BigDeal presents: Codie Sanchez on The Hustle Daily Show

Hey, Codie here. We're doing things a little differently today and sharing an episode I recently guested on that you will not want to miss. So I sat down with the host, John Wiegel, for an interview on the Hustle Daily Show, which is your daily dose of business, tech, and original stories to keep you in the loop on what's trending in business. Some of my favorite parts were how tactical we got in this interview. Like, if you want real steps to buy a business, build a business, and scale so that you actually make money and have a good time, you're going to love this episode. And you should definitely stick around to listen to this entire interview and then catch up on the latest and greatest in biz by subscribing to the The Hustle Daily Show, wherever you get your podcasts. I'm a big fan. I think you will be too.

Good morning, everybody. Today's Monday, June 9th. I'm John Wygale here with Codie Sanchez from The Big Deal Podcast and so much more. And this is The Hustle Daily Show. While everyone's chasing the next unicorn startup, millionaires are quietly buying laundromats and plumbing companies. Codie Sanchez has a portfolio of boring businesses that most investors wouldn't touch with a 10-foot pole, and now she's on a mission to create a million financially free humans who never have to ask permission for a vacation day ever again. Today we're picking her brain on how to actually scale that boring local business that you've been eyeing. We'll get to all that in a bit, but first, let's give you the news in business and tech. Starting us off today, Buc-ee's, the Texas-based convenience station chain with a cult following, is suing South Carolina clothing company Born United for selling, quote, Tac Buck apparel featuring a beaver that's strikingly similar to Bucky from Buc-ee's, a cartoon beaver in a red cap. But this beaver is, uh, in tactical gear and holding a gun. A little different. Buc-ee's has been litigious in the past, suing another convenience store brand for using a beaver logo and preventing a chain called Buc-ee's with a DKY from expanding into Texas. So they are on a tear. Next up, Lululemon might have lost $8 billion from its market cap last week. The legging and sportswear giant saw a 20% drop in its stock price, and that's all despite a strong quarter with revenue growing 7% to $2.4 billion. The reason for the stock decline? Take one guess. Yes, it is tariffs. Over to the job market. Although it may not seem like it right now, the Bureau of Labor Statistics reported that 139,000 jobs were actually added in May. This also may seem like a large gain, but in April we saw 147,000 jobs added. Economists are describing the current labor market as, quote, "steady but cautious," which sounds not so great, to be honest. And finally, Summer Games Fest featured several gaming announcements this weekend, including Resident Evil 9: Requiem, a Game of Thrones strategy game, a new trailer for Death Stranding 2: On the Beach, which comes out this month, and Wu-Tang: Rise of the Deceiver, in which you could play alongside the Wu-Tang Clan. Sounds cool. All of it. Onto our main segment today, we are joined by Codie Sanchez to talk all about scaling boring businesses. You're going to want to hear this one. Let's get into it.

All right, Codie, welcome to the show. Thanks for being here.

Thanks for having me.

Yeah. So let's talk about boring businesses first. I've heard you describe boring businesses as things with proprietary information, no patents, no sophisticated technology. Can you talk about what a boring business is to you and what the advantage is for buyers of a boring business?

To me, a boring business is one that's simple, repeatable, and overlooked, but kind of quietly prints cash while everybody else is out chasing some cash-burning shiny object.

Mm-hmm.

And so I think about it like it's the roofing company that you pay for, but you don't really think of as a business that you would wanna run. It's the landscaping company. It's the laundromat. It's the car washes. They're not so boring, but they are very overlooked and often profitable.

Yeah. Things that have everyday use by people, things that have consistent business coming in.

Yeah.

We'll get more to that. I, I wanna know first, I know you've purchased many businesses, but is there a particular one that you could tell us about that you've acquired that turned out to be surprisingly profitable? And did you not think it would be at this beginning too?

You know, the one that I like to highlight is my first, like, real deal which was a laundromat. And the reason why was because I think it's accessible to everybody. We all understand what a laundromat does. I think most people, if you are business-minded, can run a laundromat.

Mm-hmm.

And they're not that expensive to buy. Mm-hmm. So I don't think they're the best business long-term, but the first one I bought, I bought it for about $100,000.

Okay.

And it made about $67,000 in profit.

Okay.

Which people are either on two sides about. They're like, one, why would anybody sell anything for $100K that's making $67K? That's crazy. That's such a great deal. And then other people go, that's an awful deal. You're only buying something that makes $67,000. That must mean you have a really low-paying job. And both those things can kind of be true. If I had stopped at that one laundromat, it would've been a nice side hustle. But the key is once you find something that works, you know, like Bezos says, exploit it mercilessly. And so I realized, wow, this works. Well, what happens if we buy 2, 3, 4, 5, 6 and scale up to a bunch of laundromats? And then eventually we sold some to strategics. Cool. And you know, cash flow on others. And so that was one of the first deals deals that I did. But don't get me wrong, you know, one of the other deals that I did, we bought like outsourced VAs basically, essentially. And that business, you know, they cooked the books, there was total fraud, we lost a couple hundred K on that deal. And so there's two sides of the coin to everything. But I like boring businesses because they're a lot easier to analyze, in my opinion, to see if the numbers are real. And so that's why I keep buying them.

Yeah.

That's great. I want to dig into a bit more about the laundromat example. You said you acquire it, paid $100,000 for it, which could be a good deal, could be a bad deal depending on who you talk to. Now, for current laundromat owners, what are they not doing to scale their business at the level that you did? And what can they do?

Well, a couple things. One, I think every business you should start with the end in mind. So we have something we call the cash out cake.

Sounds delicious.

Exactly. For what you want to do to sell your business for more. And we keep it really simple. I like things that are so simple you can explain it to grandma, because I think if you can you do that, then you can have your team repeat it without you constantly repeating it. So I literally do it in the style of a cake.

Oh my God, amazing.

And there's 7 steps, which is basically we wanna have a clean P&L, we wanna have systems and processes, we wanna have consistent cash flow and repeating cash flow in the business.

Mm-hmm.

We wanna have a team with management in place so that you are not the only one running the business. Mm-hmm. You wanna have a business that has some sort of loyalty from your employees, which really just means incentive plans. You wanna have a sales team, not a sales individual.

Mm-hmm.

And then you want diversification of cash flow, which we call eggs in one basket.

Mm-hmm.

And so I think of each of these things like an ingredient where if you put them inside of your business, you come out with this sort of cash cake.

Mm-hmm.

And so most laundromat owners run it like a job, not a business.

Right.

They do not have an operating system. That's first and foremost. The most successful businesses in the world run on operating systems. Most entrepreneurs cannot tell you how they operate their business in one sentence, and then their team can certainly not repeat it. And so we put all of our businesses on something we called the COS, the Contrarian Operating System.

Mm-hmm.

And I learned that from Vista, one of the best private equity funds in the world who buy businesses because I want to repeat the success in a very repeatable business. Mm-hmm. You know, we're not trying to be Amazon where one laundromat's going to the moon and the next laundromat's doing something totally different. These things are repeatable, right? So why don't we have a scaling system that's just a scaffolding that we build every time so we don't have to think about it? So that operating system I think is your very first order of business. Imagine, you know, if you got on a plane and even the best airline pilot in the world didn't go through a checklist, you'd be like, I don't love that for me. Yeah. Can you go ahead and check all of this off? And yet we run businesses sometimes with multimillions without an operating system. And so one of the things we've realized after teaching thousands of people how to buy businesses is we have to start teaching them how to integrate operating systems because then you can have a business, not a job.

Mm-hmm.

And you can steal other people's homework on that. And so That would be the very first thing I do. And your operating system teaches you everything. It teaches you how to hire people, it teaches you how to onboard them, it teaches you how to do your pricing. And, uh, if you do it right, you only have to do it once.

You're talking about operating systems, very valuable. I wanted to get into other things that you would do in maybe your first 90 days. What's the playbook look like? You acquire a business, how do you get started? You implement some awesome operating systems. What else do you do?

Yeah, so we have 3 phases for the first 90 days. So the first phase is called transfer and transition. So what you really wanna do is you wanna set up immediate wins like making sure all your employees are on board, doing a 30-minute financial health audit, adding some common SOPs and processes across the business by just transitioning everything that they were doing previously. That's really day 1, day 2, day 3. Week 1 is you're really learning the business. So, How do you have an observation log with everything that you've learned inside of the business overall? Mm-hmm. What do your customers look like? Weeks 2 through 6 are deep dive. So that's like financials, team operations. We wanna make sure that the business continues to thrive. Phase 2 is stabilize and systematize, which means we wanna strengthen the core of the business. So we wanna do like a profit margin analysis. We wanna see if we can turn a business from a cash suck business, meaning you provide the service or product first and then get paid. To a cash flow business, AKA you take in the money and then provide the service or the product. And then the last one is phase 3, which is power up. And this is where we make material changes to the business. I usually don't like to do this in the first 60 days, more like 90 days, unless there's something really, really obvious. And in this next power up phase, we're thinking about, can we increase our prices?

Mm-hmm.

Can we add 3 tiers of prices? Do we have recurring models on top of them? Do we have a process for hiring A-players and making sure we understand all what the definition of an A-player is? And so those 3 phases, each broken down in 30 days, is how you make sure that your baby doesn't die if you acquire a business, because the first year, just like with us humans, is the most dangerous. Mm-hmm.

Diving more into part 3 of that, the price increases, right? So a lot of these quote-unquote boring businesses, laundromats, et cetera, are local. Yep. Heavily localized, have a local clientele. And when you talk about increasing prices or scaling the business, how do you do that without losing customers, the local people in town that have been coming to this business for how many years? Is there a way that you can balance those two?

Yes, the three C's: compare, contrast, compete. So first, you may not realize that you are underpriced already. You have a fear inside of yourself as an entrepreneur that if you raise your prices, clients are gonna leave you. You might not even realize that the business hasn't raised its prices in a year, two year, three years, five years, and you're behind the market. And so one, let's just see where you're at. What are all your competitors doing in the region? Let's do a little competitive analysis.

Mm-hmm.

Then we wanna contrast. So I don't wanna be the low-cost provider unless I'm gonna do massive scale and be Walmart, right? Mm-hmm. It's actually very hard to provide services for the bottom. You have to be an incredibly good operator over time. Mm-hmm. And so I wanna contrast our services. We're cleaner, we're safer, we follow up, we have better customer service, whatever the case may be. So I wanna think about what are my differentiators, and then I wanna highlight those. And then the last one is I really wanna think about where can I compete? So with somebody else who is the premium product, what are they doing that I'm like, oof, that's dumb. We're gonna do this a lot better. Mm-hmm. What can I do to add additional revenue lines that they're not even thinking about? And so with those 3 C's, you can raise your prices and have your customers thank you. You know, think about this. When was the last time you went to Instagram? Let's say, I don't know if this is a thing dudes do, but chicks do. I go to Instagram and sometimes they get me with an ad.

Oh yeah.

You know, and I'm like, ooh, I wanna buy that. Clothing. But then I click on the ad and I go to the website and it's like $3.97 for a shirt. And so I'm like, ah, this is some made in China, you know, not gonna be good stuff.

Uh-huh.

So I leave. That is the cheapest shirt available, but I don't want it. And so we have to remember that some people want to pay more and that paying more is actually a signifier of value. People aren't taught that. Mm-hmm. In most of my businesses, I try to be the best, but not always the cheapest. Mm-hmm.

That makes a lot of sense. Because when you do see something like that, that's low price, you think low quality, which may not be true.

100%.

Mm-hmm.

And that's very standard. I mean, think about it also. It depends what market segment you're going after. But, you know, you go to the car wash, let's say, and I go to the car wash and there's like the lowest tier and then there's the mid-tier and then the high tier. Well, I'm actually the type of person I'm like, I probably don't go to the car wash as much as I should. So like, just do it all.

The works.

Like whatever you do with the stuff, put it on the car, right? But the average person is going to buy that middle tier. Because they're like, "Well, you know, I don't know if I need all the extras, but I don't want the lowest." And so there's this pricing psychology that really does play into businesses and the pros realize it, but a lot of smaller businesses do not price optimize.

Oh yeah. And when you do scale your business, how do you personally manage having so many businesses at the same time? Do you have a person in charge of every one? How often would you say that you personally check in on your businesses?

Yeah, well, one, I would say people don't realize that owning multiple businesses is totally normalized in an industry called private equity, in an industry that has made more billionaires than just about anything else.

Yes.

So it's us entrepreneurs that don't think that it's normal. We just don't have the systems to own a lot of businesses, whereas private equity is all about systems. They don't have the magic juice that entrepreneurs have. They don't have the creative itch to go from zero to one and truly innovate. So what do they do? They buy our businesses at the point where they're the most profitable and maybe we're in the most pain And then they just optimize the shit out of it. And so one, I would just try to break your frame as an entrepreneur. If you're thinking, I can't own multiple businesses, or there's no way anybody does, that is a normalization that keeps you poorer than people who realize that it's actually quite normal for the best. Second, I love Charlie Munger's quote from one of his partners, who I'm blanking on his name. He says, when you get a dog, you don't do the barking for it. And the same is true for hiring employees. So when I hire CEOs, I don't do the barking for 'em.

Right.

They run the business, they hire the individuals, and I do something called scorecard-based management, which means at any given time I can see in every single one of my businesses because of our operating systems how much money they're making, if they're gonna hit projections, what is behind from a project perspective. And when you set up your business that way, it also allows you to just stress a little bit less. You know, I'm sure you feel like this with your podcast or anybody listening. You're like, where is that? What happened? Are we doing that thing? You owe me that. Follow up. Wait, what time? Date, right? No, I don't want any of that.

Oh yeah.

I wanna have a system where I can go and check a third-party resource to say, yeah, we're on time. Yeah, we're on project goal.

Mm-hmm.

And so that is the goal. One, hire great people, don't bark for them. Two, have a scorecard-based management system where you don't have to have 3-hour-long one-on-ones. You don't even have to have one-on-ones with most of your employees. You can look at the scorecard. If anything's wrong, you call 'em about it.

Mm-hmm.

And It has taken me a long time to get there. I still want to perfect many of our systems. I don't think they're perfect, but man, my life has changed from realizing that there are incredible people who just don't wanna take the pure risk of entrepreneurship that you can give a portion of your business to or give incredible salary to and they'll run it for you.

Totally. And you've invested in so many kinds of companies from across the board, laundromats, cannabis, kind of you name it. What industries are you personally most excited about going forward?

Well, there's two types of businesses we buy right now or invest in. So there's one that I think is super underserved and now people are catching up to it. And that's what I'll call SMB tech, what I'll call small business infrastructure tech. And so we have a venture capital fund, Contrarian Thinking Capital, and basically our entire thesis was, wait a second, we own all these laundromats, we own car washes, the software that runs them is bad because it's pen and paper.

Yeah, right. Manual.

So what would happen if we increase the margin with niche tech tools?

Mm-hmm.

And so we went out and we invested in, I don't know, 22, 25 companies in that vein. And by doing that, we have one of the top 10% performing VC funds in all the 2022 vintage on AngelList. And it's by investing in the tech that powers small business. Mm-hmm. Now, why is it interesting now? Because Before it was my dad running these businesses, right? 66+. Right. If I go, Dad, the thing is I got a great CRM, I got a payments purchaser that's gonna lock right in, it's gonna go all to your iPhone. He's like, no. But now we're transitioning to the next generation and they are starting to use the tools. And so I think this will accelerate. It's our thesis for Fund 2. So that's one of my favorite.

Mm-hmm.

And then on the other side, we invested in companies like Resi Brands, which like Pink's Window Cleaning, That One Painter painting company, Monty's Handyman Company. And these companies are service-based businesses, home services mostly, although we do some commercial. But here's the kicker. We believe that trade jobs and service-based jobs have massive dignity in them. And just because vibe marketing and SaaS is really sexy on Twitter, I can pretty much guarantee you one thing. There will be more millionaires made with boring everyday businesses over the next 10 years than there will with AI tools and vibe marketing.

Why?

I mean, Bezos talked about this too. He felt the same way with e-commerce. He was like, there is massive advantage to first movers and to the big guys. You either have to be really small if you're gonna be in e-commerce, or you gotta be huge because the middle is a death zone. And that is true with internet businesses because scale is democratized. Anybody can eat a portion of your pie. Right. It's really hard to eat a portion of my pie in Lubbock, Texas, when I have a window cleaning company. And so I believe that these businesses will continue to make more millionaires, as the data seems to have proven that they did the last 20 years.

Yeah, the things that work every day, people need everywhere, all over the country and all over the world. So seems pretty tried and true to me. But, uh, Codie, thank you so much for taking the time to chat with me today. It's been a real pleasure.

Pleasure of mine.

Yeah.

Thanks. Hopefully it was useful.

Oh, 100%.

All right.

And that'll do it for us today.

Thanks for tuning into The Hustle Daily Show. We're a proud part of HubSpot Media. Our editor today is Robert Hartwig and our executive producer is Darren Clark. We've got a lot more tech and business coverage in our newsletter. If you're not subscribed, go sign up at thehustle.co/email and follow us on Instagram @thehustledaily. We'll see you tomorrow.