The Last Chance Millionaire
by Douglass R. Andrew
Published by Warner Business Books; June 2007;$24.99US/$31.99CAN; 978-0-446-58053-3
Copyright © 2007 Douglas R. Andrew


The Pitcher of Water Versus the Empty Glass

When I give seminars, this is the moment that I introduce the most memorable visual aids I have ever used. Picture yourself holding an empty drinking glass in one hand and a pitcher containing water in the other. The glass represents your house. For simplicity's sake, let's say it is worth $100,000. It's an asset. Let's say you have $100,000 of cash in the bank (the pitcher) -- that's liquid wealth. The glass is empty because you have not put a penny into your house, but on paper, on a balance sheet, you would still list it as a $100,000 asset. Meanwhile the pitcher of water represents another asset -- $100,000 in cash.


What's the total amount of your assets? $200,000. What happens if you pour the water into the glass? You have reduced your assets by $100,000. You've combined $100,000 in cash to a glass already listed as an asset worth $100,000, and all you have to show for it is $100,000. You have cut your assets in half!

On the other hand, when you separate the liquid cash from the glass-sized house that is free and clear, you double your assets. That's what happens when you separate equity from your house and put it in a liquid investment. But you're not finished. Assume the empty glass-house appreciates at an average of 5 percent a year. After one year, what's the value of the empty glass? $105,000. If you pay off the mortgage on the glass (pour the water -- or money -- back into the house) what is it worth? The same $105,000 -- whether it is mortgaged or it is free and clear -- because equity has no rate of return when it is trapped in a house.

Next, pour the water from the glass back into the big pitcher. You've just removed $100,000 from your house and put it into an investment earning -- let's say -- 10 percent. At the end of the year, how much money will you have in that pitcher? Look at that! It's grown to $110,000! In your other hand is your house, worth $105,000 at the end of the same year, thanks to appreciation.


Leave the water in the pitcher.

How much have you earned by separating your equity from your house in the course of just a single year? $15,000. How much would you have earned if you had left the water in the glass? Only $5,000 -- one-third as much.

"But, but, but -- the mortgage wasn't free! I had to pay some interest." That's right, you did. Let's say the mortgage was at 7.5 percent. That's $7,500 subtracted from $15,000 for a net gain of $7,500, instead of just $5,000. You are still 50 percent ahead than if you had not removed the equity from your house. If the mortgage interest is deductible, then the net cost of the mortgage is really not $7,500, but $5,000 in a 33.3 percent marginal tax bracket. So the net profit is $10,000 ($15,000 minus a net, after-tax mortgage expense of $5,000) -- or twice as much as you made if the house was paid off!

Here's another quick analogy: Would you rather have one horse working for you or two? Can two horses work for you, even if you owe money on one of the horses?

The object of this demonstration is that no matter what else you do, when you separate your equity from your house, you increase your assets. Even though there is a charge for doing that -- the simple interest you pay on a mortgage -- it makes a whole lot of sense to take out a mortgage and use it to make your assets grow.

Do you recall the president of the bank I mentioned at the start of this chapter? What you've just done -- taken out a mortgage and used the money to make more money -- is what he did. You didn't make billions, but you made a profit in the same exact manner. By separating equity from your house, you give it the ability to earn a rate of return. Employ this strategy each year, and the profits will compound.

Copyright © 2007 Douglas R. Andrew

Order The Last Chance Millionaire: It's Not Too Late to Become Wealthy from Amazon.com

Know--and Brand--Thyself
The ancient Greek adage is more than just a pithy saying. Creating a personal brand will show your strengths throughout life.
By John Williams | August 03, 2007

It's a brand new work world. And I do mean "brand."

It used to be that only large businesses worried about branding. To thrive, they had to distinguish their company from the competition. This meant carving out a niche based on competitive advantages and specific corporate attributes. They crafted and maintained a strategic brand--a unique, useful promise to current and prospective customers--to gain brand equity and loyalty. This was business, after all.

But things have changed. The 21st century is the age of free agents and custom ringtones. Nike doesn't just sponsor Tiger Woods; Tiger Woods sponsors Tiger Woods (check out the personal logo on his cap). Today, branding occurs at the individual level. This is especially noticeable in service industries, but increasingly in others as well. Everything about you, from the type of cell phone you carry and the vocabulary you use, to the brand of coffee you drink, says something about who you are and what you can do for the rest of us.

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In business today, your most important job is to promote yourself. You probably won't work the same job from graduation until retirement. More likely, your future depends on leveraging your strengths along a winding career path ripe with possibilities. To take advantage of these opportunities, you need to stand out in a crowd. You must become your own brand.

Essentially, this means distinguishing yourself based on your "competitive advantages," including unique professional skills, life experiences, character strengths and personality traits. Here are some suggestions to get you started:

1. Ask the No. 1 question in branding: What makes you different than others, particularly others in your field? What qualities, experiences and skills make you special? Generate a list of personal brand attributes, and then prioritize them.

Your brand is a promise of the value you'll deliver to your customer. It's important to consider how you add value. For every feature, there's a corresponding benefit. Are you always on time? This translates to reliable service. Do you tend to think out of the box? You're a problem-solver. The more unique your brand is in your field, the better. If you add value like everyone else in your industry, it's not considered a competitive advantage. Look for ways--even small ways--that make you different and thus more valuable and irreplaceable to customers.

Ironically, it's really not about you. Like business branding, you must consider the needs and desires of your prospective customers. What are they looking for? This is a critical but often-overlooked component of personal branding. For example, if your competitive advantage is dogged reliability in a field defined by fast-paced innovation, you need to rethink either your brand or your field.

2. Write a mission statement that includes three or four of your top brand attributes. Include ones you already possess and those you're still working on. Keep in mind you're not defined by a company or a title. The only organization you belong to for life is yours. Create a mission statement that promotes who you are and who you are becoming.

3. Create a personal logo, like Tiger Woods did. People remember pictures and color (a logo) before they remember text (a name). Adding a logo to your personal business cards makes you stand out in a crowd. The symbol in your logo can serve in other capacities, including an embellishment to personal stationery or as a favicon for your website. (Try creating your own logo for free at LogoYes.com)

4. Broadcast your brand. Use personal business cards, create a personal website and network with colleagues to promote your attributes. Everything you say and do--from how you greet others and answer the phone to how you dress and carry yourself--sends a message about your brand. Strive for consistency.

5. Establish credibility. Join professional and community organizations, take or teach a class, give a lecture, start a blog or contribute to an e-newsletter. Constantly search for ways to get your name out there. Equally as importantly, hone your skills whenever possible.

6. Be your own brand manager. Don't be afraid to tweak your brand based on feedback from these forays. The success of any branding campaign depends on what the market thinks. Equally as important, preserve your brand with pit-bull determination.

The opportunities to brand yourself are endless. Seize the day, You, Inc.

John Williams is president and founder of LogoYes.com, the world's first and largest DIY logo website. In his 25 years in advertising, he has created brand standards for Fortune 100 companies like Mitsubishi and won numerous international awards for his design work.

Breaking the Code
The authors of The Catalyst Code explain how to start a business by bringing others together.
By Alexa Vaughn | August 06, 2007


URL: http://www.entrepreneur.com/worklife/bookshelf/article182514.html


Touted as an excellent breakdown of one of the most profitable business models in today's economy by legendary businessmen like Bill Gates, The Catalyst Code: The Strategies Behind the World's Most Dynamic Companies can be used as a starting point for intelligent business brainstorming. Entrepreneur.com interviewed authors Richard Schmalensee, the John C. Head III Dean of MIT's Sloan School of Management, and David S. Evans, vice chairman of LECG Europe and visiting professor at the University College in London, to find out what today's entrepreneurs--big or small, tech savvy or not--can learn from their book.

Entrepreneur.com: How do you start a "catalyst business," and how does it work?

Schmalensee: You ask yourself, Are there two groups you can profit from getting together? A catalyst business serves two or more distinct groups of people who benefit from interacting with each other, but need help to do so efficiently.

These days, one of those groups will often be developers of application software, and that's what drives a lot of these businesses. There are a lot of different catalysts, though, going back as far as medieval trade fairs, marriage brokers or any other marketplace you can imagine. In the old days of department stores, when you walked into a big department store, there would be cosmetics from all the leading brands and those were basically in rented space. What the department store provided was foot traffic, and it brought people interested in buying cosmetics together with cosmetic vendors, only they had their own people behind those counters. Department stores saw that as a catalyst function.

Entrepreneur.com: What makes this business model so intriguing today?

Evans: In terms of opportunities, there are probably more opportunities to start catalyst businesses than there has ever been in past history. The reason for that is many of the elements that you need to start a catalyst business have become easier to get. Communication technology is easier and cheaper, and instead of thinking of physical places to start these businesses you have the web where it's really easy to start a business like a Facebook or MySpace.com.

If you have a business that's able to generate a lot of traffic it's relatively easy for you to go to a Google, Yahoo! or Microsoft and use that company to monetize your traffic and basically get advertisers on board. In the old days, you had trouble figuring out how to monetize your website's content. There's just a better-developed advertising business now than there used to be.

Entrepreneur.com: So catalyst businesses like Google are helping to create even more catalyst businesses today?

Evans: Absolutely.

Entrepreneur.com: Do you need to be an expert on software or a young tech-literate entrepreneur to start a successful catalyst business today?

Schmalensee: Well, as an old guy myself, the innovations here are in the business models. Yeah, Google had a very clever idea for a search engine, but that would have only been an academic curiosity if they hadn't married it with somebody else's idea for click-through advertising. I don't want to put down technology guys, because somebody has to make the idea work, but at the end of the day, the creativity comes not in writing the code, it comes in seeing the business model and thinking it through from a business point of view.

It's true in all fields that young people tend to be more creative than those looking forward to retirement, but frankly, you look at someone like Steve Jobs, who is no longer a spring chicken, and he still comes up with ideas. The key is not that you have to be an expert in the technology, but you have to not be afraid of it. You have to not say "Oh, I'll never understand that." You have to say "Well with a little help, I'll understand it." And then, what I'm good at is thinking, What is this good for? Because that's where you make the money--not in the new "gee whiz," but what the new "gee whiz" can do for people.

Entrepreneur.com: What kind of catalyst business opportunities do you anticipate in the next few years?

Schmalensee: We see, in particular, a lot of activity in the payment system space because the internet has really reduced the communications cost. Beyond that, it's sort of the sky's the limit in some respects. As you go to very, very smart phones, the opportunities for catalyst-based businesses that take into account mobility open up. BMW and other [automobile companies] are considering the notion of opening the software platform that runs the car, not to everything, but to third-party entertainment applications.

What we tried to do in the book is say, We can't anticipate the details of bright ideas people will come up with or competitive challenges that established firms will face, but here are the problems that have to be solved to make the thing go, here are the questions that need to be addressed. You have to understand the markets, you have to think through pricing, you have to understand design, you have to worry about competition, you have to be willing to experiment, and you have to be ready for change.