ESBI – Robert Kiyosaki’s Principle of four quadrants
Robert Kiyosaki wrote a book called Rich Dad, Poor Dad that explains what is known as ‘The Cash Flow Quadrant’. The principles of the four quadrants are applicable to different types of business individuals.
Each quadrant segment is an explanation of a business individual’s aims or goals.
This concept is represented by the acronym ESBI
ESBI in business is represented by these individuals: –
- Employee – the employee has a job – E
- Self Employed – owns a job – S
- Business Owner – owns a business – B
- Investor – Makes money work – I
Briefly Explained: –
E – The employee has the core values of job security, regular wages and generally a safe job with security.
S – The self-employed individual is a solo who works on their own in their business. Rely on yourself is their mantra.
B – This is big business with lots of employees. The big business owner wants clever and astute people to run their business and make them money.
I – This is the investor who is rich and actually makes money work for him.
Generally in wealth terms the ‘E’s are poor, the ‘B’s are rich and the ‘I’s have freedom. The ‘S’s believe they have wealth freedom but do not earn if for example they are on holiday.
ESBI will motivate the single individuals to want to grow to larger businesses.
Small businesses are started so they can then grow into big businesses. However this is a challenge and there principles that apply to all transitional businesses.
Small Businesses Growing Into Big Business – Common Principles
There are common business principles that need to be managed and implement in order for growth and transition. Despite the diversity of business types there are key stages where common principles affect them all. Some of these are make or break principles and among them are the following points –
- Delegation – You start off as one individual and do everything. This has to change and delegation is the key. Too many businesses suffer from owners who try and control everything but spread themselves too thinly.
- Growing or upscaling too fast – This is a key area as hiring and firing is very expensive. Outsourcing is a key ally allowing easy upscaling without liability. Once growth is sustained then yes hire people in or better still train and hire internally where possible.
- Systems – The evolution of a small business will start with basic systems like accounting software and computer intranets. Once a business grows it will require upgraded systems and personnel. A secure intranet allowing data to be accessed internally will need levels of access and management built it. That is going to need significant financial investment.
- Key management staff – This is where the individual has to let go of tasks he has controlled. Highly trained and motivated key personnel also need to be trusted and accountable. This is a common failure point and the salary output will be significant.
It is accepted that there are four key elements that need to be addressed at regular points in the growth and transition.
- Financial management and resources – investment and borrowing power.
- Systems management – As a business grows systems management becomes more important.
- Personnel management – This is complex and covers everything from employment laws to human resources. Ensuring appropriate staff levels both in-source and outsource.
- Business management resource – This is vital but very broad and covers everything from supplier relations to customer relations. Logistics and distribution monitoring of the target market and its changes.
A one man band will always rely on his sole input to try build the business. The two biggest threats are the self-management of the owner and cash flow. With self-management it comes down to owners refusing to delegate and let go of strategic tasks. With cash flow the demise of most small businesses is timed to points of rapid growth. This is where businesses are most vulnerable.
Then the jump from small to medium businesses causes a huge strain on everything from systems to finances. This is where attrition is most severe with a large number of businesses failing at this point. Scale up to deal with large contracts, lose a large contract and scale down. It is not easy to do this with many business owners failing to cut staff at critical points.
Whilst outsourcing can make this more manageable there are many businesses that will not be outsourcing. It is absolutely vital for owners to accept scaling staff up or down is a part of business evolution.