Podcast

Entrepreneurship Education: Introducing Entrepreneurship In School Systems With Steve Mariotti

TWS 27 | Entrepreneurship Education

 

We create life-changing opportunities when we help those in need discover their niche and skills for success. In this episode, Patrick Donohoe interviews Steve Mariotti, an educator and entrepreneur who is constantly aiming to make a global change to the way students are educated. As an advocate for entrepreneurs and entrepreneurship education worldwide and the Founder of Network for Teaching Entrepreneurship, Steve has traveled to many countries searching for impactful and relatable content for his book Goodbye Homeboy and introducing entrepreneurship in the school systems. Sharing some significant experiences that has shaped his self-perception and understanding of progress from varied facets, he also discusses his venture on educating others about entrepreneurship.

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Entrepreneurship Education: Introducing Entrepreneurship In School Systems With Steve Mariotti

My guest is Steve Mariotti. He is regarded as the world’s leading advocate for entrepreneurship education. He’s the Founder and Former President of the global non-profit Network for Teaching Entrepreneurship (NFTE). He also is a senior fellow for entrepreneurship at Rising Tide Capital. He is the author of a few bestselling books and textbooks, Entrepreneurship: Starting and Operating a Small BusinessEntrepreneurship and Small Business Management and Goodbye Homeboy: How my Students Drove Me Crazy and Inspired a Movement. He is working on a film called The Triumph of the Entrepreneurial Spirit. Steve, welcome to the show.

I’m glad to be on the show. Thank you for inviting me.

Can you talk about a couple of those significant experiences of your life that shaped your perspective of yourself and what was available to you and also the potential that lies within most human beings?

The ability to find a comparative advantage or a niche is within every human being and its part of what makes us human. It’s the ability to think and to be aware of oneself. It’s part of humanity. Often by accident, I don’t think it’s done intentionally at least not in this country, but it gets stifled for many reasons. That something that should be discussed on a national level, a continual level a lot. It’s a concern of mine that in the debates in the election beginning 2016, I have not heard any conversation on education except in one debate. I timed it and it was a minute 56 seconds. If you go back and if you look at the debates in 2016, it wasn’t mentioned at all. Education is critical to any discussion of solving any problem whether it be poverty, health, self-actualization or happiness. That’s a key ingredient. A major reason I wrote Goodbye Homeboy, which is my memoir as a Special Ed high school teacher in South Bronx, New York City, we’re very proud of that, happy years for me where I required every student who each of whom had dropped out of school.

I had to convince them to come back into an offsite program. They couldn’t go back and go to a regular school building, I convinced them. We spent a year and a half almost two years, each working on a business for two to three hours a day and then we do other activities. This concept of helping people find their niche, what they liked to do and what they can do based on their knowledge of unique time and space which means you don’t have to be the best at it. You have to be the best at it at a point in time, in a particular space. When people realize that, it can be life-changing.

TWS 27 | Entrepreneurship Education

 

As you have had these experiences, here are those that essentially have been labelled as not necessarily fit for the public school system or regular school. They have this label on them and then you bring to them some ideas. What is it about those ideas that got the light switch to flip on? What was the connection that they made in your opinion?

The most important thing is the concept of ownership. That you can actually own something is many times not taught to low-income people. They will be encouraged to view life as receiving something that they don’t really own. I always talk about ownership. If I had my 40-year career to do over, I would have emphasized the concept of owning and entrepreneurship as being one tactic to get to owning ideally your time. That’s the most valuable thing. The second more tactical or practical concept which is important and I hope you’ll try it with your own children is that many young people in poverty will think that there’s one price. They’ll think this book is $16 in a bookstore, not realizing that there’s a wholesale price, manufacturer’s price, jabber’s prize and that’s true for any good. The majority of the world’s population is not aware of the concept of the production structure. When someone learns that and experiences it, it is life-changing as anything I ever saw as a teacher. We assume that knowledge but the vast majority of people in the world are only exposed to a retail price and left out of these huge opportunities to buy something and then resell it or buy something then use it and save money.

It’s also interesting that there’s a huge population that also is unaware. It’s not the fact that there are some people that are unaware, it’s a big population which creates a social belief or social understanding of how things work. Therefore, the narrative and the dialogue are drastically impacted if only a few people understand the value chain and where things start and where things end. That’s an interesting comment that you can see in the political space. Would you talk about the story of your book and the film that you’re working on with regard to some of the countries that are emerging, they are experiencing poverty and what the ideas taught through entrepreneurship have been able to help to improve their life?

In my opinion, the most political acts somebody can do is to create a business because you’re defining a space that you have a lot of control over and people never think of it that way. It’s very healthy to think of it that way because it’s an alternative to the tendency to have centralized power, the 191 different governments and rather look at that each person has political empowerment often through the creation of a small business. I went to Cambodia in 2012 and it was life-changing for me. The American State Department asked me to go and covered all my expenses. I had read all about the Genocide there, three million people out of eight million were murdered without the use of bullets. I didn’t quite understand it. I read pretty much 90% of the literature. I spent 400 hours before I went. I landed and I thought I had a feel of it but going around the country and lecturing on small business and even my first lecture was 95% women. I said, “Why is it 95% women?”

The woman host, she’s a wonderful entrepreneur, wonderful person. She said, “The men were all killed.” I knew that but hearing it and being there and then seeing these museums of skulls, it was life-changing. My secretary picked up a human tooth while we were being given tours of the killing field. I’ve heard about a white light moment where you have a basalt view and it changes your life. That moment went right to the center of my being. I said to myself whatever I could do with my remaining years here to prevent this type of pain, suffering, and murder on a mass scale that I was going to do that. Ironically, I was then invited to Hanoi by the government there. In my generation, going to Hanoi, I was in the ‘60s and it was surreal. Talking to the leaders of the government and they say, “What can we do to encourage small business here in Vietnam which has the highest growth rate in the world?” It’s almost 9%. I warrant the topic and that’s very professorial. I said, “First, we should get your tax code right and have a flat maybe 10% tax and low-income people wouldn’t pay any tax so they get out of poverty.” There’s this long silence and this very timed manning. It looks at me and he goes, “Mr. Mariotti, it is our tax code.”

The ability to find a comparative advantage or a niche is within every human being, and its part of what makes us human. Click To Tweet

I was shocked and because I had a picture of a socialist centralized state allocating resources, determining prices and all that kind of thing. I said, “How did you learn that?” Much to the credit of technology and all these geniuses that have had helped the world.” He goes, “We were watching the presidential debates years ago.” Steve Forbes says, “I’m advocating for a flat tax.” We’re all over at Minh’s house and Minh said, “Why don’t we try that?” They go in the next day, retrieves the tax code and went totally from a labor theory of value where everything is determined by a centralized group of people. The prices, that should be $4, $5. There’s no supply and demand for a completely decentralized system with low taxes. I said, “You’re kidding me. How long did it take for you to see a change?” He said, “Three to four days.” People hadn’t been able to get the glitch to repair their homes, tile. All of a sudden, they said you’d see people out in the streets trading. At first, it started as barter and then within two weeks there was money, then gold started to come out and Vietnam began to boom. We’re all reading F.A. Hayek and is a big advocate of free markets. They had totally left the view of centralization in the end economy. It was a very beautiful moment in my memories of my life.

I’m not sure if there’s a magic formula for these emerging countries that want their citizenship to come out of poverty and to thrive. I know that infrastructure is one of them. Whether it’s the structure of property laws defining intellectual property laws, physical property laws. It’s also the formation of the business and the ease there. Coming down into the tax code. What you allow or what people take home. I would say infrastructure, you can have all of the education in the world. If you don’t have that infrastructure then I don’t think the education and drive that an entrepreneur would have would work as well. That’s when you went in and were consulting with them. How did you add value in that situation based on your background and education?

I was shocked because nothing that I had read had indicated that Vietnam had gone to a flat tax. I didn’t know that. I wasn’t a charming and intelligent person as I am now. I was stunned. I wanted to be in a learning mode. I let them talk to me about how they have gone from one of the poorest countries that had been devastated. Six million Vietnamese were killed during the American involvement there, another million to Cambodia and we’re not sure how many in Laos. That’s what was officially recorded. Their industry was destroyed and their value system uprooted. To come back from that, I remember being in Hanoi, it was booming. They said, “You’ve got to go down to Saigon and we’ll cover your trip. This gentleman here will be your guide.” I went down to Saigon and businesses everywhere and energy. In my understanding is it’s gotten better and they’re even doubling every eight years. That was the most vivid display of the power of the concept of voluntary relationships being allowed between people when you let adults work out their own problems. I don’t know how much value I added unfortunately.

You created the conversation and I think that in and of itself is powerful. When you look at countries that have difficulty and go through those trying times, it’s easy to throw a check at them or throw money to fix the problem and alleviate things. Does that really create lasting change that allows someone to thrive personally? That’s where it’s interesting. This whole conversation which I didn’t plan on, but what’s going through my mind is this idea, whether it’s in the States or whether it’s outside of the United States. It’s this whole notion of ownership. It’s knowing that you are responsible for the results of your life. I’m not sure if that’s the right way to explain it but it’s knowing that you did something and got a result from it, not that someone did something for you and you got a result. There are two different experiences there. I look at how our school system is set up, which was in large part a function of Horace Mann’s vision before the turn of the century.

It’s this idea that the United States started on this entrepreneurial footing in a sense where people wanted to come here and control or own the means of production which was it readily available where they came from. It was flipped on its head. A system in which the oppression school system which was designed for training military as well as the factory workers. I think that totally threw this idea of what gets people to thrive, what gets people excited, what gets people to feel like they have a professionally meaningful life. This conversation is bringing up those thoughts in my mind because you’re experiencing it in these countries. They’re emerging, but what most we consider very poor and would not otherwise thrive. You’re seeing opportunities in which people are recognizing that it is possible for them. They’re recognizing that there is an entrepreneurial seed inside of them that can be responsible for their life and provide for their families and provide for themselves which is profound.

TWS 27 | Entrepreneurship Education

Entrepreneurship Education: The concept of ownership, that you can own something, is many times not taught to low-income people.

 

What you said was very powerful to me because a major error that could have been a huge homerun and did a lot of good but somehow took a turn. I think we’ve got to discuss more. We never heard discussed is that for the low-end income children in particular and many middle-class children. By that, from the resources that their families have, financially not spiritually or in any other way, but often get limited choices in their education. In many of the urban areas without mentioning any particular city because it’s endemic to the system. A child will be assigned to a particular school and have to stay there for years, even if he or she doesn’t like it.

In some school districts, if they allow the schools to advertise to be aerodynamic or very esoteric, sexy memes and the young person will go and once they’ve been there one year, they can’t transfer out. The teaching community has spent 40 years and K-12 education has been my whole career. I have so many friends that are teachers in junior high and elementary and loved the community. The design of the system, sadly which was an advocate and did come out of the Hegelian system. Somewhere along the line, it ended up doing damage particularly to children that have limited choices, to begin with. Anybody who you want to be able to maximize their choices in life is those with unlimited resources because of one error, they don’t have a chance to correct it.

Figuring that out, how do you get a choice into education would be a huge breakthrough in our society and the people. This gets my friends upset but it’s true. The people that are often hurt the worst by nonchoices, by preventing choices are the teachers themselves. The prison system is in part based on second-grade reading scores. You’ve got a forecast of prison out between ten and fifteen years. We’re talking about a multimillion-dollar investment. A maximum-security prison is a $1 billion budget for 2,400 prisoners to build it. I’m not sure what those numbers are because I hear different ones but it’s multibillion-dollars. They don’t want to make a major error. They start by looking at first, second and third-grade reading scores. I’ve always thought who would be the highest-paid person in the community if there was more choice allowed? For me, it would possibly be a good second-grade reading teacher. Think of the value there. They’ll be equal to any surgeon. Some markets get distorted and that’s never a good thing because not only does it limit choice but it limits feedback and information between people.

I’ve thought a lot about how are our personalities and the way in which we operate our vernacular, whether it’s the way we raise our children, how we treat ourselves, how we treat someone of the opposite sex and relationships. In large part is formed when we’re young. Our young minds are plastic. They’re so vulnerable to ideas and ways of doing things. That’s where I look at a school system. It’s one of those operations that has so much potential to completely change the face of humanity. I believe that it will because when things are not working, what ends up happening is it gets too painful and things change. We’re experiencing a lot with the theoretical approach that you and I are talking about but then you have a financial approach as well. There are some results that end up putting a person into a camp where criminal activity is the way in which they operate. I also look at the student loan debt crisis that we’re in where kids are paying exorbitant amounts of school fees but are not getting the return as far as the training and the information they’re getting in order to be relevant and profitable in the workforce.

I did not once ask about degrees or experience in school or anything. The idea of how the workforce is evolving. The political arena is stagnant and then the schooling system is stagnant, yet people are so thirsty and hungry to succeed, to excel and to make something of their life. It’s an interesting crossroads. Maybe the question would be with the books you’ve written, the textbooks or the film that you’re doing, the experience you’ve had over the last several decades in this entrepreneurial mindset. What are you seeing in the political environment, the educational environment, not necessarily in the West but globally that’s giving you hope, that’s showing you that there’s progress in a lot of different facets?

The ability to think about changing one's life is a big part of entrepreneurship. Click To Tweet

First of all, I’m a huge optimist. I agree that when we’ve made a long turn, the feedback from it becomes great that we end up back on a better road. That’s why I’m so interested in getting discussions going about education regardless of what views come out. I remember in the ‘60s growing up, you couldn’t go 24 hours without a debate about what was being taught or how it was being taught. The whole home school market, John Holt, was key in that. It was discussed constantly and a lot of good came from that. My biggest worry is when things aren’t discussed and then you can get in at real rut. From a positive view, the internet is a game-changer and that we’re just beginning. We’re at the 1% mark of all the uses that these incredible connections are. What they said to me in Vietnam, we are watching the presidential debates and Steve Forbes said, “Let’s do a flat tax.” A man said, “We’ll try it.” I realized that the power of the information, the ability to share information. Having said that, I was in Silicon Valley tour which has been one of the great birthplaces of creativity and wealth.

A lot of great things come out of that community in 30, 40 years. It’s been remarkable. In certain top prep schools out there, the owners of these very successful companies would say, “We don’t allow the use of screens during school time.” That piqued my interest. I pushed on it. In certain schools, they don’t allow cell phones or computers during school time. You have a Socratic method, you have group work, you have art and you’ll have reading time primarily on books. There’s research that reading on a screen lowers comprehension by at least 25% universally. There’s an interesting woman named Wolf. She moved from Tufts University to UCLA as director of cognitive studies. Her works are not as well-known as it should be or publicized as much as it should be, but she has spent at least a decade. I’ve read all of her stuff and all the footnotes too. All the research says that actual reading from screens lowers your ability to understand and they don’t know why yet but I sense it.

What’s going through my mind is we live in this very complex world and people have retreated to the familiar. They’ve retreated to what’s been the custom and it’s difficult to make these in a very large scale type of change. What I’ve seen and experienced is those very simple to understand ideas. It’s not complex which is simple that anyone can understand that produces a big result. That’s what I wanted to discuss as some of our final points. There are tens of thousands of books, maybe even more about business, about entrepreneurship that the information is there. We have more information than you can consume in a hundred lifetimes or maybe more at our fingertips.

As you’ve seen people’s life change because of one idea which is this entrepreneurship idea, what is that idea to somebody? What do they connect with that the information now becomes way more relevant than it was before and it inspires and it motivates them to do more? That right there, if you could package that up, that idea, whatever it is and simply explain that to someone. That’s one of those variables that move the needle. In your experience, what are those connections where people in your book where their whole life changes? Their whole future trajectory completely shifts because of connecting one idea to whether it’s making money or owning a business? How do you characterize that or think about that?

There are two thoughts that come to mind under this whole concept of the entrepreneurial mind frame which is what we’ve struggled with for decades now is the ability to be alert information and different opportunities. I thought about that nonstop for 25 to 30 years. I’m reading randomly an article and within it was this paragraph that 1/3 of somebody who was born with limited resources will become a billionaire. One-third of them start off as dyslexic and I’ve had dyslexia. I struggled with it in different forms in my whole life. I have a reading problem. I have always been putting things in order is something that unless you’ve been there, it’s hard to understand. My secretary walks in and goes, “How can this look normal to you?” To me, that’s how my mind is. It’s a picture not of a staircase. I thought a lot about that and then started reading and talking about it. The literature is starting to point it out. I haven’t agreed with this body of thought that having something that looks like a liability. When one is a child, you’re mocked, you get the C-minus and you’re asked to stay after school. I live in Princeton, I love the community but you’re not going to go to one of the top-rated schools and everybody asks you about that. You learned something else and that is how to build teams and all the Disney being a classic example. Grit went bankrupt seven times, not personally but the business. Henry Ford twice, on and on.

TWS 27 | Entrepreneurship Education

Entrepreneurship Education: The most political acts somebody can do is to create a business because you’re defining a space that you have a lot of control over.

 

The ability to build a team around you that is helping a vision that you all have and dyslexics have to do that. I remember my whole life, third grade, fifth grade, sixth grade, the simplest things it would take me fifteen minutes, but the people around me would like me, care about me and recognize that I had a unique way of handling paper. They always come to my aid. When I read 1/3 of Schwab and Branson, the results also plotted Great Britain. That was a huge insight intellectual breakthrough for me. There is a center on the study of dyslexia at Yale. If you’d go to Yale dyslexia website, there’s a husband and wife team, who are both medical doctors who have devoted their career to studying dyslexia. They started off with how do we solve it? Gradually, they started adding all these successful people on the website that were enormously game-changers and success. You look at him and go, “She has dyslexia? It’s unbelievable.” You go back and read the literature. They were all people that had the knack for admitting that I need help. People rally to help you. That’s a huge clue in wealth creation for every country and every human being alive and will lead to many other insights.

It’s such a profound point because in the typical schooling, you’re taught to work as an individual. If you work with somebody else, it’s cheating. You’re almost conditioned to not work with other people.

It’s backwards. I didn’t think of that until after I read the article about dyslexia turn it integrate well. It’s not an obvious point, at least it wasn’t for me because as a teacher, I would always let them work in groups, but I wasn’t thinking of it from that point of view. I was thinking of it that one child could teach another. Now, that I’m talking about it, it’s very similar to that insight. No one creates great wealth, wins a Novel, finds a vaccine or discovers this or that without a team. It’s always a magnitude of people that are combining their thoughts.

If that were the driving philosophy, think of how things would change. In the business world, culture, there are new buzzwords but at the same time, there’s so much merit to them which is culture, teamwork. They have the whole systems built around people playing different roles but working together for a common objective. They all have different roles and different skillsets. Those are typically identified after schooling, after someone has been conditioned in certain ways. That’s fascinating because I look at what children naturally do which is play together. I have a pretty big gap between my five-year-old and my thirteen-year-old. My son gets to play with a lot of different kids and it’s so natural when they get together. It’s awkward in the beginning and doesn’t know, a little bit shy but then they’re like best friends playing. Human beings are meant to work together. We’re meant to play together and have fun together. When it comes to our learning and understanding of information and learning how to apply that information, we were conditioned to do it individually. It’s a fascinating point. If that connection could be made, think of what would change. A lot of things would change in society.

For the better significantly and like they said in Vietnam, I said, “How long did it take before you started to see these benefits?” They all thought about it and they said, “Four days.” One person said, “No, it’s the next day after they announced it.” Here’s where it gets interesting which is an issue that also needs to be discussed openly. That is from a legal viewpoint, who owns is critical. What I have been thinking about a lot is how do you get people to work in teams and yet not have one person own it because their parent is an intellectual property lawyer or their uncle is. It’s almost always transferred that the concept of intellectual property is very seldom, in my experience, learned in one zone because it’s a long space of time to develop that thinking of patents, trademarks and copyrights. Certain countries don’t believe in it and don’t view it as a valid thought process. Reconciling this concept of teamwork, I went back and started to read which I urge everybody which is the capitalist manifesto written in 1958 by Louis Kelso, who subsequently created ESOPs by going to Hewitt Long who was running the tax subcommittee. He said, “I want you to put in there that companies that create ways for workers to own will get a tax benefit by the owners not having to pay tax on dividends.” One insight which didn’t quite take hold for some reason which I don’t understand. That insight of employee stock ownership or plan so that everybody is benefiting from this great value of teamwork in this unlimited information that we’re headed toward.

The beauty of the entrepreneurial mind frame is that it leaves you open to changing your life. Click To Tweet

You don’t want 1% owning 94% of the resources. It’s not sustainable. Too many people feel left out. The political system enables politicians to say, “If you vote for me, you’ll be part of that. You’ll move up and we’ll bring that 1% down.” That’s one of the worst things you can do. Rather, if we could approach it from an intellectual viewpoint of how it is everyone learns basic principles of intellectual property, law and ownership and then learn how to self-advocate because of so many determination of who owns what is self-assertion. Knowing the concepts, the words, percentages, “I did this to bring the steel together or I did this to help this situation. I think I should own 12%.” The difference between saying that and not saying that and being put in a worker category where you’re on the income statement but you’re part of salaries and you don’t get any part of the profit, which is always a multiple of earnings of value. That’s the intellectual issue that we should be talking about and thinking about. Otherwise, you end up going down these very tricky paths where someone who has power begins to determine that and it always ends up in disaster.

Steve, one of the interviews that on this entrepreneur theme that we’ve been on is he was one of the founding engineers at Carta. Have you ever heard of Carta before?

I have but I don’t remember how and I apologize.

The CEO, Henry Ward, has this theory and philosophy which is very much part of what Carta does is that we’re evolving as a society from a work standpoint. Work has gone from serfdom to slavery and now it’s in this paycheck or an employee but it’s going to ownership. How he uses that philosophy with Carta is that Carta is the biggest platform that manages ESOPs for some of the biggest companies that are out there as well as private company ownership. It’s an amazing platform but what it’s doing for companies is it’s allowing them to easily and it comes down to what we had mentioned, which is the infrastructure. When the infrastructure is hard, it doesn’t matter how much theory you have, nobody’s going to do anything. When it’s clunky, it doesn’t work. If you don’t have a property system where you have a title and it’s a very transparent and accurate way to prove ownership of something, then people are not going to go develop a piece of land. They’re not going to improve a property. Without proof of ownership, it’s going to be very difficult for that entrepreneurial bug to set in when it comes to that property. What he is advocating is when you make it easy for a company to put equity as a means to compensate.

When it’s easily and objectively valued, then that inspires different energy inside of an employee. They’re there for a paycheck but they’re also there for something more. What does that marginal increase do? That margin can make a huge difference in a company. The ease of doing it is what’s important. There was some tax change with regards to ESOPs in 2017 that most people and most companies don’t know about. There’s also a very lucrative tax incentive for employees when they are able to cash out and liquidate in a series-A or liquidity event with a company where they don’t have to pay taxes on companies that are up to $50 million in revenue. The pathway is starting to form for what you’re mentioning which is interesting because I have a lot of opinions and I love that philosophy because it empowers people to take ownership. Even if it’s something small, they are talking ownership of something that they knew. In their work, they get a paycheck but then they’ll get upside as well as part of their compensation.

TWS 27 | Entrepreneurship Education

Entrepreneurship Education: No one creates great wealth, wins a Novel, finds a vaccine, or discovers this or that without a team. It’s always a magnitude of people that are combining their thoughts.

 

The landscape’s changing and it’s pretty exciting. We’re not surprised. There are a ton of challenges but you and I are like, “There’s somebody working on that.” There are a lot of people working on these different challenges. It’s only a matter of time before they’re widely known and start to make a big difference where people notice it. It’s fascinating to have these conversations. I hope you have a different reference from Carta. They’re doing some cool things. It’s an amazing company.

You taught me a lot because I had not understood Carta. People would mention it in passing. After I have read all the literature I can find, an example that I think of was in ‘46 when MacArthur was a dictator over Japan. One of his first orders was that every Japanese citizen and if I’m wrong on this, I’d be glad to get feedback and learn about it because I’ve just been able to find four or five references to it. He made everybody go out with a piece of chalk and draw what they owned between homes which had never been done before. That one act was one of the things that allowed Japan to boom in the following years. People knew exactly what they had to negotiate with their neighbors after 50 years. They’ll never talk about it and wasn’t perfect, but did it create wealth. That wonderful man who I’ve seen, I’ve read all of his books on capital. The gentleman in Peru is a genius.

Is it Hernando de Soto?

I have all of his books lined up and I try to look at them.

He’s my next guest.

If you can be 51% right, you'll be one of the best in the world at what you do. Click To Tweet

Would you tell him that I salute him and I read all this literature? I asked for his autograph, that’s so much I admire him. I’ve never done that before. He’s a game-changer. That concept of thinking about even if we don’t get it right the first year, decade and two decades. Maybe there’ll be a setback here and there. They’re talking about it, discussing this, what is wealth and how can you spread it and create it? You have used the word infrastructure three or four times. I’m fascinated by that word because it’s used and I think of it as an intellectual infrastructure. Is that how you were using it?

That’s the primary concept under that and out of that will come millions of different thoughts and permutations of interactions between people. If we could get this right and start to free out people to exchange on a decentralized basis, everybody would be better off including the professional politicians would be a thousand times better off. They could get more media and not have to do as much work and not be as angry with each other. It’d be way more resources. We could do the theatre.

You’re spot on at the same time because there are so many fundamental challenges of a society that are easy to solve. I would consider the seed of that infrastructure as a trust in humanity. A trust that this is part of what makes up a human being. The drive to provide value and take the resources around you and figure out ways in which you can exchange. People thrive off of the knowledge that they did something and got a return for doing something, as simple as that. People thrive off of that type of experience. If a lot of infrastructures trusted that, the world would change but I don’t think it does trust that based on what exists. It’s getting to the point where nobody trusts it. Nobody trusts politicians anymore. They don’t trust centralized powers that are dictating everything. People are fed up with it but they don’t know where to go. I would say one of those first dominoes is a trust in human nature that it will, not all the time but more than not, do the right thing and do things that are conducive to a healthy society.

I totally agree. I want to footnote one concept and that is the concept of error and mistake. If you can be 51% right, you’ll be one of the best in the world at what you do. Before the downturn in 2008, there was a firm on Wall Street. The people were all great and everything but they had this viewpoint of I go in there and meet with their two executives, “We never make mistakes here. Are you up to our standards?” I said, “I had a good year. I was right 52% of the time.” They were shocked because they had to be right 100%. They were the first ones to collapse and when they collapse it was $9 billion. They couldn’t find it but it’s in a bank account. It wasn’t stolen. It was just by accident went into their own company’s bank account in London but they couldn’t find it. They made mistakes all the time. Mistakes are great feedback from the market. One of the best articles that everybody should read if it was a little better written was Hikes 1946 cover in the American economic review. It was the use of knowledge in society. Particularly paragraphs ten and eleven. Those two paragraphs talk about the value of feedback loops. You make mistakes and you learn from them.

TWS 27 | Entrepreneurship Education

A Guide to Rational Living

He uses the words unique knowledge of time and space which I opened with when I was talking about a comparative advantage that you don’t need to be the best. You can have knowledge like, “I know more about this than you do.” You know more about that room than I do. That’s a great value. You could have maybe a hotdog stand at 11:00 PM and not have to compete with 50 people during the day. You might be better at it than they are. That leads to another point that is important and that is the concept of stress and anxiety. Excessive stress has been linked to every disease from Parkinson’s to MS. It looks back in literature to start to see the word stress and when you look at it, what it does to cells and your mind and the dendrites. It’s a killer and it leads to habits to lower stress, excessive alcohol consumption, drug use and anger.

The beauty to me ultimately, this entrepreneurial mind frame is that it leaves you open to changing your life. If you’re in an untenable position where you have a boss who no matter what I do, the boss wouldn’t let me or I was in a position where I couldn’t be good at it. It was horrible stress. I’m sure that you had it yourself. The ability to think or maybe I can change it a little bit and do it this way. Maybe I can go do something else. Maybe I can leave and then settle back into the organization. Stress and anxiety are very seldom talked about in our culture because people are embarrassed to say, “I can barely stand Sunday nights because I got to go to work in this place that I hated,” and that’s related to what you and I have been talking about. The ability to think about changing one’s life is a big part of entrepreneurship.

The entrepreneur has redefined what failure is and what stress is. From a failure standpoint, it’s like a 180-degree shift. You want to fail because it is an essential step to success, to succeed, to being, to learning and to grow. Redefining that rule is interesting because we all have rules for failure. If most people’s rule is based on how we’ve been conditioned, especially in school. If you fail, there’s something wrong with you and if there’s something wrong with you, then you won’t be respected. If you’re not respected then how can you ever be loved? It’s amazing how it comes down to these essential needs that humans have.

The same thing with stress. Stress comes from us having this expectation of ourselves. It’s predetermined by how we’re wired and conditioned. When it doesn’t go exactly according to plan, suddenly it’s like, “What’s going to happen?” Our survival instincts from tens of thousands of years ago kick in. Entrepreneurs are rewiring it and reframing it and redefining the rules because stress is just a signal where, “There’s an opportunity.” Failure is an opportunity also to grow and using stress to fuel you as opposed to make you retreat. It’s incredible how many entrepreneurs out there that maybe they’ll define it or explain it like that but have owned those two powerful drivers and used it to completely reshape their life.

I couldn’t agree more. When I was in Silicon Valley, I snuck away from the group for a little bit. I’m 66 so I have had the benefit of knowing younger people because I got older. They’re rising in these positions of, “Are you the head of that firm? You’ve done this and that?” It’s great. They feel they have to see me. I’m the senior guy. I went to see some venture capitalists. They’re pretty well-known. I’m proud of them. I said, “What’s the big breakthrough that you need that I can pass along to young people?” They said, “We never invest in somebody that hasn’t failed twice.” I was stunned. I raised my hand, I go, “What do you think I can get, $200 million?” There’s a lot of beauty in being able to accept which is negative feedback from the market. You missed a market, so what? Learning from that. There’s a country in Europe that I visited. If you are the CEO of a company that fails, you never can be a CEO again. I tried and pretty much succeeded in giving a talk to twenty CEOs.

That’s the worst policy you could have. We went around the room and each of them had a major failure but not as a CEO. They’ve had a failure at lower-level management so they weren’t blacklisted out of becoming the leader. Was it failure where they learn from it and enabled them to move up? In my own life, I’m trying not to be like Bette Midler who in Beaches said, “Enough talking about me, now let’s talk about what you think about me.” It’s a great line. That’s what I know most about my own life. All the things I ended up becoming able to make a livelihood from. They all began out of some misfortune, some fumble or something that went wrong. I got into teaching from being mugged in ‘81 and then was an acquaintance, my grandfather was Ayn Rand’s lawyer. He meets her to see me and then I would listen and she would talk for five, six hours straight. She enjoyed having someone to talk to who was familiar with her literature. I’m a very spiritual person and she at that time wasn’t into that. She would be very direct with me, a mystic fool and I laugh and say, “Miss Rosenbaum,” which was her real name and she gets upset. She laughed that Russian laugh with pure joy when she’d see the humor in it. A big life change for me was I was minorly pushed around mugged but in front of my girlfriend when I’m 25 and now it wouldn’t bother me at all. I would accept it.

TWS 27 | Entrepreneurship Education

 

My girlfriend was a stronger type person and she stepped in with these twelve-year-olds and says, “Stop that,” and then they’ll turn around. “Drop that screwdriver,” They’ll do it. “Get out of here, leave him alone.” They all ran off. She was a hero. To me, I went to see Ms. Rand soon after that and after an hour or so of her lecturing and brilliantly, she said, “What is wrong with you?” I said, “Nothing. What do you mean?” She said, “What happened?” I said “Nothing.” She said, “You’re talking to yourself which is post-traumatic stress disorder. It’s the number one symptom.” I said, “No, I’m not.” Bless her heart, she got this pre-cell phone. She had one of those long phones out on this desk where she’d written, Atlas Shrugged. She carved the plot into this desk of that architecture that she has gotten it during the time period. She called Albert Ellis. Do you remember that name, Albert Ellis? He’s worth researching. He created the concept of Rational Emotive Therapy where you changed your feelings by changing your sentence structure in your mind. She was a very strong person. She says, “You’re going to see him.” I could hear him going. It’s a Memorial Day and he’s going, “No, I’m not.” He said, “Yes, you are.”

They weren’t even friends. Eventually, he said, “Send him over.” He changed my sentence. I feel humiliated because I was unable to defend my girlfriend from four or five, twelve years old. He looks at me with contempt, “This is how I spend my holiday with this type of immaturity?” He got up and he crossed it off. He’d said, “Rewrite it in a different way.” I didn’t respond. He said, “I’ll do it for you.” He wrote, “I am a hero because, under attack, I was able to prevent any violence toward the twelve-year-old attackers on my girlfriend.” He rewrites it. He didn’t sit there as a graduate student. He sits there, I had to write it over and over again but it totally cured me.

By the end of it, I was irritated with him that he’d made me do it, but I totally have forgotten the incident. I go up and pay him $30. I said, “I’ll be forever grateful.” He went, “I suggest you go home.” He was grumpy. The next morning he calls at 8:00 in the morning. He said, “Get up to my office in this big beautiful home on 65th street.” Everyone should read his literature, A Guide to Rational Living. It’s a very powerful literature used by almost every psychologist now. I’m thinking, “Did I not pay? Was I by accident discourteous? Did I steal China?” I’m trying to think what did I do? I walk in apologizing, thinking he’s going to call Rand, who’s going to call my grandfather, who’s going to call my parents and I was going to be out.

I walk in and I said, “Whatever I’ve done, I apologize.” He said, “Don’t be so weak.” He answers, “I’d been up all night thinking about this post-traumatic stress disorder, it comes back, it’s a progressive disease and a minor cure like what we did isn’t wanting to solve it. It’s going to come back.” I said, “It’s impossible. I’m totally cured. Thank you.” He said, “You’re going to go teach in the hardest school you can find that will have similar students that you’ve become so afraid of and you were traumatized by.” I said, “I’m past on that, doc, but thank you.” He called Rand who I’m was scared of and she got an on the phone and said in this Russian accent, “You do what he says or there’ll be problems.” I’m going, “Yes.” I went in for a week. I stayed for 40 years. I’ve had the most wonderful career because of that. What looks like a setback turned into me becoming acquaintances of some friends with Albert Ellis that strengthened my relationship with Ms. Rand. He got me out of this horror post-traumatic stress disorder which is a leading cause of suicide in America. It certainly includes veterans. It’s pretty much 100% of the cause and it is curable.

TWS 27 | Entrepreneurship Education

Goodbye Homeboy: How My Students Drove Me Crazy and Inspired a Movement

Steve, it all relates. That’s what’s amazing. If we can all recognize that there are degrees of trauma. You could have traumatic experiences like those which is not necessarily being attacked but also being defended and then the context around that and who should I be as this person. That happening can ruin a person’s life or it can completely empower them and revolutionize their life. Does it depend on what is the way in which it registers up here? Is it empowering or is it belittling? A final example, I was at a Leadership Academy and there’s this woman who’s the CEO of a non-profit that served widows but also victims of some pretty dire circumstances. They had tens of women in this program. She was afraid to speak in public but yet she was a CEO. Looking at her going up, she went up on stage and volunteered, the background was to her not wanting to speak or being afraid of speaking which was so irrational. To her, it was the truth, it was part of her and that was her reality. Going to very similar to what you experienced with Albert Ellis, it was changing some of the languages, changing the tone of voice. She basically defined it, what are you afraid of? What is the challenge?

It was done in a very loving and compassionate way. She said the verse but the verse was very depressed and she was shrinking. He had to change her physiology. The order in which you use the words, he had her talking in Mickey Mouse’s voice and then talk really slow. What it does is that those are her ideas that this guy connected with her. I’d never heard of him before. That’s led to so much science around how we think and what reality is. At an early age, it impacts your entire life. We all have them. They’re all here and it causes us to behave a certain way. If we’re aware of that, imagine what we could do to change our own wiring regardless of how old we are and the new life we can have with a few different decisions. It plays into the entrepreneur because that entrepreneurial spirit, that seed is in most people, if not everyone.

It’s the conditions and the environment in which it’s planted and then nurtured that can completely change how a person uses their talents, their abilities, their uniqueness to change not only their own life but, but everyone around them. This has been enlightening for me, Steve. I appreciate what you do and I appreciate your story. How amazing of an example that something so amazing can come from one little decision. All you had to do is say, “Yes, you’re going to teach,” and your entire life changed. That’s how profound one decision is. That’s a testament to what’s possible with our lives. How much we can enjoy it more, be fulfilled more if we’re only open to some very simple fundamental ideas.

I’ve enjoyed the show so much.

Steve, we’ll definitely have to connect again. How can the audience learn about you and your book? Plug the film that it’s in production and from the details around that.

The book is Goodbye Homeboy. It’s been the number one seller on Amazon since it’s come out. I’m real proud of that because I was never in the top 500,000. Textbooks don’t sell a lot on Amazon. That’s been a big deal. For several years, I’ve been working with a team on a documentary that raises this question. I don’t think we’re going to find an answer but I want to raise the question. That is what happens to the entrepreneur during times of war or genocide? There’s no literature on it other than Gone With The Wind that is a great movie but has the characters as entrepreneurs. There’s no real discussion of it. The people that are written about caring these times are always heads of this government. I’m not belittling them. Churchill obviously did well. The more we read about him and that’s all great but not once did Churchill who published 3.7 million words won that Nobel Prize for literature. Never did he ever mention small business, the entrepreneur and he had less than 400 words on the industrial revolution.

In history, the actual power is invisible. Even the literature on Pompeii where almost everybody there was self-employed. You go there and it’s a mass of small businesses that people died from that volcano tragically. They died in what they were doing. For some reason, it’s been invisible. People have not thought about that issue of the entrepreneur as being somebody that can be broken out, analyze and that might give great insights into how to prevent and how to connect the entrepreneurs of the world. They’re a great source of under-utilized energy and knowledge. They’re never encouraged to go into politics or very seldom. There are whole fields. Never in the history books or if they are, it’s one sentence. I’d like to do a small part to change that with his documentary that raises the question, what happens to them in this particular time when there’s war or genocide? I thought of it in Cambodia. I went back to the town where this revolution started. That began as a free market, limited tax movement and then was taken over by Pol Pot and nine other individuals that were in any actual common cell.

They used a one-page document that everybody should read. I never read anything I call the Manifesto of the Equals, 880 words are written in 1793. I never read a more disturbing page. It argues you can kill anyone. They started with people that wore glasses because they would be theoretically smarter. They kill people with passports because they have been out of the country. They killed anyone who owns anything. It all came from that one page that they had found at the University of Paris, translated it into the Cambodian language and used it to train young people under Pol Pot. It led to these three million people out of eight million people were murdered in 24 months. That’s a clue. I don’t know what the answer is but that’s something everybody should know about.

It’s in production, do you have a date in which it’s going to be finished or is it still about work in progress and nothing definitive?

The executive producer raises the money and keeps the vision going. We think it’ll be done as early as mid-January. I’m interviewing distributors and learning about the film industry. I went to the Cannes Film Festival and went to the Toronto Festival. I was on the cover of all the trade journals there. It wasn’t me, it was the film because when they watch it, they’re fascinated by the question and the interviews. It’s going to open up a whole level of debate and discussion that could be very valuable.

This has been amazing. Thank you so much for this time. This wasn’t budgeted in your schedule but it worked out for mine. I’m super grateful to know somebody who knew and interacted with Ayn Rand face to face in a very intimate level, but also such an example of what we’ve been talking about. There are so many different elements of all the different guests and how we pretty much summarized it with the interview with you. It’s been amazing.

Thank you.

We’ll definitely have you on some time in the future.

I look forward to it. If I’m invited, I’ll be here. I learned a ton as well. It was wonderful.

Thank you, Steve.

You’re welcome.

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About Steve Mariotti

TWS 27 | Entrepreneurship EducationSteve Mariotti is an advocate for entrepreneurs and entrepreneurship education worldwide. He is the founder and former president of the global nonprofit Network for Teaching Entrepreneurship (NFTE), and the author of books, textbooks and articles exploring the transformative power of entrepreneurship for low-income communities. Steve’s memoir of his early career as a NYC public high school teacher, Goodbye Homeboy: How My Students Drove Me Crazy and Inspired a Movement was published this year by BenBella Books and immediately rose to #1 on Amazon.

He currently serves as senior fellow for Entrepreneurship at Rising Tide Capital in Jersey City and chairman of Experience Counts, an organization he helped found to help bring entrepreneurship to the over 50 million Americans aged 50+.

Steve began his professional career as a treasury analyst for Ford Motor Company, before going on to found his own company, Mason Import/Export Services in New York City. In 1982, Steve left his successful business career to serve as a Special Ed teacher in some of the city most poorest and most notorious neighborhoods. Frustrated at first by his rowdy classrooms, Steve discovered he could motivate even his most challenging students by teaching them to run a small business. This experience inspired him to found the Network for Teaching Entrepreneurship (today known as NFTE) with the mission to empower at-risk youth in creating pathways out of poverty. Today, NFTE operates in 23 locations in 10 countries and has served nearly one million young people.

Steve is the author of several textbooks on entrepreneurship, 1.2 million copies of which have been sold worldwide. A native of Flint, Michigan, Steve received his B.B.A. in business economics and his M.B.A. from the University of Michigan, Ann Arbor.

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Entrepreneurship: Taking Intelligent Risks with Francis Greenburger

TWS 26 | Taking Intelligent Risks

 

Being an entrepreneur involves risk. Our guest, Francis Greenburger, has always been comfortable with it, not the “throw the dice and hope for the best” type but the type he calls intelligent risks. Francis is the Founder and guiding force behind Time Equities, Inc. and has earned a reputation for outstanding integrity and an uncanny ability to foresee changing directions and create value in a variety of real estate markets. Today, he joins us to talk about entrepreneurship, taking and controlling risks, and the characteristics that go into being a good entrepreneur.

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Entrepreneurship: Taking Intelligent Risks with Francis Greenburger

My guest is Francis Greenburger. He is the Chairman and CEO of Time Equities and the Owner of the literary agency, Sanford J. Greenburger Associates, which has represented noted authors such as Dan Brown, James Patterson, Nicholas Sparks and Nelson DeMille. He is also the Founder and Chairman of Art Omi, which was previously Omi International Arts Center and the Greenburger Center for Social and Criminal Justice. He’s also the bestselling author of Risk Game: Self-Portrait of An Entrepreneur. Francis, it’s such an honor to have you on. Thank you all for taking the time.

It’s my pleasure to be here, Patrick. Thank you.

Francis, I have a good question to start with. It’s around this topic and theme of entrepreneurship. You identify yourself in the subtitle of your book as an entrepreneur. What does that word mean to you?

I’ve thought about what the characteristics of an entrepreneur are. I would say one of the first characteristics are, did you have to be comfortable with risk? If you’re not comfortable with risk, you should use your talents in another context where you’re getting a steady paycheck or appropriate incentives. Being an entrepreneur involves risk. For some reason, I’ve always been comfortable with it. There’s what I call intelligent risk and then there’s throw the dice and hope for the best. I believe in intelligence risks which means if you’re very informed about what the challenges are, whatever it is that you’re undertaking and what the risk reward is, what is the opportunity? The reward, if you’re right, sufficiently reward you, given that there’s a chance that you might underperform your expectations or things might go wrong but you don’t expect. Those are some of the characteristics that go into a good entrepreneur.

The other thing that’s very important is to be creative because if you go out into the marketplace and you are trying to be a generic competitor, do what everybody else is doing in the same way, the only way that you can be effective there is on price. Mostly, entrepreneurs will not be successful at that because it requires quite a bit of scale. That’s a very hard way to succeed up against larger, more established players. The way the entrepreneur succeeds is by seeing things differently than other people or the other players in the market seeing a way out of the problem. Perhaps they can buy the asset of discount to what its stabilized value would be and find a way to bring solution to whatever the situation is or understand a market differently than other people. Tolerance of risk and creativity are two key ingredients.

It’s fascinating because it seems as if creativity and risk have a partnership if you will. Most people have a fear of risk, fear of something not happening the way that they presume, which is always the case. There’s a risk in everything. There are just different degrees. When risk presents itself, it seems like having the value and the understanding of creativity to navigate whatever challenge is thrown your way. Whatever obstacle exists almost allows you to have control over risk.

Don’t be intimidated by risks but see them as opportunities. Click To Tweet

It’s funny you mentioned the fear of risk. My kids have one of those cups that has lettering on it. The expression said, “Imagine what you could accomplish if you weren’t afraid to fail,” which is another way of saying the same thing. What you’re saying is that creativity or understanding options and having ways to meet challenges is a way not to be intimidated by risks but see it as an opportunity.

What are some examples in your successful professional life where you have confronted risk and took it on and achieved success on the backend?

I would say the first thing is I look at markets differently than other people. Our real estate company not only invests nationally within thirteen states but we invest in five different countries within Europe. Years ago, I became aware that Holland was at the end of a very deep recession. A lot of real estate valuations have been hurt. The Dutch banks had stopped financing most commercial real estate at Holland, except if you had a ten-year lease with a credit tenant. In the center of Amsterdam, you could get financed. If you were in one of twenty suburban markets in Holland, you’re in trouble. Prices fell precipitously and occupancies fell. It was a very tough time. There were no local players who have the resources to step up.

We saw that opportunity and we began buying. In the beginning, we bought all the cash because we couldn’t get financing. It’s 3 or 4 years later, we own 40 office buildings and set up an office there. Fortunately for us, when we came in, it was in the later part of the cycle and things were covered, markets are doing very well and we’ve had outstanding results from our investment there. We’ve been able to entice a German bank to see things the way we saw them. In fact, we ended up getting very advantageous financing shortly after we acquired the sprockets. That’s an example of seeing things differently. In this case, bringing perspective that was outside of the Dutch perspective who was way down by their immediate experience by the conditions that they had to cope with.

Looking at that decision process means starting with the macro-economic approach where you saw economic depression. Toward the end of it, where did you see the opportunity that it would rebound? Was it in the company formation increases? Was it the technology that was coming out of Amsterdam? What were some of those micro things that you saw that led you to believe that investing in office space would be a good return on investment?

My approach was fewer data-driven or metric-driven than what you’re suggesting. The first thing I said to myself was Holland was one of the outstanding countries in Europe, always has been. They have a great deal of transparency which not all European do. They have very well-educated, very smart and in fact, quite entrepreneurial population. They have a lot of positives. To me, this was a place that I saw no reason why they shouldn’t be able to repair the cycle they were going to come back to have more normal or standard. The other thing is in the case with the properties that we bought, the first portfolio, we bought ten buildings and there were 70% occupied, but we were making about 9.5% return on the 70% occupants.

TWS 26 | Taking Intelligent Risks

Taking Intelligent Risks: Tolerance of risk and creativity are two key ingredients of entrepreneurial success.

 

It was cash too not leverage, right?

Right, not leverage. My bet was a simple one. I didn’t think that things are going to get a lot worse than where we were or they might get a little worse but even if my return went from 9.5% to 8%, it wouldn’t be a tragedy. I felt whenever times got better, which I didn’t know whether that would be tomorrow or in a year or five years, I’m starting from a very high return base so I wasn’t worried. I felt I could weather any further erosion. I thought that we were a donator at that point. It was a pretty simple view. I thought we were entering at a good point. Things were profitable so we didn’t have to get better and we can still be happy, but my sense was this was a good place intuitively and was going to get better.

It’s the whole asymmetric risk analysis where you have tremendous upside but yet it’s not an equal amount of risks to the downside. It’s a limited amount of risk.

What happens is people often perceive that when you enter difficult times, that’s a risky thing to do. It’s the reverse. When you’re buying things inexpensively, things could get a little worse but they can also get a lot better. Whereas if you go in when things are very good, then you’re going to pay the top price. When you get to the top of the mountain, there’s only one way to go and that’s down. I’d rather start at the bottom.

There are so many sayings, when there’s blood in the streets is when you buy, even if it’s your own but usually it’s the opposite as far as the normal investor. The first time I went there, I had this appreciation of how entrepreneurial but also how driven and educated they were based on a lot of their history. They were the first engineers that figured out how to build a city that was underwater. That’s part of what makes up the future generation is technical and understanding. Parents have tremendous influence on the next generation and so forth. You had that generational work integrity behind what was going to be coming up in the future years to make a wise investment. That’s a great example of asymmetric risk ideas as well as looking at factors out there and seeing where there are opportunities.

It’s worked out very well for us.

Most problems can be solved. Sometimes you just have to be very imaginative and creative. Click To Tweet

I know you were in the publishing business. You took some tremendous risks there. Would you maybe tell us about some of those experiences?

We weren’t publishers, we were literary agents who represented writers and we sought publishers for their books. To some degree, what you’re investing in an author in the beginning is your time and your reputation. Economically beyond that, there isn’t a huge investment. If you’re not successful, you’ll have spent a lot of time working on something. You perhaps have tarnished your reputation if you put forth things either not worthwhile but you don’t have a great economic loss. When you’re an agent and you send a book to publishers, very often if they’re not interested, they go into long-winded explanations for why they’re not interested. In my view, frankly, I threw all those letters in the garbage because I don’t care if people didn’t agree with me. I was looking for a couple of people who did agree with me. There’s one publisher in the end. If 25 said no, it didn’t matter if the 26th said yes.

One of my first clients in the business was somebody who’s now famous but in those days was completely unknown, James Patterson. He sent me this manuscript. I hadn’t met him. He had read somewhere that I was a young age and looking at unsolicited manuscripts. I read this manuscript by him and I started sending it out to publishers. In fact, I sent it to 28 publishers. Every one of them rejected it. The 29th said if you rewrote it, they would consider publishing it. He did and they still rejected it. I then sent it to ten more publishers and by that time, I had run out of the publishers and I was sending it to different people at the same publishing house. Little Brown, they already rejected it. A lower-level editor there already rejected it but I sent it to a higher-level editor and he loved it.

He offered a generous advance for the first novel and went on to win an Edgar for best mystery of the year. His career was legendary. I only represented him for his first three books. That point he said to me, “I read about all your real estate transactions. I’ve got to figure out whether you’re an agent or you’re a in the real estate business.” I said, “I think I’ve done a pretty good job for you.” He said, “No, you’ve got to choose.” I said, “I’m going to be in the real estate business no matter what you say.” We parted company but he’s had an incredible career since then as we all know. That’s an example of having a point of view, feeling conviction with respect to it and then going and trying to get the market to agree with you.

It seems to me that you have a unique way in which you perceive opportunity. Taking the approach you did, putting your reputation on the line as you mentioned, going above and beyond and figuring out creative ways to reach different people at the publishing companies, it showed you that there was an understanding of what that opportunity was. You weren’t doing it to do it. You were doing it because you saw opportunity than most others didn’t see.

I have a conviction about my view of what he had written.

TWS 26 | Taking Intelligent Risks

Taking Intelligent Risks: Every problem has a solution. The person who can find that solution is going to create value.

 

Did you have an affinity toward the mystery genre of writing before or did you read it and knew that there was some gold in there?

I can’t say that I was a mystery aficionado, I wasn’t. The name of the book was The Thomas Berryman Number and it was an assassination novel, espionage but murky. In those days, that would’ve been posting the JF Kennedy assassination, both John and Robert and Martin Luther King’s. Assassination was very much on people’s minds and it played into that and I thought it was well done. It was highly stylized in its language which differentiated it from a lot of other mysteries at the time. I believed in it.

What would you say is something that you see in entrepreneurs regarding the risk that they don’t see?

I work with a lot of people in my real estate company, a lot of very bright capable acquisition people who are in a sense entrepreneurs and often the process of underwriting real estate, take a view of it and then you’ve tried to figure out what you think is going to earn, projecting forward it over ten years. There are all kinds of assumptions that get into it. After a lot of experiences, they come to a set of assumptions and that’s what they present is their vision of that transaction. One of the things that I do is I push them and I say, “Let’s create sensitivities around some of the variables. What happens when you say the rents are going to be $18 and what happens if they’re $17 or $16? Do you think that the occupancy is going to be 92%? Show me what happens as occupancy slips down to 85%.” Creating all kinds of variances to the scenarios that people envisioned and to the assumptions that they put into any given situation is pushing beyond where a lot of entrepreneurs start out. They may be very sophisticated and experienced in reaching their view but then they don’t subject it to quantifying the what ifs. They talk about risks as a generality, but they don’t quantify and then look at the outcome. If X, Y, Z happens, that is at variance with their fluent view of the market.

Do you see the inability to do that as potentially creating a lot of risk in the marketplace right now?

Certainly, to the extent that when one is acquiring assets or competes against people who may be less knowledgeable, it’s important not to follow the market because it’s the market. You have to have a very clear view of what you’re going to do with the asset, how are you going to run it and how are you going to manage it? You have to be very disciplined in that because there are always competitors in the market who may be less informed or they may have other sources of capital. Sometimes if there’s a fund out there who has a use it or lose it situation, maybe they’ve raised $50 million and $100 million invested over two years, you have to return the money to the investors. As they get towards the end of their cycle, if they haven’t been able to invest it, suddenly their standards slip and they have motivations that somebody who’s more disciplined doesn’t. You’ve got to stick tight to your own view and not let the market drag you into dangerous territory. Even if there are other players that are transacting at different pricing. You can use the new one as being sensible and sustainable and having good risk reward associated with it.

The thing that makes risk less intimidating a belief in solutions. Click To Tweet

What are you paying attention to right now as far as where opportunity could be? I know the universal perception of markets is always shifting but as much as there’s a risk, there’s always going to be opportunity as well. What are you paying attention to right now that you see as potential opportunity?

To some degree, we always trade wherever we see price disruption. As an example, the market for retail properties is disrupted. There’s a perception that eCommerce is going to be an overwhelming challenge and that retail properties are going to decline. As a result, the price of the properties has dropped and the cap rates have gone up significantly. We believe that the cap rates are very generous in that even if you underwrite into the equation, some downside is given eCommerce challenge or choppiness in the retail markets it’s very often that you can make a very good investments in retail. You have to understand and adapt it, understand the tenants and a million other considerations. That’s an example of disruption that we buy into.

Another area that we’re investing in at the moment is under-occupied office buildings. Right now, when an office building has weak occupancy for any number of reasons, it tends to trade at a vast discount from the state’s realized value. An office building that would have $150 valuation a foot. If it was the submarket occupancy, let’s say 85%. If its occupancy is 50%, the value of that asset might fall to $60 foot. They asked discount from what it would be worth if it was leased up. The cost of leasing up that asset could be $30, $40 a foot. You’d have wall and cost of a hundred. If it’s then going to be worth $150, that’s a very big reward in the real estate business. I don’t know exactly why office building sells it that heavy discount, clearly one that has significant vacancy is worth less that doesn’t. To us, it’s a mispriced factor. We buy those buildings and we fixed them up and then we become strong competitors in the market because we pay a lot less for our building than everybody else in the market. We can even rent them for a few bucks or less and the tenants are happy and we’re happy.

Do you see opportunities in shifting use of property? As you were speaking, I’m right in downtown Salt Lake and there is a shopping center here that was developed as part of the Olympics back in 2001. It had a competitor come in and take off the tenants and it became a ghost town. There was a fund that bought it a few years ago and turned it into this center for younger entrepreneurs. Since then, all of these different office buildings built around it. In there, there are mystery games like the games where you have to solve problems. I’m not sure if you’ve seen those before but they have arcades and hang out centers and restaurants. They shifted the use from pure retail into this center or hub for more tech-based companies and younger people. Do you see like use changing over the course of time and opportunities there?

Yes. As an example, there’s a property in West Palm. Before we owned it, it was a shopping center. The prior owner has given to us that it became somewhat of a ghost town and the prior owner converted it to B-minus office space, which is not ideal. Shopping center tends to be deep so the space is very dark. It doesn’t give a lot of window line for offices. It’s not perfect. They did some work and for a long time and when we saw it, we bought it because it was on a lot of land. It was on ten acres of land which in West Palms, it’s a big site. For a while, we kept the office building going but a lot of our tenants were government tenants. The government built their own buildings, they move people out. It wasn’t a market for this secondary office space. We made the decision to redevelop it. We’re now in construction. We’re making it into a 300-unit housing complex. We demolished the old building and now it’s going to be a housing complex that West Palm is very strong market. This’ll be an outstanding property when we get done with it. It’s life cycle. It started as a shopping center, it became an office building and now it’s going to be first-class housing. That happens frequently.

As you mentioned right at the beginning of it, that’s where it requires that creative mindset to see there’s always opportunity. It may not have been what it was once. It maybe something new based on how the environment is changing. That’s why I’ve been fascinated with researching ways in which I can interview you because the idea of risk is one of those things that prevents people from taking action. The creativity is also one of those things that I’m not sure if that’s something that you learn or establish. The idea of being creative allows you to see and create opportunities as opposed to it happening. This has been a fascinating conversation.

TWS 26 | Taking Intelligent Risks

Risk Game: Self Portrait of an Entrepreneur

Another way to look at creativity and entrepreneurship is to think that every problem has a solution. The person who can find that solution is going to create value. Whether you’re buying a problem that somebody else has and find new way to solve that problem. If it’s a problem that you have because you already own it. It’s not like when there’s a problem, you should put your head in the sand and say, “OMG.” Most problems can be solved. Sometimes you have to be very imaginative. You have to be very creative. That’s the thing that makes risk less intimidating for me is a belief in solutions.

I love this saying that the problem is an unanswered question. This has been awesome. I appreciate you adding your insight based on your successful experience over the course of time. It sounds like you love what you do. You’re loving life and you’re continuing at it despite your success, after success. Congratulations.

Thank you so very much. I do like what I do. Every morning, I wake up and I’m excited to meet the day’s challenges and opportunities.

How can the audience learn more about you, your book and ways to keep in touch and see what you’re up to?

They can take one of my books online. It’s called Risk Game. At the back of the book, I have my email. If anybody has a question or anything they want to contact me about, I answer all my emails. I get up very early in the morning. From 4:00 or 5:00 until around 7:30, I am answering lots and lots of emails. That’s one way.

Francis, thank you so much. Hopefully we can connect in the future.

Patrick, thank you.

Important Links:

About Francis Greenburger

TWS 26 | Taking Intelligent RisksAs the Founder and guiding force behind Time Equities, Inc., Francis Greenburger has earned a reputation for outstanding integrity and an uncanny ability to foresee changing directions and create value in a variety of real estate markets.

He is an active board member in and supporter of, various arts, education and community organizations, as well as the owner of Sanford J. Greenburger Associates, Inc., a full-service literary agency based in Manhattan, which has represented noted authors such as Dan Brown, James Patterson, Nicholas Sparks, and Nelson DeMille.

An accomplished writer himself, Francis is also the bestselling author of Risk Game: Self-Portrait of an Entrepreneur. Francis is the founder & chairman of Art Omi (previously Omi International Arts Center) and The Greenburger Center for Social and Criminal Justice. Francis lives with his wife, Isabelle and is a devoted father to his four children. He spends his free moments in search of the perfect backhand or skiing (carefully) down the slopes.

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The Universal Methodology Of Growing A Small Business With Michael E. Gerber

TWS 25 | Growing A Small Business

 

When people start a business, it’s often because of a dream or a vision. As people learn different processes, systems, and methodologies, dreams get bigger and growing their once small business becomes a necessity. Co-founder of Michael E. Gerber Companies and author of best-selling book The E-Myth, Michael E. Gerber opens our eyes to the reality of scaling a business. He shares his deep understanding of the entrepreneurial space to drop some old school knowledge that still holds true until today, where people are transitioning to the digital age. He discusses great philosophies and methods that can be applied by anyone, on any business, at any time.

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The Universal Methodology Of Growing A Small Business With Michael E. Gerber

This is an episode you are going to thoroughly enjoy. First, before I get to the guest, I’m curious about what you have been taking away from this season. I’d love to know if there’s been something that you’ve had as a struggle in business or in your career, in your profession that the content of the interview, whichever episode helped you to have a breakthrough habit, a realization, something that struck a chord that you’d like me to know about. This episode is the longest episode that I’ve ever done, but since this is the season on entrepreneurship, there’s nobody better than the godfather of the modern entrepreneur, Michael E. Gerber, to be my guest. Michael E. Gerber, for those of you who do not know, has written a number of books and has a goal of doing 300 and he’s 83 years old. He wrote The E-Myth and The E-myth Revisited and a number of other books. You are going to see that at 83 years old, the amount of energy this guy has is contagious and it’s just a living proof about age not necessarily being a restriction for being passionate and being purpose driven.

You’re going to learn that over the course of Michael’s career, because he started his career at the age I am now at 41, regardless of the amount of technology and the change in business, the change of environment, businesses starting, businesses going out of business. You’ve had dynasty business that are no longer in business. Regardless of how much the business and entrepreneurial landscape has changed, there are some universal truths and principles that haven’t. I believe that if you study cases long enough, if you’ve studied people long enough, you’re going to see patterns. There definitely are patterns when it comes to business success and business failure. I’m not saying that our modern times and the technology that exists and the different types of business isn’t important. However, there are some fundamental universal things to be aware of when it comes to the success associated with entrepreneurship. If you like what you learned, go onto iTunes and give us a good review. That would help. I hope you enjoy.

Michael, thank you. I’m so excited for this interview. I’m so inspired by what you’ve done over the last many years and what you continue to do, whether it’s your books or seminars, you have this energy and drive within you to improve everyone’s life. Thank you so much for what you’ve done and what you continue to do.

I’m excited also to hear your story, but we’ll save that for another time.

Every company on the planet is a system called “this is how we do it here and this is why we do it that way.” Click To Tweet

When I was preparing to do this, I did research on the word entrepreneur. There are a couple of different stories, but the French economist, Jean-Baptiste Say, who’s famous for Say’s Law, “Supply creates demand instead of demand creates supply.” He created that term, the entrepreneur. I believe that you popularized it. You set the stage for that word and how it’s been taken to the masses. What’s interesting is Say’s definition of the entrepreneur is the adventurer. I love that word because in your books, in your interviews, that is definitely you to a T, what you inspire in others. Looking at the last many years and what you’ve achieved, what were those emotional seeds, experiences that caused you to put your foot on the ground, draw a line in the sand and commit to bringing your message to the world?

It was very clear to me. I got into the business of dishes you might say accidentally. My brother-in-law owned a small advertising agency in Silicon Valley. That was a time way back then in the mid-‘70s when Silicon Valley was exploding with growth. A lot of what we call technicians, people who knew about the technology, high tech, were starting small businesses of their own like Apple, Google, you name it. My brother-in-law was having difficulty with some of his clients who were having difficulty converting the leads he created for them through his advertising into sales. He asked me one day if I would come with them to visit one of his clients. I said obviously because I wasn’t interested in business then. I was in my late 30s, early 40s. I said, “I don’t know anything about business.” He said, “You do. You know more than you think you do. Trust me and let’s go visit Bob,” the guy who he wanted me to meet, “See what happens.”

I said, “Fine.” That is my nature. I start stuff without any understanding of what’s going to happen because I trust that something will happen. It’s only a question of whether I’m open enough to see it and to appreciate it. Which I’m saying to every single person I ever have worked with or companies I have ever worked with, I call it a blank piece of paper and beginner’s mind. When I met Bob, it was obvious I didn’t know anything about business, but he didn’t either, and he owned one. It was astonishing to me that I did know something about business. I knew that selling is a system and I learned those years earlier when I sold encyclopedias door to door, knock on the door and there’s mom or there’s dad or whatever and so forth and it began. It began with this script. I was a complete novice. The guy who was telling the story about come work for us as an encyclopedia salesman, it was Americana, “Read this, memorize this and come back tomorrow.” He gave me about a fifteen-minute script. I had been practicing the saxophone with a great saxophone teacher and all I did was memorize scripts, which was a solo by Charlie Parker or solo by Stan Getz or whatever.

Part of my teaching in the music was to learn how to play that and have learned how to play that sounding like Charlie Parker, sounding like Stan Getz. It wasn’t just to memorize it. It was memorize it, internalize it, and then extend yourself to the style of the one who created it. In any case, I told Bob, “The reason you’re having a problem is you hired sales engineers. You thought they had to understand the technology, they had to understand the engineering, and they had to understand the product and sales because they had experienced selling. Neither is true. In fact, it’s your greatest single problem because you hired people you thought understood sales, but they didn’t. They understood the technology, they had experience selling, but they’d never been taught how to sell in a way that works. You needed a selling system.” Bob said, “What’s the selling system?” I said, “It’s exactly what I said. It’s a process. It’s a system. It’s a methodology. It’s the language. It’s the words. It’s the process by which any novice, anyone who passes the test can master the process by which you sell through them your product to the consumer you’re selling it to.” Bob said, “Do you know how to do that?” I said, “Sure.” He said, “Will you consult with me and teach me how to do that?” I said, “Sure.”

We negotiated a price and Ace then picked me up because he had dropped me off for this conversation. He said, “What happened?” I said, “He hired me. I’m now a sales consultant.” He said, “Michael, how can that be? You don’t know anything about his business.” He said to me what I had said to him before he introduced me to Bob. I said, “I do,” so that’s what I did. That was so effective with Bob that he asked me to meet with another one of his clients and then another one of his clients. It became obvious that none of them understood what I spoke about as an entrepreneur. They didn’t identify with entrepreneurship. They identified with the, “Technology,” of what they were selling and them as a technician, as I then called it, suffering from an entrepreneurial seizure.

TWS 25 | Growing A Small Business

The E Myth: Why Most Businesses Don’t Work and What to Do About It

In short, they went out to create a business out of it, out of what they knew. What they didn’t understand is what they didn’t know. That’s what I brought to them. What they didn’t know was far more important than what they did know. That gave birth to the E-Myth, the entrepreneurial myth, the entrepreneurial seizure to start your own business thinking that because you knew how to do the work, you knew how to create a business that worked. It was creating such pain and suffering in so many small businesses that I simply realized this is why I’m here. This is what I was meant to do. I never even imagined it before my experience with Bob and then my experiences with all the other folks that I then began to work with. I walked into McDonald’s and I went into McDonald’s to have a hamburger and fries on my way to my next client.

It blew my mind. Understand, I say it blew my mind. I never got my hamburger. I never got my fries. I was so stunned by what I saw for the very first time, what I was talking about and what was missing in every one of those small businesses. I saw a system. The business was a system. It was a visual system, an emotional system, a functional system and a financial system. I walked out of that McDonald’s with that picture in my mind. I can do that. In short, this is not about me doing it. This is about creating a system for doing it and I can create an enterprise out of them. That brought the whole thing to its natural conclusion at the very outset of what I call the Michael Thomas Corporation. I was Michael, Thomas was the guy who Ace was going to have replaced me because I decided I couldn’t stay there in Ace’s advertising agency. I had to create my own company to do what was absolutely critical, which now I call the Eightfold Path, which then I called E-Myth Mastery, and set out to do that. Tom was the guy who was supposed to replace me in Ace’s company who said, “Where are you going?” I said, “I’m going to do this on my own.” He said, “I want to go with you.” Tom went with me to create the Michael Thomas Corporation, a business development firm and the rest is history.

There’s something interesting about the experiences we as humans and we see opportunities to make a difference. It’s almost like this chemical reaction that happens inside of us that we want more of that. As I’ve read your books, as I’ve tried to understand entrepreneurship, it’s this idea of blinders and patterns and I think we all resort back to what’s familiar to us. Fear adventure, fear of the unknown. With your experience over multiple decades, even though in the business world, there are definitely some changes with what impact you make. Are the patterns different that people have when it comes to being an entrepreneur? Are they the same?

It’s a great question because nobody ever asks me that. If they did, they wouldn’t agree with the answer I’m about to give them. To them everything has changed. Meaning with the internet, everything changed, etc. With the brilliant creation of software, everything’s changed. The reality is nothing’s changed despite the fact that “everything has changed.” That’s why that first book, The E-Myth and then the book that followed, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It was published in 1992. The E-Myth, the founding book, was published in 1986.

I’m talking about ‘92. Think about that. What’s happened since 1992? Everything has changed. The truth is nothing has, and I say that because The E-Myth Revisited is one of the top five bestselling books on entrepreneurship and small business of all time. Every year since it was published in 1992, it sells more books than it did the previous year. It’s the only book on the planet that you can say that about. Why has it sold that many? We’ve never marketed the book. It’s all word of mouth. Essentially, somebody who’s read the book, you read the book, you say to somebody who hasn’t read the book, “You’ve got to read this book,” and you have done that. I’ve not met you before but I know you have. That’s true of just about everybody who reads the book.

Entrepreneurs create something you would never even imagine you could create and discover something that you would never imagine existed. Click To Tweet

They speak to a friend, “You’ve got to read The E-Myth.” It goes on and on. They read the book or don’t. If they read the book and if they do the book, which is a significantly different thing they do the book, they can’t help but say to anybody and everybody who’s either got a lousy job and is thinking about creating their own business going out on their own, they can’t help but say, “Have you read The E-Myth? That’s what they call it. They don’t call it The E-Myth Revisited. They simply say, “Have you read The E-Myth?” Notwithstanding the fact that I’m sure you know I’ve written, published now over 30, “E-Myth,” books, each of them dealing more deeply with the subject, like awakening the entrepreneur within and the introduction of the dreaming room.

What you spoke about getting deeper into the process is what all of my books, our coaching, our mentoring has done over the years, albeit it is not about the changes that have occurred in business. It’s about going deeper into the original protocol, the dream, the vision, the purpose, the mission, the job, the practice, the business, the enterprise. However I speak about it, it’s absolutely essential as it was for Bob, that very first guy who I consulted with, coached about in “sales.” It became obvious to me that Bob didn’t understand what a system was and therefore I had to address everything Bob, not just what his salespeople did, but his lead generation, lead conversion, client fulfillment, financial system, management system, operating system, etc. Unless I’ve dealt with every single one of those components of the overriding system that exists in every company, no matter whether it was 1977 or now, The E-Myth lives at the heart of it.

I think we should go into a few of the things you said because what’s interesting is it’s even more important now than it was then. Now, there are more distractions, more noise. There are more options. There are more things that pull people as far as what would make a difference in their business. It could be, “I need to improve marketing. I need to improve sales conversion.” There are many different polls people have, but what I hear you saying is that the patterns of human beings haven’t changed much. Maybe could you walk through the ideas that you’ve been talking about the hierarchy of growth, starting with those initial stages and why a person’s understanding of not just themselves, but then as they bring on people themselves as it relates people? That would be compelling. It starts to show the importance of systems so that you have degrees of certainty as you grow.

Speaking about the totality of the system, Apple is a system. Google is a system. Facebook is a system. McDonald’s is a system. Every company on the planet is a system called this is how we do it here and this is why we do it that way. You’d be astonished how few small business founders, owners, operators understand what I said. You’d be astonished to see how few literally have a dream. When I said it, a dream, a vision, a purpose, a mission, you understand that is a sequence. Meaning I have to have a dream first. The dream is a great result I intend to produce by founding this small business. What is that great result? They have to know that great result. When I started the Michael Thomas Corporation with Tom, before we ever started the company, we sat with each other day after day asking the questions we needed to ask in order to come up with the answers we need to internalize so that we could communicate them clearly.

The first in that process was the dream. What’s our dream? What’s the end game we’re pursuing here? The dream was a great result we were to produce. We had to first understand the great result our company is being created to produce before we ever could then discuss what our vision was. Understand people typically just the thing that I’m using different words to say the same thing. I’m not. I’m defining something indifferent. The vision, once I understood what the great result was and the great result, the dream for the Michael Thomas Corporation way back then in 1977 that has persisted throughout these years since we founded that company. The dream was to transform the state of small businesses worldwide. In order to transform the state of small businesses worldwide, we had to transform the state of entrepreneurship worldwide. Once we accomplished that, we would have then transformed the state of economic development worldwide. That was obviously something that if we could do it, would have a more than a profound outcome than anything we could do in the Michael Thomas Corporation, the first business development firm of its kind. It’s the first business coaching company on the planet. Nobody had the dream that we had.

TWS 25 | Growing A Small Business

Growing A Small Business: The E-Myth is the absolute replicable turnkey system that can be applied to every single small company on the planet, no matter what it does.

 

I read it or heard you say it once. They talked about this like entrepreneurial seed bits that are in all human beings. I interviewed the Founder of Upwork before Upwork became the company. One of the claims that they have was in the Philippines and how it brought $250 million of increased GDP because of Upwork. That entrepreneurial seed sits in everyone wanting to improve their life, wanting to improve the life of other people. That’s profound. Essentially one of the things that you’re talking about, which is establishing that dream, which I believe everyone has.

We say that religiously over all these years. As it’s said, we’re born in the image of God. That’s what’s said. It’s said in every religion. It was said first in the Jewish religion. It is the truth that we speak to everyone we’re talking to. We’re essentially saying, if we’re born in the image of God, as it’s said in the Old Testament and the New Testament, as it’s been said for thousands of years, if we’re born in the image of God, then born to create. Every human being is born to create. None of us are taught how to create or how do identify what we’re here to create. We’ve never been taught that. Our parents weren’t taught that because our schools don’t teach us that, because they teach us exactly the opposite of that, we are not capable of truly understanding what that means or even worse doing it. What we’ve been doing is awakening the creator within, the entrepreneur within because that’s what an entrepreneur is. An entrepreneur is a creator. An entrepreneur isn’t functionary. There’s no organization chart that says, “This is the entrepreneurs.”

If you watch the movie Steve Jobs, Steve Jobs said to Wozniak, “Wozniak, you’re brilliant at what you do in the orchestra. I create the orchestra.” The difference is huge. It’s beyond description in one way and we set out to describe it. When we say awaken the entrepreneur within, we’re truly saying awaken the creator within and inspiring them, teaching them, training them, guiding them, coaching them, mentoring them to pursue their true reason for being here on earth. What we’re saying is in every single one of you can discover what that is if you follow the process we’ve created for you to discover what that is. Within my books, I describe, discuss, pursue and define the process that’s critical to awakening the entrepreneurial, what Walt Disney called Imagineer, within. To create something you never even imagined you could create, would create, to discover something you never even imagined existed was possible, was your calling. To be able to do that goes so far beyond the technical as to say the technical part isn’t important.

The imagination of creation is the most important part of the seeding of any and every company or anything on the planet. The first part of that is the dream. That’s awakening the dreamer within. The second part is the vision. Let’s awaken the thinker within because now that I’m going to create a company whose intent is to transform the state of economic development worldwide in a very specific manner, form, shape. I now have to understand what my vision is. Which means I have to be able to see them, how that will appear on the planet. We call that the second step, which is the vision, which ours was to invent the McDonald’s of small business consulting.

At the very beginning, in 1977, when we discovered what our dream was, we then created what our vision is, which is to transform the state of small business. It was to create the visual contextual model for how we’re going to do that. That was to see it by describing it as the McDonald’s of whatever the dream ultimately said it was going to do. The McDonald’s of personal growth and McDonald’s of whatever it was. The third was the purpose. Everybody thinks the purpose is the dream, but no, the purpose isn’t the dream. It’s the third part of the dream, which is to make it possible for every small business owner who came to us to be able to create a successful company doing what their dream called for them to do. It’s doing what their vision called for it to be and to be as successful as a McDonald’s franchisee or better in the operation of that company.

Until small business owners understand the dream, vision, purpose, and mission, they would never be able to successfully grow a company. Click To Tweet

We would turn out these successful people up to the last point and the last point of the dream, vision, purpose, and mission was the mission and the mission was the system. The Michael Thomas Corporation, we invented the business development system that would enable us to realize our dream, our vision and our purpose. The system was how to create a business development process that could be applied in every company on the planet. When we got done with that work and began to communicate that to every single small business, we called on the door to door, straight commission salespeople in the Michael Thomas Corporation exactly as though they were selling encyclopedias. In exactly the manner I described, selling our dream, our vision, our purpose and our mission. Essentially telling every small business owner that until they understood the dream, the vision, the purpose and the mission, they would never ever be able to successfully grow a company of one, which is what every human being is when we’re born. An economy of one, a company of one into a company of 1,000. It’s like from a company of one to an enterprise of 1,000 becomes then the model through which we incite our new client to understand that growth is not something that maybe you do.

Growth is the only reason you started a company in the first place, that it is incumbent upon you. If you’re going to presume to be an entrepreneur, to grow a turnkey methodology that lives at the heart of your company, a dream, a vision, of purpose, a mission, and be able to expand that worldwide. In short, whatever you create is meant to grow effectively worldwide, just like McDonald’s did. You understand you’re now Ray Kroc. You’re not Jerry Smith. You’re now Steve Jobs. You’re not stupid. You’re now blessed with the process through which entrepreneurs create great scalable companies. That was the entire meaning of everything we’ve been doing since the very beginning.

This is where I go back to our brief dialogue around business then in business now because business now has a lot of shiny objects. Based on what you see and observe, are these missing components, this sequence of creation still absent with a lot of companies that are formed and created these days?

Absolutely, without a shadow of a doubt.

Can you be successful as a scalable business without these steps, without going through step 1, 2, 3, 4?

TWS 25 | Growing A Small Business

Growing A Small Business: By becoming a generalist and applying your method on every single circumstance you come face to face with, you discover the universality of your methodology.

 

If you look at every single scalable company I’ve mentioned, Steve Jobs and Apple, all I’m defining is what every single one of them does. I call it the Eightfold Path. I’ve redefined it in my terms, but only because I’ve taken them all apart and identified in every single small business imaginable how to organize all of that process into a process that works every single time. A process that works every single time it’s applied. Applied is a key ingredient of that because what’s required is for example what our most truly astonishing clients, and when I call them clients whether they’ve worked with us in our coaching process, our mentoring process is unimportant. Many of them simply bought the book, read the book, and then did the book.

You understand, you’ve got to buy the book, you’ve got to read the book, and then you’ve got to do the book. I’m saying that anybody who buys the book, reads the book and does the book, that does the book is critical, but the read the book is critical and the buy the book is obviously critical. You’ve got to do those three things. Ken Goodrich, who’s the Founder of an HVAC company, a contractor who failed in his first interim of growing an HVAC company. His dad hired him when he was ten years old. His dad was an HVAC contractor. Ken held the flashlight at night when he was fixing an air conditioner. Ken was introduced at the age of ten to what his father did. When he went on to college for four years in business and finance, from the age of ten through his four years in college, he worked in that business and did each and every job.

When he graduated from college, he was offered a job by all of the companies who hired college graduates to come to work in their bank, in their financial services company, in their whatever as a beginner. When he heard what they were offering him, he said, “You mean I went to four years of college to be offered only a third of what I’ve earned part-time fixing air conditioners? Why would I do that?” They said, “We don’t know but you’d have a career.” Ken said, “That’s the dumbest thought I have ever had. I wasted four years.” He went back not to work for his father, but to buy his father’s business ultimately. His father died and now Ken owned it and he began to apply what he thought he knew to operate that business until the IRS shut him down. Suddenly, he realized he didn’t know anything about the business of business, despite the fact that he’d been working in one from the age of ten and he’d been going to college to learn about business, to get a degree in business and finance. None of it had anything to do with what he had to do in order to be successful in his small business.

He was given a gift at that juncture. The gift was The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It. He sat down and read it and then read it again. He began to apply it in the business. He started anew from the very beginning, just Ken doing it. Now following The E-Myth Revisited, step 1, step 2, step 3, etc. Literally applying it day by day, he had the book, he said, in his back pocket. Ken, unlike most people on the planet, admits he read The E-Myth Revisited 39 times. That first HVAC company he created, he committed to selling it in three years for $1 million. In three years, he did sell it but for $3 million. It blew him away. He decided to wait a bit. He started a new one with the intention of selling it for $3 million. He did, but he didn’t sell it for $3 million. He sold it for $4 million. Ken had the book in his back pocket and practiced it day after day because it was the secret to how he got paid $3 million and the secret for how he got paid $4 million. He said, “I can do this again and again. I get this.” He’s applying my book step-by-step. At the end of that process, he had sold, built, designed, launched and grown 24 HVAC companies, millions upon millions of dollars.

He said, “Why am I selling them? Why don’t I just keep them and grow them?” That’s what Ken did. I’m speaking with Ken to a large association of service businesses, to the owners, about 1,500 of them in Las Vegas to tell that story. We’ve done that story through nineteen different vertical markets, written a book for each of those vertical markets, The E-Myth Chiropractor, The E-Myth Optometrist, The E-Myth Plumber, where my co-author is someone who literally did it. Think about the same book, The E-Myth Revisited, applied to every single vertical market. When we’re done publishing those books and bringing those books to every single vertical market on the planet, we’ll have transformed the state of small business worldwide. We will transform the state of entrepreneurship worldwide, we will transform the state of economic development worldwide so that small businesses don’t fail at 90%, but succeed every single time.

Buy the book, read the book, and do the book. Click To Tweet

If they buy the book, if they read the book and when they do the book like Ken Goodrich did, like the founder 1-800-GOT-JUNK?, like the founders of Infusionsoft did, like the founder of BNI did on and on. How miraculous that is. Our system doesn’t do exactly what Steve Jobs did, but I can guarantee you if Steve jobs had read The E-Myth Revisited, he would have done it in exactly that way and it would have created an astonishing result. That’s what I’m saying to every single person who’s reading this now, every single person you’ve spoken to over the years you’ve interviewed. That effectively The E-Myth is the absolutely replicable turnkey system that can be applied to every single small company on the planet, no matter what it does. Provided they have a dream, a vision, a purpose, a mission, a client fulfillment system, a client acquisition system, a franchise prototype that can be replicated faithfully every single time.

The prototypical franchise system every great growing company needs to design, build, launch and grow, plus a management system and leadership system, that will create a great growing company that can replicate its success time after time. Whether it’s doing that in Portugal, Miami, every country worldwide like McDonald’s, Apple, Google, etc., it works. Ergo, you can literally learn how to work it in such a manner that will enable you to scale it in the most uber-successful way. To truly become the great entrepreneur that resides in potential in every single one of us.

Michael, it’s been going through my mind is something I heard you say and you’ve written about, which is stop reading and start doing, which has resonated as you’ve been speaking. It’s also something that I’ve learned, which the idea of mastery is. I think a lot of people were influenced in the United States, especially to master things cognitively, get the information. There’s a degree of physical mastery, which is due to taking the information and doing something over and over. This is definitely the place where we needed to talk about some new business that you have at Radical U. It essentially takes the information that’s in The E-Myth and puts it into a directional set of tutorials and curriculum. It’s those potential entrepreneurs, existing entrepreneurs or small business owners can use that to put in practice what you’ve been talking about.

Radical U is our entrepreneurial development school online. It’s essentially a five-year school. I’m going from a company of one to a company of 1,000. It defines every single step of the way through a video tutorial and homework the student needs to do. By doing the homework, they’re shaping their dream. They’re shaping their vision, etc. to the point where they’ve grown an enterprise. Effectively, what we’re saying is if you have the dedication, if you have the patience and you have the determination. If you have the will to follow our methodology, we will teach you what every single human being on the planet must know and must do in order to create any company of whatever size to realize your dream. It’s the great result you’re setting out to produce. To realize your vision, the form that dream will take, in a brick and mortar or online business.

The purpose for which you’re doing it so that every single one of our students online can become successful in a limited fashion as a McDonald’s franchisee or even in an expensive fashion. It’s to mirror the success of a Ray Kroc or Steve Jobs, the Google boys and so forth. Pick one. It doesn’t make any difference whether it’s brick and mortar or whether it’s online, whether it’s this or whether it’s that. The process is universal. That’s our point. The process, the methodology from step one to step five to step eight is exactly the same no matter what company you’re going to start. Once you realize that, you suddenly liberate yourself from all the false promises that are made on the internet from internet marketers who are essentially telling you stories, which are built upon what everybody says to them, “I want to do it fast. Can I do this in a week? Can I do this in a month?” They say, “You can.” In short, mirroring the stupid desire everyone has when it comes to the word success. Mostly what they want is a financial success. They may want to make gobs and gobs of money.

TWS 25 | Growing A Small Business

The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

When you go on the internet, what you were going to see is an immense number of people say, “We’ll teach you how to make gobs and gobs of money,” as though they, and of course they can’t. They can’t because nothing called gobs of money happens in a week, in a month, in a year. It happens over time and it happens steadfastly when you do step 1, step 2, step 3 and master each and every one of them on the way. We’ve been telling the truth for now since 1977. There are a monstrous number of people who have copied what we say, but then say, “Now you can have it quickly.”

Michael, I want to hit on two things that keep going through my head. The first one has to do with what you’re saying right now, but I’m going to talk about the first. There are so many of these sequence patterns in life. I think going back to Maslow’s Hierarchy of Needs, there’s a sequence by which people seek things, the physiological safety relationship, self-esteem. There’s a process and a system to that. There’s a hierarchy and you can’t skip steps. I read something which was the eight or nine levels of intimacy, which is going in all of your relationships where if you skipped steps, it could be considered assault. The step 1, step 2, step 3, there’s this sequence of events. I look at also to our life in general, humans in general, we’re all born the same way. We have to learn how to walk. We learn how to crawl before we walk. Learn how to speak, learn how to interact. You can’t skip steps.

It occurs to me why would anybody think that there isn’t a sequence and a pattern to a thriving business, a certain sequence, certain steps that you take starting with one and ending with the latter one. This brings me to my final point, which is money. This entrepreneurial flash in the pan, giving people gobs of money, as you put it. In my experience, people aren’t seeking money. They’re seeking some emotion and state they associate with having money. You have talked about this, starting in your first book, which is the idea of contribution and legacy and making a difference as being that driving force. Those are the two things I wanted to say. Would you mind speaking to that as we conclude?

Absolutely and I would say that the reason why most people don’t realize that it’s a process, you have to walk before you run, etc. They don’t want to have to think that. They don’t want to have to think that it’s going to be hard work. They don’t want to think that they’re going to have to learn how to do this before they can ever learn how to do that, whatever this is and whatever that is, whatever the process is. All I’ve learned in my education and my education with respect to myself, education has been to identify what that process is. Only by doing it, testing it, validating it and then orchestrating it, we’re able to come to that conclusion. Understand what we’ve learned, earned, and earned it by practicing it. It’s by practicing it not only in our business but practicing it in every business to discover the universality of it.

If it were not universal, then it would be specialized. Everybody believes you’ve got to become a specialist, that’s what everybody tells everybody. You’ve got to become a specialist. I’m saying you’ve got to become a generalist. By becoming a generalist and applying it in every single condition and circumstance, you’ll discover the universality of this methodology to achieve a truly human resolve that lives inside of you authentically, which must be honored every step of the way. This is hard teaching because it’s teaching something that most people are not prepared to do. It’s like I’m becoming a Navy SEAL. Thousands applying, hundreds are accepted and those hundreds are already masters in the world they live in. Now they’ve got to go to school and it becomes dozens. Not thousands upon thousands who want to, not hundreds upon hundreds who have been accepted into, but only the ones who have passed the test to. Think about that. From thousands upon thousands to hundreds. What’s in between? What’s in between is the stamina, the persistence, the will to overcome all of the obstacles that are naturally incumbent for you to get there so that you can be there having passed through every test along the way. The tests are identically the same. That’s important for us to know. The tests are universally the same.

Michael, isn’t it interesting that most of the vital truth of life is inherently paradoxes? Especially when it comes to growth and the achievement of success, love or fulfillment. You experience the other end of that like the yin and the yang, you experience the other end of the spectrum. It’s incredible where you look at what it takes to have a successful business. We obviously don’t have time to go through the different roles a leader plays in a business. There are these different steps that are taken. The transition, as you’re saying, there’s tension, there are anxiety and the idea of the will to succeed, overcome challenges, overcome adversity in and of itself gives you that reward and fulfillment. Without it, there would be no reward or fulfillment.

Without it, there wouldn’t be any. They would simply be superficial. It’s making a commitment to lead an existentially true, authentic life and to discover what it is. I’m beginning the process of writing another book. I’m always writing another book, but one might say, “I’ve already read your book.” That’s only because you haven’t truly gone through the process. To understand that you might’ve read the book and it was essential as the first step in this process, but it’s never enough until you do the book. You’ve suddenly discovered that what you thought the book was about was different than what the book was about. The book I’m committed to now write is mastering the mind of a master. I want to imagine a book called Mastering the Mind of a Master. That’s the entire process. It’s not of a lot of masters. It’s of a master because once you find one, understand I’m not saying I’m that one. I could very easily say that because that’s what all my beyond fans would tell you. I’ve gone through the trouble of defining the process through which one must think like a master, which calls for one to do what one thinks like a master.

In order to create what one thinks as a master that I’ve taken the trouble to pursue that my entire life. Here at the age of 83, halfway through that passage, I can say, been there, done that, failed at that, succeeded at that, mastered that, etc. It’s only that I’ve mastered that you should pay attention to because that’s the product of my will, of my love, of my pursuit to create a great growing enterprise that can transform the state of human beings worldwide. All I’m saying is by saying, “Look up to me,” that’s not the point. It has nothing to do with me. When I speak about it, I call it not Michael E. Gerber. It did hit, I didn’t. It lives within me.

You need stamina, persistency, and will to overcome all obstacles that are naturally incumbent for you to pass every test along the way. Click To Tweet

You’re documented in so many different areas of media, but you’re known to say often that one of the main transitions of the leadership of successful founders is when it’s no longer about you. You should chart as soon as possible.

That’s why the whole personal branding BS. I’m saying BS because it’s appealing to the ego. I’m the one and you’re going to see it immediately. You can immediately see it if you’re capable of seeing it. Most of us aren’t capable of seeing that because we’ve never grown beyond that. We’ve said enough about it. I think all of it. I think that in fact what we should do if you are open to it is have part two of this conversation and maybe even part three. In the process, something will come out that the folks you are speaking to will realize what wealth is as opposed to the wealth they think it is.

Honestly, I would love those conversations and those follow-ups because wealth is one of those totally misconstrued things. I think that people these days that have acquired or achieve what they had considered at one point material wealth realize that it’s not what they were seeking. There are so many different aspects to a life where if you were to measure those and be willing to give them up, the material things are what would be given up first. Not health, not relationships, not spirituality, but material things. It sounds so cliché, but the most important thing is that life has nothing to do with material wealth. I look at a person directing what they assume a successful life is based on our conditioning in school, in the workplace, has become superficial. I look at definitely that we need to do some follow-up because wealth is achievable. I think that the overwriting sail that propels that ship forward can be discovered so much sooner than it’s usually discovered, which is typically toward the end. If it can be understood, accepted and acknowledged in the beginning, it can make the journey so much more fulfilling.

Without a doubt and then becomes the question, “How do I say that?” All the same words are used in all of the personal growth, personal development mantras that are spoken by so many people that it all becomes the same. It’s how then to speak it in a way that it all becomes compelling. The truth about what we speak about. When I say we, I mean we have The E-Myth sword that what we speak about is original. It had never been said before. I can promise you it’s still not being said. It’s being shared, but only to the degree, the one who’s sharing it perceives it, not as it’s being delivered authentically. It’s true. You’ve got to get into it deeply. That’s why I say the process. I have a dream. I have a vision, and the expression of what a dream is and the expression of what my dream is and the etc. You’re suddenly experiencing the process that one has to go through. That’s what we do in Radical U. Radical U is a 52 weeks a year video session and each of those sections is designed to produce one result. Imagine when somebody enrolls in Radical U as a student, the first module of Radical U is the dream. Remember Dr. Martin Luther King, I have a dream set in Washington, DC? You can watch that. Everybody reading can watch that.

When you watch Dr. Martin Luther King saying that, when you experience what he says and how it comes through to you, you can for the very first time experience how incredibly alive that dream was to him. That’s how alive your dream must be, albeit your dream is different than his. The minute you hear him say, “I have a dream,” and you see that flood of people in Washington, DC listening to the expression of his passion, you realize he died for that. You understand he was shot for that. That’s how dangerous that dream was as it was perceived by the powers that be. That’s how huge that he dared to dream that in a world that did not permit one to dream that. When you listen to him now, as he expressed it way back then, you begin to feel it. Not as he did it, not even close to what he felt what he said it. You at least can understand and appreciate how deeply he felt it to commit his life to it. All the dangerous places he took it to. That’s what you’re setting out to do as an entrepreneur. That’s what’s missing every single time I speak to one.

Sometimes, because I’ve read that dream and then you hear the audio, you experience the video and they’re different experiences. Words are words. It’s information without execution, like what you’ve been talking about, having the information but not doing anything. It’s been the doing, but then it’s the conviction and being behind that creates this magnetic energy that inspires and compels and leads others. That’s why his influence will never ever die.

We could’ve gone on and on only because you’re literally deeply listening. You weren’t just interviewing me to get some stuff out. That wasn’t where we were.

No way. I prepared a bunch of stuff and I got through maybe a bullet point and a half.

I know you did. We made a connection here. I know it can go much deeper. As it goes much deeper, you’re going to have a profoundly deeper impact upon the people who visit you. As you began to have an impact, your dream is going to become formed in a way that you can see in better than you’ve ever seen it before. That dream is going to direct everything you do. The dream is the very first thing I had the dream. I read what Dr. Martin Luther King said, I heard what Dr. Martin Luther King said, and I saw him as he said it. Each and every one of those were different experiences, but absolutely necessary for that dream to come alive. It was great speaking to you. Thank you for your time.

This has been incredibly inspiring. Let’s definitely do a follow-up because I’d love to have a part two and a part three. We don’t need to spend time talking about the best ways for the readers to connect with you. We’ll just give your main website, it’s MichaelEGerber.com.

It’s Michael@MichaelEGerberCompanies.com.

That’s where they can access books. Radical U can be accessed from there. That’s the hub.

As we have further conversations, Patrick, at a different level, we’ll also find a way to connect us, you and them in a way that we all are sharing in the experience. I would like nothing better than that.

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About Michael E. Gerber

TWS 25 | Growing A Small BusinessMichael E. Gerber is the founder of Michael E. Gerber Companies and E-Myth Worldwide. He has had nearly 100,000 business/coaching clients over his career and has consistently been called “the World’s #1 Small Business Guru” — the entrepreneurial and small business thought leader who has impacted the lives of millions of small business owners and hundreds of thousands of companies worldwide for over 40 years.

He is the #1 New York Times’ bestselling author of The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, Awakening the Entrepreneur Within: How Ordinary People Can Create Extraordinary Companies, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, E-Myth Mastery: The Seven Essential Disciplines for Building a World-Class Company, The E-Myth Real Estate Investor: Why Most Real Estate Investment Businesses Don’t Work And What To Do About It, The E-Myth Contractor: Why Most Contractors’ Businesses Don’t Work and What to Do About It, and the new book The E-Myth Chief Financial Officer: Why Most Small Businesses Run Out of Money and What to Do about It.

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Minimizing Failures And Maximizing Success In Startups With Mike Moyer

TWS 24 | Minimizing Failures In Startups

 

How can you achieve business success with lesser money and lesser failures? Mike Moyer gives us the answer to this question. Mike is the author of eight books that provide structured advice to people who want to solve specific business problems like splitting equity in their startup company or delivering an awesome sales pitch. In this episode, he reveals what he discovered in the startup and entrepreneur world about minimizing failures and maximizing successes. He also shows how we can solve problems with the least amount of money possible and how we can value our cash.

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Minimizing Failures And Maximizing Success In Startups With Mike Moyer

My guest is Mike Moyer. He is the author of Slicing Pie: Funding Your Company Without Funds. There’s an updated version which is Slicing Pie Handbook. He also has a cool software that is used to equitably track the non-cash expense side of things. It’s a very fascinating book and software as well. His reach is huge and you’ll read that in the blog. Most startups end up in a legal dispute because most partnerships or most companies start as partnerships 50/50 or 33/33/33. It’s cut down the line depending on how many founders there are. Mike figured out a way to equitably track it. He sells thousands of books a month. He also works around the world. The book has been translated into multiple languages. You definitely want to pay attention to this. There’s relevance to the content of these things we get into any size of the business of how you value something that’s not necessarily cash related.

Also, if you want to stick with me to the end, there is something that I was sent for my birthday by my mom and it was based on an archeological dig in New York City. These bottles were pulled up and it has to do with an ancestor of mine that formed the original mineral water company in the United States. I’m going to tell you a little story at the very end of the blog. If you like what you’re reading, go back and check out the previous episodes on entrepreneurship and also the previous seasons as well. Go on to iTunes, give us a good review. That always helps to keep us present for those that are looking for ways in which they can broaden their perspective on wealth, strategy, entrepreneurship and other things financial. I’m going to get to my interview with Mike. I hope you enjoy it.

Mike, it’s awesome to have you on. Thank you for taking the time.

You’re welcome.

I’ve known you for a few years and connected with you at different events. You have an intriguing way in which you look at entrepreneurs. It’s more of what entrepreneurs don’t usually realize when they’re starting because they’re so focused on the idea and the product. Why don’t you talk to the audience about what you discovered in the startup world, the entrepreneur world and how you’ve helped them and guided them to minimize failure and maximize success?

TWS 24 | Minimizing Failures In Startups

The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

In general, many entrepreneurs want to go out, raise a lot of money, grow fast and grow big. If you look at our heroes of Mark Zuckerberg, eCompanies, awesome entrepreneurs, these celebrity entrepreneurs, it’s so unlikely that it’s not worth worrying about. I was shooting for the fences all the time. I’ve made a pretty decent living as an entrepreneur. I’m proud of making a living as an entrepreneur. I hit singles and doubles, not home runs all the time. Most entrepreneurs that make a living as an entrepreneur do so by singles and doubles and unconquerable troubles. Because people are always swinging for the fences, they always want to grow as fast as they can, raise lots of money as fast as they can. They cause a lot of problems.

With the bootstrapping concept where you can re-invest, the idea is to invest a little amount of money as possible to get the most return or the ROI. How do you solve your problem with the least amount of money as possible? The Lean Startup book on your desk is a great tool and a great concept. The one thing that I encourage you to change with the concept, instead of a minimum viable product, you made it a valuable product. By valuable I mean the minimum you can charge for. I see a lot of entrepreneurs building products, giving them away for free and having free beta testers. This whole process creates a false sense of value creation. I know you can give it away for free and now pay for it. Will they pay for it? One of the big things that have been missing with the equation often is capturing revenue very early on.

The other side that I like to work with entrepreneurs on is the whole idea of what are your cost structures? What does it cost to run your business if you are running it? Entrepreneurs think they can finance themselves by not paying for stuff. Everyone finance themselves by taking out loans or selling equity or earning money where they have to pay bills. Startups think they don’t pay the bills. This idea of we can finance ourselves by not paying for stuff gives us a false sense of what our costs are. When we taught student entrepreneurs, “We can undercut the big boys because our costs are so low.” Your costs are low because you’re not paying yourself, you’re not paying rent, you’re working in your dorm room. Those are real costs that you’re not paying for some reason and think you don’t have to. You want to know what those costs are so that you can always buy-in your business. Those are the two areas that I focus a lot on. The third one is how you divide up equity in a startup company.

Get into that because that’s what initially intrigued me. It’s the way in which most companies I would assume start typically in a simple divided in half or 50/50. Some of the things you said are vital because there often isn’t a consideration for all the value involved in a startup company. Can you go through and walk through that whole theory or idea and maybe use some examples?

An equity is the first deal people do. The first they needed to do is sit down with partners and say, “How do we split the equity?” As you said, “I’ll go 50/50.” The majority of startups go 50/50. They say, “We’re buddies or we’re friends, let’s go half and half.” They’ll say, “It was your idea. You’re more important than me so you get 51% or 60%.” No matter what number you pick, it’s going to be wrong because things always change. The only way to get your equity a bit accurate is to effectively predict future events. My equity is based on what you’re going to do in the future. You promised to work full time, for instance. You promised to work hard to give me a lot of customers. You promised that you’re going to build a great brand or you promised you’re going to invest money. I promised you that it’s going to be worth a lot of money or that we’re going to raise money.

Giving away free beta testers creates a false sense of value creation. Click To Tweet

If I can predict the future, I could get it right. Because I can’t predict the future, I can’t get it right. That’s the biggest mistake people make is they go in on this and divide equity in advance with the work being done. Because they can’t predict the future, they have to renegotiate later on. Renegotiation means something along the lines of, “I don’t feel like I have enough equity. Give me some of your equity or reduce your holdings.” People who have equity more than they deserve rarely bring it to people’s attention. If you have less than you feel like you deserve, you always bring it to people’s attention or you feel miffed or taken advantage of.

One of the problems we have is if I gave you 50% of my company and you do all the work, your motivation level goes way down. If I give you 10%, you may feel good about it for the first six months, for the next six months, you don’t feel too good about it. If you have a 50% cut and I renegotiated a 30% cut and you’re still doing the same amount of work, it’s a problem. No matter what happens in the future, it’s going to be wrong. It’s fundamentally a flawed system. All the advice we hear along those lines is plain wrong. It’s extremely calculating mistakes. The attorneys I’ve talked to estimate that 60% to 80% of all equity deals end up in a dispute that requires legal intervention. That means the chance of your equity split failing is greater than the chance of it succeeding.

This is a problem that I personally dealt with throughout my career and made me petrified to work with partners. When I did, I often got screwed. One time I was on the receiving end of the equity split. I got more of what I deserve. It was great. I made a lot of money. It’s fantastic, but I didn’t deserve it. Most of the time it’s just me getting screwed because I didn’t know better. Now I know better. The Slice of Pie model, which I’ve written several books about is the solution to that problem. It solves it 100%.

It even extends to intellectual property, office space and cash contribution. You have a way to value monetarily in a sense like with slices of pie. You have a way to value everything that goes into a company, whether it’s the market value of one of the founders who is taking a 50% pay cut, whether it’s office space and you even talked about college students. They’re paying rent. There’s value there if it’s being used partly for a startup. Talk about how you discovered all of these different pieces to a startup that were valuable, that weren’t necessarily taken into consideration with the traditional model.

You can’t say what the future’s going to hold. There are these unknowable things and predictions about the future. What is it going to be worth? If I think it’s going to be worth $1 billion and I’ll give you 1% of that, you’re going to be rich in your wildest dreams. What most people don’t realize is everything has a fair market price. Most established companies pay their bills. You are in business. You pay your bills. I’m in business, I’ll pay my bills. Everyone’s bill is paid, but startups don’t pay their bills. The value of something is what you would have paid if you did pay. If McDonald’s wants to build a restaurant in my garage, they have to pay me. If a law firm wants to license my likeness for their logo, they can pay.

We do pay for employees. We do pay for rent. We do pay supplies and equipment. All these things have fair market values. It’s the price that you would pay if you could pay because you will be paying when you can pay. If your company has $100 million in financing, you’re going to pay for your rent. You’re going to pay for your salaries. You’re going to pay for your travel expenses. Everything has a fair market value. The part that’s we’re going to focus on is what would we pay if we could pay? I always ask the same question, what would I pay if I could pay and I keep track of that. By keeping track of what I would pay, it gives me a feel for what my company cost structure is going to be when it becomes full force. Because when I reach break-even, that means I’m paying for everything. I can’t reach break-even if I’m not paying full salaries. I can’t reach break-even if I’m not paying my rent because I’m overstating profit and understating expenses. A break-even implies a fully loaded expense report and income statement, income and expenses. That’s a starting point.

TWS 24 | Minimizing Failures In Startups

Minimizing Failures In Startups: A break-even implies a fully loaded expense report and income statement.

 

You have online software. Your book talks a lot about this. You have a way in which you quantify that value where there isn’t money to pay it. You’re able to quantify it so at some future point in time, it will have essentially an equitable stake going forward.

The thing I’m thinking about is a game of blackjack. Do you know how to play blackjack? Let’s pretend that you and I go play blackjack together not as opponents but as a team. We’re friends so we’re going to split the winnings 50/50. We don’t know if we’re going to win. We don’t know how much we’re going to win. We don’t know how long it’s going to take to win. All we know is that we’re going to be friends. We have a good time playing the game. You go to a table and we each have $1 on the same hand to blackjack. The deal is two aces. We’re going to split the aces and double down. I’m out of cash and you’re not so you put $2 more down. You’ve bet $3 and I bet $1. We still don’t know if we’re going to win or how much we’re going to win and how long it’s going to take them.

The future is still unknowable. What we’re certain is you got $3 and I bet $1. If we win, does 50/50 sound fair? It should be 75/25. That is logical, it is obvious, it’s unambiguous. There’s no other way to think about it. I got to deal for 50/50. I could sue you and probably win because you agreed to it, but because you agreed to it and legally enforced it, it doesn’t make it fair. What’s fair is that your share of the winnings should be based on your share of the bets. When you contribute to a startup, it’s exactly the same thing. The bet is betting profits or capital gains of the company. The value of the bet is equal to the fair market value of our contributions. If you’ve worked for me for a year and you’re worth $100,000 and I don’t pay you, you have essentially bet your salary.

You may bet less than your salary. You’re going to bet a portion of your salary. If you have taken a 50% pay cut, I pay you half your salary and you’re betting the other half. If I use your garage to run my company, I don’t pay you rent. You’re paying the value of the rent. If you bring a screen-printing press that you had in your basement to give to the company, you’re betting that fair market value of the screen-printing press. If you buy plane tickets and hotel, I don’t reimburse you, you’re betting the value of those expenses. If you can contribute and you’re not paying for fair market value, it becomes a bet. It’s very simple, your share of the equity is based on your share of the bets.

One thing that wasn’t mentioned is cash. Let’s say somebody partnered that isn’t going to actively work in the company but puts cash in. How do you value cash or is it the same type of value as if somebody took a pickup? Is it the same type of value?

Equity is often used as a tool for incentives. It’s a lousy incentive because you’re going to have to work harder. Click To Tweet

There are two kinds of contributions. There’s non-cash contribution, which are things like time, ideas, relationships, things that don’t require you to take cash out of your pocket. The cash contribution is cash out of your pocket. If I paid you $100 an hour to work for me and you want to buy something that costs $100, how many hours would you have work in order to earn that money?

I already know the answer. It’s for two hours because I have to pay taxes on it.

When I pay you, I pay Social Security taxes and employment taxes. When you receive the money, you pay income taxes. When you buy the thing, you pay sales taxes. You have to work for two hours. Cash is more scarce and has higher taxation than non-cash.

It’s contributed after those taxes.

If you gave me $100,000, do you want me to think twice before I spend it? That is why I want you to think twice. You have to align the interests of the investor and the entrepreneur. In Slicing Pie, there’s a unit called a slice. It’s a fictional unit of the amount of contributions like a poker chip. For every dollar non-cash you contribute, you’re betting two slices. For every dollar in cash, you’re betting four slices. I call those normalizers or multipliers. That formula smooths the difference between cash and non-cash. It reflects a great deal of risk we take when you start a company. That’s how you account for it. When we reach break-even or Series A, your share is equal to your slices divided by all the slices, just like in poker, it was your chips divided by all the chips.

TWS 24 | Minimizing Failures In Startups

Slicing Pie: Fund Your Company Without Funds

I know we’re using different words to describe certain things. I have a couple of your books. This is the actual handbook, Slicing Pie Handbook. Maybe talk about the successful experiences you’ve seen by groups using this model. Do you have any off the top of your head that uses this where it’s been equitable and they went on to raise more capital and everyone was happy?

One of my favorite examples is a company called CloudSploit. There’s a case study on my website about it. This is the guy who had an idea for a company and he posted it to Reddit. Some guy posted back saying that was a good idea. The two of them have never met each other. They used Slicing Pie to start their company. Months later they raised money. It’s a pretty substantial company now. In 2010, I had published the first white paper on Slicing Pie and distributed it to entrepreneurs as far and wide as I could. In 2012, I wrote a book called Slicing Pie. In 2015, I wrote the Slicing Pie Handbook, which is the better one. It’s been translated into twelve different languages. I’ve sold thousands of copies every month all over the world. I have thousands of users of my software. I never once have I heard it not work. I never once heard of a single incident where it couldn’t solve the problem.

As I said before, 68% of all traditional deals wind up using legal intervention. Slicing Pie when used properly works every time. It’s a universal model like blackjack works the same in any country. It doesn’t matter. Fair is fair. If our dad gave us a cookie and said, “Split it up boys,” the only fairway is put it half and half because we’re both equally paid nothing for the cookie. If you bought the cookie, you can eat the whole thing. Fairness is not a matter of opinion. It’s a matter of fact. There’s only one version of it. That book has been used all over. It was translated into Persian for the Iranian market, which is a very different culture and very different economy. It’s the same model there as it is anywhere else.

I saw a presentation from a gentleman from Saudi Arabia. It was fascinating because the stereotype of that country is it’s this war-torn and very antiquated culture, but they have thousands of startups. There’s a huge entrepreneurial drive there.

There has to be because stable employment is not as easy to come by.

That will create an environment for entrepreneurs. For startups, hopefully, everyone’s resonated with some of these points. Is there relevance to existing companies that are maybe a couple of years old and they want to scale? It may require a capital contribution, debt or more risk. How have you worked with existing companies that are maybe taking things to the next level but already established?

It used to be that capitalism is the only means of production. Now it's about renting or borrowing. Click To Tweet

If you’re already established, your stock theoretically has a value already. Once you share some of the value, you don’t need Slicing Pie. Slicing Pie assumes you have a zero evaluation. I can’t divide it by zero so I don’t know. There’s no way to value the stock so I can’t see how much it costs to buy so I can’t sell it. Once you have a valuation of your company, you can use the stock price of your company. If your company is not paying full salaries and not paying expenses like a startup company, your company is likely overvalued and you will not break-even. In order for a company to have value and not be on paid bills that do something pretty spectacular, like super loyal customers for instance, that people are willing to invest in. Established companies can use their stock price.

Equity is often used as a tool for incentives. You’re going to have to work harder. It’s a lousy incentive. Giving equity to someone in an established company is a waste of time. If you don’t value it enough to buy it or somehow acquire it by not getting paid, giving it to you is not going to make you work harder. If you have shares of Apple computers, you have them because you bought them. If you had to work for Apple computers, the fact you own the shares should not impact in any way, shape or form on how hard you work for them. What will impact them is if you work for them where you get paid salary and a particular bonus and how you’ve managed. Your ownership in Apple does not matter. What it does show is you believe in Apple. You think the future is bright, but it doesn’t mean that you’re not going to work. If you weren’t willing to buy Apple shares, you might still work the hardest for them. It just says you don’t believe in them.

By giving it to you, I gave you something you don’t value. When you give equity incentives to people, it doesn’t have the same impact as people think it does. What’s useful is if established companies have a good bonus program, good goals, milestones planned out and manage them better. Throwing equity out usually doesn’t work. If you’re giving equity, you should always give the opportunity of getting employees to buy into the equity using their salary like, “I’ll pay you a bonus of $10,000. You can either buy equity with it or not.” Those who can buy equity are showing an interest in the company. The difference between publicly-traded companies and private companies is private companies are harder to buy. Not everyone can buy them so if you have the opportunity to buy, it’s a good option for companies.

Have you done much work with Carta, the equity management software?

Capshare and Carta, there are a number of these companies that manage the equities, but equity becomes so complicated so fast that Excel becomes a lousy tool for it. Carta and Capshare are all great companies. Once your shares have a value, it’s a good tool to use. Slicing Pie is you use before you reach that point. One of the things that those companies do well is they manage different classes of stock and stock options. When the money starts coming through investment, it starts getting pretty convoluted in terms of how people are covering their own butts. They create different classes of stocks, stock option programs and different preferred shares. There were all kinds of rules. Each one of those classes of stock has to be tracked. Otherwise, it’s confusing. In the beginning, we’re all in the same boat. Your dollar of risk is worth the same as my dollars risk. I have to treat you the same. I can’t give you a special class of stock if you’re on my team. Slicing Pie assumes I’m going to give out plain vanilla common stock to dispense. Once the investor comes in, they can add on the rules on top of that. You’ve got to decide as a startup if those rules are worth the investment.

TWS 24 | Minimizing Failures In Startups

Minimizing Failures In Startups: We don’t have to own a factory or a machine. All we got to have are our brains, and the tools are all there free for the taking.

 

One of the people I interviewed a few months ago was one of the founding developers of Carta. I found the philosophy they have is pretty interesting. The CEO has this theory about how work has evolved over the years where it’s gone from a very indentured servant in medieval times to slavery to now paycheck and ultimately with equity. In using their platform, it does make it easier to manage, understand and value. What do you think is the future of how equity is handled based on what you’re paying attention to?

It’s getting complicated enough that those programs are important. What we’re seeing is it used to be that capitalism is the only means of production. Now it’s about renting as the means of production or borrowing as the means production or leasing it. We don’t have to own anything these days. We don’t have to own a factory or own a machine. All we got to have is our brains and the tools are all there free for the taking. Those things all have a value and just because we’re not paying for them doesn’t mean they’re not valuable. To the extent that we can use the equity to acquire these things is important. Bitcoin, those are tools that we’re seeing more and more of. In the early days when you’re starting out, you don’t need super tight security around these things using to keep track. I hope the future of startups is fair equity splits. Many companies are getting to unfair deals and it’s a heartbreaker. I won’t go to use Slicing Pie once they take their pie to move onto Carta, Capshare and things like that.

Mike, this has been awesome. What would you say are some things that entrepreneurs need to learn more about Slicing Pie? What are the best ways to go about doing that?

The website is SlicingPie.com. It’s always up and running. We have a software called the Pie Slicer, which tracks your pie in real-time based on contributions. Think about you can do accounting in Excel if you want or you can do it in QuickBooks. Slicing Pie is the QuickBooks for equity split. Accounting tracks what you do spend. Slicing Pie tracks what you don’t spend. The things you track on Slicing Pie are things that you should track anyway, which are your payroll and your expenses. The book is available in several languages. Wherever your local jurisdiction is, there’s usually some resource for you.

I’ve used the software a couple of times and it’s simple, straightforward and aligns right with your book and what you teach there. Mike, this has been a great conversation. Is there anything else that you think is relevant to share with entrepreneurs? I know you teach in that space. Do you still teach at Northwestern or another university?

Fairness is not a matter of opinion. It's a matter of fact. Click To Tweet

I teach entrepreneurship at Northwestern University these days. One of the things I always keep in mind is fairness is not a matter of opinion. It’s a matter of fact. It’s either fair or it’s not. Anytime anyone says base your split on some future assumptions, always think, “How can I get a fair answer?” There’s only one way to do this. There are two ways of splitting equity. There’s unfair and there’s Slicing Pie.

Mike, thanks for all your time. I appreciate it. This has been great. The best way to buy your book is on Amazon or through your website?

It’s on Amazon.

Congratulations on all your success. I didn’t know that there was that much popularity. It’s awesome. It’s been translated in multiple languages and you’re selling thousands of copies a month.

Thanks for having me. I appreciate it.

Here’s a story around this bottle. Clean drinking mineral water was big in Europe apparently. My ancestor was Samuel Hanbury Smith. My middle name is Hanbury and my son, Jack, his middle name is Hanbury as well. He was one of the original ancestors that came over from Sweden. He was a doctor and he came over, was originally in Ohio then went to New York City. He founded this mineral company. For those of you who have seen the Greatest Showman based on PT Barnum, there’s a character in there, Jenny Lind. She’s the one that funded my ancestor. She’s the original investor. She invested the equivalent of about $500,000 now, $3,500 back then.

This was the first company that he built his plants on. I’m trying to get more information on it. There’s a bunch of history there. Mike told me, “You should get the intellectual property, the websites, the URLs and the domains. It could be in the public domain. Start a little company and maybe you have it as one of those novelty water companies.” I did that already. I reserved the domains and going to go about getting the IP if it’s available. I’m going to involve my kids as well. I’ll keep you posted on that. It was a novelty, especially coincidental given the fact that we’re talking about entrepreneurship. I’m going to put my entrepreneurial mind to a new test and involve my kids and we’ll see what happens.

That’s what I wanted to share with you. I hope you tune in next time. We have more exciting guests on the docket. This one is trailblazers of the entrepreneur writing space. He is Michael Gerber who wrote E-Myth and the E-Myth for pretty much every major profession that’s out there. You will enjoy that interview. Definitely check that out. It’ll broaden your knowledge of how a company’s structures work and how entrepreneurship works. You’ll get a kick out of it.

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About Mike Moyer

TWS 24 | Minimizing Failures In StartupsMike Moyer is the author of eight books that provide structured advice to people who want to solve specific problems like splitting equity in their startup company or delivering an awesome sales pitch. He mostly writes and speaks about business and entrepreneurship.

In addition to writing and speaking, Mike is the founder of Fair and Square Ventures, LLC where he invests in early-stage ventures and provides consulting focused on management and revenue generation. As an entrepreneur, Mike has started a number of companies including Bananagraphics, a product development and merchandising company, Moondog, an outdoor clothing manufacturing company; Vicarious Communication, Inc, a marketing technology company for the medical industry; Cappex.com, a site that helps students find the right college and MosquitOasis which creates camping gear for kids. In addition to his experience as an entrepreneur, he has held a number of senior-level marketing positions with companies that sell everything from vacuum cleaners to financial data services to motor home chassis to luxury wine.

He teaches entrepreneurship at the University of Chicago Booth School of Business and Northwestern University. Mike is the author of Slicing Pie, Pitch Ninja, How to Make Colleges Want You, College Peas, and Trade Show Samurai. He has an MS in integrated marketing from Northwestern University and an MBA from the University of Chicago. He lives in Lake Forest, Illinois with his wife and three kids.

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Objectivism And The Success Of An Entrepreneur With Dr. David Kelley

TWS 23 | Objectivism

 

Objectivism is the belief that certain things, especially moral truths, exist independently of human knowledge or perception of them. On today’s show, Dr. David Kelley describes the concept of objectivism and its four pillars, as well as the most common, refutes for these tenets. He also discusses the relevance of objectivism as it relates to the success of an entrepreneur. Dr. Kelley is a professional philosopher, teacher, and writer. He is also the Founder of The Atlas Society and the author of numerous works in philosophy, politics, and culture.

Listen to the podcast here:

Objectivism And The Success Of An Entrepreneur With Dr. David Kelley

We are still talking about entrepreneurship and I had an awesome opportunity to speak with Dr. David Kelley. He is the Founder of The Atlas Society that he founded in 1990. He’s been a huge advocate of objectivism and has written a number of books. He has a lot of accolades. The Atlas Society has a mountain of information on their website. I really liked the way he described the ideas of objectivism. What he sees the involvement of the Atlas Society in regards to younger entrepreneurs and seeing around the world, whether they describe their activities and their philosophy as objectivism or not still understand its basic tenets. That is causing this entrepreneurial type of drive toward improving someone’s life and improving the world in general. I understand that there are some things we talk about that are somewhat controversial depending on what your perspective is. I would encourage you to read the part where I talk about language. How important it is to use the right words and language to describe what the actual meaning is because these days, things are taken out of context and misconstrued and so forth.

Regardless, it was a great conversation. You guys are going to learn a lot. For those of you who have not read Atlas Shrugged yet, I think this is going to be one that inspires you to do so. Maybe for some who haven’t read it in a while, I inspire you to read it again. You guys are going to enjoy it. If you like what you read, go back and read to the previous episodes in this season. Also, get onto YouTube as well. We have all of our episodes and video. You would enjoy that if you’re visual learners. Thanks for all the support. You are amazing. If you have some time and you like what you’ve read, head over to iTunes and give us a good review. It definitely helps, especially as the way in which finding podcasts has been more difficult. High ratings definitely increase the amount of presence that we have and help us increase our audience and also share up with a friend too. We’ll talk to you next time with another amazing guest. His name is Mike Moyer and he wrote the book, Slicing Pie.

Dr. Kelley, it is such an honor to have you on the show. Thank you so much for taking your time.

It’s a pleasure to be here, Patrick. Thank you.

The first thing that I’m so impressed by is how much of your life and your energy has been focused around advancing the philosophy of objectivism with The Atlas Society and other groups. Would you be able to tell the audience what were the events and circumstances that led to your decision to make that dedication?

I read Ayn Rand in high school at a time when I was thinking about what I wanted to do with my life and what my values were as many people at that age do. It bowled me over that she had developed ideas that speak on to the roads that I began to explore. She had gone much further down those roads. However, what led me to read her in the first place was at what became clear as an emerging interest in philosophy as a branch of knowledge. That’s something I wanted to study. I went to college to study philosophy. You didn’t expect that I would remain as committed to objectivism theoretically as I was when I went to college. Every challenge that from other philosophers, from my professors, I see Ayn Rand had a good answer to. I never saw a reason to change. The reason I stayed with it, my interest I went to grad school, I decided I wanted to teach. I ended up teaching at Vassar College for about ten years and I sent the kids in New York. Afterwards, I continue to write in philosophy and started the organization. I founded The Atlas Society in 1990 as a way to provide information to people who are interested in Ayn Rand’s ideas.

At the time, it already was one major and other minor organizations, but I felt what objectivism needed was a more open and exploratory way of approaching the ideas. The idea that philosophy should grow. Ayn Rand was a genius, but she didn’t discover everything there is to know. We launched The Atlas Society to do research, to do education, to do some advocacy, not at the electoral level, but in terms of political philosophy and finding for capitalism, not just a political but a moral ideal.

Thank you for going through that. Maybe a little further into the topic of objectivism, how would you describe that to the neophyte, the novice that may understand general philosophy, but not objectivism? How would you go about explaining that?

You put a trough of government money out there and the pigs are going to show up. Click To Tweet

I would normally explain it in terms of four pillars. The one that most people are familiar with is that objectivism believes in capitalism. The minimal government, individual rights, free markets, rule of law and government is an empire, but it does not get into the economic game. It protects property rights and contracts but otherwise, it leaves people free to engage in any mutual exchange that both parties want to do. That was the political ideal. That’s pillar number one. Very importantly, this is what I think distinguished Ayn Rand from some other advocates of capitalism, is that she felt it had to be based on a view of the individualism as moral philosophy. That individuals have the moral right, it’s morally proper for them to act on their own judgment and to act for their own benefit, pursuing their rational self-interest. She was an opponent of the ethical doctrine of altruism, which emphasizes sacrifice, helping others, self-sacrifice. She said, “No.” She was very comfortable with the idea of benevolence. In proper cases, helping others when it’s deserved. That is not the core of life. Pillar number three, being a producer, creating value by the use of your own mind in the service of your life.

Not just the monetary rewards, but also what we call the spiritual or emotional rewards of pride in what you’re doing, self-fulfillment and exercising your capacities. She was somewhat distinctive when she talked about this pillar, the idea productiveness as the central value of life. She was somewhat unique and that she thought any production was good. You could be an artist, writer, political leader, businessman, merchant, trader or banker. They were all forms of productive work, all honorable when well done without fraud or dishonesty. She opposed the idea that somehow the arts and other professions are good or honorable and making money is this lowly thing. No, she thought it was a great value. That’s why in her major novel, Atlas Shrugged, the heroes were all people in the business. They ran railroads, they had steel companies and so forth.

The three pillars are capitalism, individualism, including egoism, if you want to call it that, pursuit of self-interest. Third is productiveness, creating value as a core part of a rational life. Finally, the absolutism of reason. She believed that reason was our only guide to knowledge and action, as opposed to faith or emotionalism. That’s why I’ve said rational self-interest. In that respect, she was a secular philosopher, as an advocate of reason exclusively. She did not hold with any form of religious faith or any other faith that was not based on reason.

That’s a great description as far as the pillars are concerned. I would say in what I’ve seen in their research and the reading I’ve done, there are a lot of opponents, those that criticize the idea of capitalism and objectivism. What do you see are the most common refutes for these tenets of objectivism?

Let me start by saying there are many people who object to objectivism or to capitalism in particular on the grounds that it’s selfish. It is. Ayn Rand was an advocate of what you call The Virtue of Selfishness. That was the title of one of her books. What she meant by selfishness is not grasping, exploitative and narcissistic way of living or personalities that are often conceived that people associate the term with. Self-interest means pursuing your best self, your best life by rational standards in which that involves production. It involves treating other people fairly by mutual exchange to mutual benefit, whether we’re talking about economic exchange, but even in friendship and love.

Those relationships are hugely important to us as people, but we need to remain ourselves even in a very close relationship. I think part of the problem here is if people don’t understand what you meant by self-interest. In terms of capitalism, the one objection that I’d worry about a bit is that people say, “This isn’t ideal.” If people were all objectivists committed and acted in accordance with these values, sure the world would be a lot better, but people are not like that. We have crony capitalism. Whenever you get people together and give them any option to cut corners, some people will. My best answer to that question is that we have a mixed economy in which the government has a lot of power over companies and increasingly over our personal lives. In terms of what we eat, what we smoke or whether we smoke and so forth.

Once you have that power in the hands of the government then people are going to try to take advantage of that power to get special privileges because they support a candidate, they get some benefits in return. They clamor, subsidies or regulations that will harm the competition. You know this better than I do. There’s a huge element of cronyism, but that’s largely because the opportunity has been created for that. You put a trough of government money out there and the pigs are going to show up.

The intention behind capitalizing on those opportunities in and of itself revolves around self-interest and selfishness.

TWS 23 | Objectivism

Atlas Shrugged

That is a more conventional type of selfishness. People are looking to build their own nest.

I had an interesting experience. I have two teenage daughters and my wife is Latina and once a year, her friends come over and they have a big party. We’re not allowed at the house that night. I usually take the kids up to Park City because the rates are low and it’s beautiful up there in the fall. My daughter asked me a couple of questions and the first one was fascinating. It relates to this topic because of the misunderstanding of words. She said, “Dad, if somebody has never been able to hear, how do they describe things in their mind? What words do they use?” It was interesting because if somebody who’s never heard words, they probably don’t use words. It’s the understanding of meaning, which is the most important thing. Words are a way of describing it. I agree with you in regards to how individuals have misconstrued the nature of capitalism or objectivism because of a confusion of words and the words’ meaning.

That’s certainly true that people hear the word capitalism and they think that refers to what we have is not pure capitalism. It’s not laissez-faire capitalism. It’s a mixed economy with some large socialist elements like Medicare is a socialist enterprise run by the government. Public education is a social enterprise. We’re not living in a consistently capitalist world. Getting to meanings is hugely important. That’s one of the things that I am particularly interested in because my main interest in philosophy is the theory of knowledge, how we acquire knowledge? How we validate our knowledge? At the core of that is how do we form concepts that we then express in words? How do we form abstractions like the economy, capitalism, good and bad? Your daughter raises a fascinating, psychological question and I don’t know enough about deaf people. I think what I do know is that children tend to learn language rapidly and virtually. Every child who’s ever existed has learned the language and picked it up somehow. With deaf children, they may not be able to hear or speak their language, but there’s sign language if they’re given a chance, they will pick that up.

It was a fascinating dialogue. I wanted to ask you because you’ve had such an extensive career and probably met a lot of people. What are maybe some examples of individuals, groups or someone that may have opposed the ideas of objectivism? Because of an interaction with you or relationship with you or the groups that you’re associated with had that a-ha moment, the epiphany, that awakening.

Many people when they first read one of Ayn Rand’s novels, in particular, have this momentous feeling. The effect is, “This is so right.” Many people say, “She put in words but I’ve believed all along but I didn’t know how to say or was maybe afraid to say because it runs against the beliefs that I was hearing from people around me.” I’ve seen that over and over again with students and with older people. One of the gentlemen who served on our board of trustees at The Atlas Society for many years was already a very successful businessman and then he read Atlas Shrugged. The fact that he read a thousand-page novel in the middle of his busy life and career running a company is pretty amazing. He got in touch with Ayn Rand and then help various projects to help spread the ideas. The point is it’s not for teenagers, which is one of the little snarky things people say about objectivism which is not true. There is something powerful about the way Ayn Rand put ideas. The depth and clarity combined with the emotional power of an ideal. It’s very striking.

I would say, as I’ve earned about marketing, storytelling and business, I read Atlas Shrugged, whether it’s the hero’s journey with John Galt is that the core character and how his journey happens in the different things that he says and other characters and their role. It is fiction, but it paralleled to what society was likely at that point in time but also, it continues to be that way. It’s the understanding of the world that we live in and then that world, but then also the way in which the story is told is fascinating. That’s where for the audience who have not read Atlas Shrugged, it’s quite a large volume of work, but it is profound the impact that it has on your ability to understand life at a more magnified level. Going to where my curiosity lies, there have been cases in which you’ve maybe seen where those that did have influence that was able to read or talk to you or become open to these ideas that have made a difference and has been more influential than someone in college or someone that is a budding entrepreneur reads. Have you seen some significant cases that stand out in your mind?

I know many people. When I founded the organization, part of my job was to get in touch with leaders of other think tanks that at least some overlap with our ideas. I’ve met and talked with many of them over the years. For example, we are having our annual gala in New York City and John Stossel will be there and a number of other people who are maybe not card-carrying objectivists in a sense. They love the ideas and they appreciate the power that those ideas hold and the degree in which they could be effective in moving the country more toward a greater level of freedom.

In terms of whether we’ve had that movement, I don’t know. I like to think that Ayn Rand had some influence. She certainly had some influence over the growth of libertarianism as a political philosophy and that is expounded by Cato Institute and Reason Foundation. The number of other think tanks. We’ve had some degree of deregulation. We have had some change in tax laws that lowered the extent of government expropriation. I think the libertarians who were leading the march on that and Ayn Rand was one of the main inspirations for that movement.

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That’s what I love about your initial comments when you talked about the more openness you had instead of the rigidity of how objectivism was in the very beginning. The flexibility to see how it relates and influences the example you used more libertarian and more economics business movement, which I completely agree with because there’s relevance. It may not be wholeheartedly pure objectivism. At the same time, some of those tenets are going to forward the influence that it has on our overall society.

This is a strategic choice that anyone who’s involved with objectivism has to make. Do you work with, collaborate with the people who share some of your ideas but not all? Do you have to have a complete agreement? I thought in my mind it’s clear that the only way to get ideas out is to be incremental about it. To open the doors to people, to come to take what they can from the philosophy and hope that those seeds will grow into something good in their lives and whatever they go on to do and politically in terms of a greater movement and support for a freer system.

The season that we’re in is entrepreneurship and the nature of that. I look at an understanding of objectivism and ways in which that entrepreneur or entrepreneurial organization could be magnified. What do you usually teach or understand the relevance of objectivism as it relates to the success of an entrepreneur?

There are many ways. One way I like to describe the objective is moral code or ethics. In terms of being an entrepreneur in your own life that is taking the viewpoint that you own your life. It’s yours but you’re also totally responsible. The buck stops at your desk. On the one hand, you’re entitled to everything you earned and you should enjoy it, but you’re also responsible for the risks and the losses. In that respect, I think entrepreneurs at wholeness, especially honored places from an objective standpoint because they are striking out taking a road. No one’s going down before and incurring risks, they hire people, they raise money. They have to inspire confidence, but they have to then succeed. It takes a lot of courage. It takes a lot of integrity, rationality and talks about productiveness as a value. Most entrepreneurs I know spend enormous numbers of hours getting off the ground. Atlas Shrugged is a good Bible for entrepreneurs because it taps and it expresses a beautiful language. It expresses the values that most entrepreneurs have and pursue.

I was going to give that second part of this story with my daughter is the next morning after we had that initial interaction, she was paying attention to the hotel that we were at. This is a unique hotel where it’s in Park City, but you have to take this elevator up that go to this top of the Hill. She started noticing and she said, “Dad, how does something like this happen? How is it created?” The brilliance of kids and how their minds are thinking is fascinating to me. It allowed me to have a conversation to talk about the elements and the material for everything has always existed. It had to do with a human being’s mind to figure out ways in which they could provide value to others.

It’s also the infrastructure that protects intellectual property rights and how businesses are transformed. A person has a degree of certainty associated with what they create. Because there’s an investment required, there’s time involved, there’s putting a team together that there’s a certainty that there will be output. There will be something remunerated. Going through that process allowed her to understand government, laws and property rights. I look at where the minds of children are. The jury’s out that typical education is way behind. Being able to access data to understand facts, you don’t have to memorize it. You don’t have to keep your brain filled with that information because it’s at your fingertips. It’s exploring other ways in which to solve problems and create opportunities. It gives me a lot of confidence in kids, teenagers and even those in the Millennial generation to see the world. The things that are going on and actually taking action to provide opportunities for themselves, but also see that it could provide opportunity and value to others. It was a very serendipitous experience I had with my daughter, given the fact that I have you. I’m sure you get to see those examples a lot.

I do. One of the things that are a constant with me, I live in the middle of a city in an apartment building. I look out my window and all around me. I see nothing except manmade streets, cars, buildings. People, of course, they are natural in a certain way, but they are educated by and engaged in activities that are manmade, artificial and invented by someone. I’m looking at an enormous amount of intelligence embodied in that brick building over there, in the automobile passing below, the guys who are repairing the street. In addition to appreciating the property rights contracts and investments that lie behind all that, it’s also worth thinking about the human soul that is out there, the intelligence and the commitment that went into making the world that we all live in.

That’s a great way of saying it. I look at the same thing with emerging markets, whether it’s Africa or even the Middle East, despite its chaos, there’s so much entrepreneurial activity there and also in Asia. It’s interesting to see a generation that’s wanting more for themselves that wants to get out there and take their ideas, take who they are and bring that value to the marketplace. At the same time, there are lots of chaos and turmoil. There’s also so much to celebrate because it’s not the US anymore, but a lot of other emerging markets are following suit to a degree.

TWS 23 | Objectivism

Objectivism: The buck stops at your desk. You own your life. It’s yours, but you’re also totally responsible.

 

That’s all good. I’m happy to see it.

Dr. Kelley, thank you so much for your time. Would you mind telling the audience the best ways to either follow you or support The Atlas Society or learning more about objectivism? What are some ways that they can do that?

The best way is to go to our website, AtlasSociety.org. We have done probably thousands of articles, courses, videos. We have been producing some very short videos that are called Draw My Life videos where we personify something like envy, money or some topic we want to talk about. The videos are very captivating. They usually get a million views at a minimum. That’s a good entry point to learn more. We also have courses you can take and articles you can read. Probably the best thing to do would be to sign up for our newsletter. Once a week, we send out a bulletin on what’s going on. You can opt in and see if you like it.

Our nonprofit organization is supported by donors. We do not accept any government money. We have a very strong board of trustees who themselves are major contributors but also oversee the operations and to preserve the integrity. If you like what you see, I would definitely urge you to even contribute right on the site. There’s a donate button in the corner of every page. Also, get in touch with us. We get letters all the time and we’ll try to answer as many as we can. Sometimes include me. I’m officially retired, but I’m still on the board and I’m still working in various ways. I wish all of your readers all the best and I hope that part of that best will involve checking out Ayn Rand and Objectivism and The Atlas Society.

Dr. Kelley, thank you again. I wish you well. Let’s connect sometime in the future. 

I look forward to it. Thank you.

Take care.

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About Dr. David Kelley

TWS 23 | ObjectivismDr. David Kelley founded The Atlas Society in 1990 and served as Executive Director through 2012, before serving as the Chief Intellectual Officer, where he was responsible for overseeing all the content produced by the organization: articles, videos, talks at conferences, etc.

Dr. Kelley is a professional philosopher, teacher, and writer. He is the author of numerous works in philosophy, politics, and culture. After earning a Ph.D. in philosophy from Princeton University in 1975, he joined the philosophy department of Vassar College, where he taught a wide variety of courses at all levels. He has also taught philosophy at Brandeis University and lectured frequently on other campuses.

Kelley’s philosophical writings include original works in ethics, epistemology, and ethics, many of them developing Objectivist ideas in new depth and new directions. He is the author of The Evidence of the Senses, a treatise in epistemology; and The Art of Reasoning, a widely used textbook for introductory logic.

Kelley has lectured and published on a wide range of political and cultural topics. His articles on social issues and public policy have appeared in Harpers, The Sciences, Reason, Harvard Business Review, The Freeman, On Principle, and elsewhere. During the 1980s, he wrote frequently for Barrons Financial and Business Magazine on such issues as egalitarianism, immigration, minimum wage laws, and Social Security.

His book A Life of One’s Own: Individual Rights and the Welfare State is a critique of the moral premises of the welfare state and defense of private alternatives that preserve individual autonomy, responsibility, and dignity. His appearance on John Stossel’s ABC/TV special “’Greed’ stirred a national debate on the ethics of capitalism.

An internationally-recognized expert on Objectivism, he has lectured widely on Ayn Rand, her ideas, and her works. He is the author of Contested Legacy: Truth and Toleration in Objectivism, an account of divisions among thinkers influenced by Ayn Rand.

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