Invest in Systems, Not Products
Three benefits of focusing on the B-I Triangle as an entrepreneur and investor
Many people come to me excited about a new product idea that they believe is truly innovative and worth investing in. My response is that the world is full of great products.
Many people also come to me thinking that their product is the best, better than any other existing product on the market. This, they think, also makes it worth investing in. My response is that only those in the E (employee) and S (self-employed) quadrant of the CASHFLOW Quadrant, where being the best or highest quality is important for success, think that having the best product is most important.
In the B (big business) and I (investor) quadrant, however, the most important thing is the system behind the product or idea. Case in point, most of us can cook a better hamburger than McDonald’s, but few of us can build a better business system.
Rich dad said, “The product is the least important piece to inspect when evaluating a business.”
He believed that a truly successful business was built on systems and that the product didn’t have to be the best if the systems were world class. It still had to be good, just not the best. That is why he always placed Product in the smallest portion of the B-I Triangle, his model for building the most successful businesses.
The B-I Triangle as a whole represents a strong system of systems, supported by a team with a leader, all working towards a common mission. I would like to highlight three important points about why the B-I Triangle is important.
Money always follows management
If any of the management functions of the B-I Triangle’s five internal levels (cash flow, communications, systems, legal, and product) are weak, the company will be weak. If you are personally having financial difficulty, or not having the excess cash flow you desire, you can often find the weak spots by analyzing each level. Once you identify your weakness, you may then want to consider turning it into your strength, or hiring someone else with that strength.
Some of the best investments and businesses are the ones you walk away from
If any of the five levels in the B-I Triangle are weak and the management is not prepared to strengthen them, it is best to walk away from the investment.
Too many times I have discussed the five levels of the B-I Triangle with a management team with which I am considering investing and I hear arguments instead of discussion. When business owners or business teams are weak in any of the five levels, they will become defensive rather than receptive to questioning. If they do become defensive rather than excited to identify and correct a weakness, I usually walk away.
The digital age makes the B-I Triangle available to everyone
It has never been easier to access great wealth than in today’s day and age. In the Industrial Age, you needed millions of dollars to build a car factory. Today, with a used computer, some brainpower, a phone, and a little education in each of the five aspects of the B-I Triangle, the world can be yours.
If you want to build your own business, there has never been a better time for success. I recently met a young man who sold his small Internet company to a major software maker for $28 million. All he said to me was, “I made $28 million at the age of 28. How much will I make when I am 48?”
If you want to be a successful entrepreneur who builds successful businesses or invests in them, the entire B-I Triangle must be strong and interdependent. If it is, the businesses will grow and flourish.
The good news is that if you are a team player, you don’t have to be an expert at every level. Just become part of a winning team with a clear vision, a strong mission, and an iron stomach. Find that, and you’ll be well on your way to success.