The McDonald's Model
I've been reading the 4-hour work week and it talks about building a 'Muse', a system that passively generates income for you (usually in the form of a product that can be easily/quickly manufactured).
It got me thinking a lot about starting some kind of 'side hustle' as a lot of people in the FIRE community might call it, to generate some additional income outside of my W2.
Then I started to think about what a business really is, it's an entity just like your neighbor Joe. Joe has a Balance Sheet that Lists his Assets, Liabilities, Income, and Expenses. A business also has a balance sheet.
Simultaneously I was reading about the business model of insurance companies (not sure why), from what I understand, An insurance company will charge monthly premiums from customers (using some mathematical model involving risk quantification to determine a premium) and make payouts to legitimate claims, Ideally there is a positive delta between the total premiums charged and the sum of all the claims paid out, That is the company’s profit. HOWEVER, these companies also invest the premiums in safe short-term assets like bonds in the meantime (between payouts) to make additional income.
Isn't this a business model that all businesses should adopt? Doesn't it make good financial sense for a Business to have multiple streams of income just as it does for your neighbor Joe? If Joe was to rely 100% on his W2 income to survive, most of us here in the BP community at least would consider that Risky. Joe should invest in real estate to have some passive income in addition to his W2, but so should Joe's Custom Cowboy hat business, right??
Let's say ‘The Four-Hour work week' has got me FIRED up, I'm ready to build my Muse and get some passive income. Say I'm starting a Lunch box company targeting Young professionals that travel a lot. Does it make sense for 'LunchBox LLC' to have two departments, one that sells lunchboxes another that invests company profits into Office Space, Commercial Space, or even income producing Residential Real Estate?
I'm curious what people on BP and in my local area (Richmond, VA) think? Isn't this what big companies like Berkshire Hathaway do? Does BP own the building it's HQ is located at? What reason would a business owner have not to own its own Office building? Should every business owner adopt the McDonald's model? Why or why not?