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Friday, June 30, 2006

Entrepreneurship - Fact or Fiction

One of the most often asked questions by people new to business is exactly, how do you become an Entrepreneur? To be honest, it’s one of the first questions I asked when I started in business, more than 10 years ago.

The problem is, the more people you ask, the more confusing it becomes. Everyone has a different view. Are you born an Entrepreneur?

The answer to that is definately not. It’s a skill that can be learned, just like riding a bike, but if you don’t learn it correctly, true wealth will be outside your grasp, forever! To fully understand the concept of entrepreneurship, you first need to know it’s place on the ladder of success.

There are basically 5 levels of Entrepreneurs and you need to know where you’re at right now before you can start jumping to the next level.

Level 0 is an employee. It’s not really a level at all - hence Level 0 - but if this is where you are, at the moment, you need to use this time to build knowledge and build capital. Try not to become a specialist. Remember, specialists become obsolete! Rather, try to become a Generalist. Look at it this way. If you are in the Army, who makes the ultimate decisions? The General! Not the infantryman, not the tankie, not the Medic, but the General. Generalists employ specialists!

Level 1 is the self-employed person. This is really where most people start to climb the ladder. It’s also where many people stay, mistakenly thinking they are now an Entrepreneur! The fact is, it’s easy for self-employed people to become bigger and bigger specialists. You need to use this level as a starting point only and rapidly move on to the next level.

Level 2 is a Manager. You need to start developing a commercial business that works when “you” are not there. You need to start building passive income because a paycheck existance will never lead to true wealth. In other words, start to work ON your business and not IN your business. There’s a very distinctive and subtle difference! In the above 3 levels, you either earn or make money.

At level 3, you become an Owner/Leader. You’re now starting to ask - What’s my Profit? There are basically 2 rules to being an owner/leader.
Rule 1 - employ people that are better than you. This may sound silly, but you need to build a team of specialists around you. Remember, you have to be the General.
Rule 2 - Build systems into your business. Without systems, you’ll be tied to your business 24 hours a day - you will be the only one who can operate it. If I asked you “does McDonalds make the best hamburgers in the world?” What would you say? Most of you would answer no, but if I asked you “who sells the most hamburgers in the world?” The answer is systems - systems! You must have systems in place that anyone can operate.


When you reach level 4, you’re now an Investor. Your interests now extend above profits. You now want to know your Return on Investment or ROI. At this level, your ROI comes from buying businesses, building them up and selling them. Ideally, you should be buying a business performing to 25% of capacity and you sell when they are performing to 70% capacity.

You’ve now reached the pinnacle - Level 5. A true Entrepreneur is more interested in how much capital they can raise for their next enterprise. An Entrepreneur is recognized by the number of zeros in his/her annual income. Don’t be the type of person I call “looking good, going nowhere.” You’ve all seen them. The type of person that buys the latest autos, the flashest clothes.

The path to true entrepreneurship is hard, but anyone can reach the top. Remember, knowledge and wealth go together, not time and wealth! Time is irrelevent. It doesn’t matter whether you’re 17 or 70. Gain the knowledge you need to get there - and you will! Wealth is dependant on 2 things - Cashflow and Assets. You use a business to create the cashflow and then obtain the assets. Bill Gates is a prime example. Did Bill Gates become the richest businessman in the world by selling software? Some of you are nodding your head and saying yes. Wrong! He sold software to create a cashflow. He became the richest man in the world of business by selling his company - or more precisely, by selling stock in his company. He obtained the assets. Remember cashflow + assets = wealth.

- author: Graham Farley

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