by Jim Dickson
Greg and I recently participated in a virtual business conference, and one session was an interview with marketing guru Dan Kennedy. One of the things Kennedy discussed was “success evolution.” Essentially, this refers to how certain decisions or actions compound, or evolve, into success over time. To understand this, he talks about the “standard” cycle of a business owner’s life, which is often comprised of four stages:
1. Operator: This is when a person starts a business, operates it independently, and runs it until it reaches stability.
2. Business Owner: This is the first phase of growth, where the business owner expands their team.
3. Entrepreneur: The business owner has achieved success and becomes an entrepreneur, creating new businesses.
4. Investor: The entrepreneur needs a way to grow the wealth they have amassed.
We talk a lot about compounding interest when it comes to investing, but compounding is a concept that applies to almost everything we do in life. Making the right decisions now with our money and businesses builds a foundation that compounds into long-term success.
This is a concept better illustrated through a story. Let’s learn about success evolution through the lens of this fictional character, Stewart the Shoemaker.
Stage 1: Operator – At stage 1 in Stewart’s shoemaking business, Stewart functions as the operator and is a one man show, producing and selling shoes.
Stage 2: Business Owner – Stewart realizes that his business’ success has led to him to spending way too much of his time making shoes, shuffling business papers, and working in the business. He hires a couple shoemakers, a bookkeeper, and a secretary. Now Stewart’s time can be reallocated to scaling his operations.
As the years go by, Stewart sells his shoes all over the place and everyone loves Stew’s Shoes.
Stewart does such a good job selecting and training the right people for the right positions that his participation in the day-to-day operations is no longer critical to the company’s success. He is ready for stage 3.
Stage 3: Entrepreneur – Often, business owners are focused on scaling, while entrepreneurs focus on innovation. Stew’s Shoes is a well-oiled machine by now and its explosive growth phase is over, so he starts focusing on other products.
He tries making ski boots, roller skates, and even tap shoes, but no one seems interested.
Eventually, Stewart’s friends make fun of his failed ideas. One one of his friends suggests, “Why don’t you just take your best-selling shoes and start making them for dogs?” Stewart takes the advice and to his surprise, his inbox is completely flooded with demand for his new dog shoes.
Stew’s Shoes for Dogs becomes the next big thing and the rest of the story plays out similarly to Stewart’s first company. Stewart spends the bulk of his life starting and developing businesses like this, and he is very successful.
Stage 4: Investor – Stage 4 is about investing. The key to success at this stage is developing a good sense of risk management.
Stewart has money now, but he knows nothing about investing. He has a substantial portion of his savings sitting in a checking account, earning a negative interest rate when adjusted for inflation. He is also invested in a couple mutual funds and ETFs that a stockbroker from his country club recommended, but Stewart has no idea what these are comprised of.
Most of us are familiar with the diligent, and sometimes frustrating, research required when it comes to investing your money. Stewart was no exception: he spent hours researching and talking to several financial and investment investors, only to find in the end that he did not want his money in the stock market.
His findings cause him to become a strong believer in the benefits of spreading risk across a diversified portfolio. Real estate stands out as a particularly intriguing asset class, because it’s a real asset that is protected from inflation. However, unlike most other real assets, it also can produce a steady monthly cashflow. When looking at real estate, he learns that some is more volatile and some is less volatile; and some earn more from an appreciation standpoint while other plays are more cashflow focused.
Stewart ends up investing most of his savings within real estate and the rest is history. Years later, he looks back and considers that investment as one of the best decisions of his life.
That’s the story of Stewart the Shoemaker.
The moral of the story? Stewart found success, made an impact on the world, and found a way to grow his wealth sustainably. Why? Because he compounded his work and his money. Through these steps, his devout shoe making eventually compounded into his ability to invest his hard-earned cash. From there, his cash compounded upon itself so he could to reap the rewards of his success and leave the hard work behind.
In his speech, Dan Kennedy left us with one last note: compounding your success in stages is a powerful tool that often leads to unexpectedly high rewards. But, he said it took him 10 years to discover that the true key to success evolution: it’s not just about passing through each of the 4 stages. The key is actually figuring out how to go through the 4 steps simultaneously as much as possible. His advice is: don’t think of it as a linear journey. Think more in how you can compound everything you are doing sooner for the greatest impact on your future.