“Once upon a time there was this quaint little village. It was a great place to live except for one problem. The village had no water unless it rained. To solve this problem once and for all, the village elders asked contractors to submit bids to deliver water to the village on a daily basis. Two people volunteered to take on the task, and the elders awarded the contract to both of them. They felt that a little competition would keep prices low and ensure a backup supply of water.
“The first person who won the contract, Ed, immediately ran out, bought two galvanized steel buckets and began running back and forth to the lake which was a mile away. He immediately began making money as he labored morning to dusk, hauling water from the lake with his two buckets. He would empty them into the large concrete holding tank the village had built. Each morning he had to get up before the rest of the village awoke to make sure there was enough water for the people. It was hard work, but he was very happy to be making money and for having one of the two exclusive contracts for this business.
“The second winning contractor, Bill, disappeared for a while. He wasn’t seen for months, which made Ed very happy, since he had no competition.
“Instead of buying two buckets to compete with Ed, Bill wrote a business plan, created a corporation, found four investors, employed a president to do the work, and returned six months later with a construction crew. Within a year, his team had built a large-volume stainless-steel pipeline which connected the village to the lake.
“At the grand-opening celebration, Bill announced that his water was cleaner than Ed’s water. Bill knew that the villagers had complained about the water’s lack of cleanliness. Bill also announced that he could supply the village with water 24 hours a day, 7 days a week. Ed could only deliver water on weekdays because he didn’t want to work on weekends. Then Bill announced that he would charge 75 percent less than Ed did for this higher-quality, more-reliable water. The villagers cheered and immediately ran for the faucet at the end of Bill’s pipeline.
“In order to compete, Ed immediately lowered his rates by 75 percent, bought two more buckets, added covers to his buckets and began hauling four buckets each trip. In order to provide better service, he hired his two sons to give him a hand on the night shift and on weekends. When his boys went off to college, he said to them, ‘Hurry back because someday this business will belong to you.’
“For some reason, his two sons never returned. Eventually, Ed had employees and union problems. The union demanded higher wages and better benefits and wanted its members to only haul one bucket at a time.
“Meanwhile, Bill realized that if this village needed water, then other villages must need water too. He rewrote his business plan and went off to sell his high-speed, high-volume, low-cost, clean-water delivery system to villages throughout the world. He only makes a penny per bucket of water delivered, but he delivers billions of buckets of water every day. Whether he works or not, billions of people consume billions of buckets of water, and all that money pours into his bank account. Bill developed a pipeline to deliver money to himself, as well as water to the villages.
“Bill lived happily ever after. Ed worked hard for the rest of his life and had financial problems forever after. The end.”...
“Am I building a pipeline or hauling buckets?”
Source: Rich Dad's Cashflow Quadrant by Robert Kiyosaki