Orrin Woodward is one of the most influential leaders and authors of our time. He has sold over one million books on the subjects of leadership and liberty, including New York Times bestsellers Launching a Leadership Revolution and LeaderShift. Soon to be released, his next book is The Financial Matrix, which further explores the ideas put forth in this article. He has also cofounded two multimillion-dollar leadership companies.
Orrin has taken his extensive experience and knowledge of history and economics to provide educational materials with particular insight and applicability to today’s economic issues. In this article, Orrin is interviewed by Garrett McGrath, President of the Association of Network Marketing Professionals (ANMP).
Orrin has been named as one of Inc Magazine’s Top 20 Leaders and Top 100 Speakers. He and his wife Laurie have four children and reside in Michigan and Florida.—Ed.
Orrin, tell us why you are so committed to teaching network marketers about financial fitness.
It begins with my personal story, and how as a young man in graduate school, I thought I had done everything I was supposed to do financially. I received top grades in high school and attended an excellent private engineering college, graduating with honors. I landed a great job at General Motors and started working on my MBA at one of the top schools in the country. I even held four U.S. patents. My wife Laurie worked as an accountant. Here we stood—two professionals in our mid-twenties who had followed conventional wisdom—on the verge of panic over what should have been fantastic news: we were going to have a baby.
I had promised Laurie before we got married that she could be a stay-at-home mom when the time came. But now that it had arrived, we had $32,000 in consumer debt, a car payment for a new truck, and a mortgage. Paying all the bills had been difficult enough up to this point. How on earth would we do it without her salary? I actually put her off as long as I could, but on the day she asked me outright when she should turn in her notice at work, I knew I could no longer avoid it. Especially when she looked right at me and said, “Orrin, you promised.” At that moment, I decided if I had to work two jobs to fulfill that promise, then I would. Thankfully, I got exposed to network marketing and started building a business. My whole reason for doing so was to keep my word to Laurie.
With Laurie at their home in Florida.
At his home office enjoying a great read.
Poolside with Laurie and sons Lance and Jeremiah.
Though that story is deeply personal, I continued to see this pattern over and over in the lives of others. We live in the richest country in the world, yet the average debt numbers for Americans are staggeringly depressing—mortgages, student loans, car payments, credit card debt—combined with the fact that very few people have even $500 in a savings account.
I watched financial debt debilitate the lives of so many people I cared about, and saw no plan to stop the bleeding. Through some early research and reading on my own, I had learned a few principles that I began to follow and share with others.
Can you share those principles with us?
About the time I got into network marketing, I came across the advice that Warren Buffet offers to college kids all over the country: Eliminate debt at all costs, and invest in self-education. When Warren Buffet talks about eliminating debt, he’s really saying to eliminate expenses—those things you spend money on that give you no return.
Buffet is the greatest investment manager of all time, and lives out these principles himself. He lives in the same house in Omaha, Nebraska that he bought in 1958 for $31,500 because, he says, “Why would I spend money on that expense when I can take that money and turn it into an investment?” He truly started with nothing, and slowly but surely compounded his income and investments over and over.
What most people do is the opposite—they maximize their expenses and minimize investments. That’s what I had been doing. I decided if I wanted to turn my life around, I had to take billionaire Warren Buffet’s advice. The first thing I did to minimize my expenses was to sell my new truck and start driving a used Lumina. Everybody said, “What’s wrong with Orrin? He’s going backwards.” But for the first time in my life, I didn’t have a car payment. I took the money I spent to drive a car I couldn’t really afford, and began investing it in my own business assets.
Once I got started in network marketing, I also took the advice of billionaires Ray Kroc and Sam Walton. They both said to build a business asset that makes money for you, rather than you being the asset that makes money. Ray Kroc created an extraordinary system for ordinary people, one that could generate extraordinary results. He created an amazing leadership culture because the leader orchestrated what was already a turnkey system. Think about any McDonald’s restaurant—they are all designed exactly the same, so each time you enter to buy your food, you have the same experience that produces good results for you. People like predictability. Kroc built a system that was so duplicable and scalable, that it has traveled around the world, and no matter where a McDonald’s is located, it works with little or no adjustment.
Sam Walton did the same with Wal-Mart, building a scalable model without deviations. The business asset works for you because of this systematic approach. The system eliminates chaos and provides a solid result. This is why people return again and again.
Addressing a sold-out crowd of nearly 10,000 in Moline, Illinois.
How did you translate that advice into your own life?
As I began my network marketing business out of my 982-square-foot house, I realized I could do the same thing that these guys did. I didn’t have money, but neither did they at first. I did have hunger, and I knew I could create a duplicable system and a leadership culture just as they did—but I could do it out of my house and with my new business. I didn’t have to create a turnkey system or invent a new business. I just had to be smart enough to utilize the turnkey system. That’s what network marketing is all about.
So I began to do the same things as Ray Kroc and Sam Walton did, but I did it on an affordable basis out of the house I was already living in. I didn’t have to pay for a giant warehouse or storefronts either, because my company provides the product, and the Internet provides access for my customers. Once I put these ideas all together, we were off and running. I already believed that network marketing provided a great distribution channel. Within five years, we were running more business through our house than the largest Wal-Mart store in the U.S.
Another key piece of information that influenced me came from Robert Kiyosaki’s extensive study on all the billionaires in our world. In his book Cashflow Quadrant, he says that every billionaire does three things—he develops long-term vision, he practices delayed gratification, and he utilizes the power of compounding. The reason most people are broke is that they can only see the short-term and desire things immediately—the exact opposite of the billionaires. For example, these days you don’t hear a car salesperson quote the entire price of a car because it’s gotten so expensive. They will only talk about how much it costs per month, and because people have short-term vision, they think “I can afford that.” They practice immediate gratification.
Kiyosaki’s third observation is that billionaires utilize the power of compounding. Imagine if you didn’t have any debt—you owned your house outright and you owned your cars. You don’t pay a penny of debt or interest to anybody else. When this is the case, you can use your assets and investments to work for you.
In late 2003, Laurie and I paid our last mortgage payment. So now every day when we go to bed at night, we wake up the next day wealthier than we were the night before, because compound interest is working for us, and we’ve built an asset that we can leverage. When most people go to bed at night, they wake up the next morning owing more money than the night before because their debt keeps compounding against them while they are asleep.
Can you give me an example of a leveraged asset?
I grew up in Michigan a couple hours south of the Mackinaw Bridge, which extends from the lower peninsula to the upper peninsula. Before this bridge was built, people had to drive their cars onto a barge for a fee. This fee created an asset for the barge owner, but every time he stepped off the barge, he stopped earning. He had to be physically present taking cars across the water in order to benefit from his business.
In 1957, the Mackinaw Bridge opened to traffic, after years of planning and investment by the owners. Now a new system existed to move the cars across the same span of water and the barges were no longer necessary. The bridge builders constructed a system that not only worked predictably every time—each car made the trip successfully—but they also earned money without being physically present since each driver paid a toll to cross the bridge.
Most people in life are working a barge. They’re making an income, and then as soon as they “step off the barge” to go home, not only do they stop earning, but a large part of their earnings are disappearing into servicing the debt they owe on all the stuff they’ve bought.
What we need to do is to eliminate debt and take some of that money to build an asset—like that bridge—which will earn income for you without having to be physically present.
How does the average person put this into practice?
Almost half of Americans do not even have $500 in a savings account, so investing money in a business asset can feel daunting. However, everyone can start somewhere—by eliminating a car payment, for example, like I did, and being willing to drive an older car. Or by eating out at restaurants fewer times per month. Once you find a way to start eliminating debt, you’ll free up even more money to invest in your business.
Helping a person to save any amount of money, whether it’s $200, $300 or $400, will allow them to start to change their lives significantly. Dan Hawkins, one of our top leaders, sold his $18,000 car, even though it was almost halfway paid off. He bought a much cheaper car and then sold his wife Lisa’s car. They now had access to $380 that had been disappearing into the financial matrix every month. The Hawkins’ used that as seed money to create their business asset, which is their network marketing business.
What exactly do you mean by “the financial matrix”?
The financial matrix is my name for the system or regime under which we are all currently living. I love history and economics, and having studied both, I came to understand that there has always been a fight over the productive capacity of human labor. One day I came across the work of Bertrand de Jouvenel, a famous French philosopher, political economist, and futurist who lived in the 20th century. He wrote something that began to open my eyes on this issue: “Whoever does not wish to render history incomprehensible by departmentalizing it into political, economic, and social issues would perhaps take the view that it is in essence a battle of the dominate wills fighting in every way they can for the material which is common to everything they construct, the human labor force.”
What he means is that throughout history the aristocracy has used different means to control the productive capacity of the common people—the masses. I combined this idea with another one that struck me from John Stuart Mill, one of the 19th-century classical economists, who wrote that there are only three elements that can increase society’s production: labor, land, and capital. Suddenly, it became clear to me—and history confirms—that in order for the elites among us to control the rest of us, they must do so through controlling one or more of these three factors of production.
Each of these three elements corresponds to a time in history where control by the top of society was exerted over the rest. Labor was controlled in what I call the physical matrix; land was controlled in what I call the land matrix, and money is controlled in what I call the financial matrix.
Please give us more insight into these different matrixes.
The entire ancient world, including the Greeks and Romans, practiced enslaving others for their own benefit. This was the first matrix that controlled the element of labor. If a person “owns” another person, they have complete control over that individual’s life and also over their productive capacity. Whatever it is that the slave can produce belongs to the owner.
Eventually the physical matrix collapsed, primarily through the influx of Christianity throughout Europe where it became very unappealing for an individual to own other people. Though it wasn’t an immediate shift, feudalism and serfdom began to replace slavery as a means of control over the masses by the elite. The land matrix replaced the physical matrix, not by enslaving individual people, but by controlling the land upon which the people worked. Since the elite owned all the land, they leased it out to the people in return for a large amount of what was produced. In many cases, the individuals who did all of the productive work farming and tending the land were left a mere pittance to live on, thus ensuring the matrix would continue since very few had the ability to store up an asset that would allow them to break free.
It was actually the creation of the gold standard that finally broke the hold of feudalism, and a new class of people could escape control of the elites. We see this throughout the Middle Ages as common people began to move into the towns and cities where they could take up a trade. Butchers, bakers, and candlestick makers began to carve out lives for themselves in the city, where a common saying developed: “Town air breathes free.” This saying refers to the general rule that a serf, after living in a town for one year and a day, became a free man or woman.
The freedom to escape serfdom and create a life of one’s own choosing actually lasted for about 400 years, and for the first time in human history, individuals not born into the aristocracy could achieve great wealth. American history is full of rags-to-riches stories when the world still adhered to the gold standard. Gold protected the money supply from the enormous swings we have seen in the last few generations. It is the removal of the gold standard that has created the third matrix of control, the financial matrix. This is the matrix within which we all currently live.
How did veering off the gold standard create the financial matrix?
During the late Middle Ages, as new economies were being developed in the cities, individuals could free themselves from laboring on land by selling their goods and services in the town in exchange for gold or silver coins. They could then use this currency to buy other goods and services, and created a measure of freedom for themselves. This practice lasted for hundreds of years.
A dramatic change of course occurred at the turn of the 20th century when the state and banking system partnered to control capital through central banking systems. This centralized control of capital protected by the power of the state led to an increasing dependence of our economy on paper money, which can be printed at will with no regard to the amount of gold anyone possesses. Although paper money was fraudulently used in the past, now it was condoned by the state. In contrast, when gold is the standard of wealth, the money supply can only be increased by the discovery and mining of more gold.
When you can increase the money supply by simply printing more pieces of paper and calling it money, inflation begins to run rampant, causing prices to go up. The results can be startling. Take, for example, the value of a $1 bill in 1913. Today, over 100 years later, it takes $25 to purchase what $1 used to purchase. To illustrate this on a larger scale, let’s consider the amount of a house the average American owns today. In the mid-50’s, the average American did have a mortgage, but owned about 80 percent of their house in equity. The average today is only about 40 percent. If you consider that today’s housing market is valued at $26 trillion and homeowners only own 40 percent, that’s somewhere around $10 to11 trillion, which means the banks own the rest.
When the banks own more capital than the average American, it’s the same thing as saying the elites once again control the masses—this time through the financial matrix. And they maintain that control by printing more money whenever the economy takes a downturn, under the pretext that this practice will stimulate the economy. But exactly the opposite happens over time—the economy collapses under the weight of so much worthless paper money.
Debt is draining the productivity of all workers from ditch diggers to doctors. It’s important to realize involvement in the financial matrix is not coercive. No one is forcing you to sign loan papers for a car or house you can’t really afford. It’s simply too enticing to turn down. “Easy monthly payments” is the phrase that’s enslaving us all.
It is horrifying, because our entire economic system is now built on debt. People continue to take out loans for overpriced houses and cars, and then consolidate their debts and take out more loans to service that debt. The items they’ve purchased can even lose their value—just look at the housing market where people had $600,000 mortgages on houses that devalued down to $300,000—yet they still have to pay that mortgage back.
Tell us how your Financial Fitness program can help.
We created the Financial Fitness program to teach people how to exit the financial matrix. We want people to take responsibility to clean up their own financial messes. I think many Americans sense that something isn’t right, but don’t know what to do to fix it. Indeed, I think both the Occupy Wall Street and Tea Party movements are protests against the financial matrix. But we need a better plan.
There is no doubt that you have to get out of the matrix, and you can do so by developing long-term vision and practicing delayed gratification. These two steps will stop the flow of all of your hard-earned money into the financial matrix. In fact, most people have enough money as a result of their labor to build a business asset, but it’s all going into the financial matrix instead. So first find a place to cut back and reclaim that money.
Next, you take that reclaimed money and invest it in building your business asset. This is the only way to break free, and network marketing is the best avenue for this. I tell people that network marketing is the “underground railroad” to freedom for anyone who is stuck in the financial matrix. Our purpose is to help people change their thinking. Certain thinking led to certain actions that led you to be trapped in the matrix. We are offering new information so you can practice new thinking and start changing your behavior. We all have to understand that we are not really free until we are free from the financial matrix.
Network marketing is the greatest vehicle for financial freedom that I know of. If you are willing to do the work, this business will work for you. Then at last you can do what you’ve been called to do, not what you have to do.