What Entrepreneurs Can Learn from the Poor

I am going to come across as a terrible person in this post. I recently finished a fascinating book, Portfolios of the Poor, which chronicles the lives of desperately poor people around the world living on less than $2 a day. And I am going to review it from a thoroughly selfish angle: the surprising lessons for entrepreneurs from the $2/day world. In my defense, I started reading the book with nobler and more compassionate motives: I truly did want to understand the plight of the poor and learn what I could do to help. I was also just plain curious about povertynomics, if you will pardon a terrible neologism. But the content of the book was so surprising, and so obviously and intimately connected to the world of entrepreneurship, that that angle hijacked both my reading and blogging intentions.

So let’s go doing some greedy mining of wisdom-of-the-poor. If you’re not interested in entrepreneurship, this is not going to be the best review/summary/introduction for you, but should still be acceptable.

Framing Poverty

To most of us rich people (relative to the $2/day world, if you are reading this post, you are rich) the idea of an entire family living on $2/day seems somewhere between ridiculous and impossible.

And I am not just talking about First Worlders sitting in places like the US, sipping $2 Starbucks drinks as I am right now. The $2/day lifestyle seems impossible even from a middle-class perspective in the developing world.  I lived in India for the first 22 years of my life, often next door to the types of people described in the book, and to be honest, they might as well have been on the other side of the world. To calibrate, as a middle-class undergraduate student in the mid-90s in a heavily state-subsidized university in Bombay, the total unsubsidized cost of living for me was probably around $10 – $15 a day (or about 15-20x the per-day cost for a member of a $2/day 3-member household). My standard of living was probably comparable to that of an American undergraduate student in a big city like New York.

Yes, I personally knew many people living these $2/day lives (to call them “lifestyles” seems insulting) personally. I saw the awful standard of living up close. I saw some of the visible details of how they made ends meet.

But for all that proximity, I have to admit I was not very much wiser about the $2/day world than the typical American, and it wasn’t just that I was 15 years younger at the time. The complexity, dynamics and deep structure of poverty is just not visible on the surface. And the surface is just ugly and guilt-inducing enough to the middle class that we hurry by hastily without risking a second glance.

Portfolios of the Poor allows you to peer into the world, guilt-free, and really understand how it works.

Let me hasten to add that it doesn’t do this by romanticizing the world of the poor the way naive forms of  the fortune at the bottom of the pyramid idea do. Too many people use the “bottom of the pyramid” model as a way to conveniently excuse themselves from social justice concerns entirely, pretending that just bringing capitalist motives to the engagement of poverty will solve all problems.

The moral posture of the book is what I consider exactly right: yes, the poor are a hell of a lot more resourceful and entrepreneurial than we give them credit for. Yes, there is a thriving capitalist economy in every major slum. True, they don’t need our charity if it comes with a condescending view that we are somehow smarter because we happen to be richer. Yes, the “International Aid” model is beyond broken.

But, the book is careful to point out, this does not mean that they are not miserable or that their lives cannot be improved beyond what free market forces can accomplish.

It all starts with understanding the contours of the financial lives of the poor.

Small, Irregular and Unpredictable

The book frames the financial world of the poor as being driven by three characteristics of their income streams. They are small, irregular and unpredictable.

We rich people are at least aware of “small”: it is the incomprehension with which we grope around the $2/day idea. To me today, that means “cup of coffee.” When I was a student in India, it meant “fun movie+dinner night out with friends.”

But as it turns out, a regular and predictable $2/day income would actually be powerful enough that the poor could potential bootstrap themselves out of poverty with it. What makes their condition so difficult is irregularity and unpredictability.

Irregularity means that the $2/day, which amounts to $730 a year, does not come in a steady trickle. It is distributed messily through the year. For a street hawker, the week-to-week variance might be very high. For a small-holding farmer, the income might be concentrated around a single month. For a construction worker, it might vary with the business cycle.

Unpredictability means the $730 is not a guaranteed number but an average. There can be good and bad months, bad and terrible years.

The second big insight in the book is that despite these extremely severe conditions, the poor do not live hand-to-mouth. They do not spend every night in terror, wondering if they’ll eat the next day. They actually go beyond daily expenses and manage to save, buy insurance, raise capital and plan for retirement. Not very effectively by rich-world standards, but they do it.

Turns out that they manage their small, irregular and unpredictable incomes with extraordinarily sophisticated financial portfolios. Reviewing the details, I was shocked: for many of the research subjects, the financial lives on display were more complicated than mine, not less. They used a wider variety of financial instruments than I do, in more complex ways. Here’s just one example:  the financial life of Hamid and Khadeja, a married couple with one child, from a poor coastal village in Bangladesh. Hamid, who was in poor health, earned money as a rickshaw driver and construction worker. His wife, Khadeja, made some money sewing. Income: $0.78/person/day. Here’s their balance sheet for a non-exceptional month, November 2000:


  • Microfinance savings account: $16.80
  • Savings with a “moneyguard” (like a trusted neighbor): $8.00
  • Home savings: $2.00
  • Life insurance: $76.00
  • Remittances to home village: > $30
  • Loans out: $40
  • Cash in hand: $2


  • Microfinance loan account: $153.34
  • Private interest-free loan: $14.00
  • Wage advance: $10
  • Savings held for others: $20.00
  • Shopkeeper credit: $16.00
  • Rent arrears: $10.00

Financial net worth: -$48.54

If you know anything at all about finance, this is extremely impressive management. There is highly active cash flow management, multiple horizon savings, risk management, management of different lines of credit and debt, and a diverse collection of social-financial relationships.

To you and me, this level of financial activity is simply not worth managing actively at all. We use our significantly larger cash reserves to just absorb all this variability, so we don’t have to actively deal with financial management decisions below about $200. For us, the fact that the income is not “small” in this sense allows us to simply swamp out the irregularity and unpredictability.  Financially, my life for instance, has enough of a cushion that if I were to lose my job tomorrow, I could last for several months with no real lifestyle change. That’s plenty of time to figure out a financial recovery strategy. That means I can be lazy and not think as much about money until events force me to.

And it’s not that the poor have more time than you and me to invest in financial management. The idea that the poor have “more time than money” only applies to the educated kinda-poor with basic needs taken care of. The real poor work the same long hours (while burning way more calories), and at the end of the day are more tired, less informed, and less able to do the thinking and management. But they do it anyway, because they have to. And with a sophistication that would put you and me to shame.

Cash Flow Management vs. Wealth Management

This is where the analogy to startups comes in. Like startups (and unlike paycheck employees or big corporations), poor people manage cash flows, not wealth (at this point, it may be worthwhile for some of you to read/reread my Fools and their Money Metaphors and Ancient Rivers of Money posts).

You could boil down all of finance to two basic problem. The first is to make money supply predictable and stable, and the second is to gain enough control over it that you can match supply to demand.

If you solve those two problems, you can get to the third one: creating wealth with the surplus.

If you live on a paycheck as an individual, or a predictable and mature market as a big company, you get the predictability and stability for free. You only have to solve the second problem of control. You do this in two ways. First you plan for the big anticipated events in life (retirement, college, house purchase) through savings and debt. Second, you plan around the known risks (health, floods, fires, theft) through insurance.

Your personal life may seem very tough to you, relative to your environment, but actually your demand/supply matching problem is very easy. The evidence is that most of us do manage to solve it and move on to wealth management problems (early retirement, how to get that yacht, earning f*** you money, engineering 4-hour work-week lifestyles).

For the poor, the first problem is to actively manage cash flows, which you and I solve by simply making a couple of credit card payments and writing a couple of checks a month, with the rest on autopilot. As the book demonstrates, you get a sense of just how actively the poor manage cash flows by looking at churn.

The story is revealed when we look at cash flows rather than balance sheets. During the year, all of the financial diary households pushed and pulled through financial instruments amounts far greater than their year-end net worth… We use the expression “turnover” to mean the total sum of money being “pushed” and “pulled”… The high level of financial activity is particularly surprising when considered in relation to income. We might call this ratio the “cash flow intensity of income”:… In India, households shifted, on average, between 0.75 and 1.75 times their incomes, with high-velocity money movers like rural small traders shifting more than three times their earnings in an average month…. In South Africa, the poorer half of the households turned over a bigger multiple of their income than the richer half… This attests to our general notion that lower incomes require more rather than less active financial management.

When I read this analysis, the thought that popped into my head was “ants versus elephants.”  Ants can lift many times their body weight, while elephants can only lift 4-5% (300-500 kg). Yet we think of elephants as the heavy lifters. The scale difference also causes qualitative differences: ants can walk or water or get trapped in a droplet, due to the effect of surface tension at their scale. The poor, similarly, have to deal with “surface tension” type phenomena that simply don’t affect you and me, given the scale of our financial lives (there’s an interesting “hydrodynamics of money” theory lurking here).

The big insight in the book is the extent to which the cash-flow management solution is a social, rather than individual. You might have the mistaken idea that until microfinance came around, the only financial instrument available to the poor was loans from sharks at predatory interest rates. This is wrong on two levels.

First, the loan “sharks” aren’t the evil oppressors we tend to imagine. The details are tricky (and the book devotes many pages to explaining them, with worked example calculations of true interest rates and meaningful cost-of-capital analyses), but if you actually examine in detail how loan “sharks” operate in poor communities, you realize that a lot of it is very humane, practical and flexible. It is actually the apparently superior low-interest banking models we use that are oppressive for the poor, due to the rigidity of how they can be used.

Second, there are a variety of instruments beyond shark loans.

Most of them are social. Some are as simple as you might expect: keeping money with a moneyguard (a trusted neighbor or older relative) to avoid temptation and protect against dangers like drunk husbands. Others are so complex, I had to do some pen and paper math to understand how the hell they worked. This includes a bewildering variety of loan clubs, revolving credit schemes, all sorts of peer-to-peer arbitrage, and amazing forms of what can only be called “angel investing” within the poor. One instrument that I was aware of is a traditional Indian one called a “chit fund” (a specific variety within a broader class called RoSCA — rotating savings and credit association — that is found throughout the world). Growing up, I saw “chit funds” advertised all over the place, but never knew what the hell they were and how they differed from banks, insurance companies or mutual funds. Now I know. They are RoSCAs with some clever auction and derivative-trading type mechanisms built in.

Grameen Bank of course, is the pioneer here. Most of us regard it as revolutionary in its sophistication in providing financial services to the poor. But the Aha! moment for me was realizing that relative to the sophistication of the natural financial systems within the poor communities, the institutions are clumsy, lumbering elephants. Devices like only lending to (for example) peer groups of women are blunt instruments compared to what the poor manage to do for themselves.

The Grameen story (and the stories of its peers and competitors), of course, features prominently in the book, but it is a story that you probably haven’t heard: how Grameen slowly grew more sophisticated as it learned to refine its offerings by mimicking what the poor were already doing.  For me, this was a radical reframing of what I thought I knew about microfinance. Rather than a smart banker figuring out how to profitably service an unsophisticated market with sophisticated instruments, the story is about a humble banker starting with a relatively unsophisticated instrument for a very sophisticated market, and gradually refining it to rise to the level of sophistication the marked needed and expected.

The Social Costs of Financial Sophistication

But the sophistication of organic financial systems among the poor comes at a cost. They put enormous strain on reserves of social capital. To make the mechanisms work, the poor are forced to trust each other far more than we rich people do. And like us, they are ordinary human beings, who’d rather not deal with unpleasant neighbors or annoying relatives more than they must. The social burden is bad enough that the poor often forgo even food, rather than have to deal with the mechanisms available to them.

To get a sense of the social-psychological pressure that the poor face, imagine this: you only get your paycheck if you and your 3 closest coworkers go to a weekly confessional meeting where you bare your financial souls to each other and to your manager. That’s the level of nanny-banking many microfinance institutions originally practiced. And when customers started avoiding microfinance, or sending their loan payment via proxies to the weekly meetings, or even reverting to traditional practices, the institutions gradually loosened up their models to lower the debilitating and unnecessary levels of social pressure that were originally assumed to be necessary.

Or imagine that your financial life revolves around conducting annual financial transactions greater than your total income with your least favorite aunt.

Doesn’t sound like fun, does it?

In fact, one of the evolutions in the practices of Grameen and its peers has been to gradually figure out how to trust individual poor people more (among a variety of other evolutions, which include non-social ones like being more flexible about the timing of microcredit, and the coupling microcredit from microsavings in more sophisticated ways that approach comparable social-organic equivalents).

There is also significant unsecured financial risk in the social-capital based system. Your neighbor might run away with the money he’s holding for you to a slum in the big city, for instance. Or your moneyguard uncle might use your savings to pay for his kid’s medicines, forcing you to choose between being a good family member and a jerky creditor.

Many of the books recommendations for financial institutions that want to do more revolve around helping the poor trade off financial independence and financial interdependence in more flexible ways.  This is perhaps the deepest lesson in the book: beyond a point, capitalism can only work if individualism is supported. The social mechanisms that keep the poor afloat also what keep them trapped and unable to bootstrap themselves out of poverty.

Lessons for Entrepreneurs

What lessons can entrepreneurs learn from the book? I’ll just list them here, and encourage you to read the book to get at the “how.” The list by itself won’t teach you how to actually achieve the learning.

  1. Diversify your cash management practices to a larger variety of instruments, time horizons and partners. It takes a village to keep a $2/day family going. It takes a village to keep a startup going.
  2. Stop thinking around the “wealth management” milestone of “free cash-flow positive.” Start thinking around gradually stabilizing and controlling cash flows in the presence of the small, irregular and unpredictable triad of forces.Your first meaningful financial milestone is predictable quarterly revenues, not cash-flow-positive.
  3. Try to simultaneously be an investor and an investee. Even if you are yourself scrambling for angel investments, you should be open to making (smaller of course) angel investments in others. Many angels already do this, but most are already successful. The strategy ought to be adopted even by those who haven’t yet “made it.”
  4. There is a world of cash beyond investment capital: the world of smartly-managed debt. Most startups think of debt financing later than they should, and in more limited ways than they should (there’s more to short-term debt than a credit line from a bank based on average accounts receivable).
  5. Milk as much value as possible out of informal transactions, barter, and reciprocal favor-banking. This is one reason it is great to be in a startup-hub environment. You could trade a week of your Javascript genius’ time for a week of your neighbor’s graphic design prodigy’s time. Link exchanges for cross-promotion is just the tip of the iceberg of possibilities.
  6. Diversify your income streams: complement your capital-asset project (say a Web product) with consulting and other short-term, non-capital-based income streams
  7. Get insights into how to orchestrate angel rounds from the way poor families manage big capital rounds, relative to their income (marriages in India and Bangladesh, and funerals in South Africa, are the running examples of capital raising in the book). I don’t think the lessons will port as well to VC rounds, which appear to be a lot more ritualized.
  8. Try to cycle more money than you actually earn. Money grows when it moves, and capital must circulate. Keep the money moving.
  9. Recognize the amount of active cash flow management you will need to do, and take on that complexity. Managing the finances of a startup is an order of magnitude more complex than managing a paycheck lifestyle or the budget of a department within a big company. Abandon those financial mental models before you step into the entrepreneurship world.

Most entrepreneurs recognize the need for this in the abstract. I’ve seen isolated examples of every “$2 a day” behavior in the book among entrepreneurs. But most only practice occasional bits of creative social-financial management. There is no deliberate attempt to manage an entire cash-flow portfolio and loan/credit models over multiple time horizons.

There are also two philosophical analogies between poor people and startups.

Most startups don’t make it. They die young of various curable-with-money diseases. That harsh reality holds in the world of the poor as well. Most of the poor don’t “make it.” They die younger, poorer, and more painfully and miserably than us rich people.

A small minority of startups make it. A small minority of the poor climb out of poverty. Startups exit poverty through acquisitions and (rarely these days) IPOs. The poor exit poverty by getting a child educated enough to enter the lower middle class via steady paycheck employment (“acquisition” by the middle class), or turning a small business into a success (“IPO”).

The Rest of the Book

As I said, I’ve chosen to pluck out and highlight the ideas from the book that are most relevant to entrepreneurs. But there’s a lot more to the book, and the book is well worth reading even if you aren’t interested in entrepreneurial matters.

Just the methodology of the study (financial diaries) is very illuminating, and should teach you a lot about how good social science research is done.

The anthropological details of the lives of the poor are fascinating. I found the study of funerals in South Africa to be particularly engrossing.

And finally, read as just straight-up “reality TV,” the stories of the various subjects are just fascinating. Each would make a fantastic movie. Most, unfortunately would be tragedies rather than redemptive tales of leaving poverty behind.

If you like this post, don’t buy me a coffee. Sponsor a micro-loan on kiva.org instead.

About Venkatesh Rao

Venkat is the founder and editor-in-chief of ribbonfarm. Follow him on Twitter


  1. Thanks for the review. And don’t feel guilty about your fascination with “povertynomics.” I share it, and I don’t feel even slightly evil about it. It seems like the social networking aspect is the critical underpinning to the cash flow management process. I found a similar network underlying the economics of felony probationers. As a prosecutor, I was always fascinated by how unemployed felons could regularly support an essentially lower-middle-class lifestyle. Probation reports would typically reveal spending habits of $1K+ per month with no visible means of legitimate income. The key to the mystery was the cooperative nature of criminal social networks. In any given month, the individual who has sold the most drugs or stolen the most loot is essentially required to share his proceeds with his less successful cohorts. As success rotates through the network, the responsibility shifts. Failure to cooperate is often met with violent reprisal. Time in the local jail, as opposed to incarceration in state prison, is seen as a reprieve from the onerous financial burden rather than as punishment. Income has the same earmarks of irregularity and unpredictability that you note. And this all operates completely under the radar of the average law-abiding citizen. How can we not be fascinated by such social dynamics?

  2. Do you have any comment on how the poor seems roughly equally as financially irresponsible as the rich? Despite their poverty, they still spend significant amounts of their money on drinking, entertainment, prostitution and the like. At the same time, they display sophisticated financial restraint in other ways. Any insight into this?

    • I think I agree with Michael below.

      I don’t have well-formed thoughts, but one illuminating bit of anecdotal evidence occurs to me. I’ve heard that when really poor people in East Africa win some money in the lottery, it appears that they generally blow most of it up by doing something like staying a few nights in a 5-star hotel.

      Irrational by some utility functions that weight lifetime financial responsibility highly, but completely rational by other utility functions. “I’ll never get a chance to do something like this in the rest of my crappy life, so might as well bank a great memory, and also avoid everybody else trying to get a piece of it.”

      This is one of the reasons I don’t take behavioral economics too seriously. Those guys sometimes forget that decisions are only rational with respect to a given utility function, and there aren’t any absolute ways of calling specific utility functions rational/irrational.

      There was a similar case in the show Everybody Loves Raymond. The poor brother, Robert, is having a tough time with his bills and Raymond finally gives him a loan. Robert promptly buys a trip to Vegas. Raymond is offended since the money was “meant to help you pay your bills.” Robert’s response seems perfectly logical to me: “the bills are always going to be there, but when am I going to have enough spare money to go to Vegas?”


  3. @Xianhang Zhang

    It depends how you look at these things; entertainment might look irresponsible from a purely financial perspective, but from a mental health perspective it would seem fairly reasonable. Its a hard stressful life, so it’s not really surprising that they need some distraction from it.

  4. It is fairly common for housemaids and drivers in Mumbai to request the employer to withhold a small portion of pay as a compulsory and regular saving. In some cases, they don’t trust themselves to save but often the reason is they cannot fend off demands from friends or alcoholic husbands for any cash on hand.

    Thanks for this review with just-enough snippets to whet appetite for the book. Ant vs elephant is a powerful metaphor.

  5. Dear Venkat,

    Powerful post! My neighborhood auto driver does a curious thing. For every trip in his auto (with regulars like me), he asks me to keep 15% of his fare. When he first said that to me, I was surprise. He explained that to me and asked me to stash it away until it becomes a corpus with INR 500. And then, he asked me to get him an SIP of 500 INR a month. That is smart, because he manages to cut through his margin, and his everyday subsistence / lifestyle deters him from spending on ‘other entertainments’. But he does a ‘sunday’ snack by visiting the food streets of Bangalore with his wife & his specially able son.


  6. Venkat,

    A buddy sent me this post and I really appreciate your careful insight. I may not agree with some of your conclusions or recommendations (most small businesses fail, according to the SBA, because of mismanagement, so managing a more complex portfolio of investments and debt doesn’t seem like it would help, necessarily; in other words, the kind of people who can capably manage sophisticated financials could already probably do a decent job of building their company), but your honesty and engagement really comes through. The analogies were great and your compassion is unavoidable. And you’ve managed to turn me onto something that really sounds like a great book.

    But could you explain, given the content of your post, why you advocate supporting Kiva rather than buying you a coffee (or just donating to a reputable charity)? From my (obviously, limited) experience, their partners are hardly discernible from loan sharks. Sure, they may advertise 35% interest rates on the website, but most under-report defaults, rates and fees, and many require applicants to put their house up as collateral. And Kiva is pretty upfront about just taking the lenders at their word (they don’t have the means to properly police every office and loan), even as they disguise what they do as a form of charity. From what I saw, these are the conditions under which graft and exploitation proliferate.

    Do you have some positive experience with microfinance that could counter this? I’d love to have my faith restored, because I fear I’ve lost my religion…

    • Sorry for the late reply, just saw this comment.

      I was not aware of such problems with Kiva. My experience with them is very limited (1 loan made by my wife).

      So basically, I don’t have an answer for you…

  7. This blog continues to amaze with its sheer interestingness!

    Quick idea: isn’t there a whole family of potential business ideas in providing more financial instruments to the really poor? Even if someone only makes $2 that’s still a couple of billion dollars in total globally. Not chump change, if someone could tap into it reliably. Kiva already provides a financial instrument to the poor, but there must be more angles on this I reckon.

    • Yes, that’s the focus of the last couple of chapters of the book and the whole “fortune at the bottom of the pyramid” kicked off by C. K. Prahlad a decade ago.

      For financial services in particular, well, that’s what the microfinance sector (Kiva is just the tip of the iceberg) is involved in.

      The value of this book is that it shows the sophistication of the organic/informal systems that any innovative financial service would have to displace. Most entrepreneurs think that “informal sector = disorganized sector” and that the world of the poor is a world of financial chaos. In fact, it is quite an efficient system, and it will take serious work on the part of the entrepreneurs to offer services that can work better.

  8. What do you think of the practices of the Micro finance firms, esp SKS, given the revelations that have happened recently? Some folks say for profit MFI is better than no MFI while others are opposed to for profit MFI even if it means it helps the poor. I understand the Grameen bank founder (Yunus) is opposed to for profit MFIs

  9. Ho-Sheng Hsiao says:

    This is very interesting, but … surprisingly, not terribly surprising to me.

    I had the fortune of being exposed to Robert Kiyosaki’s ideas years ago, and then I got exposed to people who were highly skilled at debt management about a year ago at a real estate investing seminar. I’ve played Kiyosaki’s “Cashflow 101” simulator and extracted a lot of things from that.

    Here’s something interesting. Kiyosaki told this story somewhere in the mass of his products. They initially carved out 40% of their take-home pay and pay the basic living needs from that. 40% is the upper limit for rent/mortgage payments without triggering a cashflow crisis — this is actually an important ratio that real estate investors use to assess who they want to lease/option or creatively finance a retail buyer. The Kiyosakis engineered their finances to deliberately trigger a cashflow crisis so that they are forced to hustle and manage cashflow (to the horror of their bookkeeper). Their expenses exceeded their disposable income after the carve out, which forced them to do anything from clever debt financing or teaching a seminar on the weekend. Over the years, they had steadily increased that percentage. At the time they were telling this story, their current carve-out percentage is at 80% despite achieving independent wealth.

    I’ve experienced this hustling and upping the standard of financial discipline by deliberately triggering a cashflow crisis. In March of this past year, my income became regular and predictable. And after catching up on buying into certain products and events that I had been putting off for the past ten years, I got lazy. It wasn’t until I deliberately do the same “carve-out” that forced me to use more sophisticated cash flow / debt management tools.

    The social thing is very important too. The guy at that seminar had stated you need friends who are willing to play. You can see this play out when playing Cashflow 101. Supposedly, the wealthy are able to beat the game (that is, get out of the rat race) in under 20 minutes. The first time I played with a bunch of newbies, I realized that the people who sit with you at the table factors in enormously into it. Newbies don’t know how to take advantage of every single “opportunity card” drawn in the game. Most — even experienced players — won’t even attempt to resell their opportunity to the other players on the table. Some players refuse to sell me a card because I get my table stake through debt financing; others simply refuse because selling it to me somehow translates emotionally to them as me taking advantage of them. (I can see this dynamic clearly now that I can frame it in terms of Powertalk vs. Posturetalk/Gametalk).

    Since in the stock, official ruleset of “Cashflow 101”, you may borrow from the bank at 120% APR at any time in any amount, it’s relatively easy to win fast through extreme debt leveraging. When I initiate something like that, I start a “sudden death” countdown in terms of months (or in game-terms, number of paycheck events; Pass through Go, pay up $10,000). I realize that my current investment process is the same: I measure ROI in terms of number of months before the initial cost comes back to me rather than the annual growth percentage. It’s a more useful metric when you got a sudden-death ticking down too.

    Seeing this blog made me realize I need to do more of this, not less.

    Good stuff as always, keep it up. I’ll add this book to my suddenly-expanded queue.

    • Ho-Sheng Hsiao says:

      Side-note: as a person living in Atlanta, meaning not-Silicon-Valley, not-Startup-Hub, there’s a lot of interest here in trying to kickstart a startup community. Reading Steve Blank’s history on Silicon Valley and some strategy book tells me that it’s dumb to try imitating the factors that went into Silicon Valley (treating the strategic advantages inherent to Silicon Valley as a robotic recipe instead of looking for the unique, strategic advantages in the particular target area). Especially now that Blank is suggesting the traditional barriers of entry for startups have fallen (new strategic advantages are presenting themselves and there are people looking in the past).

      Your comment on the “village” got me thinking about this. Someone who want to create an entrepreneurial hub (though not necessarily a startup hub) can create the conditions necessary for the “village”. It means recruiting like-minded individuals who think like this to take advantage of the social financing. Hm.

      • Ho-Sheng Hsiao says:

        “In 2007 I was 23 years old, working full time as a product manager at ZoomInfo while moonlighting on a number of entrepreneurial side projects. I had previously started a few companies with angel funding and a couple small exits, but certainly nothing of scale. In a whirlwind of a month, all of that changed based on an inebriated conversation while standing over a keg of beer. As the title of this posts suggests, this random keg conversation transformed into finding an amazing technical co-founder [1], building a prototype, and raising $5M dollars in VC funding. These major events that typically take months (sometimes years), happened in less than 4 weeks. ”

        “If all of these avenues are limited, what was it that lead to my whirlwind of 4 weeks in 2007? Six months before starting Viximo I was lucky enough be one of the original members of Betahouse, the first ever co-working space for technology entrepreneurs in Boston [4]. It was a diverse group of individuals who were each working on our own projects, but there was no hesitation to collaborate and overcome problems on each others projects. We were invested in seeing each other succeed. Everything that happened in the early days of Viximo I can credit to Betahouse. … It wasn’t the skills, network, mentors, or great beer selection from Betahouse that was the catalyst to this leap in progress. The catalyst was the relationships between members of the group. At the time, Betahouse was the beginning of my first Core Peer Group.”


        The review on “Portfolio of the Poor” convinced me I need to up my social capital network. This article is an extension of that idea. I’ve experienced something like this with a “core group” of martial art peers several years ago, so I can see its effects. I guess what really matters now for me is to move it into “operations” ;-)

    • Thanks for this detailed description of what the Cashflow 101 gameplay feels like. I’ve been tempted to buy it multiple times, but was skeptical about whether a game can truly capture the complexities. Seems like it captures the emotional feel of the process even if the details are over-simplified.

      I think I’ll buy the game now. Just need to find a few people to join my game-playing group :)

      Incidentally, a couple of years back, I started designing my own game along these lines, brandhood before realizing I didn’t know enough to do it well, and that Kiyosaki’s game basically does the job though not in the “social media path to free agency” model which I was trying to get at…

      I might resurrect this game project once I try Kiyosaki’s, if I can come up with some differentiating ideas to make it interesting.

      • Ho-Sheng Hsiao says:

        There is a free, online version put out by the Kiyosakis. “Free” meaning that you have to register an account (and get on their mailing list) to play. Let me know if you want to play sometime. The rules for debt financing in the web version is a little different from the desktop version.

        They don’t sell the computer version of the game anymore. You have to find used copies on Ebay. (Or elsewhere *cough*).

        I got board game for a lot of other reasons. It is a very good tool to assess character and whether you want to go partner up with other people. I’ve had a few people ask me to teach them to play that game and so it was easy to point out the extreme emotional things happening to them as they try things … even though they intellectually know it’s just a game ;-) And sometimes you get land on an opportunity. Like the dude running the REI’s cashflow 101 subgroup saying, “Here’s how you can talk to the people on the fast track (accredited investor)” then later “Oh… we were well on our way to being an accredited investor but now with this new opportunity on the table, that’s going to accelerate. So if any of you know people interested in this particular opportunity …”

        Just so you know, since the 2008 crash, the official way to play the paper-and-pencil version (at least, by the national cashflow 101 organization) has changed. It’s not exactly a “house rule”. You now always draw an “Opportunity” card and then a “Market” cards on every turn, except when you land on the “Market” square; there you draw a market card first before drawing an opportunity card . Its purpose is to simulate more chaos and opportunity in the current market conditions (and to make the game run faster).

        The cashflow 101 subgroup of the Atlanta REI actually has special challenge cards. My favorite was the laid-off CIO who has $0 in income, around $15k in monthly expenses, $800k in a pension fund -but- if you withdraw any it now, you have something like a 20% penalty. It is a funny card because I can see newbies freaking out about it even though for me as a player, that’s an -excellent- position to be in. Game on!