Our economy is in crisis and people are looking for someone to blame. A large segment of society blames the government and many now express the view that everything would be fine again if the government would just stop interfering in the markets and allow laissez-faire capitalism to work its magic.
One of the themes that I have tried to develop in this series of blogs is that our economic system has evolved so far away from Capitalism over the last century that any attempt to go back (at least to go directly back) to that kind of economic system would have cataclysmic consequences that our civilization simply might not survive. In this blog, I will describe what the Laissez-Faire Method back to Capitalism would look like and what that would mean for your savings.
Murray Rothbard (1926 to 1995), a student and friend of Ludwig von Mises and an impressive (Austrian) economist in his own right, believed that the Great Depression would have ended much sooner had the government not interfered and simply allowed the economy to adjust by itself. He described what he thought would have happened in that case in his book, America’s Great Depression:
“The laissez-faire method would have permitted the banks of the nation to close – as they probably would have done without governmental intervention. The bankrupt banks could then have been transferred to the ownership of their depositors, who would have taken charge of the invested, frozen assets of the banks. There would have been a vast, but rapid, deflation, with the money supply falling to virtually 100 percent of the nation’s gold stock. The depositors would have been “forced savers” in the existing bank assets (loans and investments). This cleansing surgical operation would have ended, once and for all, the inherently bankrupt fractional-reserve system, would have henceforth grounded loans and investments on people’s voluntary savings rather than artificially-extended credit, and would have brought the country to a truly sound and hard monetary base.” [Murray Rothbard, America’s Great Depression, Ludwig von Mises Institute, 1963.]
Perhaps he was right. On the other hand, perhaps the suffering that would have resulted from that “vast, but rapid, deflation” and “cleansing surgical operation” would have been so great that American Democracy could not have survived it.
Eighty years and $50 trillion in debt later, the suffering that would result from the Laissez-Faire Method this time would be even more extreme. The nation’s gold stock is worth approximately $420 billion (at $1,600 per ounce). Think of the debt deflation that would be necessary to return the credit supply to that level. It would require the destruction of 99% of all the debt in the country. Remember, that one person’s debt is another person’s asset, so the great majority of all the financial assets in the country would evaporate. As a result, all the banks would fail and all the deposits in the banking system would be destroyed. In compensation, you, the depositors, would own the assets left in your bank. Unfortunately, there wouldn’t be any. There are $700 trillion worth of derivatives contracts that would certainly all explode under those conditions. The banks have written most of those contracts.
The stock market would collapse by 95% or more. Home prices might fall just as far. Consumption would collapse and investment would nearly stop, so unemployment would move toward 30% or more. Government tax revenues would nearly disappear; so most government spending would have to stop. That would mean the withdrawal of all US military bases from overseas, and the end of social security, Medicare and unemployment insurance within the US. Many people too old or too sick or too unlucky to find a job would begin to starve. Crime would be uncontrollable. Within weeks the military would take over. Democracy would be a thing of the past. Government power would then be far beyond the control of the people. Freedom would be lost.
That’s what the Laissez-Faire Method would look like. With all due respect to Murray Rothbard (and Ron Paul), I don’t want to go down that path; and I won’t go without kicking and screaming all the way.
The sooner it is understood that the Laissez-Faire Method is not an option, the sooner the quest for a workable method can begin.
Here are the facts.
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Our economic system is not Capitalism.
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We are not going to employ the Laissez-Faire Method to go back to Capitalism because that would cause our civilization to collapse.
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Our economy is on government life support. Without trillion dollar budget deficits, it would collapse into depression.
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Even the US government can’t run trillion dollar budget deficits forever. Within 10 years the government will be broke.
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If the government changes the way it spends money, if it invests aggressively in transformative 21st Century technologies (a Manhattan Project for nanotechnology and/or an Apollo-like program to develop solar energy) rather than on consumption, we could restructure the US economy by developing new industries, and, thereby, avoid collapse.
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That will probably not happen; therefore a dire economic collapse with disastrous geopolitical consequences may be unavoidable.
What, then, can individuals do to protect themselves financially should this prognosis prove correct?
In the short run, follow the Fed. Our economy is like a large rubber raft that has been inflated with credit instead of air. All the asset classes – stocks, bonds and commodities – are floating on the raft. Unfortunately, the raft is defective. Its natural tendency is to sink because the credit, which can’t be repaid, is leaking out numerous holes on all sides of the raft as it is destroyed. Policy makers have only one response: To pump in more credit to replace the credit that is leaking out. That is what they have been doing with QE 1, QE 2 (and LTRO in Europe). And that is what they will continue to do with QE 3 and QE 4 in the not too distant future. When they pump in more credit, the raft inflates and all the asset classes move up together. When they stop pumping in more credit (that is, when no quantitative easing is taking place), the raft and the assets floating on the raft begin to sink. Therefore, asset prices are likely to rise during quantitative easing and to fall when quantitative easing ends. Follow the Fed. This approach will not work forever, but it is likely to continue working in the short run.
Over the long run, if the prognosis above is correct, there will be no place to hide. A tremendous amount of wealth will be destroyed. Depending on which government policy is carried out, it could be destroyed by very high rates of inflation or, should the Laissez-Faire Method be employed, it would be destroyed by extreme deflation. Were it necessary (for whatever reason) to lock in a portfolio for the long run, the best chance of preserving some wealth would be through constructing a broadly diversified portfolio, including 1) blue chip stocks with good dividend yields, 2) government and corporate bonds, 3) gold, 4) residential rental property and 5) fixed interest rate debt (used to finance the rental property). Then, in case of high rates of inflation, your bonds would suffer and your stocks would not do well, but your gold would appreciate. Moreover, the rents on your property would rise, while the fixed interest rate debt would effectively evaporate in the inflation. On the other hand, should there be deflation, the gold would lose value, and the stocks would be weak, but the bonds would do well. The rents may decline, but so would the price of everything else, so you would be hedged.
These topics are discussed in much greater detail in chapters 8 to 10 of my book, The New Depression: The Breakdown Of The Paper Money Economy. They were also among the subjects covered in my recent interview on The McAlvany Weekly Commentary. Here's the link:
http://mcalvanyweeklycommentary.com/05-09/
Serve Yourself First
No one and no thing is more important than you. Not you children, your spouse or partner, you religion or your mission in life.
What is your reaction to that statement?
“Heresy!” Some of you might say. “How selfish is that?” “How arrogant!”
Not really. When you make some one or some thing more important than you – your religion, your children, your spouse, or even your life’s purpose, then you allow that person or that thing to have control over “you.” You give that person or thing power over you. You lose a piece of you to whatever you concede the power to. Granted, all these things may be extremely important to you but they are not more important than you, the being.
When I made this statement recently to a group of women, one woman commented, “I would sacrifice my own life for my children’s!” I am sure she would, as I bet most mothers would. However, that does not mean that you – your spiritual self - are less important than your children. I used to say, “My mission of financial education is first and foremost!” Yes, the mission is tremendously important to me BUT it is not MORE important than me.
Men don’t seem to struggle with this concept as much as women do. The word I hear used most often by women regarding this statement is “selfish.”
Why is this such an issue for so many women?
In my opinion, we are so used to putting everyone first – our children, our husbands or partners, our parents, our job or business – that many of us have become accustomed to taking a back seat. Some actually brag and are proud of how exhausted they are. They’re exhausted because catering to those you love, without catering to yourself, drains you of energy instead of giving you energy. And that is not empowering, inspiring or healthy.
It’s easy to lose track of who you really are when day in and day out your living your life according to everyone’s else’s dreams, visions, wants and needs.
The bottom line is that in order to best serve others, you have to first serve yourself.
Think of a time when you were really happy. You felt free and full of life.
What were you doing?
How were you feeling?
Were you more productive?
More fun to be around?
Willing to help others?
Did things seem to happen effortlessly?
This is you being all of you and making you most important.
So what does all this mean to you?
Of course I’m going to link this to your own financial education and, more importantly, your financial transformation. Are you taking the time you need every day – for you, the most important person – to move towards your financial dreams? Are you putting yourself first… some of the time? It’s common knowledge that the healthier you are in mind, body and spirit, the more effective and productive you are… in all the roles that you choose to play. I’m sure you’ve heard the announcement on board an airplane, “Please be sure to put on your oxygen mask first before assisting others.” You take care of you, so that you can better take care of others.
The title of my latest book is It’s Rising Time! Women, it’s time we raise the bar on ourselves. It’s time we become the role models that will inspire women, young and old. It’s time embrace the fact that there is no one or no thing more important than you. It’s time to put yourself first… and make it a better world.
Please provide your thoughts below, and for more help with your transformation, check out our free, financial education resources here.
And one more thing...
Why some win at life — and most don’t
Rich dad said, “Life isn’t fair. No one ever said it would be. But life is what you make it.” Rich dad also said, “If you play the blame game, it’s hard to win at life.”
Today, it’s clear that life isn’t fair.
Nearly all the financial gains of the last decade have benefited the top 7 percent wealthiest people. CEO’s now make 231 times more than the average worker — up from around 40 percent more in the 1970’s. Many people who worked hard for a lifetime to save money and buy a house are seeing their savings melt away and their homes foreclosed on.
I feel for those that are hurting financially because they’ve been dealt a hard hand that is not entirely their fault. The cards are stacked against them. They have a right to be angry.
Today, it’s also clear that people are playing the blame game and losing at life.
In these hard times, people want to blame the rich for their problems. Because life is not fair, people are looking at those who have an unfair advantage and wanting to even the playing field.
We see this in the US with proposed tax increases on passive income and other benefits that businesses and investors enjoy.
We see it across the world with the Occupy Movement smashing windows and creating mayhem on May Day.
We see it most recently over this last week as the French ousted their president and replaced him with a socialist leader who vows to tax the rich more.
The problem with this blame game is that it takes an entire class of people and pits them against another class of people. It creates tension and aggravation. But it doesn’t create any solutions.
And it goes both ways. The poor blame the rich. And the rich blame the poor.
Money doesn’t make you successful.
Are there some people among the rich who are part of the problem? Yes. Are there some people among the poor who are part of the problem? Yes. Classes aren’t the problem. People are.
There are rich people who are not successful. Maybe they inherited their money and waste it frivolously. Maybe they got it through crooked means. Maybe they won it and never earned it.
There are also poor people who are the cause of their own financial failures. They don’t work hard. They don’t educate themselves. They don’t have any ambition.
But this isn’t true of all the people in those classes. Only some.
The truth is that whether you’re rich or poor, the amount of money in your bank account isn’t what makes you successful. And I’ve been both rich and poor.
What makes you successful is building something of value to others. Most often this is done through investing and business, which is why money follows. But it’s not the money that makes the success — the money is simply a sign of success. Rather it’s the initiative and end-product of entrepreneurs or investors that makes a success because they bring value to the world.
Successful people solve problems. They provide jobs. They fund new ideas and initiatives. They take risk so that they and others can benefit. Sometimes this makes them rich. Sometimes it makes them poor. But they always move forward and never blame others.
The solution isn’t to punish them for being successful in order to reward those who aren’t successful.
Play by the new rules.
Ultimately, the difference between successful people and those that aren’t successful is that, while they both understand life isn’t fair, they react differently.
Those that aren’t successful play the blame game and make others the source of their problems. They’re always at a disadvantage because they never take the time to create their own advantage. They’re too busy waiting for it to be handed to them.
Those that are successful understand that an unfair advantage exists and they do all they can to create their own unfair advantage through financial education, which they use to build business and invest successfully — to create solutions. Successful people understand that life is what you make it.
If you’re feeling like life isn’t fair, and if you’re blaming others for your problems, I want to encourage you to change your mindset. Begin today to instead look at yourself and think through what you can do to change your own situation. Invest in your financial education. Make new friends. Seek out new opportunity.
You can see the world as one of scarcity or one of abundance. You can play the blame game or the solutions game. It’s your choice. How are you going to choose?
For more financial education resources, click here.
What would you do with a financial windfall?
It’s estimated that more than $41 million will be transferred to heirs over the next 50 years, according to the Center on Wealth and Philanthropy at Boston College. Of course, much of that money will come from the already, very-wealthy families. It will be interesting to see how that number plays out given the dramatic economic changes throughout the world.
An article featured in USA Today titled, “How to get the most from an unexpected inheritance.” picked up on this statistic. They focused on the question of what should people do if the come into an unexpected amount of money.
Here are the six tips several financial planners put forth.
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Take your time.
Don’t make any major decisions until you’ve consulted with a financial planner, a certified public accountant and an attorney.
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Don’t quit your day job, at least not right away.
Instead, keep your job and invest the money with the assumption that it will generate a 4% return each year which you can withdraw annually.
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Be discreet.
Don’t tell everyone, especially family and friends how much you have, or you may get plenty of tips and investment pitches from them.
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Address pressing financial needs first.
Before you invest any money, pay of all credit card debt, student loans and other high-interest debt.
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Pay attention to taxes.
Take into account that your inheritance may push you into a higher tax bracket requiring you to pay more in taxes.
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Be true to your values.
In other words, don’t let the money change you. Use it to further your core values.
Do you agree or disagree with this financial advice?
The question is… if a financially-illiterate family member or friend received an inheritance they had not planned on, what words of wisdom and financial education knowledge would you pass along to them? Talk it over amongst yourselves and provide your insights below.
And if you have no idea what you would do with an inheritance, check out our free, financial education resources here to start learning.
You cannot be successful without failure.
On a wall at the offices of Wieden + Kennedy sits this mural.
http://www.flickr.com/photos/adrianlai/4041850143/sizes/o/in/photostream/
Fail harder.
Wieden + Kennedy (W+K) is considered one of the most innovative advertising agencies in the world. This mural contains over 100,000 plastic pushpins and took over 350 hours to complete.
It was created by students who are part of a one-year, intensive, in-house school of advertising called W+K 12— a school for people who know what they want to do, run by people who know what they’re doing.
Says W+K partner, Dan Kennedy, “The background is made of pushpins. The easy way would be to do the letters as pushpins and leave the wall blank. They chose the hard way…It’s like Babe Ruth trying to hit a home run. If you miss, you miss. But at least you swung the bat as hard as you could.”
To fail harder means to try harder.
And trying harder takes strength of character that most people simply don’t possess.
If you’re to do anything of worth in this world, it will mean that you will fail. And if you’re to do anything big in this world, it will mean that you will fail big.
Most people try to minimize failure in their life, so they don’t take risks. Successful people don’t fear failure but understand that it’s necessary to learn and grow from. They take big risks knowing that they might fail harder than they ever have in their lives.
Of course, they might succeed more than they ever dreamed instead.
They’ll only know after they’ve tried.
How can you fail harder? And why aren’t you doing it?
For more tips on being successful, check out our free, financial education resources here.
The answer is: It might. You will help decide.
Our economic system is Creditism. Creditism evolved out of – but is very different from – Capitalism. Economic growth under Capitalism was driven by recurring cycles of investment, profit and savings (i.e. capital accumulation; hence Capitalism). Creditism creates economic growth through recurrent cycles of credit creation and consumption. Creditism has created very rapid economic growth for decades – much more growth than Capitalism could have created over the same period. The trouble is that Creditism is now in crisis because the private sector in the US cannot bear any more debt. A few charts help illustrate these points.
Total debt (that is household sector debt, government debt, corporate debt and financial sector debt) first exceeded $1 trillion in the United States in 1964. Over the next 43 years, it expanded 50 times to $50 trillion. That explosion of credit – and the transformation of our economic system from Capitalism to Creditism – would not have been possible if the United States had continued to employ gold as money. However, in 1968, Congress ended the requirement that the Fed back dollars with gold. Afterwards, credit and Creditism reshaped our world. By the way, debt and credit are two sides of the same coin. Every quarter, the Federal Reserve publishes a document called The Flow of Funds which provides a comprehensive breakdown of who owes the debt (the debtors) and who owns the debt (the creditors). Here’s the link:
http://www.federalreserve.gov/releases/z1/current/default.htm
In our economic system, credit growth drives economic growth. Since 1952, on an inflation- adjusted basis, there have been only nine years when total credit grew by less than 2%. Each time there was a recession; and the recession, it did not end until there was another surge of credit expansion.
So, the question now is: Will credit begin to expand again? We can determine that by looking at each of the major sectors of the economy to see which ones, if any, can take on more debt.
Chart 3 shows the breakdown of debt within the non-financial sectors of the economy. The top line shows the increase in the debt of the household sector. Household sector debt rose from $4 trillion in 1993 to $14 trillion in 2008. That expansion of debt financed a surge of consumption in the US that fuelled a global economic boom. Sadly, in 2008, a significant part of the household sector began to default on its debt. As a result, that sector was cut off from any additional debt and forced to spend less; for that reason, the global economic crisis began.
The household sector is the largest and most important sector of the economy. Its debt has now begun to contract. Will it expand again? An individual’s house is generally his or her most important source of collateral. On average, Hhome prices are now down 34% on average across the US. With less collateral, households will have access to less credit. Moreover, the median income in the US is dropping because globalization is putting strong downward pressure on wages. That means households cannot afford more debt. For these reasons, household sector debt is more likely to continue to contract rather than to expand.
The next line on Chart 3 represents the debt of the federal government. It has nearly doubled since this crisis began. Had government debt not risen so sharply, total debt would not have simply flattened out (see Chart 1), it would have contracted significantly and a new great depression would have begun.
The third line shows the debt of the corporate sector. Corporations are unlikely to borrow more and expand their production capacity so long as households are retrenching. The other sectors shown on this chart are too small to matter, so let’s now look at the fFinancial sectors in Chart 4.
The top line here shows the debt of the Government Sponsored Enterprises, a.k.a. Fannie Mae and Freddie Mac. Their debt rose from $1 trillion in 1987 to $8 trillion in 2008. As they increased their debt, they obtained cash, which they used to buy up mortgages. That created the US property bubble, which, in turn, drove global economic growth. In 2008, however, Fannie and Freddie effectively went bankrupt and were put into “conservatorship” by the government. Their debt is more likely to contract than to expand going forward. So too is the debt of the private sector issuers of asset backed securities, whose debt is shown in the next line. They were largely responsible for the subprime disaster; now, they are largely out of business.
So, what does all of the above tell us? It tells us that the debt of the private sector is likely to contract during the years ahead. The Austrian economists such as Ludwig von Mises and Murray Rothbard, believed that credit creates an artificial economic boom and that when credit stops expanding, the depression begins. In their world, however, where gold was money, credit expansion could only continue for a relatively short period because it was always constrained by the amount of money (i.e. gold) in the economy; and that constraint was tight since gold was always in short supply. Consequently, the credit induced booms and the resulting depressions were relatively short-lived and mild. If only, that were the case today!
Alas, their world is not the world we live in. In our world, gold is not money and it has not supplied a constraint on credit creation since 1968. In our world, credit has expanded 50 times in less than 50 years. That explosion of credit has created a global economic boom without precedent. The credit boom of the 1920s (the Roaring Twenties) lasted only 16 years – from the abandonment of the gold standard in Europe at the beginning of World War I to 1930 when the credit that caused the boom could not be repaid. Consider the severity of that depression when credit ceased to expand. If credit begins to contract now, the depression that our world would collapse into would be, in all probability, worse than that of the 1930s – that is, if there could be anything worse. In the 1930s, US GDP contracted by 46% and unemployment ranged between 15% and 25% for a decade. That depression did not end until US government spending expanded 900% at the beginning of World War II, a war that took 60 million lives.
Is it regrettable that we are in this situation? Of course it is. Were mistakes made? Therey certainly were. We should never have broken the link between dollars and gold. Had we retained gold as our money, we would have enjoyed much less material prosperity over the last four decades, but we would not now be teetering on the edge of a new great depression. Should we just give up, let credit contract and allow the new great depression to begin? Absolutely not! To surrender without a fight to a replay of the 1930s and the 1940s would be the greatest act of stupidity imaginable.
Well, then, what is the alternative? How can credit continue to expand if the private sector can bear no additional debt? There is only one way, only one possible way out of this catastrophe. The government must borrow and invest. If it invests wisely and aggressively, in transformative 21st Century technologies such as solar, nanotechnology, genetic and biotech, the returns on that investment could prevent the collapse of our economic system. And, in the very worst case, where the government wastes every single penny borrowed and spent (no cure for cancer is found, no genetic therapy that reverses aging, no cheap, clean, limitless energy supply), then at least the collapse of our civilization would have been postponed by a decade or perhaps even longer. If we sharply cut government spending now and allow total credit to contract, then our economic system, -- and the world we know, -- will not survive even 10 more months.
In a democracy, the people must decide what our government will do. To lack faith in the ability of government to solve problems is to lack faith in democracy. As a democratic society, we must choose between two alternative paths. We can invest and prosper or we can retrench and collapse. What we, the people, decide to do will determine our fate.
What you really need to succeed in life
Two weeks ago Robert, I and several Rich Dad Advisors were invited to speak on a seminar cruise. The ship sailed to Belize, Mexico and Honduras. The seven-day cruise was organized by The Real Estate Guys who have an educational, weekly radio show on the subject of, you guessed it, real estate.
What’s great about teaching is that I always learn something, usually unexpected, about either the subject of my talk or in the presentation of it. In this case I learned on both fronts. The greatest take away for me, however, was defining what Rich Woman and Rich Dad do and what business we are in.
It’s not just financial education.
When someone asks me, “What’s your business?” I typically reply, “We have a financial education company.” Yet I know inside that “financial education” really does not fully define what we do. When I say, “We’re in financial education.” most people immediately think of financial or retirement planning, which is far removed from who we are.
People who come to Rich Woman and Rich Dad do not come to have their financial plans tweaked. They come to have their financial lives transformed. They read our books, play CASHFLOW®, attend our classes, and hire coaches and mentors because they are ready to make a change in their lives... the key word being change.
Looking around the cruise ship I saw our group of 200 participants attending classes, having spirited conversations, studying together, brainstorming and truly excited about what they were learning. Then I looked at the other 4000 passengers on board. The difference I saw between to the two groups was that most of the 4000 cruise members were there for a vacation. They wanted a temporary break from their everyday life. The 200 participants in our seminar group were there for a transformation. They wanted a life-long change to their current lives.
Many teachers offer information. They give you the data, the facts and figures, the theory, and, of course, the top 10 things you must know. They present a lot of information. But information alone will not get you to your dreams and life goals. It takes more than that. It takes transformation.
What is transformation?
It’s a caterpillar that turns into a butterfly. It’s an acorn that grows into a tree. It’s a dramatic, ideally positive, change. And that is what Rich Woman and Rich Dad is all about.
As my friend, JW Wilson says, “Information does not cause transformation.” So what causes transformation? It’s one thing – DOING. You have to DO something, take action, move! As Albert Einstein said, “Nothing happens until something moves.” You can read all the books, attend every seminar, play CASHFLOW® every day but until you actually go do something - put what you’ve learned into practice - nothing will change.
In my life for me to go from an employee of a magazine to a self-employed businesswoman took a transformation within me. I had to transform my thinking and my priorities. As an employee my priority was working hard and making my boss happy. As a small business person, my priority was keeping my business alive, paying my vendors and making a profit.
To go from self-employed, where I ran most things, to owning a business that runs on systems and other people’s time and talents, took a whole new level of transformation. To go from poor to middle class, a person must go through a transformation… as is the case going from middle class to rich.
The thinking, the priorities and the actions must change.
So if DOING or taking action must occur for a transformation to take place, then what prevents transformation? Fear. Fear of making a mistake. Fear of being uncomfortable. Fear of looking stupid. Fear of whatever it is for you. That is what prevents someone from taking the information they’ve learned and putting it into practice. Fear is what keeps people stuck where they are, unable to change and grow.
The simple act of taking information that you’ve learned and applying that information in the real world is the difference between where you are and where you want to be.
When in doubt just go do something.
I remember when Robert and I were homeless in the 1980’s. I was depressed, lethargic and feeling sorry for myself. The moment I decided to go do something, to get into action, my life changed. It is true that action always beats inaction.
So the question I pose to you is, “What in your life do you need to change to bring you closer to your financial dreams? To your life dreams?” What do you need to do to create a transformation in your life?
For me, all I’m working towards is my next transformation! Because as we say at The Rich Dad Company, “If you are not growing, then you are dying.” I plan to keep on growing until the day I die.
Here’s to all the butterflies!
To help you start transforming your life and experience financial freedom, please check out our free resources here.
How innovative, nimble entrepreneurs take down corporate giants
As I’ve written before, we’re in the Information Age. In the Information Age, it’s the fast that eat the slow. In order to survive, you must be able to think and adapt at the speed of information.
In the Information Age, anyone can get wealthy because everyone has access to the same information via the Internet. It’s simply a matter of who can think the most creatively and act most quickly upon the information available to them.
In the Information Age, Industrial Age companies — and those who operate like them — are toast, and entrepreneurs, and those who can think like them, are winners. An example of this concept is Kodak, the company who pioneered personal photography. They are now undergoing bankruptcy.
The definition of insanity
This week, I read in The Wall Street Journal that Kodak “is seeking permission to pay about 300 executives and other employees a total of $13.5 million in bonuses to persuade them to stay with the company as it reorganizes under bankruptcy-law protection.”
Why does Kodak want to reward executives that oversaw the company’s voyage to bankruptcy? “The targeted employees have knowledge and skills critical to help the business emerge from Chapter 11 and would be difficult to replace if they left to pursue other offers.”
As the old saying goes, the definition of insanity is doing the same thing and expecting different results. Only in old-world, Industrial-Age thinking, does a company seek to reward the employees that ran it into the ground in an attempt to retain them to fix the problems they created.
Such thinking betrays a lack of understanding that the world has changed and that Kodak, if it is to survive, must change with it.
Understanding the what but not the why
The reason that Kodak, once the leader in the photography business, is going out of business is not because they are losing talent but because the talent they are seeking to retain has failed them.
Kodak lost its edge and failed to innovate. As a result, they first lost market share to Japanese competition and then became unable to keep pace with the shift from film to digital technology.
While Kodak understood the need for digital technologies (the what), they failed to understand how people would use them (the why). Instead, they opted to rely on digital technologies that pushed people to printing photos — an Industrial Age way of thinking.
Kodak was so focused on what they made, photos, that they failed to remember why they made them, to be shared. Rather than focus on technologies that made sharing easier, they chose to focus on technologies that made creating photos easier while keeping up the roadblocks to sharing.
Building for the why
Recently, I also read of another photography company that is much different than Kodak. You may have heard of this company. It’s called Instagram.
Instagram’s philosophy is very simple. They created an app that enables people to take pictures on their phones, doctor them up a bit, and share them online. It’s free, has been updated countless times in the last few years to accommodate users’ demands, and has millions of users.
Instagram was focused on meeting people’s why, not just their what. As a result, they were hugely successful.
On April 9, 2012, Facebook bought Instagram for $1 billion. It has thirteen employees.
Kodak? 7,600 employees and about 16,000 Medicare-eligible retirees. It’s undergoing bankruptcy.
Apparently, size really doesn’t matter—agility does.
Think like an entrepreneur
This isn’t to say that small companies are better than big ones. Rather, big companies must still think like small ones, especially in this day and age of ever-changing information.
Innovation is key. Only those who have the agility to change with the market and innovate quickly will survive. And most often, it is entrepreneurs who lead in this category. The best companies are the ones that continue to think like entrepreneurs, and the richest people are entrepreneurs.
Thinking like an entrepreneur takes a strong financial education. The Rich Dad Company was created to help train and raise up entrepreneurs.
Instagram is a company founded by an entrepreneur that acts like one. Kodak is a company founded by an entrepreneur that now acts like a dinosaur.
Which one are you? An entrepreneur or a dinosaur?
I hope you start investing in your financial education today and start acting like an entrepreneur. If you do, the world is your oyster.
Do you need help getting the information you need to be a successful entrepreneur? Check out our free, financial education resources here.
Does your business excel at customer service?
I love a good surprise. And I love it when I see a business make a smart move, especially when it comes to customer service. The other day I received an unexpected “gift” in the mail. It came in the form of good news from a company that I had just purchased some products from for the first time online.
We’re often so quick to complain to all our friends about a bad business experience we’ve had. In a study of customer service in the U.S., for example, only 10% rated customer service in the retail industry as exceptional. That is why I wanted to devote this blog to acknowledging a retail company that totally “gets” customer service.
The company is Manuka Honey USA. Manuka Honey is only found in New Zealand and is known to be a very healthy and healing type of honey. I actually visited a Manuka honey maker when I was in New Zealand last year. My friend, Barbara, turned me onto Manuka Honey’s honey, nut and fruit energy bars. Since it’s not unusual for me to skip a meal, I look for healthy energy bars to eat on the run.
I found Manuka Honey USA online and ordered their energy bars along with a couple of other products. My order arrived right on time. When I pulled the invoice out of the box I noticed that it had been marked up and there was a handwritten note at the bottom. The note read:
“When ordering a larger amount of lightweight items our shipping rates are too high, hence the shipping credit.
Thank you!
Elaine”
The company credited me back $16.53 in shipping fees. I never asked for the credit. I never expected a credit. The company certainly didn’t have to give me a credit. I had already agreed to the shipping charges.
Was I impressed? Absolutely.
Did this company win over a new customer? Yes they did.
Does Manuka Honey USA understand customer service? Totally.
It even goes beyond customer service. That small gesture speaks volumes about this company and the people running it. It tells me they have high, ethical standards. It tells me that the people in this company are honest, they pay attention to the details and they do not take their customers for granted. Most importantly, it tells me that I like this company and I want to continue to support a business with such great values.
In your business, your profession or your job what small gestures can you offer customers that will stop them in their tracks and say, “This is a company I want to do business with!”?
By the way, too often when I have a positive experience like this, I don’t take the time to acknowledge those who were behind it. That is why I’m sending this letter to the head of the company to acknowledge the work they are doing.
How can you improve customer service at your business? Please provide your insights below.
And if you need help running a more successful business, check out our free Rich Dad Community here.
Five Lessons on Passion from Caine's Arcade
Rich dad said, “Employees dread the work week and live for the weekend. Their world is made up of two spheres, work and play. The rich don’t know the difference. Their work is their play because they’re passionate about what they do.”
For me, rich dad’s advice has been a valuable lesson. Since a young age, I’ve followed my passions and found ways to make them profitable. To me, my business is like a game. Some people study golf. I study investing and business.
A couple weeks ago, I wrote about the importance of integrity. Today, I want to show you the importance of passion.
I could write a long post on this, but you’d be better served watching Caine’s story below.
Caine’s Arcade
Little, 9-year old Caine is passionate about arcades. He followed his passions and made his own arcade. Like many passions, people didn’t get his at first. He even faced ridicule from people who didn’t understand his dreams. Yet, he persisted — and good things came.
But here’s the truth: even if the flash mob never showed, Caine would have stuck with his arcade dream. And that is the secret to his success.
There are lots of ways to make money in this world. But as the old proverb goes, what’s the point of gaining the whole world if you lose your soul. The key is to have both, and that is achieved only when we pursue our passions.
Passion gives you the drive to go on.
Caine could easily have quit. Everyone around him would have understood. But instead, he continued to pursue his arcade because he was first doing it for himself, which then became a benefit for others. Like Caine, when we’re passionate about something, we innovate, create, and continue on with our dreams.
Passion pushes you to learn more.
Caine wasn’t content with building his first version of his arcade and leaving it as is. Instead, he continued to learn more and create more. He developed better systems and games. He honed his skills and created better products.
Though only 9 years old, Caine put more thought into his dream than most adults do in a lifetime. Caine’s passion is evident in his craft. Like Caine, those who are successful as adults are those people who instead of becoming calloused and losing their sense of wonder and possibility, instead retain a childlike quality and see the world full of opportunity. They work hard to learn more, honing their craft and increasing their financial education.
Passion is infectious for others.
There’s a reason why Caine’s video has been viewed over 2.5 million times. People love his passion, and they love seeing that one person recognized Caine’s passion and rewarded it. When you’re passionate about your work, whether building a company or investing in real estate, others see that passion and are drawn to it. Good things come from that attraction.
Passion makes work fun.
What could be more fun than building a cardboard arcade? Lots of things actually. For me, I love financial education and learning. I took that passion and created the Rich Dad Company, which provides financial education and resources for people worldwide. It started on my kitchen table as a dream and now is a global company. Each day, I get to do what I love. My work is fun and it never gets old. What do you love to do, and how can you make your work fun?
Passion is the beginning of success.
Every successful person in life began by pursuing a passion, usually against all odds. That is the beauty of entrepreneurship. Generally, you have only a passion, a good idea, and a dream. Though ideas and dreams come and go, if passion is never lost, eventually good things will come your way.
What is your passion? What lessons can you learn from little Caine in following them? How will you achieve your dreams?
Here are free, financial education resources to help you pursue your passion