worse than useless in a race with the fire.
Their inability to drop their heavy tools and packs ultimately prevented them from outrunning
the fire. To these firefighters, their tools were more than simple objects, they represented who
they were, why they were there and what they were trained to do. Dropping their tools meant
abandoning their existing knowledge, training and experience.
This might not seem like a hard choice to make, but because they hadnt been trained for such a
moment, they had no alternative models for behavior. In moments of uncertainty and danger,
clinging to the old right way might seem like a good idea, but it is usually deadly.
The three survivors of the blaze were forced to think outside the box and use alternative methods
of escaping the fire. Once they figured out they were no longer fighting the fire and instead
trying to escape from it, they realized they had to drop all of their useless equipment. One
survivor used a technique called the escape fire where he took a match and lit a ring around
him so that the fire would "jump" over him. When he tried to suggest it to the other men they
continued running up the steep slope because the 'escape fire' technique had not been part of their
training. It was their inability to drop the tools and equipment that werent working and seek new
methods to help them escape that lead to the fire fatally engulfing them.
The question is this: What are the poleaxes, shovels and backpacks youre running with? What
are the tired, worn out strategies and tools which you are lugging around with you? What
existing models of behavior do you need to drop? What existing knowledge, training or
experience needs to be abandoned?

A worldwide financial fire is raging and what got you here wont get you there. The people who
learn the critical business skills and tools necessary to survive and even thrive will be the
winners in all this. But, this has always been true. Survivors and successful people are always
learning and practicing to improve their game. New circumstances always require new skills and
tools. The alternative is suffering and death.

Earn the Right

In a recent interview with Fortune Magazine, Mark Hurd, the Chairman and CEO of HewlettPackard was asked to recall the best advice he every received. Mr. Hurd tells a great story of
listening to a presentation where someone was trying to get his boss at the time to invest in a
deal. At the conclusion of the presentation, his boss said, Great presentation. Great slides. Very
nice delivery. Good story. But its hard to look smart with bad numbers. That one comment
over twenty years ago has stayed with Mark Hurd and has been a signpost for his career, which
has obviously been very successful.
The reality is this: There is just no way to disguise poor performance if you know how to read
and understand the numbers, I dont care how good the story is. The problem most people have
is they dont understand the numbers and so they continue to deliver poor performance.
A couple of weeks ago, Sandi and I were in Italy on vacation. While we were in Florence, we
decided to rest our weary feet, drink a cup of coffee and people watch. We picked a spot on a
piazza and ordered our coffee. Across the square from us was a carousel with hobby horses. A
long line of people were queued up for a ride. After a few minutes, I turned to Sandi and said,
See that carousel? That reminds me of most peoples lives. They go up and down, up and
down always in a circle. There is a lot of movement, but no real progress. Most people end up
right back where they started.
When you stop to think about it, its true. If you think that a higher financial performance is
possible for you or your business, wouldnt it make sense that you would need to learn new
strategies, skills and tools to be able to deliver those results? If you dont learn the skills and
tools, you will end up right back where you started.
Bottom line: Mark Hurd said, Deliver good numbers and you will earn the right for people to
listen to you!

Core Competence
It is so easy to make money when times are good, the wind is at your back and the tide is rising.
In fact, for most people, the more they make the smarter they seem to become, venturing into all
kinds of investments and side businesses which have nothing to do with what made them
successful in the first place. As one of my teachers told me years ago, Success breeds
complacency and never has this degree of complacency been more evident than the perfect
storm we are witnessing in our credit markets today.
I was reading about Citigroups recent meltdown. Now here is a HUGE financial institution (the
largest in the United States) who somehow took all their expertise and financial acumen and
turned it into a mind numbing loss of $18.1 Billion of write-downs for the 4th quarter 2007 and
an additional $15.2 Billion of write downs in the first quarter of 2008. The real damage was to
the shareholders, who have lost a total of $530 Billion in shareholder value in less than a year! I
dont care who you are, that is serious money!
Citi has the good fortune to be able to raise money when things dont turn out as expected, so
they have tapped a couple of Saudi princes and the Singapore government for $30 billion or so.
Forty thousand people are expected to lose their jobs before this carnage is finished, including
the former CEO who got them into this mess by not paying attention to the risks they were
taking. Apparently, the thinking was that if it made money today, who cares about the risks or
what could go wrong let the good times roll, baby! And roll they did, until they stopped.
In a recent interview, the new CEO of Citi, Vikram Pandit made a startling announcement. He
said Citi would divest themselves of businesses that did not fit with the rest of the group. Were
getting out of all our hobbies and focusing on our core competence.
This is without a doubt one of the smartest things Ive heard a Fortune 500 executive say in 25
years! The reality is sticking your nose or your pocketbook into things you know very little about
is a prescription for disaster.
As Warren Buffett has said:
The greatest personal fortunes in this country werent built on a portfolio of 50 companies.
Thats the Noahs Ark way of investing. They were built on one wonderful business. Almost
without exception, when they strayed from that wonderful business that made them rich, they
ended up losing money.

A Solution Based Life

Everyone I know has problems. We all have things that dont go as planned or have challenges
which catch us off guard. When you stop to think about it, a problem is nothing more than a
situation in need of improvement. My experience is that people can have three responses to their
situations:
Wallow in their misery and be a victim.
Create a solution and promise themselves that this time they will handle it once and for all.
They do this every New Year`s Eve and the problem remains solved for a few weeks, at most.
Create a solution and actually solve the problem once and for all.
The question is: What are the people doing who repeatedly achieve their goals and create the life
they want? I think the answer lies in setting a strategy that is consistent with your skills and
ability to execute the plan.
It seems that every problem has numerous possible solutions. For example, if you want to create
financial independence, your solution might be to invest in real estate, but then you would have
to narrow down your solution to a specific sector of the real state market, like single family
houses. But even that is not narrow enough. You would have to decide if you were going to
invest in rehabs, flips, lease options, preconstruction, builders, subdivisions, or rent to own.
The reality is that you can make a fortune in any of these sectors, just like you could make a ton
of money in virtually any sector of the stock market or in any operating business you might start
or invest in. The key to success is never about what you do, but rather about how you do it.
The solution you select is really just another word for your strategy and every strategy is
dependent on execution. You can have the greatest strategy in the world, but if the strategy is not
executed, then it will fail. My experience is that most people dont have what they want in their
lives because they consistently select strategies that they cannot execute. Too many people select
a solution which is not consistent with or aligned with the skills they have and thus they cant
execute it and it fails.
If you consult any textbook or guru on the subject of strategy, they will tell you to select a
strategy first and then figure out what skills or tactics or resources you need. Strategy should
determine the tactics. I think that is a great theory, but unfortunately is fraught with problems and
only will work if you have unlimited resources and time.
People who consistently achieve their goals and fix their problems look first to their skills and
capabilities before deciding on a course of action and a solution to their problems. Creating
financial independence is a great goal. The strategy you select should be based on the skills and
resources you have available or that you can quickly acquire and that you can actually execute.

Too often I see great plans and solutions which never get executed, and thus the goals never
reached, because they are based on the elegance of the strategy and not on the reality of skills
and time needed to execute the strategy selected.
Prior to selecting any solution to a situation in need of improvement, check out your assumptions
about what you are really capable of doing and then design a solution that is consistent with your
skills.
The only solution worth implementing is the one which is sustainable!

Myth #1 Financial Freedom

Every time I speak these days, someone in the audience wants to talk about their frustration with
obtaining "Financial Freedom, Passive Income and More Time." This newsletter is the first of a
three part series on these issues.
Lets start with financial freedom, which is a myth. The real issue is NOT financial freedom. The
reality is that you already have that! Compare yourself with the rest of the world. If the world
was a village of 1,000 people, 500 went to bed hungry last night, 600 are illiterate, 700 live in
shanty towns - no running water or central sewage. (It adds up to more than 1,000 because some
people who are hungry also cant read or write.) 60 would have the income and if you make
more than $30,000/year, you are in the top 1% in the world! In other words, you are already
financially free and rich beyond measure in the eyes of the rest of the world, which is why I said
financial freedom is a myth.
The real issue is how much do you want and what kind of lifestyle do you want with your
"financial freedom"? You can be financially free on $2,500/month, and I know many people who
have this amount as their goal. The problem is that the quality of life and lifestyle you will have
is not necessarily one of abundance unless you decide to move to a third world country.
Financial freedom is a myth because we talk about it as if it would be the panacea to all our
problems. I keep asking audiences and students this question: "If I could get you all of Bill Gates
money this afternoon, but the exchange would be that you would agree to spend the rest of your
life in an iron lung, paralyzed from the neck down with no friends or family around, would you
make the exchange?" So far, I have no takers on this deal, which doesnt surprise me. If you are
obsessed with the pursuit of financial freedom to the exclusion of an abundant life and a great
relationship and massive health and a deep spirituality, you will find yourself looking back one
day in utter dismay and regret.
If we put as much energy and thought into creating a life worth living, in growing and making a
contribution as we do in pursuing the seemingly holy grail of financial freedom, we would be
stunned by the results we would get in all our lives.
Dont misunderstand what Im saying. Money and wealth and financial abundance are a critical
part of living a full life. But, it is not the only thing there is in life, any more than relationships or
health or spirituality are the ONLY things important in life. Financial freedom is an outcome
an EFFECT! Too many people fall in love with the EFFECT and not the CAUSE, and the key to
having what you want in life is falling in love with the Causes!
What would you do with all the extra time you would have if you ever achieved the financial
freedom you desire? Most people dont have a clear answer to that question, but if you are one of
the fortunate few that does know, are you already doing some of that in your life right now? If

not, why wait to do it perfectly "someday?" Why not start today and do it imperfectly and see
what results you start getting? Anything worth doing is worth doing POORLY!
To start a business based on the desire to become financially free is a huge mistake and a
prescription for disaster. The wealthiest people on the planet did not start out saying their goal
was financial freedom or retirement because if they had, they would have stopped long ago. The
10 wealthiest people on the planet are all still working not just 40 hours per week, either. Bill
Gates, Michael Dell, Warren Buffett, Larry Ellison etc are all still regularly logging 60/70/80
hour weeks. Not one of them is concerned with financial freedom or retirement.
You see, retirement is simply doing what you want, when you want to do it. Each of the Forbes
400 is doing that. They have all retired INTO their jobs and companies. They have all fallen
in love with the CAUSE. They are passionate not because of what they are doing, but because of
how they are doing it. They are growing and contributing and focused on solutions, which means
they are excited and excitement comes not from what you do, but rather how you do it.
Remember, its never about what you do, but rather how you do it.
If the pursuit of financial freedom seems difficult or if the sole reason you are pursuing it is
because of a desire to "do something else", why not start doing some of that something else
today? Why not fall in love with what you are doing and retire into your job or company and
give yourself to it 100% and see what it gives back to you.
But, most importantly, remember to keep your life in perspective. This lifetime is not solely
about getting to financial freedom but rather to live it so that at the end you can say, "This was
my life. I am proud of it and I would gladly live it again if given the chance!"

Myth #2 - Passive Income

This is the second installment in a three part series on wealth and money. Part one of the series
was on Financial Freedom. Part two is on Passive Income.
Passive income is a myth, just as Financial Freedom is. Think about the word "passive".
Webster`s defines the word passive as "Inactive." I believe the words we use to describe our
experiences become the experience. One of the most powerful determinants of our life is the
words we use and what we say to our self. If we are in pursuit of passive anything, what do you
think the message is to our brain? How can I do nothing and get a bunch? How can I be inactive
and get rich? How can I do the least and get the most? I don`t think there is such a thing as
passive income.
What do you think your health would look like if your goal was "passive health"? How about
your relationships? What if you went to your partner and said, "From now on, I only want
passive sex"? When you really stop to think about the word "passive" and the goal of passive
anything you begin to see just how ludicrous the thought is and how damaging it can be. The
thought relayed to your brain is that by doing nothing, I can have what I want, so most people
spend their time looking for something that doesn`t exist, and therefore, wind up with nothing.
People who are intrigued by the concept of passive income are the people who put some of their
income into a 401(K) and then turned their investment over to the "pros" and said, "I`m going to
be passive. I know I did all the work to earn this money, but I am going to be inactive. I don`t
want to know about all this money and investing stuff. Now that I`ve made it, I`m going to do
nothing. Someone else will look after this investment for me and I don`t need to pay attention to
it or understand what`s happening with my money. Shoot, I don`t even have to think about it
because I read in a book that the goal is to have passive income, which means that I can sit back
and be inactive and do absolutely nothing." These people found out that they don`t have 401(K)s,
they`ve got 201(K)s. That`s what happens when you think you can do the least and get the most!
Money is like a woman! If you don`t think she`s important, if you don`t tell her she`s special, if
you don`t talk to her and love her and caress her every day, she will leave you. Money is like a
man. If you don`t tell him he`s important and wonderful, if you ignore him and decide to be
"inactive", he will leave you. Money is like health. If you think health is unimportant, if you
think you can create the health and the body you want by being inactive, you will soon be on
your deathbed. Your health will leave you, too.
Think about passive in the context of a merry-go-round. Remember when you have gone to a
playground and the kids jumped on the merry-go-round and yelled for you to push it? Remember
how much effort it took to get it going? A bunch, right? But, once the merry-go-round was
moving, the amount of effort it took to keep it going was no more than an occasional swoop with
your hand. It required very little effort to keep it going. BUT, it did require some effort. You

cannot be passive and expect the merry-go-round to keep going. If you ever decide to completely
stop pushing the handle bars, the merry-go-round will stop.
The distinction I`m making is this: passive anything is a bad goal and a bad thought because it
requires us to fall into the trap of thinking that by doing nothing we can get what we want. A
much better thought is "Leveraged Income." Now, that is a word I can get excited about. If I am
focused on leveraged income, then I am focused on having my money make money; I am
focused on using OPM (Other People`s Money); I am focused on OPB (Other People`s Brains); I
am focused on OPN (Other People`s Networks). I am active and involved when I am leveraging.
I`m playing smart. I`m using my brain to achieve my goals. I am active in the process of
leveraging. I am not focused on doing nothing, on being passive. Instead, I`m focused on how do
I take the resources I have and grow them most efficiently and effectively.
When you stop to really look at the most financially successful people on the planet Bill
Gates, Warren Buffett, Michael Dell, Richard Branson, Larry Ellison you will not find any of
them doing passive. They are all active, but they are leveraged. Furthermore, none of them
started their businesses because they were looking for passive income or financial freedom. If
they had, they wouldn`t be the success they are today.
Success in any endeavor requires you to be active. Nothing you want is attained by being
passive, including wealth and income. The seductive siren`s song of "passive" income is one of
the reasons so few people have the wealth they want. Rethink your goal and how you can
achieve it. Start looking for ways to leverage yourself and your money. You will be stunned by
the difference it makes in your life and in the obtainment of your goals.

Myth #3 - More Time

More Time This is the third installment in a three part series on wealth and money. Part one was
on the myth of Financial Freedom. Part two was on the myth of Passive Income. Part three is on
More Time.
When I teach, I usually ask the question, "How many people are interested in starting your own
company some day?" Usually 80% of the room raises their hand. I then ask the question: "Why?"
Why do you want to start your own business and the three most popular answers are: 1. Financial
Freedom; 2. Passive Income; 3. More Time.
When you stop to really think about each of these answers, you can see the obvious problem
inherent in all of them. Most people are wanting something that doesn`t exist or that is a
variation on instant gratification.
Starting a new business so that you will have more time is a little like deciding to have a baby so
that you will have more time. It just doesn`t work that way. Reality sets in when you see just
how much time and energy it takes to keep a baby alive and happy and fed. The difference
between a business and a baby is that you can`t just quit on your baby when the going gets tough.
In fact, the baby analogy is a good one for looking at your business. Human beings have normal
life cycles and so do businesses. And, at each stage of the life cycle, there are some things that
are normal, some things that are abnormal and others that are life threatening. With a new born
baby, it is normal for the baby to command 100% of the parent`s time and attention. The baby is
very demanding and must be cared for constantly. It would be abnormal for a new born to be
able to care for itself. It would be life threatening for the Mom and Dad to decide to leave the
baby by itself for a few weeks.
Yet, many self professed "gurus" will advise you to do just that with your new company. What
they will say is that you must have a system so that the business runs better without you than it
does with you. They will say that the key to success in your new business is systems so that you
can work "on" and not "in" your business. Now, think about the baby analogy and tell me if a
system is meaningful or even a good idea when you bring your new baby home from the
hospital. Think about whether or not your primary concern for your new child is working "on"
versus "in" your baby.
I am suggesting to you that the primary responsibility of any parent is to spend 100% of their
time doing whatever is necessary to keep their baby alive and happy and healthy and fed and
nurtured and growing and learning and that normal parents do not abandon their child or obsess
about systems.

Obviously, at some point in the development of the child, babysitters, grandparents and nannies
can enter the picture and later the child can begin to become more self sustaining. But, at the
beginning, neither the parent nor the entrepreneur will have more time.
Recently I was talking to a very powerful and prominent business tycoon about the struggles
many entrepreneurs seem to have with the mindset it takes to be successful in business. He told
me that he was recently speaking at a conference for about 500 MBA students at the local
university about his success and one student asked him this question: "You have so much money
($20 Billion) and you have the ability to do whatever you want with your life, why not just quit,
buy a boat and spend the rest of your life sailing around the Caribbean and enjoying your self
and your wealth and your life?" My very rich friend said he told the student, "I have tried sailing
and do you know how boring that can be? What could be more fun than running a Fortune 500
company?"
The reason this man has the wealth he does is because he is NOT looking for Financial Freedom,
he is NOT enamored with the idea of Passive Income and he is NOT trying to figure out how to
get More Time. As I said in the first installment in this series, the most successful people I know
have all retired into their businesses and jobs.
I had a student last year who told me, "If I ever make $5 million, I`d call it quits." I told her,
"That`s why you will never make $5 million."
People who are successful in life do not wake up one day and call it quits. The ones who are
wanting to call it quits are the ones who will never have anything to quit in the first place.
The hardest part of achieving abundance in any aspect of your life, including money or
relationships or health or spirituality, is getting your mind right going into it and doing it for the
right reasons. Daydreaming about Financial Freedom, Passive Income and More Time is a
fantasy and a prescription for disaster! Success does not come to those who look for the easiest
way or who want to quit.
I will close this article with a quote from Douglas MacArthur, "Age wrinkles the skin. Quitting
wrinkles the soul."

Falling for the Cause

If you are like most people I know, every year about this time you begin to notice that all those
New Years resolutions you made about 4 weeks ago are starting to fade and wither. Most of
these resolutions were the same ones you made last year and the year before. Every year, after a
few weeks, you start finding reasons and excuses to make exceptions and to fall off the wagon.
When you stop to think about it, we habitually break our promises to ourselves. Numerous
studies have been done to help us understand why this happens and there are some very smart
people who have come up with 100s of tricks to help us achieve our goals.I think there are two
primary reasons we quit working on our goals. The first is the erroneous belief that it must look a
certain way by a certain time, otherwise, we think its not working or not worth it. We think that
if we go on this diet and start working out every day, then within a matter of just a few days we
will be seeing results and that the process will be getting easier. When we dont see the
instantaneous results we want, our brain helps us make the decision to quit by rationalizing that
this is just not worth it.
Unfortunately, the root of most, if not all of our problems is the need for instant gratification and
when we dont see instantaneous results, we tend to get discouraged and quit. When you stop to
think about it, the world is not designed to give us instantaneous feedback - either good or bad.
You dont get lung cancer after just one puff. You dont gain 30 pounds after eating just one
donut, or even one donut a day for 3 weeks. You dont get into financial hock to the tune of
$50,000 of credit card debt in a month. You dont create a lousy relationship in just a week so it
is irrational to believe that you will unwind these problems in a matter of a few days. The results
in your life so far, both the good results and the ones you would like to see changed (the ones
you made your New Years resolutions about), happened as a result of continuous, daily actions.
You did not go out and create the problems you now have overnight. And, you will not solve
these problems over night, either.
Ordinary things, consistently done, produce extraordinary results!
Remember, Cause and Effect? Whenever the cause is missing, so is the effect. So, whatever it is
you want in your life, check to see if the Cause is in place to produce the desired Effect. If it is,
then it is just a matter of time and consistent, daily activity until you see the Effects in your life.
Remember, Cause and Effect are not closely linked by time.
The second big reason people struggle with achieving their goals is we all tend to fall in love
with the Effect and not the Cause. Everyone I know would love to be rich and skinny and in a
wonderful relationship. Those are all Effects - and they are easy to fall in love with. The secret is
to fall in love with the Cause. I dont know one successful person who gets up in the morning
and does what they hate. Rather, every successful person I know is doing what they love. They
may not have started out loving it, and maybe every single little thing about what theyre doing is
not their most favorite thing in the world, but big picture, they love what theyre doing.

Successful people tend to fall in love with pleasing results, while unsuccessful people tend to fall
in love with pleasing methods. If you dont fall in love with the Cause, you will wake up every
morning dreading doing the things that will result in the Effects you desire, and I dont know
anyone who can sustain themselves doing what they hate for more than a couple of weeks. If you
do decide to fall in love with the Causes that will produce the Effects you want, you will achieve
your goals much faster because we all perform better when we enjoy what were doing.
Re-look at your goals and resolutions from the viewpoint of Cause and Effect. Are you slowing
down because you are not seeing instantaneous results? Are you waking up in the morning
dreading doing the things that will produce the results you want? If so, ask yourself these
questions:
Do I believe I can make this goal come true?
Do I believe it is worth the effort?
How can I enjoy the things I will have to do today in order to move closer to
my goal?
How would the person I want to be do the thing I am about to do?
I love what General MacArthur said: "Age wrinkles your skin. Quitting wrinkles your soul!"
A commitment you make to yourself should be no less sacred than a commitment you make to
others!
You are in control of your destiny! Live the life you dream!
I am so proud of you and your commitment to excellence and SPECTACULAR!

Achieving POWER in all your Negotiations

Anytime you are in a negotiation, you are there for one reason and one reason only: To do better
than your alternatives. You are negotiating to see if you can improve upon your existing
situation. If you can, then you are better off than you would have been otherwise; and if you
cant, then you have your fall back position, which are your alternatives.
To increase your power in a negotiation, simply improve the quality or the desirability of your
alternatives in the event that the negotiation is unsuccessful. Remember High Need Equals Low
Power and Low Need Equals High Power. It makes sense, doesnt it? If you are very needy in a
negotiation, then you will probably have very poor or very limited alternatives, so you will feel
powerless.
I remember the power of alternatives when I need to borrow money from my banker. I always go
see several bankers to pitch my deal. I usually can get a couple of them to write me a term sheet
or a commitment letter. If I have alternatives, then my negotiating position is much stronger. The
same thing applies to getting a raise at work. I can think up a thousand great reasons for my boss
to give me a raise, but I am always in a weak position if she says "NO!" So, when I get ready to
ask for a raise, the first thing I do is find another job. I find someone else who thinks that I am
worth more money than what I am currently making. With another job in my hip pocket, now
when I ask for a raise, I am dealing from a position of strength and not weakness because I have
a great alternative. You will see this happen a lot; someone quits their job and their boss offers to
increase their salary by 50% to keep them.
You are probably thinking that it is a lot of work to go find another job just to get a raise, and
you are right. But that is the thing about having great alternatives and thus, power. Usually your
alternatives are not sitting limply in front of you waiting to be used. You must create your
alternatives in order to maximize your power. And remember, you are in the negotiation to begin
with to achieve a better outcome than your alternative, so the better your alternative going into
the negotiation, the greater the chance of your achieving an outcome that you like, whether the
negotiation is successful or not.
Finally, in order to have maximum power, you must have more than one alternative. You dont
really have a choice until you have at least three options. If you have no choice, its called
slavery. With two choices, its either/or. But with three options, you truly do have a choice,
freedom and lots of flexibility. Before your next negotiation, think about what you will do if this
negotiation is unsuccessful and develop some great alternatives before you ever start the
negotiation. You will be amazed at how much power you have!

Creating a Successful Business Plan

As I discussed in the article The Power of Using OPMOther Peoples Money, most
entrepreneurs get lost in the maze of figuring out what makes an investor bite and thus fund one
business plan versus another.The people with the money have a set of rules and invest in things
that the poor and middle class are not even aware of. To successfully raise money, you must
understand the rules that the rich use to make their investment decisions.
If you wanted to find the formula or rules that the rich use, the best way to approach this problem
is for you to write the following down on a piece of paper: I have $10,000,000 to invest and I
MUST invest it. Now, suppose I bring you a deal and I want you to invest in my new company.
What questions will you ask me? What specific issues will you want addressed? What are you
looking for? What would be important for you to learn from me that will give you confidence
that I have a shot at making this deal work?
The answer to these questions should be addressed in a well thought out, comprehensive
business plan. Your business plan is a great sales tool and is your road map to your new venture.
A well thought-out business plan should answer/address fifteen key points:
Who are you? Who are the players, the management? What is your experience? Have you
done this before?
Where are you? What is the status of your venture? Do you have a working prototype or has
anyone tested your product/idea?
Where are you going? What is your goal?
What is it? What is your product or service? This must be very easy to understand, even if it is
complex. Investors will not invest in something they do not understand.
Who wants it? Who is your target market?
Why do they want it? What is the problem being solved? What itch are you scratching? What
is your value add proposition?
How many might want it? What is your potential market size?
How do you know they want it? What testing/research/studies have you done that confirm
your belief that if you build it, they will come?
How will you tell them about it? What is your marketing plan?
Who else has it? Who is your competition? Dont ever say that you have no competition. If
you have no competition, you have no market.

How are you different? What is your niche? What will keep your competition from duplicating
your idea and crushing you?
What are the risks? What could go wrong?
What are the rewards? This is where you talk about the numbers/projections.
What do you want? What is the deal? You should propose a deal and an amount of
moneyenough to get you to the next significant milestone. Good = we need $3 million to reach
our next milestone. Bad = whatever you give us is fine.
What is the exit? How does an investor cash out of this deal?
It is not at all uncommon to spend six months researching and preparing a business plan.
Remember, your goal in raising capital is to get funded. You will not even receive a return
telephone call, much less get a face to face meeting, if you havent done your homework. The
key to raising money is to prepare a first class well thought out succinct business plan. As
American Express would tell you Dont leave home without it.

Negotiations are in Paradox

Have you ever been in a negotiation and gotten everything you wanted?
Have you ever been in a negotiation and didnt get anything that you wanted?
Like you, I have had both of these experiences. The question is What causes the difference?
Why is it that sometimes we get everything we want and other times we get zilch? If you dont
know the answer, then you will continue to get spotty results in your future negotiations. It will
be like a cross-eyed discus throweryou wont set any records, but you will keep the crowd
awake.
All of us negotiate everyday in lots of different circumstances and settings, whether its about a
childs bedtime, getting a raise, buying a car, returning a purchase with no receipt, figuring out
where everyone wants to go for dinner or raising money for your new company. Everything we
want is currently owned or controlled by someone else. So, it is inevitable that we will spend a
great deal of time negotiating, and the degree of success that we achieve in getting what we want
is largely dependent on how well we negotiate.
The most powerful form of leverage we have is the power of the mind. One of the most powerful
things our minds do is focus our thoughts. Have you ever heard the old saying, You get what
you focus on? Its true.
My experience is that in a negotiation, most people are usually very focused on what they think
that THEY wantor on their position. In addition, most people I have met or negotiated with
are very interested in talking and in telling me what they think THEY want. They think that the
most important part of a negotiation is saying what they want. Furthermore, whether they admit
it or not, most people view a negotiation as a win/lose proposition. Its an argument. Its about
subtraction, not addition. No wonder most people dont have everything they want.
The truth is that when we enter into a negotiation, there is a paradox: In order for me to get what
I want, I must give to you get what you want. Otherwise there will not be an agreement and
neither of us will get what we want. There is no way for me to give you what you want if I dont
know what that is. The way I find out is either for you to tell me or for me to ask lots of
questions. Herein lies one of the great problems in most negotiations. In order for me to help you
get what you want, I have to be willing to listen to you. I must be able to ask you questions and
then to listen very carefully to your answers. One of the great keys to a successful negotiation is
to focus on listening, not talking. What I am listening for is what is important to you and why it
is important
The only way we are able to get a deal done and reach an agreement that satisfies everyones
needs is by asking lots of questions to find out what is REALLY important to the other side and
why it is important. Finding out what is motivating the other person is crucial to successfully

getting to an optimum agreement. Equally important is knowing what it is that you want in a
negotiation and why you want it. You must know what is motivating you and you must be
willing to tell the other side what that is. How in the whole world can you expect the other side
to meet your needs if you dont tell them what they are? And yet, too many times I have seen
people not disclose what they really want because they think that it will dilute their bargaining
position or make them less powerful.
My final thought for this article is that too often we negotiate as if we will never see this person
again. My experience is just the opposite. More leases are renewed than are written from scratch.
More shipments go to old customers than to new ones. There are a limited number of bankers in
my town and my reputation precedes me, no matter what that reputation is. Life is short, and it
does tend to come full circle. How you conduct yourself and how you handle your emotions will
be part of your legacy. Negotiation is not a war. It isnt about getting the other side to wave a
flag and surrender. Dont think hurt. Think help. Dont demand. Listen. Dont say my way or the
highway. Be flexible. Be creative. Spend some time working on increasing your power by
creating great alternatives.
Next time you negotiate, try asking lots of questions, practice really listening to the answers and
tell the other side why something is important to you. You will be amazed at the results

Money Follows Management

Robert Kiyosaki, in his book Rich Dads Guide to Investing, points out on the opening page, his
rich dads advice on investing, Dont be average. The same advice can be given to every
entrepreneur who dreams of striking it rich by starting a company. They think that because they
have dreamed up a snappy new product, it will be easy to raise some money and then even easier
to parlay the great idea and financial backing into the next big thing. It takes more than an
average person to successfully turn an idea into millions of sales and thus millions of profits.
Most new entrepreneurs make two common mistakes in raising money. First, they believe that
since investors are numbers guys, the projections are the most important thing. Nothing could be
further from the truth! Any fool with Excel can string together a set of projections. The numbers
are a reflection of management decisions. Good decisions = good numbers. The people making
the decisions are the management team.
All deals hit bumps, detours, and roadblocks. No business plan has ever been perfectly executed.
The unforeseen and the unknown always arise. Who deals with these problems? Management.
People make the deal work. MONEY FOLLOWS MANAGEMENT, and money loves a track
record. To give you an idea of the power of this, would you be willing to invest in one of Bill
Gates new ventures? I know I would love to be a partner with Bill because he has demonstrated
that he knows how to successfully start and run a company. Successful companies are not built
and run by the average person. It requires a skill set and level of experience that is key to
unlocking the potential and the profits of the company.
The second biggest mistake that most people make in raising capital is they are product fixated.
They fall in love with the idea or the gizmo. Investors know that a great product is not necessary,
and it does not insure success.
Apple Computer is generally acknowledged to have a better operating system than Microsoft,
and yet Microsoft is worth 50 times more than Apple. All of us can think of places we would
rather eat than McDonalds, but you can not name a restaurant that makes more money than
McDonalds. Timex makes a lot more money than Rolex even though Rolex makes a better
watch.
You must have a strategy to tell your customers what your value-add is or what problem you
solve. This is called Marketing. It is differentiating you from the competition, and it is filling a
need. It is finding your niche. McDonalds niche is not hamburgers but rather cheap, fast,
consistent, clean. Nikes niche is not tennis shoes but rather attitude. Eastman Kodak is not film
but rather memories. Federal Express is not delivery but rather absolutely, positively
dependability. In each of the instances above, the niche that these companies have found is not
necessarily the product but rather is something intangible and emotional related to the owning of
the product. It is this intangible that has differentiated them from the pack and made them
outstandingly successful companies.

Not one of these companies is average. They all have developed a niche, a message, a value-add
that separates them from the pack. In your business, choose not to be average.

Expand the Pie Before You Divide It

In almost all negotiations, there comes a time when the parties get stuck. I have said repeatedly
what I want, you have said repeatedly what you want and we are still apart. We are both dug into
our positions and the more often we repeat our position, the more solidified it becomes in our
own minds. This is the time that is the most challenging and the most fun because it requires you
to be creative. Usually when it gets to this point, it sounds like an either/or kind of conversation
and usually the conversation is about to get heated or emotional.
There are some great tricks to handle what happens when emotions start to run high, but I will
not cover these in this article (but you can get this and much more in my tape seriesPOWER
NEGOTIATING). The key to successfully achieving a negotiated agreement when everyone is
stuck is to dream up some more issues. A divorce is never just about the kids. When buying a
house, its never just about the price. Its never just about my starting salary when I am
interviewing for a job. What about visitation rights or who makes the decisions on where the kids
go to school or which town they live in. What about the washer and dryer or the lawn furniture or
the fireplace mantle. What about stock options or flying first class or reimbursement for my car
expenses.
What I am talking about is expanding the pie before we divide it. If we are focused on dividing
the pie, we will be enemies. To grow the pie, we must work together. Imagine two people stuck
in a rowboat in the middle of the ocean with limited food and water. If the focus of these two
people is on who is going to get the food and water, then there will be a fight. The reality is that
what they are both most interested in is getting rescued. If the focus becomes how to get off the
boat and out of the mess, then there will be cooperation as opposed to acrimony.
There are several obstacles to creating what you want in your life and two of those are laziness
and habits. One of the biggest impediments to successfully creating great agreements in your
negotiations is the habit of assuming the pie is fixed in size. Many times, we are simply too lazy
to look for ways to help the other person get what they want in a negotiation, so the negotiation
fails and no one gets what they want.
Expanding the pie requires that the parties in the negotiation do three things. First, suspend
judgement. Second, realize that there is no such thing as a fixed pie that cannot be grown and
third, remove the idea that solving the other persons problem is their problem. With some
productive brainstorming and sometimes the intervention of a third party, people can usually
overcome their differences and reach a mutually satisfactory agreement that is far better than any
of their alternatives.

The Power of Using OPM

Most people are in the "rat race" financially, going round and round, living paycheck to pay
check. One of the keys to getting out of the rat race and creating financial independence is
knowing the secret of leveraging other peoples time and money. The ability to raise and use
OPM and OPT is crucial to obtaining the financial freedom you deserve and desire.
The rich know that one of the keys to financial independence and the creation of wealth is the
ability to raise and use OPMOther Peoples Money. It is simply too hard and time consuming to
attempt to create a business without leveraging the resources of other people, which includes not
only money but also other peoples time and abilities. One of the major points in Robert
Kiyosakis book, Cash Flow Quadrant is the difference between an S (Self-employed), and a
B (Business Owner). An S will attempt to do everything themselves and will not delegate,
which dooms them to staying small and working hard. On the other hand, a B will leverage other
peoples time and money to ramp up the business as quickly and efficiently as possible.
Most of us have had the experience of raising or borrowing money, whether its for a new car,
buying a house or starting a new venture. Raising money for most people can be frustrating,
confusing as well as traumatic. My experience, having structured and negotiated deals worth
over $1 Billion, is that the reason raising money is so confusing and intimidating is because most
people dont understand the psychology or the point of view of the investor.
Usually, people trying to raise money dont or wont do the necessary work to be able to
successfully get all of the money they want and need. In other words, people tend to think that if
they have a better idea or have created a better, faster, cheaper, revolutionary, higher quality
gizmo or service, then it must be obvious to everyone that it is a foregone conclusion that it will
be successful, that everyone will, of course, love it and the big bucks will start rolling in.
Nothing could be further from the truth.
The reality is that most entrepreneurs fall in love with their ideas or inventions to the point that
they are blinded by their own brilliance and thus are incapable of seeing the risks and potential
downside or problems that any business venture will face.
Given that there is no shortage of investment capital available (the last figure that I saw was
$175 billion raised in the U.S by Venture Capital funds last year and $72 billion was waiting to
be invested in deals) and given that there is no shortage of new ventures being created that need
or are looking to get funded, why is it that only one out of every hundred deals that a venture
firm or an angel investor sees gets funded?
The answer is not as hard as you might guess. Investors MUST invest and lenders MUST lend.
That is what they are in business to do. They make no money unless they put their money to
work. The fundamental problem, it seems to me, is that most people trying to raise capital are not

on the investors wavelengththey dont know what an investor is looking for or even how to
talk to him.