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Can you imagine earning but not having to go to work each day and retiring at the age of 32 and living the life of your dreams? Lane Kawaoka was living the linear path, going to college, graduating with an engineering degree from the University of Washington, and getting a day job in the corporate world as dictated by the status quo. Renting out his Seattle home got him started on real estate investing at the age of 22. Fast forward ten years, Lane is enjoying passive streams of income from investing. He’s now offering a powerful master class to help working professionals like him generate passive income and have the freedom to do what they want. Work towards your goals by taking advantage of the financial education he’s crafted from his experience with Main Street investments.
Live the Life of Your Dreams By Investing To Generate Passive Income with Lane Kawaoka We have one of the top passive income experts as our guest, Lane Kawaoka, who has, at the ripe old age of 32, already created enough passive income to live the life of his dreams. Lane, I love your story. I love what you’re doing. We’ve had other people on the show before who talked about passive income, but the way you’re doing it is unique because of your age and the approach that you’ve taken. Tell me about how you got started and where you got this whole idea and how it evolved.
My story starts out pretty boring. I grew up in Hawaii as a kid. I was born on that linear path of study hard, go to college, once you’re at college, study hard again. I got an engineering degree at the University of Washington, and then I go and worked hard at that first job, which I did. Up to that point, it was a real linear path of doing what you’re supposed to do. An engineering degree gets probably paid the best with an undergraduate degree. That’s what I did and went to work for a good job. I graduated in 2007 at the time, so I had a couple of years of experience under my belt before 2008 came around. I was doing a construction management job. If anybody’s done those jobs, those are the worst jobs for the new people because you’re traveling all the time. I was always traveling. I was Frequent Flyer Status Platinum on every airline for a few years. I would leave on Sunday afternoon, come back on Friday evening. It allowed me to save a lot of money because I’m cheap, too. I have a laundry list of all these stupid ways that I would save money, like washing cars in the rain. I used to do all that stuff with the credit cards, sign up for bonuses, and do these balance transfers with the 6% rewards checking account.
What you’re saying is that you care about how you spend your money. That is a great sign of a person who is focused on savings. What was the next step? How did you get to the place where you decided that having a job was not going to cut it for you?
An engineering degree gets probably paid the best with an undergraduate degree.
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I was still living the linear path. My goal at the time was to buy a primary residence because that’s what everybody tells you to do. I saved $80,000 in the first few years of working and I bought a $350,000 home in Seattle, Washington, A class rental, which is not the rentals that you’d like to buy as a sophisticated investor, but I did. It was getting started as probably the best thing for most people. I started living there. I was traveling so much, it didn’t make sense for me to be in this big place in my early twenties, so I called up an old landlord and said, “Can you rent this thing out for me?” I was able to live in hotels all the time for work. She was like, “It’s easy.” We got a tenant in there and my mortgage was $1,600. The rents that are brought in were $2,200 and there was quite a bit of a delta between the two. That’s a lot of beer money for a young twenty-year-old kid or 22-year-old kid at that time.
A class rental. Did I hear you right?
There’s A class, B Class, C Class, and D class rentals. A Class are for your white-collar workers. These are the luxury buildings. These are all new construction; these don’t cashflow. These are more for institutional investors that are looking for lower returns and more security. This is not where your sophisticated investors are investing for cashflow. As you go down in the spectrum, B class are more of a mix between white-collar and blue-collar. Class C, these are primarily manufacturing jobs, or these are the car dealers in Las Vegas, so that’s $600 a month to $1,000 a month rent. There’s Class D, which I wouldn’t advocate for investing in because those are too much problems. I think the sweet spot is in this B- to C+ area.
When you think about your rent and you think about your mortgage, we have a lot of other things that make up the “expenses” of a property. You have insurance, you have taxes, you have water and sewer, you have other basic maintenance costs. If you’re having someone rent it out for you, you’re paying a management fee. Talk a little bit about that, particularly with that first property.
When you first get started, you don’t know any of this stuff. You share it a lot at cocktail parties, “I have this rental.” Your rents are covering the mortgage, but there are a lot of expenses in this. Typically, you want to be penciling down 10% of your rents for repairs and other 10% for your other maintenance or capital expenditures, large things like roofs or large components, another 5% to 10% on vacancy and maintenance there, and probably another 10% on property management because you’re trying to scale as an investor. I always tell investors, “Stop being a landlord, be an investor.” If you don’t have that professional property management in there, it’s not an investment. You’re finding yourself another job. That’s what I’m all about. I’m trying to do this thing where if I knew what your highest investment, you use them. For a lot of people it’s such a high‑paying job. As an engineer, I don’t get paid that much, but my time is still pretty valuable.
I always tell investors, “Stop being a landlord, be an investor.”
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You talked about delta. It sounds like you erased the delta that you talked about earlier.
At the time, I’m looking at it as a great way to get started. The only reason the numbers worked at the time was because it was 2009, 2010. That same property that I found for $350,000 would be $450,000 or $500,000 today. Something that I like to talk about people who aren’t really new to the subject is this topic of rent to value ratios. You take the monthly rent divided by the purchase price of the property. In most places that I buy homes, I’m typically buying them at 1% or much higher, so $100,000 home. If you’re living on the West Coast, I know a lot of people are saying, “Where are you buying $100,000 homes?” Blue-collar Midwest cities, this is the median price home that a lot of American is living in and it’s a very good stable stock. You take $100,000 home and that’s renting for about $1,000. $1,000 divide by $100,000, that’s 1%. If you’re higher than that 1%, you should probably look into it more. I’m not saying that it’s a good investment, but at least the numbers make sense. You always do the numbers first and then you always do due diligence on the property.
Lane is describing the way he evaluates a property. As you bought that first Class A property, and as you started to rent it out, tell me what happened next. You’re on planes a lot and in hotels a lot, but how did the next one come about and how did your thinking change after that?
I’m collecting a few hundred bucks every month. At that time, it’s a small portion of my salary, but I quickly saw how this could scale up and my savings got a lot more sharpened. I had this defined goal and it was the beginning of the storm. I started devouring all these podcasts, books, and started learning about the material and networking. The goal at that point was to save up for another one. As I started to learn more about this stuff, I decided I should try and go for more of B Class rental. I saved up for another duplex in Seattle. In the next few years, I purchased that one. That was my next step. At the time, I was studying to get a master’s degree, so I was still living that linear path, which I think was a complete waste of time. I got a Master’s in Civil Engineering. All that is is this paper on the wall that doesn’t or didn’t get me anything and wasted a few years of my life.
What you have done when you go to school and when you learn something and if the thought crosses your mind, “Why am I doing this? I will never need this. I’m never going to be a civil engineer again.” Here’s what my daughter said when she was going to college, “Why do I have to learn this? I’m never going to use this in my real life.” Here’s the answer that made all the difference to me when I was going through engineering school back in the 1970s. It’s not a matter of what you learn, it’s a matter of teaching you how to think. That, in my opinion, is what you gained by taking the time and the effort to study civil engineering. Not only that, but it sets you up for a life of learning. That’s my opinion and I don’t know you and I could be completely wrong, but that’s how I feel about college, that’s how I feel about learning. In my opinion, studying and learning to study is more important than the actual material that you learn.
I agree with you with the undergraduate degree, learning to learn with people, the great memories from college, but this was an online master’s degree that employers can’t tell the difference if it was a master’s degree from a brick and mortar. It was from the University of Washington, but it was all online and, in my opinion, a racket to get money from foreign students. I didn’t care. My employer paid it.
I want to hear the story of the second property. What happened next?
At the time, I was saving up to buy a third property. That was 2012. If you look back on the charts, that was the time where we started to come up and been on this great bull market for the past five or six years since that point. You’re not going find stuff that’s 0.7% or higher in Seattle, Hawaii, Los Angeles, or San Francisco. You’re probably looking at 0.5% rent to value ratio. You’re not going stick that triangle through the square peg in this situation. That was where I was at. I was like, “Am I not going to invest anymore?” I’m local to Seattle and I was trying all sorts of things. I started to look at house for flipping a little bit, but I realized the difference between those who invest for cashflow and those that speculate for appreciation. Cashflow investors are what the sophisticated investors are doing. The appreciation-based are the gamblers out there, the people who want to feel that warm and fuzzy of buying real estate, but they don’t know what they’re doing.
Generate Passive Income: Cashflow investors are what the sophisticated investors are doing. Which are you?
My goal was to be able to create passive streams of income to be able to quit my job. I still work at my day job. Having the freedom to do that, the only way to do that is with cashflow. With that in mind, my goal was cashflow. I had to go down the cashflow route and find investments that produce income where the income was more than the expenses.
The 1% factor was still in your mind, but you couldn’t pick a property on the West Coast. Where did you find and how did you find those +1% properties?
I had to go out of state. It was frustrating, but looking back on it now, it is like, “This is a great pivot point.” I know you’re a Tony Robbins fan, too. He has this thing of, “If one door closes, another opens.” I pivoted all my learning towards how do I manage this stuff out of state? How do I work with people I’ve never met before? It opened up a new skill set and I’m very thankful for at that moment, that hardship that happened where I couldn’t find deals in my own backyard. I bought one rental in Birmingham, Alabama to try it out and it worked out well. I sold my two rentals in Seattle and did this thing called a 1031 exchange. I bought nine in Atlanta, Birmingham, and Indianapolis.
1031 exchange means that if somebody buys a property and makes a profit on it, as long as they roll it into the next property, they do not have to pay tax. Is that correct?
That is correct.
When you say you went out of state, did you get in your car and drive to Birmingham? How did you find that property? How do people locate properties outside of the area that they live in?
I didn’t see the property, which a lot of people think is crazy. A lot of sophisticated investors don’t see their properties, but they get team members to do their due diligence for them. This is how I did it and this is maybe not the best way to do it. There are websites where you can find other passive investors that are doing it. That’s the key. There are a lot of sharks that market properties and try to get referrals. Those are not disinterested parties. You need to find other investors like myself, “Who are you using?” Build rapport with people, help how you can, always try to find how you can add value to people. Don’t just take information. Try and find a few of these people. I had good conversations over the phone and I asked what they were doing, who were they buying from, what numbers they were seeing, and how they did things. A lot of these are more than an hour-long phone calls, and I kick myself in the butt that I don’t have their phone numbers to be able to say thank you.
Build rapport with people, help how you can, always try to find how you can add value to people.
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Where did you go to meet these types of people? Did you join a REIA? What did you do?
I went online. The REIAs were not very good source of these people. You have a lot of people with the old school thinking where you invest where you live in your backyard. Real estate is a forgiving investment class that you can have a bad strategy and make a lot of money. I still go to REIAs because I’m hustling, I’m still trying to grow my business, but there’s a lot of older guys in there that are going to REIAs, and I’m like, “When I’m 45, I’m not going to be going on a Thursday night to a REIA.”
What’s a REIA?
REIA is a local real estate investing club. There’s a lot of good meet-ups up there that are free, and I would suggest those and trying to go to those.
Go to MeetUp.com, look for some real estate meet-ups, and start looking there. Look for some REIAs in your neighborhood. I’m sure you can attend any of them free for the first time and get a feel for what those are about. You started learning, you started acquiring information, and then you made one big move. You sold your investment properties that you had picked out yourself individually one at a time and you bought a block of ten or eleven In Alabama?
I traded two properties for nine in the 1031 exchange. It’s a crazy time. Those 1031s aren’t the best of things.
This is about growth and businesses, it’s not about being comfortable or staying comfortable. It’s about taking that risk and making that move. You could do it slowly and do like Lane did at the beginning, but what he decided to do was take a quantum leap and accelerate his progress. You own these nine properties. I would be thinking, “I could never do that. I’ve never seen the properties. I don’t know anything about these people. I don’t even know if they’re nice folks.” Shouldn’t I know those things? What would you say to stuff like that?
You start off with small steps. You buy that first property, and that’s what I did. I bought that first property in Birmingham and I see how they work. I got proof of concept, and I scaled from there. What I tell my guys about risk is, “You always try to get proof of concept first, but then you evaluate the current situation.” At that point, my investing career was over because I wasn’t finding any cashflow in Seattle. For a lot of people, getting off the bench is like, “You know what’s going to happen if you keep getting 8% to 10% in the stock market.” You know what’s going to happen and you keep working at your job for another 40 to 50 years. You’re going to retire with some crappy watch and then you’re going to probably die because that’s what the actuarial tables tell you. Do you want that because we know that’s going to happen, or do you want to take this less beaten path? A lot of us had done it in the past. You have to work with the right people, and this is how it is. Maybe I need to change that philosophy, but this is real estate investing. You’ve got to Google stuff on your own. This is not for the faint of heart. It’s not easy, but it’s pretty simple.
Get online and start working, start researching, start figuring stuff out and start applying. You bought your nine properties. Is that where you are, or did you continue to acquire properties?
I started to go into multi-families, so the unit count escalated from there.
Why multi-families? Why not stay with single families?
There’s a YouTube where I calculate the return that you’re getting from these properties. When you’re doing it yourself, you’re probably getting anywhere from 20% to 35% a year ROI. Taking your 8% to 10%, you can shove that. This is why you’re doing real estate because of these higher returns and it’s a lot more stable because you own the asset. It’s a hard brick and mortar. If the CEO does something stupid, your price of your stock doesn’t plummet 20%. Cashflow-wise, I was getting about a few hundred bucks per property. I don’t have very lofty goals. I’m pretty minimalist. $10,000 is a goal that a lot of people have per month. $10,000 divided by $300, and you’re going to need near 20, 30, 40, 50 of these properties. At ten properties, I have property manager doing the work for me, but I’m creating a job for myself. It’s not scalable. I was starting to network with higher, sophisticated investors and that’s exactly what they were doing. Everybody’s saying, “We started with single family homes and we weren’t getting to our goals with a single family home.”
Generate Passive Income: This is why you’re doing real estate because of these higher returns and it’s a lot more stable because you own the asset. As they say, you are the sum total of the five people that you learn from and hang around. You had to change your five people.
That’s what makes me a little sour about the REIAs. There are people that are flying to these conferences and they’re very sophisticated investors and they’re light years ahead of the people at the local REIAs.
Listening to you describe it, it seems doable. It’s not like taking the leap from never having owned anything to buying 150-unit building. It’s a progression and it’s a path. You are an educator when it comes to this. You’re a guy who likes to share what he knows and you teach this as well. Can you describe some of the things you do to help others?
A couple of years ago I started a podcast and a website, and my thought was put it on the internet like a journal to follow my story. A lot of people are asking me, “How do you do that? How do you buy a rental property where you haven’t seen before?” I wrote an article because I got tired of doing the same thing again and again. I made podcasts about it and that’s how it started. We’ll go back to around 2012 or 2013 at my day job. Everybody goes through it in corporate America where you go through a bad time at work where you either run into the wrong people, a bad boss, a bad quality of life, and this puts things in perspective. I’m pretty fortunate that I’ve hit a lot of these experiences a lot early in life than a lot of people. I was never home and working 60+ hours a week for these people that didn’t appreciate me. What is this all for? My passive income, my real estate side, is going up and I was making more money than my boss and my boss’s boss, and they were treating me like dirt. Things happen for a reason. I saw a lot of other people in the same situation where a young couple, they got kids, and both parents have to go to work all day long and had to send their kids to childcare because they’re in that 8% to 10% stock market or mutual funds and 401(k)s that are robbing the middle class of America of a good quality of life.
You are very generous when you say 8% to 10% in the stock market. I don’t think many people are even achieving that. I love the fact that you take action. I love the fact that you continue to push yourself and try new things. What I really like about you is that you decided that you would teach others and you would help them with following the same path as you have. I want to ask you about some of the things that you offer on your website, SimplePassiveCashflow.com. You mentioned to me that you have a goodie drive. Help me understand what you meant by that because it sounded cool.
Financial education is probably the thing that most people need to work on.
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I like to try and give away as much free information as I can. I’ve thrown a bunch of financial spreadsheets in there, some analysis spreadsheets, and some PDFs with some good information, how to buy out of state rental. People can go on there and download it, see and try it out. It’s a treasure trove of good stuff.
At this stage in your life, are you still working a full-time job?
I am. I’ve got to go there in a couple of hours.
What I like about what you’re saying is that you’re not doing this to take big risks. You’re doing this simply, you’re doing it slowly, you’re doing it carefully, and you’re doing it with research and by learning. People can follow this path and do the same thing that you have done. They can stay with their job if that’s what they’re focused on right now and one at a time start acquiring these tiny little banks that keep generating interest for them forever. Lane, I love to ask this question because it helps me understand my guests better. Who, in all of space and time, would you like to have one hour to enjoy a walk in the park, a quick lunch, or an intense conversation with?
I’d say probably Tim Ferriss. I read his book and he seems to be a questioner like myself and always tinkering. I don’t know what he would be able to do for me in terms of real estate, but it would be interesting to talk to somebody like that.
Generate Passive Income: The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich I would share with him how I was so inspired by The 4-Hour Workweek book. Tim’s an incredible guy, and it’s a great choice. My final question is the change the world question. What is it that you are doing or would like to do, and it doesn’t even have to be related to what you’re doing right now, that has the potential to literally change the world?
Financial education is probably the thing that most people need to work on. If we don’t teach people to balance their checkbook or manage credit cards, that’s the first thing that needs to get taught. Where do you go once you get out of debt? It’s this investing stuff. Get it out of the current financial institutions that are like roller coasters and get it into Main Street investments that help people like you and me in putting investments in homes that you and I live in. That’s what we need to start achieving as opposed to following the Wall Street dogma and keep doing what they want us to do.
You are changing the world by helping everyone understand how their money works, how to best use their money to benefit themselves and their family. I want to encourage people to get busy. Lane started when he was 22 years old. No matter what age you are, no matter where you live, you can start right now. I hope that you take this lead and take action. Thank you, Lane.
Thanks.
Resources Mentioned in This Episode: * SimplePassiveCashflow.com * MeetUp.com * The 4-Hour Workweek * Lane Kawaoka * Tony Robbins * Tim Ferriss
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Social capital dictates a business owner’s position in the market. With this kind of business of belief, opportunities rise for every member of the organization. Instead of building a culture that punishes employees who fail after they take a risk, companies should focus on building a supportive culture; work place that recognizes advantages and weaknesses that will help when problems arise as well as opportunities. Tom shares how this social culture also promotes freedom.
Business Of Belief: Creating A Supportive Culture with Tom Asacker My guest is a business expert who holds medical patents and product design awards. He is recognized by Inc. magazine, MIT, the Young Entrepreneurs’ Organization, and a past member of their Birthing of Giants Entrepreneurial Executive Leadership Program. He’s the author of five books. His first book, Sandbox Wisdom, has been a worldwide bestseller. Welcome, Tom Asacker.
Thank you. It’s great to be here with you.
I love the message of the Sandbox Wisdom book. It’s impressive and it’s fun to read. I want to know a little bit more about how you got started in business.
Business Of Belief: Sandbox Wisdom I graduated with an Economics degree in 1978, which was probably during the worst recession that we’ve had in recent times. There were cars backed up at the pumps. There was a gas shortage. Not much work. I took a job with an electronics firm. Soon after that, GE bought the firm out. I was under the tutelage leadership training of GE. Jack Welch came in a few years later and decided that they couldn’t be one or two in their marketplace. They were going to sell the businesses off. I got together with some managers of the company and we purchased that electronics manufacturing business from GE. That was my first foray into the world of business and world of work.
You just get out of school and the next thing you know, you’re buying a business from General Electric. That’s pretty heady stuff.
It wasn’t the day after I got out of school, but it was soon after I graduated. It was an interesting and educational experience.
Maybe you could walk me through some of what you had to struggle with in this new business, which was an old business that is now new for you. What did you go through? What jobs did you have and how did you progress through that process to the point of when the business was sold?
It was a challenging time. When I started with that business, I was in strategic planning and production management, production control. We weren’t embracing any of the new technologies like ERP and MRP II and Just-in-Time manufacturing techniques. We were like the GM and Ford of all. We were creating a lot of inventory. We’re creating a lot of errors and problems. I was trying to get the business to understand that the only way out of all of this was if we implemented this entire new system and philosophy and MIS system and approach. I convinced the executive team and they said, “You’re going to run this thing.”They gave me the funding to do it. I had dotted lines to all of the Senior Executives at the company. It took about two years to implement. It was the worst and best experience I’ve ever had in my life because I had an opportunity to understand people and the social conditions in businesses. A lot of people believe, and it’s a false belief, that everyone in a business is interested like a scientist, in discovering the best approach to make whatever objectives reality. That’s not true at all. A business is a big social organism. It’s all kinds of politicking going on constantly. That is probably one of the biggest problems with large organizations and why they can’t change. That’s what gives all of these small startup organizations the impetus. Their advantage is their ability to look at objectively the marketplace, to know what decision needs to be made in order to give the marketplace what they’re looking for and what they value, and then making that change. Because they don’t have all of that social capital that they have to worry about. They just go and make the decision and off they go.
Social capital, for me, means something different. It means how well your social profiles or social connections are. What I’m hearing is that it’s the weight of the social community inside of a company that bogs it down. Do I understand that correctly?
Absolutely. I understand from an entrepreneur standpoint or if you’re trying to do an internet business, there’s social capital in the connections that you make with the external world, with influencers. Within organizations, you’re always looking at your social capital because that dictates your position, that dictates your advancement opportunities, your pay, your bonuses. That’s what everybody is looking at. If you do something risky and you fail, then you look at that and you say, “I’m going to lose some of that social capital because now I’m not someone they can believe in as much and trust in.”Risk taking within organizations is not something that is embraced by individuals because that could have a detrimental effect on where they stand within that order in the organization.
Someone could lose their job if they make a risky decision and it doesn’t go well, which these days in smaller companies, it’s the opposite. You’re encouraged to fail quickly and to learn from your failures. How many times do you remember, in your career, failing and being told, “That was bad. You failed,” but you learned and that’s valuable? Has that happened to you in your career?
In large organizations? Not usually. That is the challenge. The only way that that is embraced is when an organization runs into some type of crisis, and then they’re looking for ways out.
We focus on building a supportive culture, a culture that surrounds each and every person and supports them as opposed to beats them up and punishes them. That was a great contrast to what I think many of us are used to in smaller companies.
The other point is whenever you’re this small organization or a startup and you’re looking at the big guy and you’re saying, “They have this huge advantage over me”, you’ve got to realize what the huge weaknesses are as well. They are going to have a problem shifting if the customer comes up with something that they desire that may stretch or create some risk for them or create some identity issue with, “That’s not us. We don’t do that.” That’s your opportunity to step right in there.
I go back to the early days of my own software startup when we were on CompuServe. We were chatting with lawyers who were working with our software and said, “It would be nice if there was a field here that recorded this or that.” My partner would read it right off the screen and he’d go to work and add that field. We would compile a new build and it would be out in the mail in the morning. It’s huge to be able to respond quickly. The power of a small business is in its flexibility and its strength in getting things done quickly and in an agile environment. You were in this big social organization. You were young, out of college, and now you’re part of a brand-new business. What happened? How did the business progress? You tried to introduce this software platform. It sounds like you got it done, but it wasn’t comfortable.
If you’re trying to accomplish something through others, you need to understand the people’s desires and their beliefs.
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It was a struggle the entire way, which tells you that you’re trying to accomplish something through others. You really need to understand the people’s desires and their beliefs. If what you’re trying to do conflicts with those desires and beliefs, it’s not going to happen through them. They may be this passive-aggressive people and you never know what’s going on. I ran into that when some executives where I thought that they were actually helping me move the thing along. I found out later that, in fact, they were doing things to blow it up, make it not work because they were worried about where they were going to be in the future if this thing was successful. That’s really important is to understand each individual that’s involved in this movement that you’re trying to create so that they can see themselves successful in the future by working with you. If they can’t see it, I guarantee you they’re going to do something to try to disrupt it.
If it threatens their job, if this new software system threatens their existence even on the fringe of it, they’re going to find a way to stop it if they can.
This was during the mainframe era, prior to personal computers making it onto people’s desktops. One of the things that IBM was doing with the head of information systems, in order to stop them from getting rid of the IBM mainframe and putting personal computers in organizations, they actually had a strategy called FUD: Fear, Uncertainty and Doubt. Create that in the information manager and prevent them from taking us out of the organization.
Back then, that was a key element of how you would either promote or sell a big brand like IBM. Introduce FUD into the equation and discourage people from making a decision to try a new startup that might be half the price for twice the power.
They didn’t want to lose their job if there was a problem.
We’ve moved into a different world. It doesn’t mean that there aren’t companies out there, decades old companies, that still operate this way. We’re in a different place where entrepreneurial organizations are really focusing on the needs of our staff members. Do you see that in the work you do?
When you say that, is that the employees that work with them?
Everybody. The employees, the contractors that are still part of the way that the company operates. When I talk to CEOs, were talking about it used to be in order of importance, the customer comes first, then the company, and then the employees. I’ve seen that turned completely upside down in the last ten years. It’s almost like your employees come first because if they’re happy, they will produce and take care of your customers. If your customers are happy, your company’s going to be successful. What do you think of that?
I would go beyond that and say that it’s impossible in this dynamic environment because it’s very chaotic. It’s very dynamic. Things are changing all the time. It’s impossible to create some type of top-down structure and creating any type of rules or behaviors and say, “Follow the script.” It doesn’t work like that. You’re trying to get everyone in the company to do improv. You’re trying to get them to step onto stage in the morning with each other, with their customers and say, “What is the best result that we can create together for everyone, and how do we move forward?”You can’t do command and control in a chaotic environment. It just doesn’t work.
There’s a place for, as you say, command and control, but it’s not until much further down the road. That’s when all of your processes have been perfected. Sales force has a script. We use scripts as part of our selling process. That, in itself, is important. What I’m really hearing here is the creation of culture. For many people, culture has a different meaning than the way I mean it. I believe culture starts out as a set of boundaries. These boundaries help people understand exactly what they can and can’t do, but they have total freedom within those boundaries. Once you build a culture that looks like that, what ends happening is that people feel free to roam within those boundaries and can be very creative and productive. Part of the culture means you have to treat people a certain way. You can’t steal intellectual property. That’s part of what you have to lay down in terms of your culture. I’m sure you do that with your clients as well.
The worst thing you can do for people to ask them to be creative is to not give them a frame within to work from. If you say to an artist, “Go paint,” and he says, “Where’s the canvas?” “There isn’t one.” The best thing you can do for any creative person is to give them some boundaries because that’s what inspires them and allows them to create without boundaries. These boundaries can be flexible and porous, but they have to understand this is the playing field. Let’s go get creative on that field and make things happen.
Business Of Belief: The worst thing you can do for people to ask them to be creative is to not give them a frame within to work from. What was the name of the company that you bought from GE?
Back in the day, it was called DATEL. It was sold to Intersil. Out in California it was called DATEL Intersil. DATEL Intersil was bought by GE and it was called GE DATEL Intersil. GE sold Intersil and kept DATEL and it was called GE DATEL. That all happened within two or three years. All that selling and buying and changing names.
How long did you end up staying at that company?
A total of ten years. My first two or three was climbing the ranks and becoming a manager. Here comes GE. I started to grow within that new organizational structure. The project came along and there was a couple of three years of the project. I stayed a few years after that. The total was about a decade.
After you wrapped up there, what was your next move?
I had a friend of mine telling me that he had some idea or a patented idea or close to patented for a medical device that would not only help patients recover quickly but would save hospitals and insurance companies huge amounts of money. I said to him, “What do you want from me?” He says, “I know what you did down there at that other company. I want you to come up here and help me do that here because we’re going to be a manufacturing company and a development company. I told them, “When you get sales of x amount of dollars, call me. I’ll know you have something.”He did and he called me. I came up and visited. One of the partners, one of the developers, was a healthcare guy and I really connected with him. I took a shot and left the company where I was, and I went up and joined the startup with a couple of guys and a dog and some products, and we scale that. It took us about five years to get every investment banker in the country coming after us trying to figure out how to take us public.
A lot of us are in a position where we’re creating and companies. Many of us are starting with not a lot of money. Talk a little bit more about what that process was. How did you build a company after you joined? Now that you’re a part of it, how did you build it with hardly any money at all?
There were three financial investors and two operating partners. I was one of the operating partners. The healthcare guy was the other operating partner. The financial investors were digging into their pockets, coming up with money. They were financing the business to get it where it needed to be and to help grow it. It was a struggle. I took a 50 % cut in pay to do it and took some equity. People were working other jobs. It was a struggle. There is no easy way to do it.
The best part is the vision. The vision and the hope are what keeps us going. At that time, you probably had little kids and a wife to worry about. Here you are, taking 50%cut in pay and trying to explain to dearest at home that, “If this pays off, it’s going to be worth it.”
I sold my home and I moved into a condo and put my kids on a mattress on the floor. I’ve always been driven by whatever my passion was. I have gone through some big highs and low lows. I’d rather ride on that roller coaster than ride on some little choo-choo train that goes around and around a track only because it makes life exciting. That’s why I do what I do. I don’t ever have this outcome that says, “Get there and then you’ll be able to buy the big house and the pool.” No, that doesn’t interest me. What interests me is the process. I’m interested in whatever it is that’s exciting. If it works, it works. If it doesn’t, it doesn’t.
Never lose control of your business because then you can’t make decisions.
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We’re all doing the same thing, that’s why. It’s interesting to me because you’ve been doing this a long time. I’ve been doing it a long time. I don’t get to chat often with people who have been through those ups and downs, as you said, “The highs of the highs and the lows of the lows.” Talk a little bit about the lows, how you dealt with them, and what you went through so that everybody listening can get a feel for what this is about and what you got to do to get out of it.
I would not recommend that the people who go through these lows do what I did. I was so lost in my story of how I wanted things to be that I took a lot of things personally. When I left with the electronics firm as a partner, I was told by people that I stood up in a board meeting and I had a meltdown. I was telling everybody there that they didn’t know what they were doing. I don’t even remember it. I was lost in the story of who I was and how things weren’t happening the way I wanted them to happen. I was becoming frustrated. Instead of rationally looking at everything and saying, “Time to go,” I blew up. I had a vision collision with these people and I said, “I want my investment back. I want out of here.”It was a dumb thing to do because it was driven by some identity that I had, something that I wanted, something that I wanted to protect, something that didn’t make sense, and that was ridiculous. That was a big mistake.
I did the same thing at the medical company. I ran into a vision collision with my partners because they took all of this cash that we created, and they wanted to start dishing it out to the partners and buy cars. I said, “No, we’re reinvesting in innovation and R&D. We’re in business to help people.” I ran into another one of these vision collisions. I ended up quitting there and starting another medical company. They sued me and I lost everything. It took a lot of self-reflection over the years, going through all of these issues that I went through to realize the big mistake I was making, which was I was putting myself as the central character in all of these stories. Things weren’t working out the way I wanted them to and that was creating pain for me. I was reacting to that pain, wanting the story to play out the way I wanted it to play out, forgetting that I’m not the central character in any of these stories, not when you have partners. There are other people involved in this. It was painful, but it was nothing that I would never go through again. I learned so much about human nature and people. That’s what allowed me to write the books that I’ve written.
That’s part of why you’re here. You are here to help all of us better understand what people go through in these situations so maybe we can avoid some of the pain that you apparently felt.
I’ll give you like one tiny piece of advice to avoid the pain. Never give up less than 51%. Hold on to 51% of your business. Never lose control of your business because then, you can’t make decisions.
It sounds simple, but it’s super important. What it comes down to is leverage. What you want with that extra 1% is enough leverage to control your destiny to some degree.
You’re not going to control it, but you’ll have more influence over it. That’s what you want when you’re running and growing a business. You want to be able to know and be able to say, “This is not right. We are not going to do it.” If you lose the ability to control that decision, you’ve got to start compromising what you’re doing and that’s painful.
Let’s go back to the vision collision. I love that term that you’ve coined. Many of us have been there and many of us will be there. How do you get external from yourself in those moments and see the big picture, the real story, instead of being so sucked into your own story?
The first thing to realize is that if you’re involved in this business with other people, those other people think that they are the heroes of their own little stories. They’re looking at your business as something that fulfills their desires and their goals. It’s unusual to have people’s goals and desires all match up and all be aligned. You think that you are hearing that they’re aligned, but it turns out, in most cases, that they’re not. When you run into that, “We’re not aligned. I want to invest and help people. They want to pull money out and buy boats.”When that happens, you’ve got to say to yourself, “You have to not take it personally.” You have to say, “I get it. He’s the hero of his story. His story says he wants a boat. There’s nothing wrong with that. I shouldn’t judge that. That’s him, but that’s not me. How do I deal with this in order to give him what he wants, if possible, and give me what I want at the same time?” You don’t make it a conflict. You go into it and you ask yourself, “How do I make this work for everyone so that we all get what we’re looking for?” If you can’t do that, then you’ve got to part ways. You do it rationally. You don’t do it as I did. It felt like I was being attacked because I looked at my vision and said, “This makes sense. If they’re not doing it, why?” It felt like an attack on what I wanted and what I believed. It’s not at all because that’s where we make the mistake. We think other people see the world and have the same desires that we do, and it’s not true.
These are the things that as people we go through in work life with partners, with employees, with staff members, even people who change their minds, even leaders who changed their direction are going to impose this on others. There is a way to navigate through that. It is important to make that realization that you’re not the star of this show. More importantly, what is the best way to make everybody happy and get what everybody wants? If you truly can’t do that and you do need to leave and exit the organization, do it with some class. Do it with some care. Try to set it up so that you can preserve the relationships that you spent ten years building, and potentially even get some help as you go off and start or build your next thing.
If you’re not looking at yourself as the hero of the story and if you realize that you are just part of an ecosystem, you don’t control any of that. That is one crazy dynamic thing going on with people and desires and things going on in their lives that you don’t know about. We just don’t know any of that. If you look at yourself and say, “I have a little influence, but beyond that, that’s all it is. I don’t have control.” If you can let that go in your mind, then all of the disappointments of how things aren’t happening the way you want, that goes away because you realize you’re not in control. This is a dynamic environment.
To be empathetic, to be creative, to be aware not just of the people with you or around you but of yourself, you can’t teach that to people.
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A shift in viewpoint can change how you feel instantly. This shift in viewpoint seems to need to be like a little sub routine running in the background. Am I the hero of this story? Am I the king or am I part of the round table? Let’s talk about hiring. We live in a world where we have a lot of virtual people surrounding us doing things to help us build our companies. We got to hire people. Maybe you know how to do this very easily and can it share it. How do we do this? How do we bring your wisdom into the hiring process at this point?
If I had the solution to that, I would start this big hiring company. I was pre-internet back in those days. I would keep my intuitive sense of me always on alert, especially when I was with people that knew how to make other people feel good about themselves. I could be at a restaurant. If I was waited on by someone, if this person was articulate, knew how to make me feel good about myself, took care of the issues, took responsibility, went out of their way to make the experience a great experience, I had them write their phone number down and I hire them because I can teach them anything. I can’t teach that. It’s just something you can’t teach, to be empathetic, to be creative, to be aware, not just of the people with you or around you, but of yourself, to be self-aware. You can’t teach that to people. I don’t know how you find that online.
There’s a beautiful story that Tony Robbins tells that is exactly the story you told. He tells the story about going to a restaurant and being waited on by an incredible individual who took super care of him and his family. After the meal, he offered the guy a job and said exactly what you said, “It doesn’t necessarily matter what it is you don’t know because I could teach that to you. What I can’t teach you is how you act with other people, how you treat other people, what you are inside.”That so impressed Tony that he hired this guy on the spot.
In terms of bringing people on, one of the things I try to do is I have team members who work with me. In many cases, I never meet them. I’ve worked with them for years and never meet them. I’m looking for a person who is very quick to ask me questions about the things that I say. In an interview, if I’m talking to somebody and I said, “This is what I want you to do.”The last person I hired is a professional writer and she’s going to be churning out two articles a week on a particular topic for me. What I loved about this interview was the questions she asked me. She asked me questions that made me believe that she not only understood what I was doing, but was thinking three steps ahead of what potential problems she might run into. Do you find that that’s helpful in the way you work with people in terms of interviewing them and getting them to work with you?
Yeah, because what that’s signaling to you is that she cares about you. It comes down to a couple of things in the marketplace. You either care or you compare. If you care, it’s the quality of your work. It’s the expectations. It’s how you’re providing value. If it’s compare, it’s “How much are you going to pay me? How long is this going to take? How long are these things?” Those are the questions you’re getting. You realize what people are doing it for. It all comes down to intention. If the intention is, “Be the best I can be at working with Mitch and creating something of value that he can share with his clients,” then that’s what I spend my time talking about. She came across with caring as opposed to comparing.
She focused on my needs and not hers. That was profound. You don’t see that a lot, particularly when you’re interviewing people in a remote circumstance or remote environment. The thing that impresses me about people when I interview them is also the way that they carry themselves. The way that they sound. What I mean is do they sound confident? Do they sound and speak as if they are speaking from a place of experience? Someone could be a good actor and fake it, but not always. What I’m listening for isn’t something you can fake. It’s that sound of certainty about the tasks that they know that they can do.
It’s an interesting dynamic because what you’re listening for simultaneously is you’re listening for confidence, but you’re also listening for a humbleness. You don’t want somebody coming in that thinks they know everything at the same time that they’re being confident. You’re looking for a scientist. Scientists know what they know, but they also know what they don’t know. They’re really humble about that. That’s what you’re looking for.
In the days of old, we’d say the word scientists, today, we call them geeks and programmers. The funny thing about geeks and programmers is that many of them, you might say as a stereotype, don’t have much in the way of social skills. Personally, I’ve never found that to be the truth. I’ve always gotten along great with programmers and technical people maybe because I started out as one. Also, because I relate to the way they think.
They have something to talk about. They’re not making small talk. They were looking to solve problems.
You’re in your second company. This is a startup. You are struggling and building a medical company, no less. What ended up happening? How did you attract the type of clients that you were looking for? I’m assuming the backstory is you came up with an incredible invention, you patented it, and now you’re getting it out to market. How do you get a product like that to market?
The Business of Belief: How the World’s Best Marketers, Designers, Salespeople, Coaches, Fundraisers, Educators, Entrepreneurs and Other Leaders Get Us to Believe This is why I wrote the book, The Business of Belief, because what people don’t realize is that the only thing that drives people’s decisions are some overwhelming desire for something. If you don’t find what that overwhelming desire is or the people that have that desire, you’ve got nothing. There’s nowhere to go. It doesn’t work. You can’t sell in a market place of abundance and confusion. You have to fulfill desire in that marketplace. We happened to find a distributor who is aching for some type of competitive advantage in their area. They were looking for products, something that was unique they could build a story around that could help improve hospital performance. We found that desire. If we had not found that desire, it would never have happened. We bumped into that because we believed in what we were doing, so much so that we were out at every conference, we were exhibiting, we were giving presentations, and that person with that desire, ran into us and said, “I think they’ve got something here.”They did their due diligence, but it was all driven by that desire combined with serendipity. If we weren’t out doing what we were doing, they never would’ve bumped into us.
This is something we talk about on this show a lot is how the universe aligns to bring you the things that you are most focused on and believe, truly, are your destiny and your future. In your case, somebody showed up in your world and brought you exactly what you needed. This is not uncommon. What’s uncommon is to find people who are so committed to their belief that it draws resources to them. That’s what entrepreneurship is all about. When you sincerely believe in your mission and you know that somehow this mission will be completed, you will do whatever it takes to make it happen. I’ve seen it in my own life. I’ve seen it in my friends who are super successful and have drawn to them the right people, the right resources, even without understanding how it happened.
There is no way to fake that. You see people can see that and feel that in you. That’s what turns them on. If you have an actual solution to other people’s problems, and if you feel strongly about that, if you’re compassionate about the people you’re trying to help, there is no stopping you. Nothing can stop you because you become fearless.
You become fearless because you’re driven by something bigger than you. This ties so perfectly into what you said earlier about who really is the star of this show. What your mission, in certain cases could be a benevolent mission like TOMS Shoes, for example. You buy a pair of shoes and they give a free pair to people in need of shoes. Their mission is so focused externally that they are able to generate enough spiritual energy in the world to drive their business forward faster.
The only thing that drives people’s decisions are some overwhelming desire for something. If you don’t find that, you’ve got nothing.
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It never was about him. It’s about these kids he saw that didn’t have shoes.
I’ve really enjoyed getting to know you. You are a guy with incredible wisdom and experience. I know people will want to learn from you. What would be the best way someone could either connect with you or connect with your material? Where should they go?
If they go to TheBusinessOfBelief.com, that will land on my website with links to my book, a TED Talk I did with my philosophies about how to appeal to people in the marketplace, and links to other things. There’s also a contact form as well. I answer them all like you do. Why do this if you’re not going to answer people. I always found that interesting way, where people would become so successful that they can’t answer anybody anymore. That doesn’t make sense to me because you and I are in business to try to help people, help them achieve their dreams. If anybody’s interested, contact me. If anything I said didn’t make sense, let me know. If there’s a way I can help, let me know. I like to see passionate people achieve their dreams. That’s what turns me on in life.
Who, in all of space and time, would you like to have one hour to enjoy a walk in the park, a quick lunch or an intense conversation with?
I find so many people fascinating. I watched a documentary about Nietzsche, existentialism, and living your greatest life by realizing your freedom to make choices and decisions and not be constrained by your thoughts of what the other and the external world wants from you. The guy was an absolute genius and madman. To walk in a park with him to try to understand how on fire he was with wanting to see people’s human potential blossom, it gives me chills thinking about it. I would love to be with him in a park and ask him some questions.
If you have actual solutions to people’s problems, if you’re compassionate about the people you’re trying to help, there’s no stopping you.
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Now the grand finale question, and that’s the “change the world” question. This is all about your mission. What is it that you were doing or would like to do that truly has the potential to change the world?
This is going to be a tough one for people to wrap their heads around. I finished a screenplay that I’m hoping is going to be turned into a movie. I wrote a little philosophical book. You can find out about it at a website called IAmKeats.com. I honestly believe that if we can escape the stories that we create in our heads about who we think we are, what our potential is, what the future may look like, if we can escape those stories, that identity that the world has created for us and we can look at ourselves as pure potential while we’re here, nothing would stop people from trying to solve all the problems that we have, because we have a lot of them. Instead of curling up, watching Netflix, sending all these divisive tweets all over the place because their identity feels threatened, if we can get rid of this identity thing that we’re playing, we can get rid of conflict, we can generate new innovations, and we can learn how to make each other happy on this short trip that we’re here in this crazy amusement park that we call life.
That’s a beautiful statement and a beautiful mission. What your mission is the mission of the Buddha. It is the spiritual mission of every spiritual leader that I’ve ever encountered. It is a great mission and one worthy of all of our time and thinking. You’ve been just so valuable to be on this show. I’m glad that you spent your time with me and really shared this with us. I want to thank you because you’re a bright guy and it was great having you as a guest.
I had a lot of fun and the connection was easy because you’ve been there. You’ve seen this. It was great. Thanks.
You’re welcome.
Resources Mentioned in This Episode:
- Sandbox Wisdom
- Tom Asacker
- Jack Welch
- The Business of Belief
- TheBusinessOfBelief.com
- IAmKeats.com
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