Toll position

Since the future economic outlook in the CNMI does not look too rosy, many of you may be looking for additional sources of income. Retirees are painfully aware that the CNMI government’s liabilities include a $79-million deficit representing overdue Retirement Fund payments—which will not ever be paid and will only accumulate until its eventual collapse. If you have an existing business, you definitely could use an injection of liquid assets to revitalize your business and improve your quality of life.

When Rik was in the Air Force, we looked for a way to supplement our income. Because of an erratic flying schedule it was very difficult to start a typical business so we spent about $2,000 on books, tapes, and reports promoted in magazines, letters, and infomercials that promised quick and easy cash flow with little or no effort. We researched various plans, propositions, and proposals to unearth the few that seemed worthwhile. One idea that was particularly interesting was the “toll position” concept.

This position allows you to control an asset capable of generating an ongoing stream of revenue with little effort. Imagine the government building a bridge between Saipan and Tinian, and in order to reduce the cost of the project, a tollbooth is set up on either end. Every vehicle that wants to get to the other side of the bridge has to pay a $1 toll for the privilege of crossing the bridge.

Your toll position would constantly “work” for you to ensure an ongoing income. This can come from various sources, such as copyrighted art, music, books or movie scripts, patents, trademarks, chemical formulas, net/net/net real estate, franchising, or other licensable concepts. For example, if you had proprietary rights to a product that was in great demand by many customers who needed it on an ongoing basis, you would have a good toll position. With the right toll position you can make a fortune without risking one.

Did you know that the richest person in the world got his lucky break by acquiring a toll position that launched his fledgling company and made it a household name? In the early ‘80s, Bill Lowe of IBM approached Bill Gates about packaging Microsoft’s programming languages for their yet-to-be-announced Personal Computer (PC). Gates wanted IBM’s business so he offered to provide a 16-bit operating system—even though Microsoft did not have one at the time.

Gates and Steve Ballmer negotiated the operating system deal with IBM while, almost simultaneously, Paul Allen negotiated buying QDOS from Tim Paterson. Allen got Paterson to agree to sell QDOS for $50,000, and Microsoft turned around and licensed it to IBM for about $1 for each computer that the MS-DOS program was installed. Gates understood the importance of retaining ownership of the program so that he could develop his own toll position.

Even better for Gates, IBM could not enforce an exclusive license because of a 1956 consent decree to publish extensive information about all its hardware and software. Therefore, IBM spawned the next generation of the computer revolution by setting the industry standard with open architecture and a nonproprietary operating system. The timing was great for Microsoft. They capitalized on a boom in computer development and sales by other companies, which tended to use an operating system compatible with IBMs. By striking much better deals on its toll position with these other companies, Microsoft was able to sell more than 100 million copies of MS-DOS and create an income stream that catapulted the company to the top of its industry.

The second richest man in the world, Warren Buffet, creates toll positions by carefully investing in companies that meet certain criteria. He refers to these companies as a “consumer monopoly” because they sell a brand name product or have a unique position that allows it to act like a monopoly. The products and services offered by these companies are only available through these companies. These tend to have higher earnings and greater potential for long-term economic growth than do their competitors.

Now you may not be as fortunate as Bill Gates or Warren Buffet, but their stories should drive home the point that your business or idea should be unique, proprietary, and in demand. The barrier to entry should be minimized through high quality products and services that provide outstanding results and create a high demand and great profits through a high markup and/or high volume. These products should also have high repeat purchases because they are consumable or needed on a frequent basis. And of course, you will place yourself into a position where every purchase places a percentage of the sale in your pocket.

(Rik is a business instructor at NMC and Janel is the owner of Positively Outrageous Results. They can be contacted at: biz_results@yahoo.com)