The Entrepreneur's Great Mistake (MSI, Pt 2)

Warren Buffett’s Rules of Money:

#1 – Never Lose Money

#2 – Never Forget Rule #1

Warren Buffett’s rules of money are incredibly simple and succinct (and of course a little comical), yet unfortunately many entrepreneurs today don’t heed the wise sage’s advice. Tens of thousands of dollars in personal income is often lost by many small business owners because of one major flaw in their business model. In part 1 of this series, I pointed out the importance of generating multiple streams of income in your business. It is essential to your financial well being that you develop numerous revenue streams, preferably diversified across different business classes. This helps to minimize risk and create a safety net for times of economic contraction or uncertainty. However, one major caveat must be included in this conversation to make sure you never violate Buffett’s #1 rule (or #2 for that matter).

Every entrepreneur starts out with good intentions, armed with an optimistic vision for the future and a fresh commitment to self-reliance. After years of working for “the man”, they are ready to experience the freedom and invigoration of this brave new frontier. In the beginning, grinding out long & arduous hours with little sleep is considered the norm. It’s seen as a necessary “short-term sacrifice” for the chance at the “long-term gain” of owning their own business, being their own boss, and achieving great prosperity.

After successfully getting the fledgling business off the ground, many entrepreneurs see the need for an additional income stream, and begin pursuing other opportunities. This requires working even longer hours in an attempt to maintain the momentum of the 1st business, while making the necessary sacrifice to see the 2nd business through the inevitable “growing pains” of start-up. Though from outward appearances it looks as if all is going according to plan, there is an ugly secret lurking around the corner, just waiting to be discovered.

At the end of another long work day, our entrepreneurs suddenly look up and realize that 5 years have gone by, and the term “short-term” sacrifice now seems like an unbelievable misnomer. Both revenue streams are providing a steady source of income, but the once optimistic visionaries have now become tired and disillusioned. Upon careful reflection and self-examination, our entrepreneurs realize that their “multiple streams of income” are nothing more than 2 full time jobs in which they have grown to hate their new boss worse than their old one.

After years of pounding out 80 hour weeks, and teetering on the edge of a nervous breakdown, our small business case studies learned a valuable lesson that I hope you can grasp long before they did. The secret to financial freedom is not just multiple streams of income, but multiple streams of passive income. More on that in part 3…

To Your Success, Matt Robinson