This is by far my biggest mistake – not creating multiple income streams.
I might be stating the obvious in today’s newsletter, but it is scary how many people live on a single income stream. This is like flying in a single-engine aeroplane. Yes, planes started there but soon engineers learned that adding more engines was the better way to go.
Even in biology, the most essential organs come in pairs. We have two lungs, two kidneys, two eyes, two nostrils and so on. Yes, we have one heart, but looking at stats from the World Health Organisation, heart disease and stroke are the leading causes of natural death, which proves my point. If we are to learn from nature, we must have two or more of everything.
But only one wife (otherwise that will be a cause of death)!
On a serious note, here’s a scary statistic. Listed companies during the 70s and 80s had a 92% chance of surviving the next five years. Today, companies on the Johannesburg or New York Stock Exchanges, or anywhere in the world, only have a 63% chance of surviving the next five years. In other words, even for large companies, survival is less and less guaranteed. This means anybody employed by large listed companies has a 60% chance of ensuring their income in the next five years.
As you can imagine, the numbers are worse for smaller businesses. For clarity, these numbers apply under normal trading conditions. We recently had to deal with COVID, which wiped out many businesses. We are now dealing with load-shedding while other parts of the world are dealing with wars, droughts, famines and so on. All of these additional factors make business survival less likely.
It gets worse.
This year more than 4 billion people are going to the polls; 76 countries are holding elections. That means foreign and domestic policies will change as new administrators ascend to power. Concomitantly, alliances will shift and companies that enjoyed benefits, be it as a consequence of relationships they had or laws they complied with, will have to seriously re-think their future. All this boils down to more instability in the business, making it urgent to create more income streams.
I have not mentioned having a terrible boss or client – that alone is bad enough. But without a second, third and fourth income, one is forced to tolerate them; one is forced to dig a hole and close it because one cannot say no even when one’s leaders are not the brightest stars in the sky. A single income stream is modern-day slavery.
The Matthew Effect: Which side are you on?
Most people want to escape from the single-income prison with easy-money schemes. Gambling, pyramid schemes, the lottery, large deals and so on. But this is how one loses even the little that one has. It reminds me of The Matthew Effect (or the parable of the talents in Matthew 25,14-30).
The parable is worth re-telling:
In preparing for a long journey, the master entrusts his property to his three servants. The first is given three talents (or coins), the second is given two and the third is given one. The first two servants go to the market, trade and double their talents. The third, seeing that they only have one, hides the talent to avoid losing it. The master returns to discover that the third servant only had only one talent. He orders that the talent be snatched from him and given to the first servant who now had ten.
“For to everyone who has will more be given, and he will have an abundance. But from the one who has not, even what he has will be taken away (Matt. 25, 29).” Unfair as it seems, it is a biblical rule that the rich will get richer and as for the poor, even the little they have shall be taken away and, “there will be weeping and gnashing of teeth.” Consider that during Covid, when everyone was losing their income, the top 1%, according to Time Magazine, took (yes took) $50 trillion from the bottom 90%.
One way is to fight this and scream injustice. Another is to accept that this is how things work and try to transition from the third to the first servant. But is it possible? And if so, how does one make the leap?
The $5 Challenge at Standford University
The Five Dollar Challenge, designed by Professor Tina Seelig, became famous for revealing, what I think, is the main difference between the first and the third servant in the parable of the talents.
The Entrepreneurship students at Standford University were rounded up, split into teams and given an envelope with $5 inside. Then they were given two hours to make as much money as possible. Suppose you were the team leader, what would you have done?
The teams gathered to brainstorm. Some students thought about gambling, like buying a lottery ticket and hoping to strike it big. Others thought about flipping the money i.e. buying a small stock of sweets and then selling them on campus for a profit. Then there was the third type of group, which made the most money.
The third group, realising that the $5 was actually a trap, it was meant to get them to think within the confines of $5, ignored it altogether. Instead of focusing on the seed funding, they thought about their resources, context and what they could do to make money from nothing. One group came up with the idea of inflating bicycle tyres (watch the video above). Another provided bookings and reservation services for a nearby restaurant. Yet another cohort offered a poetry and love-letter writing service.
My takeaway from this experiment is that the first servant in The Parable of the Talents had a different mindset. Many have read the parable but sadly misunderstood it. Many people think, “Oh no, I only have one talent (or R100). Therefore I will bury it in my other savings account, away from my main account to avoid debit orders taking it.” Soon enough, however, a need emerges and we withdraw the little we have and give it to a mega-chain store (the equivalent of the first servant) for a loaf of bread or something.
“It’s not about the money.” He said. Fuming, I stormed out of the boardroom.
I was a young software consultant – 20 years old. I sat in a weekly management meeting and raised my grievances for having worked without compensation. The CEO of the company said, “It’s not about the money.” Immediately after hearing that, I zoned out and started boiling. To this day, I do not remember what he said next, but I eventually stormed out of the boardroom and went home.
In my mind, he had all the money, hence he could say it’s not about the money. I had done my work but was not paid. Unfair. But some twenty years later, I found myself using the same phrase. Life has a dark sense of humour, I guess. But it is indeed not about the money. It is about how one thinks about the money – it is about mindset.
I will spare you the details of the research, and share the following money mindset shifts I made recently:
- Time is Money: If time was money, then how would one justify someone like Elon Musk making hundreds of billions in a single lifetime? Time is not necessarily linked to money unless you want it to be.
- Work for Money: Most people think they must work for money, but again I studied a few super-wealthy people and found that their labour might have made them their first 10 million, but it contributed little to their overall wealth. Most of their wealth came from investments.
- It’s about the exit: I am currently studying buying and selling businesses. In an interview, I heard one entrepreneur explain how they worked as a buyer at a pharmaceutical company… okay this needs more space, so I’ll transition to the next paragraph…
The gentleman spotted an opportunity to supply some goods. They registered a company and bid to become a supplier to their employer and surprisingly won a contract. As a student with no money, they went to friends and family to beg and borrow, eventually raising funds to supply the company. Then they spent the next few years working their butts off to source the goods, store them, hire people, do admin, dispatch and deliver goods to their customers. Eventually, someone offered to buy the company and they made a lot more from the buy-out than they did operating the business – a lot more.
Realising this, he found another company to supply goods. Again, he made a bid and won a contract. But instead of setting up a business, he sold that contract to someone else and made a lot of money, but this time without the commensurate time and effort. This led him to enter the world of buying and selling businesses, treating them entirely as assets. Again, most entrepreneurs think of their businesses as their babies, which I have learned is the wrong and dangerous mindset because it breeds attachment.
A business is an asset and its purpose is to create value for its owners. If a business is an asset, what other types of assets exist and how can one take advantage of them? In other words, there are limitless ways to generate income if one thinks from an asset perspective.
We will revisit this idea.
The Sovereign Individual. The King of Assets
I am now correcting my mistake of living off one income stream. But being the over-thinker that I am, I thought about principles that will guide the next chapter of my journey, beginning with a mission. My mission is to become a sovereign individual, like a King.
One might think of a King as someone who sits on a throne and orders people to their death. This is not what I mean. A King is a protector of people in exchange for taxes. A wise King uses the taxes to raise an army to strengthen the Kingdom, and if they are even wiser, they create an empire, giving protection to other kings. In other words, the more people they protect, the more taxes (or income streams) they have. See the link?
Around the 1800s there was a transition from Monarchy as a governance system to Democracy. The shift was from Kings and Queens to a nation-state whose power was derived from The People through a democratic process enshrined in a Constitution. This is what we are accustomed to. Democracy has been around for so long, however, that we have forgotten that it too is an ideology and was marketed, like any product, by philosophers like Jean-Jacques Rousseau and propagated by the U.S. after the Second World War. Like any product, it will serve its purpose and something else will prevail, as we are seeing with China.
What has not changed, however, is that people need protection and they gladly offer their labour to a supreme ruler in the form of a King or, nowadays, a President. They offer portions of their earnings to their ruler in taxes, who amasses an army in their defence and invests in public-use infrastructure to improve the quality of life. At least, this is what wise rulers do, but as we know, power corrupts.
My view, inspired by the book The Sovereign Individual is that subjects do not have to be human beings like the good old days; they can be anything that can be put to work, including digital and physical assets. Soon, robots and AI programs will go to work on our behalf. But when we look carefully, they are just modern-day cows and donkeys that ploughed the ancient fields – they are assets put to work for a return.
My role as a sovereign individual is to build an empire of assets that create value in exchange for a small dividend – like a tax paid from multiple places. Success is measured not in amount, but in the number of assets that pay tax.
Cheers to becoming a tax collector.
Back to the Earth
The philosophy of individual sovereignty may sound grand and out of reach. But the practical day-to-day activities are simple. It’s about identifying anything that has income potential and then activating that potential without being tied in time and effort. Indeed, one may spend time and effort initially, but the goal is to become unencumbered in the long term.
Here are a few examples of projects I am working on:
- The Junk Yard of Failed Ideas: A friend ran a jazz restaurant, which failed. They built up a Facebook page with 20,000 religious followers who were distraught when the business closed down. For them, the artists and fans they created relationships with are worth nothing because they have given up on the business. But I see an opportunity in re-purposing the idea and changing the establishment into a roving jazz bar, organising events in beautiful settings and re-igniting the community. Creating value from the dead.
- Seeking Untapped Potential: I am also building skybookings, an events ticketing platform. There are approximately 5000 events listed on ticketing platforms in South Africa. I estimate there are about 20,000 unlisted events because the platforms do not cater for their needs. Using my skills as a software engineer, I am building a platform to cater for these unmet needs. This is untapped potential.
- Monetising Small Things: You might know that I have never been to university. Therefore, I had to learn most of what I know by experience, reading books for finding mentors. This puts me in a unique category, possessing knowledge that cannot be readily found in books. Through this newsletter and other means, I am turning that knowledge into workbooks, courses, workshops and other forms of income to help others, like me, who cannot pursue formal education. Monetising small things.
I hope you see the mindset behind the examples. The idea is to see the world as value-potential and then ask, “What can one do to add more value?” What expertise do I have? How can I re-purpose my expertise and switch from selling labour to creating a product that can sell even when I am not there? How can I disconnect my labour from your income?
These are the questions that occupy my mind and hope will occupy yours too from today. Value is everywhere and one need only change their mindset to see that opportunities are everywhere.
Perhaps spend the rest of the day brainstorming ideas or share your experiences in the comments section below.
I’ll leave it here for today.
Until next Sunday
Vusi.
