Copyright 2005 by Robert T. Kiyosaki with Sharon L. Lechter.All rights reserved.Hachette Book Group237 Park AvenueNew York, NY 10017Visit our website at Warner Books name and logo are trademarks of Hachette Book Group, Inc.ISBN: 978-0-7595-1453-9First eBook Edition: September 2005

ContentsCopyrightAcknowledgmentsIntroductionRich Dad’s Entrepreneurial Lesson #1: A Successful Business Is Created Before There Is aBusiness.Chapter 1: What Is the Difference Between an Employee and an Entrepreneur?Rich Dad’s Entrepreneurial Lesson #2: Learn How to Turn Bad Luck Into Good Luck.Chapter 2: Dumb and Dumber Gets Rich and RicherRich Dad’s Entrepreneurial Lesson #3: Know the Difference Between Your Job and Your Work.Chapter 3: Why Work for Free?Rich Dad’s Entrepreneurial Lesson #4: Success Reveals Your Failures.Chapter 4: Street Smarts versus School SmartsRich Dad’s Entrepreneurial Lesson #5: The Process Is More Important than the Goal.Chapter 5: Money TalksRich Dad’s Entrepreneurial Lesson #6: The Best Answers Are Found in Your Heart . . . NotYour Head.Chapter 6: The Three Kinds of MoneyRich Dad’s Entrepreneurial Lesson # 7: The Scope of the Mission Determines the Product.

Chapter 7: How to Go from Small Business to Big BusinessRich Dad’s Entrepreneurial Lesson #8: Design a Business That Can Do Something That NoOther Business Can Do.Chapter 8: What Is the Job of a Business Leader?Rich Dad’sEntreprenuerial Lesson #9: Don’t Fight for the Bargain Basement.Chapter 9: How to Find Good CustomersRich Dad’s Entrepreneurial Lesson # 10: Know When to Quit.Chapter 10: The Summary

Other Bestselling Books byRobert T. Kiyosaki & Sharon L. LechterRich Dad Poor DadWhat the Rich Teach Their Kids About Moneythat the Poor and Middle Class Do NotRich Dad’s CASHFLOW QuadrantRich Dad’s Guide to Financial FreedomRich Dad’s Guide to InvestingWhat the Rich Invest In that the Poor and Middle Class Do NotRich Dad’s Rich Kid Smart KidGive Your Child a Financial Head StartRich Dad’s Retire Young Retire RichHow to Get Rich Quickly and Stay Rich ForeverRich Dad’s ProphecyWhy the Biggest Stock Market Crash in History is Still Coming.And How You Can Prepare Yourself and Profit from it!Rich Dad’s Success StoriesReal-Life Success Stories from Real-Life PeopleWho Followed the Rich Dad LessonsRich Dad’s Guide to Becoming Rich Without Cutting Up Your Credit CardsTurn “Bad Debt” into “Good Debt”Rich Dad’s Who Took My Money?Why Slow Investors Lose and Fast Money Wins!Rich Dad Poor Dad for TeensThe Secrets About Money—That You Don’t Learn In School!Rich Dad’s Escape from the Rat RaceHow to Become a Rich Kid by Following Rich Dad’s AdviceBefore You Quit Your Job10 Real-Life Lessons Every Entrepreneur Should KnowAbout Building a Multimillion-Dollar Business

AcknowledgmentsEntrepreneurship is as much a spirit as it is a vocation. When Rich Dad partnered with Warner Booksit was in large part due to Laurence Kirshbaum, Warner’s CEO and Chairman. We recognized thatentrepreneurial spark in his eyes. He energized his “Can Do” attitude throughout the entireorganization. While publishing may not be a cutting-edge industry, Larry Kirshbaum is a cutting-edgeleader and has been a joy to work with. Thank you, Larry.Robert KiyosakiSharon Lechter

IntroductionWhat Makes Entrepreneurs Different?One of the most frightening days of my life was the day I quit my job and officially became anentrepreneur. On that day I knew there were no more steady paychecks, no more health insurance orretirement plan. No more days off for being sick or paid vacations.On that day, my income went to zero. The terror of not having a steady paycheck was one of themost frightening experiences I had ever experienced. Worst of all, I did not know how long it wouldbe before I would have another steady paycheck . . . it might be years. The moment I quit my job Iknew the real reason why many employees do not become entrepreneurs. It is fear of not having anymoney . . . no guaranteed income . . . no steady paycheck. Very few people can operate for longperiods of time without money. Entrepreneurs are different, and one of those differences is the abilityto operate sanely and intelligently without money.On that same day, my expenses went up. As an entrepreneur, I had to rent an office, a parking stall,a warehouse, buy a desk, a lamp, rent a phone, pay for travel, hotels, taxis, meals, copies, pens,paper, staples, stationery, legal tablets, postage, brochures, products, and even coffee for the office. Ialso had to hire a secretary, an accountant, an attorney, a bookkeeper, a business insurance agent, andeven a janitorial service. These were all expenses my employer had once paid for me. I began torealize how expensive it had been to hire me as an employee. I realized that employees cost far morethan the number of dollars reflected in their paychecks.So another difference between employees and entrepreneurs is that entrepreneurs need to knowhow to spend money, even if they have no money.The Start of a New LifeThe day I officially left the company, I was in San Juan, Puerto Rico. It was June 1978. I was inPuerto Rico because I was attending the Xerox Corporation’s President’s Club celebration, an eventrecognizing the top achievers in the company. People had come from all over the world to berecognized.It was a great event, a gala I will always remember. I could not believe how much money Xerox

was spending just to recognize the top salespeople in the company. But even though it was acelebration, I was having a miserable time. Throughout the three-day event, all I could think aboutwas leaving the job, the steady paycheck, and the security of the company. I realized that once theparty in San Juan was over, I was going to go on my own. I was not going back to work at theHonolulu Branch Office or the Xerox Corporation.When leaving San Juan, the plane I was on experienced some kind of emergency. In preparing toland at Miami, the pilot had us all brace, cradle our heads, and prepare for a possible crash. I wasalready feeling bad enough about this being my first day as an entrepreneur, but now I had to prepareto die on top of it? My first day as an entrepreneur was not off to a very good start.Obviously, the plane did not crash, and I flew on to Chicago where I was going to do a salespresentation for my line of nylon surfer wallets. I arrived at the Chicago Mercantile Mart late becauseof the flight delays, and the client I was supposed to meet, a buyer from a large chain of departmentstores, was already gone. Once again I thought to myself, “This is not a good way to start my newcareer as an entrepreneur. If I don’t make this sale there will be no income for the business, nopaycheck for me, no food on the table.” Since I like to eat, having no food disturbed me the most.Are Some People Born Entrepreneurs?“Are people born entrepreneurs or are they trained to be entrepreneurs?” When I asked my rich dadhis opinion on this age-old question, he said, “Asking if people are born or trained to beentrepreneurs is a question that makes no sense. It would be like asking if people are born employeesor trained to become employees?” He went on to say, “People are trainable. They can be trained to beeither employees or entrepreneurs. The reason there are more employees than entrepreneurs is simplythat our schools train young people to become employees. That is why so many parents say to theirchild, ‘Go to school so you can get a good job.’ I have yet to hear any parent say, ‘Go to school tobecome an entrepreneur.’”Employees Are a New PhenomenonThe employee is a rather new phenomenon. During the agrarian age, most people were entrepreneurs.Many were farmers who worked the king’s lands. They did not receive a paycheck from the king. Infact, it was the other way around. The farmer paid the king a tax for the right to use the land. Thosewho were not farmers were tradespeople, aka small business entrepreneurs. They were butchers,bakers, and candlestick makers. Their last names often reflected their business. That is why todaymany people are named Smith, for the village blacksmith; Baker, for bakery owners; and Farmer,because their family’s business was farming. They were entrepreneurs, not employees. Most childrenwho were raised in entrepreneurial families followed in their parents’ footsteps, also becomingentrepreneurs. Again, it is just a matter of training.It was during the Industrial Age that the demand for employees grew. In response, the governmenttook over the task of mass education and adopted the Prussian system, upon which most Western

school systems in the world are today modeled. When you research the philosophy behind Prussianeducation, you will find that the stated purpose was to produce soldiers and employees . . . peoplewho would follow orders and do as they were told. The Prussian system of education is a greatsystem for mass-producing employees. It is a matter of training.The Most Famous EntrepreneursYou may also have noticed that many of our most famous entrepreneurs did not finish school. Some ofthose entrepreneurs are Thomas Edison, founder of General Electric; Henry Ford, founder of FordMotor Company; Bill Gates, founder of Microsoft; Richard Branson, founder of Virgin; Michael Dell,founder of Dell Computers; Steven Jobs, founder of Apple Computers and Pixar; and Ted Turner,founder of CNN. Obviously, there are other entrepreneurs who did well in school . . . but few are asfamous as these.The Transition from Employee to EntrepreneurI know I was not born a natural entrepreneur. I had to be trained. My rich dad guided me through aprocess of starting as an employee to eventually becoming an entrepreneur. For me, it was not an easyprocess. There was a lot I had to unlearn before I could begin to understand the lessons he was tryingto teach me.It was difficult hearing what my rich dad had to say because what he said was exactly oppositefrom the lessons my poor dad was trying to teach me. Every time my rich dad talked aboutentrepreneurship, he was talking about freedom. Every time my poor dad talked to me about going toschool to get a job, he was talking about security. There was the clash of these two philosophiesgoing on in my head and it was confusing me.Finally I asked rich dad about the difference in philosophies. I asked, “Aren’t security andfreedom the same thing?”Smiling, he replied, “Security and freedom are not the same . . . in fact they are opposites. Themore security you seek, the less freedom you have. The people with the most security are in jail. Thatis why it is called maximum security.” He went on to say, “If you want freedom you need to let go ofsecurity. Employees desire security and entrepreneurs seek freedom.”So the question is, can anyone become an entrepreneur? My answer is, “Yes. It begins with achange in philosophy. It begins with a desire for more freedom than security.”From Caterpillar to ButterflyWe all know that a caterpillar spins a cocoon and one day emerges as butterfly. It is a change soprofound, it is known as a metamorphosis. One of the definitions of metamorphosis is a strikingalteration in character. This book is about a similar metamorphosis. This book is about the changes

a person goes through, when transitioning from employee to entrepreneur. While many people dreamof quitting their job and starting their own business, only a few actually do it. Why? Because thetransition from employee to entrepreneur is more than changing jobs . . . it is a true metamorphosis.Entrepreneur Books Written by NonentrepreneursOver the years, I have read many books about entrepreneurs and on the subject of entrepreneurship. Istudied the lives of such entrepreneurs as Thomas Edison, Bill Gates, Richard Branson, and HenryFord. I also read books on different entrepreneurial philosophies and what makes some entrepreneursbetter than others. In every book, good or bad, I found some priceless bit of information or wisdomthat has helped me in my quest to become a better entrepreneur.Looking back at the books I have read, I noticed that they fall into two basic categories: bookswritten by entrepreneurs and books written by nonentrepreneurs. Most of the books are written bynonentrepreneurs, people who are professional authors, journalists, or college professors.While I have gotten something important from every book, regardless of who wrote it, I did findsomething missing. What I found missing was the “down in the gutter,” “kick in the gut,” “stabbed inthe back,” terrifying mistakes and horror stories that almost every entrepreneur goes through. Most ofthe books paint a picture of the entrepreneur as a brilliant, suave, cool businessperson who handledevery challenge with ease. The books about great entrepreneurs often make it sound like they wereborn entrepreneurs, and granted, many of them were. Just as there are natural and gifted athletes, thereare natural and gifted entrepreneurs, and most books are written about such people.Books on entrepreneurship written by college professors have a different flavor. Collegeprofessors tend to boil the subject to the bone, leaving only the static facts or findings. I find readingsuch technically correct books difficult because the reading is often boring. There is no meat left,nothing juicy, just the bones.

How This Book Is DifferentThis is a book about entrepreneurship, written by entrepreneurs who have experienced the ups anddowns, the successes and failures, of the real world.Today The Rich Dad Company is an international business with products in forty-four differentlanguages, doing business in over eighty countries. But it all started as a company that my wife, Kim,and I started with our partner Sharon Lechter. It began on Sharon’s dining room table in 1997. Ourinitial investment was 1,500. Our first book, Rich Dad Poor Dad, has been on the New York TimesBest Seller List for over four and a half years, an accomplishment shared by only three other books.Maybe, as you read this book, it will still be on the list.Rather than tell you how smart I am at business, which I am not, we thought it better to write adifferent type of book on entrepreneurship. Rather than tell you how I brilliantly sailed over the tallestpeaks, and made millions, we thought you might learn more from how I dug many deep holes, fell intothem, and then had to dig my way out. Rather than tell you about all my successes, we believe youwill learn more from my failures.Why Write about Failures?Many people do not become entrepreneurs because they are afraid of failing. By writing about thethings many people are afraid of, we hope to help you better decide if becoming an entrepreneur is foryou. Our intent is not to frighten you off—our intent is to provide a little “real world” insight on theups and downs of the process of becoming an entrepreneur.Another reason for writing about failures is that humans are designed to learn by making mistakes.We learn to walk by first falling down and then trying again. We learn to ride a bicycle by falling offand then trying again. If we had never risked falling, we would go through life crawling likecaterpillars. One of the missing elements we have found in reading many of the books aboutentrepreneurship, especially those written by college professors, is that they do not go into theemotional trials and tribulations an entrepreneur goes through. They do not discuss what happens toentrepreneurs emotionally when the business fails, when they run out of money, have to let employeesgo, and when their investors and creditors come after them. How would most college professorsknow how a failing entrepreneur feels? How would they know—since a steady paycheck, tenure,always knowing the right answers, and never making mistakes are highly prized in the academicworld. Again, it’s all a matter of training.In the late 1980s, I was invited to do a talk on entrepreneurship at Columbia University. Ratherthan talk about my successes, I talked about my failures and how much I learned from my mistakes.The young audience asked a lot of questions and seemed genuinely interested in the ups and downs ofbecoming an entrepreneur. I talked about the fears we all face when starting a business, and how Ifaced those fears. I shared with them some of the more stupid mistakes I made and how those mistakeslater became valuable lessons I would never have learned if I had not made the mistakes. I talked

about the pain of having to shut a business down and lay people off because of my incompetence. Ialso shared with them how all my mistakes eventually made me a better entrepreneur, very rich, andmost important, financially free, never needing a job again. All in all, I thought it was an objectiveand realistic talk on the process of becoming an entrepreneur.A few weeks later, I found out that the faculty member who had invited me to speak at theuniversity was called into her department head’s office and reprimanded. His final words to herwere, “We do not allow failures to speak at Columbia.”What Is an Entrepreneur?Now that we have torn into college professors, it is time to give them some credit. One of the betterdefinitions of an entrepreneur is from Howard H. Stevenson, a professor at Harvard University. Hesays, “Entrepreneurship is an approach to management that we define as follows: the pursuit ofopportunity without regard to resources currently controlled.” In my opinion, this is one of the mostbrilliant definitions of what an entrepreneur is. It is bare bones . . . and brilliant.The Power of ExcusesMany people want to become entrepreneurs but always have some excuse for why they do not quittheir job, excuses such as:“I don’t have the money.”“I can’t quit my job because I have kids to support.”“I don’t have any contacts.”“I’m not smart enough.”“I don’t have the time. I’m too busy.”“I can’t find anyone who wants to help me.”“It takes too long to build a business.”“I’m afraid. Building a business is too risky for me.”“I don’t like dealing with employees.”“I’m too old.”The friend who gave me this article by Professor Stevenson said, “Any two-year-old is an expert atmaking excuses.” He also said, “The reason most people who want to become entrepreneurs remainemployees is that they have some excuse that keeps them from quitting their job and taking that leap offaith. For many people, the power of their excuse is more powerful than their dreams.”

Entrepreneurs Are DifferentMr. Stevenson had many other bare bone gems in his article, especially when he comparesentrepreneurs to employees or promoters to trustees, as he labels them. A few of these gems ofcomparison are:1. When it comes to their Strategic Orientation:PROMOTER: driven by perception of opportunity.TRUSTEE: driven by control of resources.In other words, entrepreneurs are always looking for the opportunity without much regard towhether they have resources. Employee type persons focus on what resources they have or do nothave, which is why so many people say, “How can I start my business? I don’t have the money.” Anentrepreneur would say, “Tie up the deal and then we’ll find the money.” This difference inphilosophies is a very big difference between employee and entrepreneur.This is also why my poor dad often said, “I can’t afford it.” Being an employee he looked at hisresources. Those of you who have read my other books know that my rich dad forbade his son and meto ever say, “I can’t afford it.” Instead he taught us to look at opportunities and ask, “How can I affordit?” He was an entrepreneur.2. When it comes to Management Structure:PROMOTER: Flat with multiple informal networks.TRUSTEE: Formalized hierarchy with multiple tiers.In other words, an entrepreneur will keep the organization small and lean, using cooperativerelationships with strategic partners to grow the business. Employees want to build a hierarchy,which means a chain of command, with them at the top. This is their concept of building an empire.An entrepreneur will grow the organization horizontally, which means “outsourcing” rather thanbringing the work “in house.” An employee wants to grow the organization vertically, which meanshiring more employees. Formal organizational charts are very important to employees climbing thecorporate ladder.In this book, you will find out how The Rich Dad Company stayed small yet grew big by usingstrong strategic partnerships with large hierarchies such as Time Warner, Time Life, InfinityBroadcasting, and major publishers throughout the world. We decided to grow in this manner becauseit cost us less time, people, and money. We could grow faster, grow bigger, become very profitable,have a global presence, and yet remain small. We used other people’s money and resources to growthe business. This book will explain how and why we did it that way.3. When it comes to Reward Philosophy:PROMOTER: Value driven, performance-based, team-oriented.TRUSTEE: Security driven, resource-based, job promotion-oriented.

In simple terms, employees want job security with a strong company, a steady paycheck, and theopportunity for promotion—a chance to climb the corporate ladder. Many employees consider apromotion and title more important than money. I know my poor dad did. He loved his title,Superintendent of Public Education, even though he was not paid much.The entrepreneur doesn’t want to climb the corporate ladder; he or she wants to own thecorporate ladder. An entrepreneur is not driven by a paycheck but by results of the team. Also, asHoward Stevenson states, many entrepreneurs start a business because they have very strong values,values that are more important than simply job security and a steady paycheck. This book will go intovalues far more important than money. For many entrepreneurs, their values are more important thanmoney. They are passionate about their work, their mission, and love what they do. Manyentrepreneurs will do their work even though there is no money. Rich dad said, “Many employees arepassionate about their work only as long as there is a paycheck.”In this book, you will also learn about the three different types of money; competitive money,cooperative money, and spiritual money. Competitive money is the type of money most people workfor. They compete for jobs, promotions, pay raises, and against their business competition.Cooperative money is achieved by networking instead of competing. In this book you will also findout how The Rich Dad Company expanded rapidly with very little money, simply by working forcooperative money. Also, a significant part of this book is dedicated to the mission of a business, thevalues. While we all know that there are many entrepreneurs who are opportunists, working only forcompetitive money, there are others who build a business on a strong mission, working for spiritualmoney—the best of all money.Different Styles of ManagementThere are two other points in the article that are refreshing, especially from a college professor.Howard Stevenson acknowledges that many people say that entrepreneurs are not good managers.Instead of agreeing with this commonly accepted point of view, he writes, “The entrepreneur isstereotyped as egocentric and idiosyncratic and thus unable to manage. However, although themanagerial task is substantially different for the entrepreneur, the management skill is nonethelessessential.” Right-on, Howard. In other words, entrepreneurs manage people differently. The nextpoint explains why there are differences in management style between entrepreneur and employee.Know How to Use Other People’s ResourcesThe other point Stevenson makes tracks closely his definition of an entrepreneur, which is,“Entrepreneurship is an approach to management that we define as follows: the pursuit ofopportunity without regard to resources currently controlled.” He states, “Entrepreneurs learn touse other people’s resources well.” This is what causes the difference in management style.Employees want to hire people so they can manage them. It puts them in direct control over them.They will do as they are told or they are fired. This is why employee types want to build vertical

hierarchies. They want the Prussian style of management. They want people to jump when they say,“Jump.”Since entrepreneurs are not necessarily managing employees, they need to manage peopledifferently. Very simply put, entrepreneurs need to know how to manage other entrepreneurs. If yousay, “Jump,” to an entrepreneur, he or she usually responds with some rude comment or gesture. Soentrepreneurs are not poor managers, as many people think; they simply have a very differentmanagement style because they are managing people they cannot tell what to do . . . or fire.This difference in management style also explains why employee types work for competitivemoney and entrepreneurs tend to work for cooperative money.Employee Looking for EmployeesSome of the more common complaints heard from new entrepreneurs are, “I can’t find goodemployees.” Or, “Employees just don’t want to work.” Or, “All employees want is more money.”This is a problem for a new entrepreneur with a confused management style. Management style is amatter of training. Again, compliments to Howard Stevenson, a college professor, for getting to thebare bones differences between entrepreneur and employee.How to Order the ArticleThere is much more information packed into Howard H. Stevenson’s article entitled, “APerspective on Entrepreneurship,” written in 1983. A copy of the article is available fromHarvard Business School for less than 10.00. To order go to http:/ is a brilliant article, and useful for anyone who is interested in the subject ofentrepreneurship.Don’t Wait till All Lights Are GreenAnother reason many people are not as successful as they would like to be is fear—often the fear ofmaking mistakes or the fear of failing. There is another reason, also a fear, but it appears a littledifferently. These people disguise their fears by being perfectionists. They are waiting for all the starsto line up before starting their business. They want all the lights to be green before they will pull outof the driveway. When it comes to entrepreneurship, many of these people are still stuck in thedriveway with their engine idling.Three Parts of a Business

One of the best entrepreneurs I have ever known is a friend and business partner of mine. I haveformed several companies with him—three that went public and have made us multimillions. Indescribing what an entrepreneur does, he said, “There are three parts to putting a business dealtogether. One is finding the right people. Two is finding the right opportunity. And three is finding themoney.” He also said, “Rarely do all three pieces come together at the same time. Sometimes youhave the people, but you do not have the deal or the money. Sometimes you have the money, but nodeal or people.” He also said, “The most important job of an entrepreneur is to grab one piece andthen begin to put the other two pieces together. That may take a week or it may take years, but if youhave one piece, at least you’ve gotten started.” In other words, an entrepreneur does not care if twoout of three lights are red. In fact, an entrepreneur does not care if all three lights are red. Red lightsdo not prevent an entrepreneur from being an entrepreneur.Anything Worth Doing Is Worth Doing PoorlyHave you ever noticed that software, such as Microsoft’s Windows, comes in versions such asWindows 2.0 and Windows 3.0? What that means is that they have improved their product and nowwant you to buy the better version. In other words, the first product they sold you was not perfect.They may have sold it knowing it had flaws, bugs, and needed to be improved.Many people fail to get to market because they are constantly perfecting their product. Like theperson who is waiting for all the lights to be green, some entrepreneurs never get to market becausethey are looking for, or working on, perfecting their product or writing the perfect business plan. Myrich dad often said, “Anything worth doing is worth doing poorly.” Henry Ford said, “Thank God formy customers. They buy my products before they are perfected.” In other words, entrepreneurs startand continue to improve themselves, their businesses, and their products. Many people will not startunless everything is perfect. That is why many of them never start.Knowing when to introduce a product into the marketplace is as much an art as a science. Youmay not want to wait for a product to be perfect; it may never be perfect. It just has to be “goodenough.” It merely has to work well enough to be accepted in the marketplace. However, if theproduct is so flawed that it doesn’t work for its intended purpose, or otherwise does not meetmarketplace expectations or causes problems, it can be very difficult to reestablish credibility and areputation for quality.One of the marks of a successful entrepreneur is being able to assess the expectations of themarketplace and know when to stop developing and start marketing. If the product is put on themarket a little prematurely, then the entrepreneur can simply improve it, and take steps to maintain thegoodwill in the marketplace. On the other hand, delay in introducing a product can mean opportunitiesirretrievably lost, a window of opportunity missed.For those of you who remember the early versions of Windows, you’ll recall how frequently yourcomputer “crashed.” (There were some who said that Windows was so full of bugs that it should havecome with a can of insecticide.) If an automobile broke down as frequently as Windows did, it wouldnot have been acceptable in the marketplace. In fact, the automobile would have been a “lemon,” andthe manufacturer would have been forced to replace it. Windows, however, notwithstanding the bugs—the flaws—was phenomen

Rich Dad’s Entrepreneurial Lesson # 10: Know When to Quit. Chapter 10: The Summary. Other Bestselling Books by Robert T. Kiyosaki & Sharon L. Lechter Rich Dad Poor Dad What the Rich