Back in the prehistoric days of 1999 when I was working as editor in chief for another magazine, we decided to run a cover story on a man who had some intriguing viewpoints about money. He had published them in a slim, unlikely little volume with an odd-looking purple design. Over the next few years that little book and its spray of sequels created a publishing empire and sparked a revolution in financial common sense. As of this writing, Rich Dad Poor Dad has been on the New York Times bestseller list for four years running—one of only five books in history to do so.

The Rich Dad books (especially Rich Dad Poor Dad, Cashflow Quadrant and Business School) also had a huge impact on network marketing. Networkers the world over have used Kiyosaki’s materials and adopted his message as a core piece of their business philosophy. Our emphasis has shifted from simply generating an income to knowing what to do with that income. When you hear a network marketer describe her business as “building an income-generating asset” rather than simply “a supplemental income,” that’s classic Kiyosaki you’re hearing.

Since that landmark interview in ‘99, we’ve had lots of exposure to Mr. Rich Dad. About a dozen excerpts from his book Business School have appeared in the pages of this journal, and we interviewed Robert’s wife Kim last year for the lead story of our “Women in Networking” issue [February/March 2004]. Yet with all that, I had never spoken with him personally. When I called Robert recently for this interview, I mentioned that first cover story of five years ago and how much water had passed under the bridge since then. He commented, “Yeah, it’s pretty amazing. You guys were one of the early groups who gave me a break, and I appreciate it.” It’s mutual. Robert has given network marketing a major breakthrough, and we all appreciate that! — JDM

How did your relationship with network marketing start?

In 1975 I was taken to a network marketing event where they talked about the value of building your own business instead of working at a job. I thought it was very interesting, but I was already building my nylon-and-Velcro® wallet business, so I didn’t really pursue it any further.

For years after that I kept hearing negative press about network marketing, mostly from people I knew. I decided to check it out for myself. In the process, I ran into a friend who was a retired multi-millionaire—and he was starting a network marketing business! I asked him why on earth he was doing that.

He said, “Because many of the people who should be investing in my investments can’t afford to. Network marketing gives the average guy the ability to create the kind of income that qualifies him to invest. My minimum investment is $25,000. A lot of people don’t have $25,000—but if they’d start their own network marketing business, they could generate it.”

 

And that established its legitimacy for you?

That, and it changed how I viewed it. For the first time, I saw network marketing from an educational, skill-building point of view, rather than it simply being about a product.

The thing about product is that most people can’t sell. The reason most franchises fail—in fact, the reason most businesses of all kinds fail—is not because people don’t have a great product. The problem is that they can’t sell the product. The more I looked at network marketing, the more I saw how effective it was at teaching business-building skills. I went from being closed-minded about it to being very open.

 

What kinds of skills?

Network marketing teaches people how to overcome their fears, how to communicate, and how to understand the psychology of other people saying “No” to you, how to handle rejection and maintain your persistence. This kind of education is absolutely priceless.

When I got out of the Marine Corps I wanted to start my own company, but my rich dad said first I had to spend some time learning how to sell, so I went to work for the Xerox Corporation. I started out as their worst salesman and I didn’t leave until I became their number one salesman, which took four years.

Now, that was great for me—but the truth is, most people are not going to be hired by Xerox. The trouble with major corporations is that if you don’t sell within, let’s say, the first six months, you’re fired.

I grew up in a family of intellectuals. They all had government jobs, and if the government disappeared they’d all die on the street, because they can’t sell!

Network marketing gives people the time to adapt to and learn to be salespeople. If it takes five years, it takes fives years, it’s not a problem. It’s a very compassionate way of teaching what to a lot of people is a very frightening skill to learn.

You also talk about network marketing being an excellent training ground for leadership.

Yes, and in this case you could really define leadership as “teachership.” I see a lot of people in network marketing who are good salespeople but can’t grow a business, because they can’t teach their downline to sell. Just because you learn to sell doesn’t mean you’ll be successful. To be successful, you also have to teach others to sell.

 

What are some of the other skills you see us as providing?

Number one, how to overcome your own fears. Number two, how to overcome other people’s rejection. Number three, the ability to sell, and number four, the ability to teach others to sell. That kind of education is priceless, because if you can do those four things, you can go anywhere in the world, you’re free.

 

But they don’t teach you any of that in school.

No they don’t, and it’s a crime that they don’t. My poor dad entered the school system at age five and exited at age 50—when he got fired because he ran for governor against the incumbent governor, who also happened to be his boss.

So here he was, at age 50, without a job. He bought a franchise—but he couldn’t sell, because he had never been taught these basic life skills, so he lost his retirement.

School prepares you for a job in a major corporation, government, or teaching—but it doesn’t prepare you for the real world. That’s what network marketing does.

Network marketing teaches people to be business owners. It teaches basic, critical life skills. Here’s what I tell people: “Even if you don’t like it, stay with it for five years and you’ll be better equipped to survive in the real world of business. And you’ll be a better person.”

 

What has made your Rich Dad work so popular? What is it that has touched such a chord?

I think I made financial education simple. A picture is worth a thousand words. I made it simple enough so a nine-year-old kid could understand it.

Rather than tell someone what an asset or a liability is, I drew a picture of an asset and a liability, and of how cash flow works. It’s actually cash flow that defines whether something is an asset or a liability.

 

What is an asset?

An asset is something that works for you, so you don’t have to work for the rest of your life. My poor dad always said, “Work for a job,” and my rich dad said, “Build assets.”

A business is an asset, so when you build a network marketing business, you’re not only learning critical life skills, you’re also actually building an asset.

In a job, you earn income. In network marketing, instead of earning income you build an asset—your business—and the asset generates income.

 

And a liability?

Everything will either cost you money or make you money. If it doesn’t generate income, it’s a liability, not an asset.

I only invest in things that make me money. If it makes me money, it’s an asset, if it takes money from me, it’s a liability. I have two Porsches. They’re liabilities. I own them free and clear, but they’re not putting money in my pocket, they’re taking money out of my pocket. It’s not rocket science.

 

People often think of a house as an asset, but a house doesn’t make you money.

Most people don’t know the difference between cash flow and capital gains. When they invest, they invest for capital gain. They’ll say, “My house went up in value. My car went up in value.” That’s capital gain, not the same as cash flow.

The trouble I have with most retirement plans and mutual funds is that they’re based upon capital gains, not cash flow. That’s called gambling. In my view, a mutual fund is a money-losing proposition.

If you’re successful at network marketing you developed cash flow, not capital gains. A network marketing business generates cash. But “cash is trash.” You now have to take that cash and turn it into another asset—another business, or real estate, or paper. However, I don’t like paper assets. The number one strength of a paper asset is liquidity—and that is also its number one weakness. We all know there’s going to be another market crash and we’re going to be wiped out again. Why would you do that?

For most people, the number one asset is always a business, and the number two is real estate. And even with real estate, you have to understand the difference between cash flow and capital gain. The purpose of owning real estate is to keep it as an asset, not to sell it for a profit.

If you buy a piece of real estate for $100,000 and then sell it for $200,000, that’s not an asset—you just generated a $100,000 capital gain. You had to shoot the asset to get that money. You’ve killed the asset. It’s like selling your cow for money. I’d rather own the cow and sell the milk.

 

So for you, the income from network marketing is not an end in itself, but a means to an end.

Right; there are actually two good reasons to build a network marketing business. The first is to acquire business skills and life skills; the second is to buy real estate. That’s what my friends have done. Even those who’ve built an S [self-employed] business still use that income to buy real estate, and they’re far better off today than guys who built a 401(k).

 

That’s the model you describe as going into the B (business-owner) quadrant and moving from there to the I (investor) quadrant.

Exactly. I build companies to buy real estate. That’s the McDonald’s formula. Why did Ray Kroc build a company? To buy real estate.

People will say, “Oh, real estate’s so expensive,” but it’s only expensive if you don’t have enough income. If you want to get ahead, build a business and leverage the excess cash flow into real estate.

The reason I meet so many network marketers who are broke is that when they earn extra money, they just use it to buy nicer cars and bigger houses so they’ll look flashy. They don’t buy real estate; that’s financial stupidity.

 

Do you see that changing? Is your message getting through?

I don’t really know; I hope it is!

 

Okay, rather than ask it rhetorically, I’ll make it a statement: I think it’s getting through!

Good. Of course, real estate can come down in value just as well as the stock market, so I’m not saying it’s something you can do in a state of blind euphoria. You still have to learn how to buy the right properties and manage them.

The main reason people fail in real estate is that they lack management skills. And the main reason people don’t succeed in building their network marketing business is the lack of management skills. It’s the exact same skill problem. Again, something that is absolutely not taught in school.

 

In the world at large, do you see your work having an impact? Are people getting it?

I think more and more people are seeing that their job is not an asset; it’s not something you can sell. You can’t put your job on eBay, you can’t rent it to someone else, so why would you work hard in a job? Why not build a business? That makes more sense to me.

We’ve had this concept drilled into us that a good job is a thing of intrinsic value. But there’s absolutely no value to it—zero. Plus, income from your job is the highest-taxed income possible.

 

Back in the ‘70s and ‘80s, you say you heard a lot of “bad press” about network marketing. How are we doing in the world insofar as that goes?

It depends on who you talk to. The other day I looked at a property that was owned by an attorney and his wife. Turns out, they were looking into network marketing. I asked them why, and they said, “Well, we made a fortune—but we didn’t hang onto it.” They’ve realized that they need to work hard, not to make money, but to build an asset that will create money.

So yes, I think there’s a change going on, both in people’s understanding of cash flow and in their appreciation of the value of network marketing. But there are millions more out there who still think hard work is the way to get there—hard work at a good job. They still don’t realize what all their hard work is building… which is absolutely nothing!

People have been so brainwashed. You’ve got to be kind, because most people are so afraid and so intimidated by the real world. They’re afraid to step out and ask someone to help them build a business. They’d rather cling to a job and pretend it’s secure.

 

Working for someone else, rather than for yourself, still carries that illusion of safety.

For many, yes it does, and you’re right, it’s a complete illusion.

I flew helicopters in Vietnam. When I came back I said, “How stupid was that? I actually believed we were out there killing people to make them happy.”

I would look down and see the NVA fighting the South Vietnamese, the Army of the Republic of Vietnam, and wonder, “How come their Vietnamese are fighting harder than our Vietnamese?” I think the reason is our soldiers were paid, and those other guys were fighting for a cause.

The same thing is happening in Iraq. Those guys who are fighting against us are fighting for a cause. You might not like their cause or believe in their God, but that’s not the point. The point is, they do! And we’re trying to hire guys to fight for a paycheck. We’re trying to make Iraqis our employees and fight for us. You can’t win a war that way.

I’m not saying the war is right or wrong, or that it’s a mistake; I’m simply saying that when people are fighting for a cause, they’re going to fight tougher and harder, and they’re not going to ask for a pay raise or anything else. That’s the mistake we made in Vietnam, and it’s the same mistake we’re making in Iraq.

 

Who are you fighting for? Or, who are you working for?

That’s right. We forget that money only goes so far. You may not like their cause, you may not like their religion, you may not like their rules, you may not like their lifestyle, but they’re fighting for something more than money.

And the exact same thing is true about work. Yes, you want to get the money part of it right, but it’s got to be bigger than money. When you find that spirit, that it’s not simply about the money, it’s about something you believe in, it’s about enhancing your fellow human beings’ lives, then you’ve got the spirit of network marketing.

The people who are successful in network marketing have a spiritual cause. They genuinely want to help better others’ lives. If you don’t have that, if you just want a paycheck, then work for the post office!

I don’t write my books because I need the money. For me it’s a personal mission. I think it’s absolutely disgusting that our school system doesn’t teach us anything about money, and I want to do something about it.

 

And also about believing in yourself, about handling rejection, about management and interpersonal skills, the whole nine yards—and they don’t teach any of it.

No they don’t, because the whole orientation of our schooling is to prepare you to work for somebody else. But here’s the truth they don’t teach you: you’ll work a lot harder for yourself and something you believe in than for someone else and the paycheck they give you.

You need to have a personal mission, a personal reason. That’s why network marketing agrees with me: you have the same mission I do. We’re training people to be business owners, to take back control of their lives. We’re teaching people how to be rich, rather than how to work for the rich. We have the same mission—just a different way of going at it.

I watched my whole family struggle. My dad was an academic genius, but he had no idea at all how to manage or invest his money. So why don’t we teach people that? Why don’t we teach our kids in school how to be business owners, rather than program them to be employees? Why not teach them to be rich, rather than to work for the rich?

That’s why you write about network marketing.

That’s why people do network marketing.

And that’s why I write.

www.networkingtimes.com/link/richdad