Codie Sanchez: The Millionaire Formula They Don’t Teach in Business School

How do you define a Main Street business?

A Main Street business is what I call a mom-and-pop business. If you want to get rich, you have to own things. And you might say, well, where's the data to back that up? And I'd say, well, 68% of all millionaires own a business. Your next question should probably be like, well, who's stealing ownership from us? Where did it go? Who took it? And I would really say two words typically: private equity.

So the private equity firm that bought it ran it into the ground. How do you run a business into the ground? What is it that people or that companies do to screw it up?

Here's why I think private equity is bad for society. And we were sold a lot of lies. And that is like, I think this way of making money is more prestigious than another one.

Fuck you. Other than seller financing, the first element of creative financing that comes to mind, what other forms are there?

Well, we teach 21 different ways to finance a business. You're never going to be able to like, I bought a business with no experience in 30 days, no money down, and became a millionaire. And now I don't work at all. Like, that's not realistic.

Yeah, exactly. That sounds like that. And I lost 50 pounds while doing it.

Yeah, exactly. Every business is a sellable business and a buyable business. Before you go and buy a business, most people will say, Codie, what's the best type of business to buy? And that's how I know you're not ready to buy a business. And so if that's the case, then buying a business totally changes the game. How many SBA loans where people go out and get an SBA loan to buy a small business, how many of them fail? At the peak, 25%. The average, 15%. The lowest level, 5%. Charlie Munger famously said, when you get a dog, don't do the barking for it. That is the goal. These companies. And I wish I knew this earlier.

What should a person do if they're nomadic?

Well, there's a lot of online businesses. Your opportunity will always be limited by your ability to recognize it.

What are the things that you say no to? How do you have a framework around that?

Yeah, we call it— it's the 100-to-1 rule. In order for you to get really rich doing almost anything in life, you have to say no way more than you say yes. Most business owners don't actually know what their roadmap is.

What's your feeling about in-person versus remote?

The data seems to say across the board that in-person companies outperform.

Speaking of operating, how do you find a great operator? What makes a great operator and how do you know when you've found one?

First, I start with definitions. So we call it a cheetah versus a house cat. Both cats, right? But if you want to fight, a cheetah is probably better than a house cat, right?

Yeah.

So what does a good operator look like? We say one that has spots, not stripes.

Ah, my house cat actually has spots.

Oh, well, fuck. Now we're in trouble. This is not going to beat my cheetah.

Let's talk about building wealth. But not by climbing the corporate ladder and not through unicorn tech startups. Let's talk about building wealth through ownership of the businesses that you and I interact with on a daily basis. We're talking dry cleaners, plumbers, electricians, ownership of Main Street businesses. These aren't glamorous, they're not tech sector, they don't have a whole bunch of intellectual property, they're not necessarily interesting cocktail party conversation, but they can make you incredibly rich. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade-off. And that's true not just for your money, but also your time, your focus, your energy, for any limited resource you need to manage. So what matters most and how do you make choices accordingly? That's what this podcast is here to solve. We cover 5 pillars: financial psychology, Increasing your income, investing, real estate, and entrepreneurship. It's double I FIRE. I'm your host, Paula Pant. I trained in economic reporting at Columbia, and I help you set priorities and build wealth. Today we're joined by Codie Sanchez. Codie built a 9-figure holding company by acquiring these types of businesses. Now she's sharing her framework, how to spot them, buy them, and scale them. Even when you're starting small. She has over 8 million followers on social media and more than 750,000 subscribers to her newsletter, Contrarian Thinking. Her book is called Main Street Millionaire, and she shares how she built a 9-figure holding company by buying these very often overlooked businesses that make a deep impact in our communities. Enjoy this conversation with Codie Sanchez. Codie, tell me about the first laundromat that you bought.

I was working a 9 to 5 at the time and a lot of hours, 60, 70-hour weeks. I was in finance and I call it my little midlife crisis because it was the point in which I realized I didn't want to work for somebody else forever., but I wasn't smart enough or I wasn't able to take enough risk to think about just jumping to start my own thing. And so instead of buying some fancy car or whatever most people do in midlife crises, I was like, God, where's my golden parachute? Like, how could I ever get out of this thing that I'm doing right now? Because when I look into the future and I see my boss and my boss's boss's boss's job, I don't want to be them. I don't want anything to be— I don't want to be anything like those guys. And so instead, I bought a laundromat, which might sound weird, except I was in private equity and investing. And so I didn't know how to start a company. I didn't have a brilliant idea. I didn't know how to make money from zero. In fact, I didn't think I was very good at that. But I did know, well, you can take money and leverage and expertise and you can buy somebody else's prior 20 years of work, which is what I did for the laundromat. This laundromat was a small business, less than 6 figures in purchase price, and it wasn't going to replace my salary., but I needed to learn if I could make like my first 5 figures by myself. Could I do it without a huge corporation? Could I do it without a ton of cash? And that laundromat proved that to me. Uh, and I bought it with a guy who was in real estate. He knew how to operate slightly. He knew how to go around to different places and collect cash, which we had to do. And he knew about location, like geography, what really mattered demographically to buy a laundromat. And so I took the plunge and that first laundromat became many laundromats. Before we sold off all of them.

Okay, so a few follow-ups to unpack there. First of all, a laundromat specifically is a very cash-based business. A lot of people, you know, use cash when they're paying. How do you know that the numbers that you're looking at are accurate when you're dealing with a business that handles that much cash?

Yeah, so there's something called coin counting. So when you go and you analyze a laundromat, you definitely look at their balance sheet, you look at their profit and loss statement, but you really want to look at their tax returns. And there's probably some discrepancy between the two because the owners aren't paying the taxman everything they should, especially when the business has been around forever. And then also they might just have things that weren't really business expenses, but they put them through as business expenses. And so anyway, those are called add-backs. And in this particular business, you want to do something called a coin count the first time that you do a laundromat. And that basically means for like a few days randomly a week, you're going to go in there and you're going to see how many people actually do laundry. So you're going to count the daily averages and then you can multiply that to the weekly averages and you can see if there's a big discrepancy between what they've said and what the actual numbers are. And that can help you bridge the gap between the number the seller wants and the number that you're actually going to give them. Yeah, so I counted quarters in a bucket is how that worked. And at the end of the day, you're pulling all— well, multiple times a day, depending on how busy the laundromat is, you're pulling the quarters out and actually manually counting them with a little coin counter.

Wow. So I have a friend who lives in upstate New York who did a stealth version of that where for an entire day he just sat across the street and counted the number of people who walked into the laundromat.

Yeah.

So he didn't know the actual quarters themselves, but he saw just the volume of foot traffic that walked in.

Yeah, I love it. You could do the same thing.

Yeah.

This is like pretty similar for most businesses, which is the first deal you're at such an information disadvantage, right? You've never run a laundromat before. I hadn't, at least. And you don't really know how to judge if the person's lying to you or not about the business or if they're lying to themselves or not. They might not even be sure of their own numbers. And so when that happens, you kind of got to ask yourself, okay, how could I get comfortable with the level of risk that I'm taking? And so that might mean doing secret shopper like your friend did. That might mean doing a coin count. That might be going around to all the other laundromats in the area and saying, how much do you guys do a day? Or doing a secret shopper or a coin count at some other other competitors so you can compare the two. And then after you've done a lot of deals like I have, you could look at a laundromat and go, "Huh, they're saying they have a 30% margin or 40% margin. That's pretty high. I'm not sure I believe that. I'd probably discount that to 15 to 20%." Then you get these reps that allow you to see rhythms.

Right. So let's back up a little bit and sort of anchor what we're talking about into a wider framework because fundamentally what you're talking about when you talk about laundromats is that's an example of a Main Street business. How do you define a Main Street business?

A Main Street business is what I call a mom-and-pop business. These are businesses that exist all around you that you probably spend money on right now, but you don't realize. They're businesses like landscaping, roofing, laundromats, car washes. These are businesses that don't have to have a moat, so you're not doing the net— the Uber of X, you know, the Tinder of Y. These are businesses that really, there's a ton of competition, and that's okay because there's massive demand for the services as well. And I call them Main Street businesses because a lot of these businesses used to exist on the main street of small towns all across the US. So you used to have, you know, your diner, you'd have your hardware store, you might have your home services and professional services like a bank or accountant on that main street. And the idea is that we take Main Street back. And the reason that I'm so big about this is I actually think that the rich know a secret, and the secret is, is that There's no way to get rich without ownership. And if you want to get rich, you have to own things. And you might say, "Well, where's the data to back that up?" And I'd say, "Well, 68% of all millionaires own a business." And on top of that, I might say, "Well, here's the real problem. When America started in the 1800s, 80% of us owned a business. Business ownership was normalized. Today, about 6%." And you know we're not doing it well because Canada has about 7.8% business ownership. So even the Canadians are beating us. And then on top of that, your next question should probably be like, well, who's stealing ownership from us. Where did it go? Who took it? And I would really say two words typically: private equity. Private equity owned about 4% of businesses in 2000. In 2020, they own about 20% of businesses in the US. And it's not just private equity. It's also big corporations and the big government that allows through tax incentives, also lower interest rates, also big money pools, these bigger institutions to keep buying up Main Street.

The stat that you just quoted, that private equity owned 4% in 2000 and 20%, 20 years later by 2020, right? So that's 16 percentage points growth in a very short period of time. My question is, why now? Because private equity existed in the 1970s, the 1980s, the 1990s. So what happened specifically in this century that caused that acceleration?

It's a great question. I think there's multiple things, but it comes down to 3 in my opinion. First, everything is incentives, right? And so we have something called carry, which is the most tax-advantaged way to make money. And carry basically means that if you give a private equity company a dollar, they take 20% of the profits over what's called a hurdle rate. But we don't have to get into that in too much particular. Just imagine you give them a dollar, they give you a dollar back, they could take $0.20 of every dollar. Well, what's interesting about carry is that it is tax advantaged because of the government in a way that almost nothing else is, from long-term capital gains to also the distribution and the way that you can do write-offs against fund structures. And so private equity has gotten a lot bigger because, one, they're tax incentivized to buy things, profit off of them long-term, and sell them to each other. I would say, two, private equity has gotten a lot bigger because we've allowed for huge pools of capital to go into these private equity funds, the like of which we've never seen before. So we've just seen this accumulation of wealth in PE funds, and that's been because the returns are really great. Private equity averages 15% annual returns. The next closest thing is the stock market at 10%. That 5% is material for pension funds and endowments. So they're giving more money to private equity. Private equity fund is leveraging our capital to buy our businesses.

Did the laws change in the early 2000s to accelerate that?

I don't know when the carried interest rule was created. That's a good question. I'm sure the internet will tell us, but it was certainly within this last generation, this last 100 years that you talked about.

Right.

And then the other thing that's changed is because of the massive amount of capital these companies have, and also the banks have, these asset managers that are either private equity or public equity, they basically think about it this way. You invest your money in a 401. That 401 has some allotment to private equity, but also to big money managers. BlackRock, Vanguard, State Street, Blackstone. I should know. I worked at a few of those companies. That money that you give them, then they take that money and they buy things with it. They could buy companies with it. They could buy individual homes with it. So they're already kind of advantaging them because you're investing your money in their ability to compete with you. But it's actually worse than that because their interest rates are so much lower than ours because of the fact that they have these big, huge money pools. So if your or my interest rate is 8% right now, theirs might be 2.5% or 3%. Which means that they can pay much more than you can. Then they also have something called securitized loans, which means that if they have $100 million, they might be able to leverage that security loan they have, so your money, up to 90%. There's really these 3 ways that they have an unfair advantage against the little guy buying things.

The fact that they're able to access interest rates that are that much lower is a big portion of why they are gobbling up so much residential real estate right now.

Yep, that's exactly right. And, you know, we've also seen that it's hard at scale to invest in enough things that are semi-similar to make it matter for them. And what do I mean by that? Like, we as normal people kind of can't— we can't conceptualize what it means to invest multiple billions of dollars. It's actually quite hard. It's hard to allocate that much capital or invest that much capital. So they have to do it in these big swaths or pools. They're not even buying up individual homes. They're saying to groups of smaller investors, hey, put together a portfolio of 10 or 50 or 100 million homes. Those investors are going out and compiling all those homes together into a portfolio. They're then selling it upmarket to BlackRock or a Blackstone or name your, your single home company provider. So what does that mean? It means that like 2 people are making money on those homes and the markups are 2x for that same reason. And then the last example I would use is like car washes. So I started investing in car washes like years and years ago. And when I was investing in car washes, they would trade at like— maybe I'd get like 3 to 5x my profits on a car wash plus the cost of real estate if I owned the real estate. Well, when we sold a bunch of our most recent car washes, some of those offers were like 12 to 15x revenue, not profit. And that happened after this one company called Mr. Car Wash went public. It's the largest car wash compilation out there, multi, multi-billion dollar company. But they had sold to— tell me if I'm off on this, but I believe it was 4 private equity companies before. So private company, one private equity company buys them and then another and then another and then another. Each one of them cash flowing and making money on Mr. Car Wash before they eventually go public. And so these small businesses, they cash flow and that is what private equity likes. They like material appreciation, but they also like cash flow.

And once as it gets levered up, does it then trade at, you know, if it gets levered up to a company that trades at a higher multiple, does that mean that it kind of inherently creates paper value by virtue of now being acquired by a company that has a higher multiple? And so therefore you can just arbitrage that? Yeah.

I mean, basically the whole is greater than the sum of any of the parts.

Right.

And so this is one of the benefits too, to buying small businesses. If I have a business that I buy for $100,000 that— let's just simplify it really easily— that does $100,000 in profit. Let's say that I got a business that does that. Okay. Well, if I take that business and I buy it for $100K and then I get that business to grow to $200K or $300K in profit, I can actually sell that for 2 to 3 to 4X its profit. So you can buy a business, grow it 2 to 3X, and sell it for 5 to 6X. And that's sort of That's the premium you get for cash flow, for current cash flow. And so the private equity companies know that, and the bigger the companies, like as soon as your companies hit $10 million, $20 million in revenue, you're kind of in private equity territory depending on sector, and you can sell for a lot more. And so the biggest deals used to be done by strategics. So if you were going to sell, I don't know, a grocery store, a little grocery store that you had, you would, if you wanted to get the biggest price for your little grocery store, you would try to go to sell to one of your competitors. Because they understood the business, they had economies of scale, there was an ability for them to lower costs overall and pay a premium for you, so you would sell to your competitors. Well, now, because private equity has so much money, often they will pay more for the company than what's called strategics or your competitors, so that's kind of a newish phenomenon too that didn't exist to the degree that it does today, let's say, 100 years ago.

Right, right. That's actually a great— I hadn't thought of that. True, because there are so many people— your Uncle Ed, when your Uncle Ed didn't go to sell his company, I'll ask you to tell that story in a moment, but when he thought that his company wasn't sellable, he was probably thinking about his competitors and saying, "Well, none of them are gonna buy this, so who would I sell it to?" Yeah, that's right.

So Uncle Eb owned a company called Eb Homes Plumbing out of Phoenix, Arizona, and I was just with my aunt actually at Thanksgiving this past week and talking to her about him and reminiscing on stories, but he was probably net netting, like taking home in his pocket a million bucks a year. Maybe not every year, but a lot of years. And when he exited that company, when he got cancer, if I knew that today, I would have, I would have told him how to sell the company. And I would have said, there's no reason why you can't take a company that's making you a million dollars in profit and doing millions of dollars in revenue, and you can't sell it for millions. That would be crazy for you to not do that. I mean, imagine you own a house. The house isn't to your liking anymore, you wanna move for whatever reason, and you just go, "Yeah, I'm gonna light it on fire and just like leave it there." That'd be ridiculous.

Right. Right?

You would never do that. And yet that happens with businesses every single day because it is work to prep a business for sale. There are things that you need to do if you wanna optimize it in a world in which not everybody knows how to sell or buy a business. I think in the future, 20 to 30 years from now, that's not gonna be the case, especially if I have anything to say about it. And everybody who creates some sort of asset, which is what a business is, will be able to drive value from selling that asset, which is as it should be. I mean, that was, you know, 25, 30 years of my uncle's life building that business, and he shut it down, and it cost him money. And that is happening every day in our country and around the world, and I think you can make a lot of money by helping them sell instead, but it's also really helping that individual have a pension and a future annuity for their family that they otherwise would not.

Right. But why was it that he felt as though he wasn't able to sell it. And not just him, but any person who's over the age of 65 who has run a profitable car wash or laundromat or plumbing company or murder cleanup site is one of the Main Street businesses. Yeah. You know, anyone who's run some type of a Main Street business but feels that they can't sell, you know, their kids don't want it. They're going like, look, I've got 3 employees. What am I going to sell? Me, Joe, and Fred?

Yeah.

Like—

Well, that's exactly why. I mean, one, because only 1 in 11 businesses sell in any calendar year. It is actually not normal to sell your business. You would be outside of the norm right now. Second is you have to realize that most of these small business owners, they were tradesworkers. They're not financial professionals. They've never bought or sold a business before. They think that buying or selling a business means that you you have to have some sort of really large profitable business. Also, you could play a fun game. Go ask any business owner if their business or industry is like easier than other ones. Like, "How is it?" And you're gonna find— they're gonna be like, "It's awful. Never come into this business. Any other business but this one, it's the hardest one." And that is the phenomenon of us as owners. We have the opposite of— well, I guess we do. We have grass is greener. We think that we live on parched earth and the grass over there is somehow better. But every business is really a series of like carefully avoided disasters held together by bandages. And so they don't think that they can because numerically most of them don't. And then simultaneously, it's scary. So imagine you own a business right now and you have employees, they rely on you. You're busy. You have got a lot going on and you're getting sick. What do you do to sell a business? How do you know who to go to? Who's going to rep you? Most small business owners with businesses below $10 million in revenue, they don't have an investment banker that's going to help them with that. The people that might help them with that are business brokers, but even business brokers aren't going to help them prep the business for the most part under that amount. They might list it, but then what are you going to do? You're going to take a bunch of one-off people asking you how much money you make, request after request after request, put it together in a data room. All of your files are located in invoices in a back room somewhere, not on the internet. So that is a daunting task to ask, and it's much easier to just say, You know what? I'm tired. I don't want to prep for a sale for a year. I don't want to go through 1,000 people combing through my business and asking me all these questions. I don't have time for that. And also, when they see all the problems that we have, they're never going to want to buy this thing. And that's how most business owners think. And they don't realize that it's a little bit like that show, like Garage Treasures or whatever it is, where like they go into the storage units and people are like, just take it. Just give me like $1,000 and take whatever's in there. And the buyer goes, "Oh man, like this chair is worth this. This chair is worth this." So I think every business is a sellable business and a buyable business. It's just can we find the right buyer for it at the right price and the right terms?

It's all about finding the right match.

100%. It's almost like dating. We bought a company called BizScout that we're growing, and that is the idea. Can we be a marketplace where not only we list all businesses, but can we use AI, 21st century technology, and the massive amount of data we have from our company, Contrarian Thinking, to partner and pair together the right buyers and sellers. We're not there yet, but that I think is going to be the future. It's going to be like, this business might be right for you in the same way that Zillow starts recommending houses that might be right for you.

Mm. So let's talk about why an ordinary individual, somebody listening to this show, might want to buy a business because most of the people who are listening to this show already have busy 9-to-5 jobs. What would be the point? I mean, is it a side hustle? Is it something just to bring in some added revenue? Is it Is it something that would only apply to people who want to quit their 9-to-5? Like, who should buy a business?

I think no matter where you are, you're never going to regret learning dealmaking. So, if you learn to buy a business, you can apply that to every area of your financial life, and in fact, you probably should. You're gonna know, gonna know how to negotiate salary better. You're gonna know how to negotiate equity with your boss or partners. You're gonna know how to sell a business that you work in right now, or maybe when to bring in a competitor or biz dev. Et cetera. And so I would say I don't think everybody should buy a business. That's not what I'm saying. I think everybody should learn dealmaking and the language of money, which is acquisitions. If you look at it, there's not a billion-dollar company that exists that hasn't acquired businesses. There's not one. They have acquired— they've at least done an acquihire, a.k.a. hiring talent, or they've acquired straight-up competitors. The biggest companies in the world like Google, I mean, they've done— Google's done more than 200 acquisitions. So has Amazon.

On.

So anyway, I think you should learn to do dealmaking. Second is, do I think that it's perfect for somebody who wants to quit their job? That's a natural one for me. It's like, if you don't love what you do, but you don't have a brilliant startup idea that you like can't sleep for the want of, maybe buy a business because what you're actually looking for is cash flow. And the fastest path to cash flow is a business that has already existed for a long period of time with a history of cash flow because the two main reasons that startups fail 60% of startups fail because they don't have a product market fit. So they never actually get somebody to want to buy a thing that they have created. And the other 20% of businesses that fail run out of cash, which is basically just they don't have time to find product market fit. And so if that's the case, then buying a business totally changes the game. So I think if you want to quit your job, it makes a lot of sense. I think if you want to side hustle, it's interesting, but you got to pick the right business because, you know, running a business, while I don't think that you I don't think it's easy. I think it's simple. I think it's worth it, but I do think it's hard work. And so this isn't throwing money in the stock market, passive investing, sitting waiting for mailbox money. I've never liked any of those terms. There is going to be work involved. But I think for a lot of people, if you work at Google and you have an incredible job right now and you love your job and you never want to leave, that's great. You should just then buy parts of business. You should buy things so that when Google does its next layoff, you have a backup plan and your backup plan isn't going to be the stock market unless you have millions because it just won't pay you enough in equity dividends. And I think the same thing is true for employees across the board. I mean, 2024, 519 companies did about 149,000 layoffs this year. So in the year prior, it was about 180,000 people were laid off just in the tech sector.. And so I think this idea of only having your 9 to 5 is relatively dangerous.

People who are listening to this right now might be thinking, wait a second, I have a medical degree. Why should I own a laundromat? Or I'll even ask you, you have an MBA from Georgetown. That doesn't strike me as someone who would have a laundromat.

Yeah, my parents weren't thrilled. You know, they were like, wait, you work at Goldman Sachs, you have this MBA from Georgetown, you got a PhD, and you want to own laundromats? Like, what's wrong with you. And I don't think it sounds as prestigious, right? You know, right?

Yeah.

So the corner office and the suits and all of that sounded much better to my parents until, you know, I had to explain to them how much money we made off of them. And they still kind of, kind of don't believe it. I was with my grandmother this weekend at Thanksgiving, and she's 99. She'll be 100 in May. And she was pretty funny because she was like, but how much money do you really make? You know, because she had kind of seen a few things on YouTube. And so I showed her some of the places that we make money and the bank accounts from some of the companies, and she was And they're like, whoa, car washes make that much money? And I'm like, well, when you own a lot of them, they do. So I think we have to reestablish this idea of what is a good way to make money and what is a bad way to make money. And in my mind, we were sold a lot of lies. And that is like, I think this way of making money is more prestigious than another one.

Fuck you. Yeah.

Being a garbage man and owning a garbage company is just as good as being a corner office guy. Being a private equity investor is just as good as owning an education company. Who's to say that you, some random person, get to say what is the perimeter for a good or a bad way to make money? As long as it's legal, who cares? That is not up for you to decide. And so, I mean, Artie Moreno made billions from billboards, from outdoor advertising. You know, Wayne Huizenga made billions from trash collecting. And so I get a little fired up when people try to say that one way of making money is better than another. I think that is a great way to keep people poor, right? Because you keep them chasing credentials. And I think you probably— what's your background? Where are you from? Your family originally? Nepal.

Okay, Kathmandu, Nepal.

So I don't know what Nepalese culture is like. Did I say that right? Yeah. Oh, okay, good. But Hispanic culture is like very credential-based. So it was like, hey, you know, your family did this for you, so go get a degree, degree, big company, big company. And that would make like your parents proud. And I love that. I understand why that is. But I actually think that that is really bad to do to students and to young people today. Why would we put them in debt with degrees that cost them 6 figures that they can never get out from underneath because you can't use the bankruptcy process, that does not materially increase their job at the same rate of inflation of the university system? Instead, go and buy businesses to get you cash flow and then use optionality on top of it. But if you were a doctor, I would say to you, don't buy a laundromat. Probably. Buy the fucking practice. Own the whole doctoral practice instead. Go buy one of the companies that is a supplier for a product that you like that doctors use. Go buy the advertising agency that does all the advertising for the doctor's office that you work for. Maybe the staffing agency, but get a piece of skin in the game in the thing that you already know is where I would say. That's like level 202. I started with a laundromat because is none of these ideas about how to do this as a normal person existed when I was doing this back in the day. Like, I never knew anybody that just bought businesses one-off by themselves. That seemed crazy. There were private equity funds, but those were like big and lots of people in them. They were holding companies, but they used other people's money. Like, a Codie by herself buying laundromats and car washes and spinning up my own entity was like— nobody was doing that that I knew. If I was to go back and do it again, I would have probably bought financial advising practices. I would have like bought RIAs instead because I already knew that business. I would have bought like investment distribution businesses. I would have played in my zone of genius, but I just wasn't that smart on that then.

And so what you just said about zone of genius answers the follow-up question that I was about to ask, which is I think a lot of the premise under that, that myth of prestige is that we're taught that we need some type of unique advantage, some type of essentially personal economic moat, because it's only by virtue of specializing in something that we're able to distinguish ourselves from others.

Yeah, I think, I think you're right. And I'm not sure that that's true really at all. I think often the richest person that you know probably got there from something so boring and they've never even explained it to you. Like one of the richest guys I knew growing up, he owned an equipment rental business. So they rented out tractors and trailers, et cetera, to construction companies. And they had this huge house. And then I knew many people that like, they worked for the Phoenix Suns. That was a sports team. I thought that was a much cooler job, right? That you just rent out equipment. That's not very cool. And this guy, his name is Robert. He not only made millions and then sold his business for tens and tens of millions, But when the company didn't work out that bought it from him, a private equity company bought it, he bought it back for pennies on the dollar. Then he built it again. Then he sold it again. And that time it worked. And so I think we have to reevaluate the way that we make money. And if the business is profitable and if we like it and if it's fun for us to run, who cares about prestige?

Yeah. So the private equity firm that bought it ran it into the ground. How do you run a business into the ground? What is it that people or that companies do to screw it up?

Yeah, well, here's why I think private equity is bad for society by and large. One, they do financial arbitrage typically. So what private equity companies do is they come in, they typically got a bunch of costs and expenses in the business. They overlay a bunch of debt on top of the business. The business then has to make the money that it makes plus the amount that it has to make to cover the debt service, so the interest to be paid on the debt overall. They take cash flow out of the business and give it back to investors. So you can kind of think about it as like a guy who's like walking along. He's pretty chill. He's going, he's walking. But you just— you saddle him with like 3 30 to 50 pound kettlebells. And now he's having to walk with like these kettlebells on top of him. And it's hard. It's a load. And at some point, something's going to drop. And so I think private equity companies have an incentive to over-lever and they have an incentive to squeeze as much profit out of the company as they can because they have investment term limits. So when you run a private equity company, as I have before with some partners, you can only hold the assets for like 7 to 10 years depending on what your terms were for your investors. So that means for that 7 to 10-year period, you're like squeezing the juice out of a lemon as much as humanly possible while trying to keep it afloat so you can sell it to the next guy, but you've got to distribute cash flow because that's typically how private equity funds work. And so, one, I just think they have perverse incentives. They're not bad people. They're actually brilliant. Most of the people I know in private equity are so dang smart. I just think they're selling themselves short. They could instead hold these companies forever and make really profitable legacies as opposed to short-term squeezes. But that's how private equity does it. How you fuck up a company if you own it yourself and if you buy it is, one, you pretend like you know more than the guy who's run the business for 20 years. You got to come in with a massive sense of humility. Two, you assume a bunch of positive projections. Oh, man, this business is doing $100,000 this year. When I come in, it's going to be doing $200,000. So you buy the business for too much. You don't allow enough cash flow in the business to cover volatility. 3, you don't start with the worst idea in mind. We have something called a COA analysis, a course of action analysis, which basically means if the business is doing $100K right now, what happens if it drops by $25K? Can I still pay off my monthly nut, the amount that it costs every single month? Okay, cool. So they don't have a COA analysis on them. And then 4, Or I feel like they often move too fast to make changes before they understand the business. Fire, fire, cut, cut, fire, fire. Or they move too slow on the few things that matter when they take over the business, namely cash collection cycles. This is a little technical, but like most businesses, for instance, they provide a service and then they get paid in some sort of future timetable. So that's called like net 30, net 60, net 90, right? The problem is when you're brand new in the business and you don't have a bunch of cash, you might think, "Wow, I'm making all this money every month because I'm closing all these clients," but actually it costs me money before I get the money in my pocket. So when we take over a business, one of the very few things we change right up front is from the moment that I say yes to selling a service, how can I make sure that I have cash day one to at least cover my cost of goods? And so that is— that's one of the killers for small businesses.

And you see, I think, a lot of times with ordinary individuals when they're buying businesses is if we have experience, if we're knowledge workers— I'll speak, okay, I'll speak for myself as a knowledge worker whose experience is primarily service-based businesses that don't have a whole lot of upfront cost— freelancing, consulting, things like that— whether I get net 30 terms or net 60 terms doesn't really matter because primarily I'm selling my time and my expertise. That changes when you go into a more CapEx-intensive business.

That's right. Yeah. Well, I mean, you basically right now have a job, not a business, right? Like if you die, the business doesn't really continue to exist.

Correct.

Okay. So, and that's a lot of people. Now, you could have a business if you took a year from now and said, all right, for the next year, I want to diversify key man risk, key woman risk in this case, and I want to prep the business so that eventually I could sell it. That might mean bringing in new talent. That might mean bringing in new assets, that might mean having like a back catalog that continues to pay you, that might mean having a productized service where it's not time constrained, it's just, it makes you money because you've already created it continuously even if you're not around, then you have a business, right? And so a lot of small businesses are actually jobs. But that's okay. You can still sell a job as long as you have a transition plan with them. So that might be like, you could be like, hey, I'm gonna sell 40% of my service business to XYZ company. That's a strategic who wants to partner with me, and I'm going to continue to work with them for 3 years. So milestone-based buyout or what's called an earnout, right? And so over the next 3 years, you might say, okay, if I do X, Y, and Z thing, like I productize my service, I bring in new talent, I have a back catalog that pays, then you're going to pay me $100K this year, another $100K this year, another $100K the third year, until you take over the business overall. And so there will be this transition period, and if I hit those milestones, I get paid, and off we go. And so you're right, you right now have a service-based business that is likely a job. You could turn that into a quote-unquote real business— not that it's not real now, it is— but a sellable business would be a better way to say it. And then when you do that, you will actually have upfront costs. You'll have some CapEx because you'll have to pay your salaries for employees, and maybe you'll have to pay for continuing server costs or whatever on your productized services. But you're right, it's a big jump for knowledge workers who think, oof, why would I pay $500,000 or $1 million for an asset like a car wash with all these machines and stuff when like I might be able to just do this by myself? And the pushback I have there is like, you have to imagine that you get sick or you die. Do you wanna work until you die forever and ever? I kinda do. I don't think I'll ever quit. You're probably the same.

I do too, yeah.

But I don't wanna have to.

Yes, exactly.

I want to want to. If there's any point in time where I'm sick or a family member is and I wanna take time off or I wanna do something totally different, I wanna have an asset that continues to make me money and it's not dependent on my time. And I also want an asset that I could sell and go on to the next adventure. And so if there are business owners listening right now, Maybe what you're thinking about is how do I read this book so that I can see what a buyer wants in a business? What does it take to buy a business? Then I can reverse engineer that into what do I need to do to my business to have a sellable asset? And I always say it's kind of like getting married. It's like start with the end in mind. Like do your prenup upfront because we know that 50% of marriages end in divorce. In businesses, it's like 100%. That, you know, really no business continues forever for its whole duration.

Right. Yeah. The Dutch East India Company was once the most powerful company in the world, and that doesn't even exist anymore.

You're right.

You're right.

And, you know, Amazon, Jeff Bezos, it exists without him. But he at one point wanted to leave too, wanted to leave a business that made him hundreds and hundreds and hundreds of millions of dollars a year. Why would he want to do that? He wanted to hang out on a yacht with a little bit, give yourself the yacht option. Option.

Right. Now, you mentioned, you know, why would a— you know, it's scary for a knowledge worker to think about spending $500,000 or a million on a car wash or something that has a whole lot of CapEx. And I can imagine a bunch of people heard that and went, wait a second, I don't have $500,000 sitting around in my bank account. One of the elements of buying a business is learning creative financing.

Yeah.

Other than seller financing, which is, I think, the probably the, the first element of creative financing that comes to mind. What other forms are there?

Yeah, well, we teach 21 different ways to finance a business, largely stolen from my time at private equity. It's like, how can we kind of use their processes as normal people? And so one thing important to note is that 60% of all businesses sold are sold with some aspect of seller financing. So don't get talked out of the idea that seller financing is bad or rare. Now we want to be thoughtful in that it's— you're never going to be able to like, I bought a business with no experience in 30 days, no money down, and became a millionaire, and now I don't work at all. Like, that's not realistic.

Yeah, exactly. That sounds like that. And I lost 50 pounds while doing it.

Yeah, exactly. And that's often how like seller financing is, is labeled. That's not the case. But you can use it for some percentage of your business. There's also lots of others. You could use factoring, which means using future invoices So like, let's say right now, for instance, you have a catalog of podcasts and every single podcast has a sponsor. So over the rest of the year, you have like $300,000 in future podcast sponsorships. Well, you could use those invoices and get a loan on the invoices because you're like, listen, Amazon has promised me the rest of this year they're going to pay me $300K. A third-party bank would go, Amazon's promise is pretty good. Okay, cool. I'm going to give you a loan to buy her podcast based off of your invoices. Invoices. That's called factoring. You could also do equipment loans. So in a lot of my businesses, you can— there are loan providers that will do laundromat equipment loans. So they specialize in what is the value of these types of machines. Those machines can be worth like $30K. So if you're going to go buy a laundromat that has 10 machines worth $30K each, yes, you could shell out the $300K for the laundromat, or you could go to them and say, hey, I want a loan on the equipment. What percentage How much would you give me relative to the $300K that they're worth? And they might say, "Meh, we'll give you $150K for it, and then you buy your future machines from us when they break." You could also buy a business using third-party capital. I think this is really underdone by, like, us normal people, not the private equity guys. When a private equity company goes to buy a business, the head of the private equity company isn't shelling out millions. What is he doing? He's gone to all of his friends and buddies and connections over the last 10 years. He's compiled basically a bunch of IOUs. And said, like, when I go and buy this company, I'm gonna use your money, your money, your money, your money to buy it. And now the SBA, Small Business Administration, even allows loans for small businesses that have diversified investors. So it used to be if you were gonna take 10% of any SBA loan, there could only be a few of you, and you had to do a personal guarantee. Now the SBA is saying, hey, if Paula, Codie Sanchez Sanchez, you know, Ryan, Brian, Steve, Matt, whatever, all wanna give capital, I don't have the capital to buy this business using an SBA loan. That's okay, actually, and not everybody has to personally guarantee it. Every case differs, but those are just 3 ways that you could use other people's money to buy a business.

Now, another thing that you mentioned earlier that I want to ask about in a moment, but I'm gonna put a pin in it, is you talked about the essentially whoops, I just bought a job, or whoops, I, you know, own a job, right? And that is— you have an acronym, RICH, where you walk people through sort of a framework around how to think about businesses.

Yeah.

And the whoops, I just bought a job. I know that that's part of the C command.

Yeah.

But before we get to the C, I want to start with the R because it sort of pertains a little bit more to what we're talking about now. Conducting the research. R for research. Conducting that research for a person listening around. All right. I'm convinced that it's a good idea to own a business. I want to diversify my revenue streams. I have a 9-to-5 job, but I want multiple sources of revenue. How do I, I the person listening, assess my interests, my talents, my type of working relationship that I want with my company? Yeah, with the company that I buy. Like, how properly research all of that, and where do I even know where to begin?

Yes, well, so the most important question you can ask yourself is what the Oracle of Delphi says, which is know thyself. So there's whole portion in the book where I obsess on this idea. I call it deal clarity. So before you go and buy a business, most people will say, well, what type of business should I buy? Codie, what's the best type of business to buy? And that's how I know you're not ready to buy a business because there is no one type of business to buy. It's not HVAC, even though that's on the COVID of Wall Street Journal right now. It's not laundromats, even though that's where I started. It is what is the perfect fit business for you. Cinderella's slipper, right? We're looking for the business that kind of fits you uniquely and perfectly. So I again stole a bunch of homework from private equity days, and they have something called an investment thesis, which is basically if you go to most private equity firms like ours, Main Street Holding Company, we have a deal box and we say, hey, we invest in businesses that do somewhere below $50 million in revenue but do at least $1 million in profit that are service-based businesses located in the US that are in sectors. So that's so I narrow down my scope. So the goal in the book is that we help you guys do the same. So you go through this deal box and deal clarity worksheet and you kind of check off like, you know that song, it's like, you know, "Looking for a guy in finance, 6'5", blue eyes, right? We want to do that exact same thing with the business. It's like, I want the business to make $100,000 at least a year. I want it to be based here. I want it to be worth this much. I want to spend this much. I want them to be open to seller financing. We put together our little wish wishlist. And then I think tools really limit mistakes. That's one thing I learned a lot in finance. You and I kind of joked about this, like, I hate creating formulas in a spreadsheet. I love getting handed a perfect spreadsheet. And so as much as I can put in my spreadsheet, okay, I said that I wanted him 6'5", blue eyes, trust fund. Anthony over here has none of those things. So is Anthony what I want if that's what I said? And if this instance, I think the 6'5", trust fund thing's a little ridiculous, But theoretically, let's say we know for sure that that's what we want, our deal box will make sure that we don't choose an Anthony over a Chad or whatever the fuck the other guy's name is. And so the deal box really helps you stay true to the things that you want.

Right. That sounds very much like, just for an ordinary investor, how they would choose equities that go in their 401. Yeah. Right? You form an investment thesis and use that to choose your mix of index funds and individual Yeah, I think that's right.

This one's gonna be slightly more personal because it's about you. So I think a lot of times when you invest in stocks, it's about what you think the market can do, you know, your belief in what's gonna happen in the world. Maybe some of your risk profile for sure, 60/40, 80/20 bonds versus stock. In this instance, you're kind of looking for, huh, what do I want the business to make me and what am I gonna be happy in making? And let's pair together. We have— this thing called the perfect fit business. It's like 3 circles, so a Venn diagram between like your passions and obsessions, your network, people that can help you make a better decision on a deal and operate the company, and also your skills. And so we want to factor those in in a way that you might not in a stock portfolio because it's not really about you unless you're really sophisticated and saying, well, I can only analyze emerging market bonds because I'm really good at that. Mm-hmm.

Right. What would you say to somebody who has a lot of, if not passion, then at least curiosity about a given topic, but they don't yet have skills or a network in that area?

One, I think you never lose money on the education. You always lose money on the implementation. And so I think there is no downside to learning as much as humanly possible about the things that interest you, plus the things that can make you money. That's why I run an education business. That's why I believe I believe intensely in the future of education being highly tactical and like 1/100th of the cost of what the traditional education system does. Because I think that if I learned to do deals way before I wanted to do deals, I would be a lot richer today. And I think about it like this. I have a friend, Josh, who works for one of our companies. And before he worked for me, he's worked with me for like about 3 years now. Before he worked for me, he'd been in business for like 11+ years. Smart guy, highly skilled, specialized worker. In the 3 years that he's worked for me, he's done like 3 or 4 deals now. So he owns a couple different companies now. And I remember saying to him like, well, what do you think changed? And he said that he had a very wealthy mentor that said something to him that stuck, which is your opportunity will always be limited by your ability to recognize it. He's like, it's not that there weren't other companies that I could have bought over the last 11 years. Of course there were. Do you think it's reasonable that there were no companies around me that I could have bought 11 years before I met you? No. It's just that I didn't know what to look for. And then once I met you and we started doing deals, now I've bought a bunch of them because I recognize the opportunity. I recognize when I'm in a mine and we're mining for diamonds what a rock looks like when it's holding a diamond and what one doesn't. But I think until you learn deal-making, you don't turn on your reticulator activating system that starts to recognize the deals in front of you and all around you. And then once you do, it's a blessing and a curse because then everywhere you're going to see a deal. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Warren Buffett famously said, "The best deals you'll ever do are the ones that you don't do." So right now we look at about 100 companies to investing in one. And what does that mean? We kind of break it down like 150, 20, 1. So we'll look at 100 deals kind of broad-based, enough to dig into them a little bit, look at the financials, see a little bit high level. We'll go for 50 deals to go a little bit more in depth. Can we get into the data room? Can we see the back of the businesses? Then for about 20, we'll do pretty deep due diligence. Do we actually like this company? Is this the one we want to invest in? We'll cull through those and we'll end up doing one deal. And so most of investing is saying no to things. And that's why I think it's important that people learn to do deal-making early and they don't do the biggest thing that I think you can do if you want to make money. The biggest thing you need to do is you need to move faster on the education process. I think if I could change one thing that I did when I was younger is is I wish that I had learned about M&A sooner. I wish I had started applying some of those practices sooner. And if I had done that, I think today I'd be sitting a lot differently even than where I am. And so that seems to be the case for just about everybody. I've never met somebody that was like, God, I wish that I didn't learn dealmaking when I learned it. I have met people that said, I wish I didn't buy this business or that business. But often I think that's because your education process wasn't fully done and you pulled the trigger too fast. How long do you think it takes to learn dealmaking? We have data now. We've taken about 3,000 people through buying businesses. The data tells me that on average it takes people about a year to buy a business, somewhere between 12 to 18 months. Now, do we have people that do it in 60 or 90 days? Sure. Do we have people that do it in 24 months? Sure. I don't think there's really a good or bad. It's really depending on how much experience, relative experience, they have prior. So the way we think about it at Contrarian Thinking and our Business Buying Academy is your first year is for education and learning dealmaking. You're going to look at a bunch of stuff and you might start investing in one-off deals, like to a small degree, not buying the whole company. You're like, "I'm going to invest in a little bit of this business. I'm going to invest in that business. I'll be a partial investor and I'll learn some lessons without bankrupting." Then the second year is for your first acquisition plus scaling. You talked about scaling being a different skill set. It's really true. So once you buy the business, the real work starts, right? And so then you've got to scale the thing if you want to, or at at least scale it to a point where it is working for you as opposed to you working for it. And then the third year, I like people to think about their exit. So you don't need to sell the business, but prep the business for sale eventually. So I like people to think about coming with us like a 3-year MBA. You're basically gonna be with us through your acquisition process, your scaling process, and then finally, how do we prep a business for sale? And then it's really hard to be poor once you know those 3 things. Right.

And you have the 3-9-12 framework also where It sounds as though that the 3 months of like you're learning, you're reading, and then 9 months of you're finding your first deal. That is that first year. Yep.

That's exactly right. That's exactly right.

So the first year is learning sort of 3 months of sort of learning by textbook. And then, and then the other 3/4 of it is really learning by doing, but actively learning by doing. That's right.

Yeah. I mean, what I basically found is that when I looked at the biggest private equity funds in the world and the people who do more deals than anybody else and make more money doing it, they really have 3 things. They have what's called an investment committee. Investor investment committee. So a group of people get together, they beat up deals every single week. So we replicated that in our community. That's Monday Night Live. People bring their deals for deal review and you have a bunch of people beat them up. I like this, I don't like this, do these terms, don't do these terms. Nobody else gets that. Like, that's a very rare private equity thing to do. So I was like, let's replicate that. Okay, investment committee. Then typically you have your deal team. So your deal team in private equity is going to be your attorney, your accountant, and a subject matter expert. So like, if you're gonna buy a laundromat, you're gonna call me, right? You're gonna be like, Codie, hey, I got these numbers, what does this sound like? Can you take a look at this? And so in the community, we kind of, we label everybody. So it's like, oh, if you're selling a landscaping business, you're gonna talk to Robert, or you're gonna talk to Carl, because they've already done that. And then you have your accountant and your attorney so that you do it tax-advantaged, because remember, that's why private equity guys are so rich. They think about about taxes a lot, and we're going to make sure we structure it as smart as possible by having a good attorney. And then the third thing that they have is usually called a buy-side advisor, right? So in private equity or investment banking, that would be your investment banker. The problem is for us little guys, like, investment bankers don't want to work with us. You know, they're too busy. If they're really good, they're going to work on big deals because doing a big deal is really just as hard as doing a small deal to some degree after you've done a bunch reps, you'll see that. And so we put together a team of quote-unquote buy-side advisors who basically are like former business brokers or current business brokers and people who can help you think through a deal on Office Hours. So my idea is that we compete head-to-head with private equity firms except we don't take an equity percentage of any business. We don't take any investors' money. This is just an education platform where they get to keep keep all of the equity and all of the ownership, and we simply teach it. And that's because I kind of believe my own shit. Like, I do think that it's better if we own our community businesses and not if I own all the coffee shops everywhere and then I never go in the one in your community, and then that one doesn't have a soul anymore.

Do you think then that people should buy locally where they live?

It's my preference. I think if you want to make your community better in a place that you want to live, you need to have skin in the game and ownership there.

What should a person do if they're nomadic?

Well, there's a lot of online businesses. You also probably have people in your life that are local to an area. So even if you're traveling around the world, is there somebody that you can have and work with who is local to the area who can work with you on the deal? And, and I think for the most part, most of us are not going to be nomadic forever. Right. And so where do you want to eventually put your roots down? Where do you have family and friends? Where is a city that you care about? Where is an industry that you care about? And maybe make it slightly more about purpose as opposed to only profits, I think you can have massive profits while also being purposeful.

So we've talked about how to do that research and that preparation. Now, what about the actual investment, the I in the RICH acronym?

Yeah, so eventually you got to get in the game, right? And so I think the way that we really learn, the best business school is being in business. And so eventually you want to put some money on the table.. You wanna put some expertise or experience or time on the table, whichever one you got. And so my idea is we learn the researching and then we start to allocate capital. So that means that you're going to maybe get together with a group of investors and invest in a small business. It might mean that you are going to buy a business yourself. It might mean that you become an operator for somebody who's got a lot of money but they don't have any time and you could be the solution to that. But that's the second leg of the stool is basically let's start getting skin in the game because I think that is the only way that you can start to really care about your outcomes. Nicholas Nassim Taleb, famously of Black Swan, has a whole book about incentives called Skin in the Game with this idea that part of the things that are wrong with society is that we don't have a correct incentive structure, that politicians do not have downsides for bad decisions because there's no scorecard, there's no ranking system, and so they can stay forever spending our capital capital without having any issues. And so this invest portion is important if you actually want to become an owner.

Hmm. Are there any heuristics that we should use when we think about how, what percentage of our own capital we should be putting in versus other people's? How much of our time we should be putting in, particularly when we have other obligations?

Yeah. Well, when it comes to your percentage of capital, I think that's super personal. I always say, You want to make sure that your first deal is good, otherwise you'll think that deal-making is bad. Not that you were bad at your first deal. So we want to protect the house. The second thing I think is that you don't ever want to do a deal that can bankrupt you. It's, I think Warren Buffett again says, "I never go to invest or buy in a thing that I want to sacrifice a thing that I need or have." And so we want to make sure when you're doing your first deal that you're not mortgaging your house, you know, that you're not going out and overextending understanding yourself. And I push on that hard. A lot of people don't agree with me on that point, by the way. So potato, potato. A lot of people in startup land will spend their last dollar, talk about it on the internet, and think that it's really good that they had to sleep on couches, that they almost went broke. I don't think that you have to go through that hero's journey, and I wanna try to help a lot of people avoid that 'cause I think it's hard to get back the money that you've lost. Right. And so if it was up to me, I'm going to invest an amount of money I feel comfortable losing losing. You never feel good losing it, but that you feel comfortable losing. You wanna have some skin in the game where it's gonna hurt a little bit if you lose. But, and that lets other people know that when they invest alongside you, you're not looking for them to take all the risk. You're willing to take risk. In fact, who was I talking to yesterday? It was on Twitter and it was the CEO of Shopify, CEO of one of the big multi-billion dollar e-commerce companies. And I wanna say it was Shopify, but I'm not exactly positive. And it was funny because one of the tweets that he put out was based is basically this, that it's not your knowledge that's lacking, it's your knowledge plus your willingness to take risk. And so one thing that I've learned is you really can't spell rich without risk. You are going to have to put at risk some amount of capital or some amount of time if you wanna make money, and it sucks, but it's true. And so only you can determine how much. I say just don't let it bankrupt you and just don't let it take your house. Mm-hmm. Right. And anything beyond that is sort of up to your level. The other thing that I would say is like, be very confident in one thing, that there is more cash sitting on the sidelines than you could ever imagine, that there is almost an infinite amount of capital for people to invest in good deals. We do not suffer from not having enough money. We suffer from not knowing how to get money and from not having deals attractive enough to attract money. And I wish I knew this earlier. You know, I remember talking to one of the partners at Sequoia India back in the day and he was doing a deal and I kind of said, "What's the hardest part about what you're doing right now? Is it finding this deal? Is it raising capital for investors?" And he looked at me funny and he was like, "It's not raising money." He goes, "Money is infinite and everywhere. In fact, so much so that we only take nonprofit dollars. We don't even let everybody invest in our deals. The deal is what matters." And if the deal is what matters, well then deals are democratized. You don't have to have money to get a deal. In fact, we're going to buy a company and we're going to invest in it with the operator of the business. And one of the biggest private equity guys in the world on an individual basis wants to buy this company. It's sort of like, it's a multi, multi-million dollar a year business, but it's also, it's a cool business. So the PE guy wants to buy this company. He's been bothering the founder forever. Founder doesn't want to sell to him. He doesn't want PE to own the business. The only reason we're going to get the deal is because because the founder's son is buddies with the operator that we know, and he wants the business to go to somebody who really cares about it and wants to operate the business forever. And so this guy has way much— way, way less money than the billionaire, but he's going to get the deal because deals are democratized.

When we think about those deals, would it be accurate because so many— the deals that you're talking about are— they're deals at cash flow, right? These are not tech unicorns. These are Main Street companies or companies that don't have a whole bunch, if any, intellectual property, right? So these are deals that are made for that cash flow. It's made for that bottom line. Would it be accurate to compare them to a— if you were to use a public equity analogy—

a value stock? Hmm, I've never thought about it that way. I always think about buying businesses that cash flow like buying bonds. Bonds because you really buy the bond for the cash flow. Like, you analyze the company to make sure that the company is not going to go under, right? But you're not really looking for appreciation of the company. You're just looking for that coupon to be clipped every single month. And I think about a lot of my businesses that way. I don't come into all of my businesses and go, hey, here's the laundromat doing $300,000 a year. How can we make it do $30 million? That's really hard. That's not the game that laundromats were meant to play. They were meant to make somewhere between $100,000 and maybe $500,000 a year with 15% to 30% margins and to service a small community. And you could buy 50 of them and get to a company that's worth hundreds of millions, or you could just own a few. And those could be bonds that you clip every single month and you take care of them just like you would a property, a single-family home that you manage., but it has much higher cash flow. And so that is the way that I think about them is that ideally if we're doing deals right, there's a lot less volatility in them. You're not having 200% potential upside, but you're not really having 200% potential downside, at least if we're doing the deal right. And so I think of them as bonds. Interesting.

I kind of think of, of residential real estate as bonds as well. Yeah. But bonds with a much bigger payout.

Right. Much, much bigger payout. Much bigger payout. And also great for taxation. I think that's the other thing. Yeah. That I think about a lot with businesses. Real estate is incredible for capital preservation and for tax manipulation. I think businesses can be actually quite useful for tax manipulation and capital preservation, but more so for cash flow. I think businesses are like first and foremost cash flow, then tax advantages. Wages and then capital preservation because there's just more volatile and you need a lot less of them. Like, the average single-family home in the U.S. sells for $400,000 right now, which is very high, and that single-family home makes on average about $100 to $200 a month profit. So you are taking a $400,000 loan or piece of leverage for $100 to $200 a month in profit. That is a terrible trade, honestly. The only reason you'd do that trade is if you have a massive amount of cash and leverage, if you have built-in buyers with some sort of premium, or if you don't really understand risk-reward, in my opinion. And I think a lot of us don't realize that that type of leverage is actually riskier in some ways. Yeah.

Yeah. The— looking at the straight averages, the price-to-rent ratio just by looking at that straight average doesn't make extents.

Right.

There are pockets where you find much more attractive price-to-rent ratios. You need to know how to find those pockets. Yeah. Or create the pockets. I think that's right.

And commercial real estate could definitely be more interesting and different than that. But again, it's really hard in these real estate assets to have a lot of growth too. So you're just not really probably going to have a single-family home that you can grow aggressively.— it's hard to do. You know, you're going to make 3% to 4% to 5% returns every single year potentially with a mixture of your rent and also capital— and also home appreciation. In a small business, the average small business, you're shooting for somewhere between 3% and 10% annual growth, and that's with no additional levers on top of it. Plus, when you sell, you typically sell for that 2 to 5x. Tax profit. So you get paid this premium for growing the business, not necessarily while you're running it, but certainly while you're selling it. You don't get paid a premium for selling a home that has a rent premium on it.

Not a single-family home, no.

For multifamily, you would. Yeah, multifamily you would, maybe, if it is an investor that is actually buying the property, right? And if that investor can get a loan that bakes in its investment in income, which is not always the case. And commercial real estate, you would get it, but again, not always because often the real estate itself is worth so much more than actually the income is. And so there is some premium, but it's just not as aggressive as it is in buying businesses. And this isn't to say, by the way, I own plenty of real estate. Real estate totally has a purpose. I just think there are enough people talking about the benefits of real estate and not enough talking about the benefits of business. Yeah.

Actually, that's one of the things that caught my attention about you is because, you know, the people who do talk about the benefits of business often talk about starting a business from scratch. And myself included, because I've personally have only ever started a business from scratch. So I talk about what I know and that's what I know. It's rare to find somebody, and that's what I enjoy about your content, to talk— who talks about acquiring businesses.

Yeah, well, it's one, it's, it's new. I mean,— this really— when I got on the internet 3.5 years ago or something like that and started talking about acquisitions, people weren't really doing that. One of my bosses, who was one of my favorite bosses and a billionaire multi-times over, said when I wanted to start speaking on the internet way before this that we get rich quietly here. He's like, "We don't talk about this publicly. We get rich quietly." And if you go and look at the comments section on many a video of ours, there's a lot of people that don't want you to know this stuff. And it's— why, why does that ethos exist? I don't know. There's something that happens where some people think money for me, not for thee. I can run a business, you can't. You know, it's great for me because I'm an owner. Most people can't handle ownership. It's a real superiority complex. I found it often in finance and in private equity. You'll find a lot of these guys are like, normal people can't buy businesses, and you know, the only businesses that they're buying aren't good ones, and they huge failure rate, and I just think it's gatekeeping. And I think it's people who do not want you to win and think that they are the only ones that can. I think it's people who sometimes lost and they think because they lost, you're gonna lose too. I think it's also people who think this is so hard and miserable sometimes, it's gotta be hard and miserable for everybody. And I don't believe that. And the numbers don't show it either. I mean, My favorite response to these is like, "Alright, 90% failure rate for startups within a 10-year period." We all pretty much know that statistic and believe it to be true. Well, let's look at SBA loan failure rates, which are the main way to buy a small business. How many SBA loans where people go out and get an SBA loan to buy a small business, how many of them fail? At the peak, 25%. The average, 15%. The lowest level, 5%. So, we have a success rate somewhere between 95% and 75% in small business acquisitions. You could take that down and say, "Maybe that doesn't account for workouts, where there's like a business that's not doing so well, but they're still paying off the SBA loan, but it's kind of miserable." Okay, well then let's say we have an 80% to 65% success rate. That is a singularly better success rate than starting a business outright. Right. And so I kind of think, how dare you tell a bunch of people that they aren't capable? It's not fucking rocket science running a business. It is hard. It is gritty. It is hard. It takes longer than you think. It will be harder than you think, but it is not impossible and it is not rocket science. Right. Isn't there—

there's a concept called the Lindy Curve that the longer a business has been in operation, the longer it is likely to continue to be in operation. That's right.

Yeah. Lindy actually started here in New York based on a deli downtown. And the idea is essentially this, that we think as humans that an AI company is less risky to start today because there is this big flood of movement to it than a laundromat. We look at a laundromat and go, who would— who uses those? Not in New York. They kind of get it. But in other cities they go, does anybody even use those anymore? That doesn't make any sense. Those things have to be obsolete., and we give a price premium to the new and we give a price discount to the old. It's somehow how our brain works. The Lindy Effect, when we go to the data, which is where I like to go back to, the data says, "Hey, if I have a business that's existed for 5 or 6 years, I have already decreased my failure risk by 55% because most of the fail happens inside of those first 5 or 6 years." And so if I can buy a business 6, 7, 8, 9, 10 years or longer in existence, existence, it's more likely that thing will continue to exist.

That was the reason that I wondered if it was akin to a value stock, exactly because it's not that sexy growth AI company. Yeah. It's that little undervalued gem. It's that, that laundromat.

Yeah. Well, you're— I mean, you are right technically in that small businesses, if we look at them on a size premium, they trade at 2 to 3x profit on average. So $100K in profit, $200,000 to $300,000 $10 million is what you're going to pay for that business. Once you get past $10 million, a lot of times they start to flip to some percentage of revenue or EBITDA, or they might flip to like 5 to 6 to 8x profit. And so there is a value discount to the smaller businesses, which is good for us because private equity firms have a really hard time aggregating all of them. Putting them together is harder than it seems. And so that's good for the little guys. That means we could actually buy those small businesses and own them and profit off of them. And then simultaneously, there is a value discount to sexy versus boring businesses. And Scott Galloway and I have both talked about this quite a bit, that there's a value discount to jobs that sound more boring, and there is a value premium to jobs that sound sexier. They make less money, but they sound sexier. And that would be like acting, for instance, right? Podcasting. Lots of people podcast. Fast. Very few people make the entirety of their living off of podcasting. In finance, lots of people are in finance, most of them make their living off of finance. And so again, it goes back to that thing we talked about in the beginning, which is just because somebody says that it is a good way to make money or a prestigious way to make money has no bearing on how much money you're gonna make. In fact, it might mean you're gonna make less.

Right. The Millionaire Next Door, the, which originally came out back in the 1990s, the researchers, Dr. Thomas Stanley and William— they found the same thing. They did a massive survey of American millionaires and found that the vast majority of them were business owners. And also that of those businesses, the vast majority of them were boring businesses.

Get out! How do I not know this? Yeah. I gotta go back and read this book.

The Millionaire Next Door. It came out in the 1990s.

I remember the name, but I don't think I've ever read it.

Yes. Yeah. Two researchers, Dr. Thomas Stanley and William, William somebody. Okay. Thomas Stanley recently passed away. He passed away a few years ago and his daughter, Dr. Sarah Stanley Fallah, is now like carrying on that research in his honor. And so they published a follow-up study in like roughly 2015. Okay. To kind of take, hey, 25 years later, let's look at the data and see what's consistent. And it was still consistent from the '90s through 2015. Ballpark years, it was still consistent over that 25-year timespan.

That's fascinating. I gotta go find that study. I'll talk to his daughter too. That's a good idea.

Yeah, she's based in Atlanta. Interesting. But I distinctly remember reading that as like a high schooler and being like, okay, so they're pest control companies, they're HVAC companies, they're janitorial services. And one of the points that they made was because, you know, if you run a janitorial service, you don't want to be spending a lot of money on fancy suits with dry cleaning and driving a BMW, even if you have that type of disposable money, because you're going to look like an asshole showing up to work with your BMW. You want to fit in with all of the guys that you work with. Yeah. So you're going to be drinking Bud Light, driving a used Ford.

Yeah. You know what's fascinating? Now I get a lot of texts, obviously, about different people who are Main Street business owners. And one of the ones I got yesterday was— I'll have to show it to you after this. It was like, he's like, look at my plumber. And the guy was pulling— he pulled up in a Maserati. And I was like, I told you. But I do think, you know, I think that we're starting to have a societal shift where people are realizing that these businesses hold real value. You, and that it is really valuable to be able to build something and to do it with your hands. Yeah. And that maybe we are actually happier when we are in vitamin D, when we are outside of cubicles with padded walls, when we are doing things with our neighborhood in our local community, as opposed to staring to a Zoom screen all day. Right. And I think we were sold a little bit of a pipe dream there. And a lot of youth is waking up. And a perfect example of this is we, we own a, a window cleaning company called Pink.. And these two gents that run this window cleaning company, you know, good-looking, young, super smart, former, you know, white-collar, really successful careers for young guys, and they left to go start a window cleaning company, you know. And when that happened, you know, a lot of people were like, wow, why? And now they have this movement of 100 locations across the country opening up with a bunch of young men who are like, I want to be outside. I remember what it means to be a man. And for me, that means I wanna do things with my hands. I wanna clean up my community. I like being strong and I'm okay with that. And I think we're gonna see a big movement of that. Yeah. And it's actually fun. Not all boring businesses are fun. I did one, I was in a plumbing, no, I was in a porta-potty cleanup business. Holy hell. Ah, we're number one at number two. Oh yeah. Like, man. That is a gnarly business. Now, the guy who runs it is a former NFL linebacker. He's a stud. No, he's an NFL wide receiver. I don't know. He does something with football, but started a porta potty business. And so I think— and when I told him, because we were cleaning the porta potties and like, you know, using this hose to fill them up. And I was like, oh my God, I'm going to vomit. I don't think I can do this. And he just looked at me and said, smells like money, doesn't it? And he winked at me. I was like, maybe, maybe it does. William Danko is the author.

Oh, cool. Thank you. It's on Amazon. Nice. William Danko. Okay, now we know. I often, when I lived in Atlanta and I was investing in real estate there, and we had the— there were some great dumpster companies there, but I often would, I would watch the business model and I was like, you know what? It makes so much sense. You have a yard where you keep all of your dumpsters and then you're hauling it to the site. You leave sit there for a week or 2 weeks or however long the project is, and then you haul it away. And I'm sure there's more to it than that, but it seemed like if you could really nail the operations, that always struck me as if, if I were to have some type of a quote-unquote boring business, I'd probably have a line of dumpsters.

Yeah, I love that. I love that for you. We'll have to add that to the logo. Yes, Afford Anything Dump Truck. Exactly. Yeah, I mean, one of the happiest guys I met is a guy by the name of Spencer. And we went around and did trash collecting, the two of us. He's actually fascinating because he's an engineer. So he had built multiple SaaS businesses, like smallish SaaS businesses. He had even sold one. He did well for himself. And then one day he got really annoyed because the trash bins in his neighborhood were under a private company and they kept spilling their trash everywhere and breaking his trash cans. And he was like, this is ridiculous. They're late. They spill the trash. So he goes on Facebook. Facebook group for his neighborhood and says, "Hey, are you guys as pissed off with this garbage company as I am? If so, respond back and here's a link and it's for X, you know, $35 a month. If 150 of you guys agree to sign up for this, I'll start my own trash company. I'll do it myself." He wakes up the next morning, there's like $35,000 in his bank account from a bunch of people signing up for this service saying that they would use it. And so he's like, "Oh my God." You know, he had another job. He has wife and some kids. And now one day a week, only one day a week, which is Wednesday, I think, Spencer gets in this trash truck that he bought with like fun logos and branding, drives around his neighborhood, collects the trash, dumps it off, and he's a trash man for a day. And he's about the happiest I've ever met. And he's hysterical. And now he has— they're actually worth watching if you go to Facebook. He has these trash ads that are hysterical. Remember that Sarah McLachlan like song that would— like the Arms of the Angels song with the puppies? You know, every time you saw that like ad. It was like a PETA commercial or something. I'm like, oh, I'm donating all the money because the poor cats. Yeah, well, Spencer changed it, and the whole ad is about how tragic it is what happens to these trash cans all around the neighborhood. And he's having a hell of a time as a garbage man, and I think we're gonna see a lot more of that.

I would have so many Oscar the Grouch, like, decals on my— on my truck if I had one.

He has a lot of dirty slogans. Actually. Oh, that's awesome.

That's awesome. Well, that actually kind of leads us into the next thing that I was going to ask. So we talked about the letter R and the letter I, but to the letter C, command. Yep. How do we— because, you know, we're talking about, you know, he's a trash man for a day, but how do we prevent from not— oops, I accidentally bought a job. Yeah. Oops, now I'm doing this 7 days a week. Right.

Well, first, I think you have to assume that you're gonna get your hands dirtier than you anticipate the first time you do this. So let's be honest about that.

That's a perfect lead-in from the Porta Potty dump truck analogy.

Yeah, exactly. Imagine that you're gonna smell some money. Yeah. And so there's going to be difficulty no matter what you do. No risk, no rich. I like to say that up front because I don't want anybody to say, like, you told me this was gonna be easy. I'm gonna be sipping Mai Tais. I bought a business. I don't have to do any work in it. Can you do that eventually? Yeah, that's what I do. I don't buy buy a business now and go work in the business ever. But when I first started out, I was in that fucking laundromat. I was cleaning it. I've seen multiple dead rats. Like, I remember that. And now that's not the case. So what I would say for Command is we have a process now, our growth accelerator, that is what I use for all of our companies at Main Street Holding Company. So basically what you want to do is you want to put it on some sort of system that allows you to scale. It's called an operating system. Operating system. A lot of businesses don't work like this. This is how private equity can have a portfolio of 100 businesses and one is an airplane hangar business, one is a commercial cleaning business, and one is a lipstick business. None of those are related. How can they run all of those? They put them all in the same operating system. So if you're Vista, one of the world's largest tech private equity companies, they have the Vista Way, which is a playbook that they run all of their tech companies on. And so we do the same thing at Contrarian thinking. So the idea is you put in place an operating system that allows you to oversee the company but not run the company. And so Charlie Munger famously said, you know, when you get a dog, don't do the barking for it. And so—

I haven't heard that one. That's a good one.

That is the goal in these companies is— and we have a process in the book that I outline, but like two things that I think are useful. One is Financial Fridays. So I have a belief that money is a cruel mistress. If you don't pay attention to to her, she's gonna leave you for somebody that does. And so every Friday in my companies, we're analyzing the finances of every single company. We use something called the 13-week rolling cash flow. It's very simple once you put it into place. No businesses use it except PE businesses. It's just like check-in every single week. Where's the money going? To make sure that I understand how the business is operating. That'll also make it hard for you to run out of money in a business without you anticipating it. You like, you'll see what's happening. The second thing that I like people to do when they run business according to my methodology is every single company should have some sort of dashboard system. So basically, when you're the CEO of a company, in order for you to not do the work all the time, you got to think like a sea captain or a pilot. You're looking at your dashboard with like 5 or 10 indicators of like, are we going to crash? Are we doing really good? What's going on? And so So this dashboard, and you saw one for the media company, the dashboard means that I get a really good eye on my business without having to go check in with everybody individually. And so we run a very specific dashboard on our businesses that have weekly, monthly, quarterly, and annual check-ins. And so none of this stuff again is rocket science. They just don't really teach you this. Right. And so I like being able to steal other people's homework. I know lots of this from different private equity companies. Right.

The dashboard that I saw for your media company, like, I've never seen anything that sophisticated, that— I mean, I took a look at it and I was like, wow, I am playing in the little leagues here.

Well, you know what's interesting is I don't really like risk. I talk about it a lot. Right. But I stayed in a job for like, what, 12, 15 years or something like that. I worked for other people or with partners. I like didn't have the balls to do what you did. You know, you went out, you started a company, and you were like, "Me against the world. I'm gonna do it." And I was like, "What if I fail? I don't know about this." And so in order to get over my risk aversion, I have to feel like I have a lot of control in a business. And the way I feel like I have control is that I understand what we call the roadmap to making money. So every business has like 5 or 7 steps where if you do these 5 or 7 things, you make make money. And so we map that. And so that might be like, for instance, let's see, what would be an example for one of my businesses, Pink's, the window cleaning business? It might be like, I go door-to-door knocking in neighborhoods in my Pink's uniform, and when I door-to-door knock, every time, every fifth time I talk to somebody, they let me give them a quote and I get business, right? So what do I want to do? So then I want to door-to-door knock at least 5 houses. I want to give— let's say their average is more like probably like 20 to 5. So you want to go door-to-door knock 20 houses, you want to get 5 of them to agree to an estimate. Out of those 5 that you get an estimate, 1 of them you close, and then you make money. So they know door knock, estimate, 1 close, they make money. That is their roadmap to making money. Most business owners don't actually know what their roadmap is. So for me, it might like, contrarian thinking could be like, create a piece of film, something, post a piece of content, have that content lead to one of our products or companies, have that go to a salesperson, make money. So, every company has some sort of roadmap like this. You map out the roadmap and then you have two dashboards. One is an output-based dashboard. One is an input-based dashboard. What does that mean? Means most people measure like, hey, how much money are we going to make this month or this year? Well, that's output-based. I can't actually control it. I'd like to make $100 million this year. I don't know if we're going to. So you have your second dashboard, which is input-based. I'm going to make this many videos. I'm going to have this many sales calls. I'm going to reach out to this many people. What are my activities versus what are my outcomes? And if you have both those dashboards, you have leading and lagging indicators to what could drive your company. And this is very like technical for people that don't run a business, but this is how every business runs, whether you are a widget, a podcast, or a landscaping business.

Right. I tend to think of it with the inputs, alright, that is firmly within my circle of control. Right. Right? That is directly inside of my control. And yeah, the outputs are, I mean, to a certain extent they're a little bit outside of your Yeah.

Well, once you get really good at business, you'll be able to say for your own individual businesses, I know 20 doors knocked, 5 estimates, 1 close. So if I do 100 doors, I'm going to have around 5 to 7 closes, which means I'm going to do, I don't know, $5,000 or $7,000 this month. So in the beginning, you're not going to know that. So you're going to guess. And then eventually, if you dashboard everything correctly, you'll say, all right, "Alright, we're actually gonna do 200 this month. So I actually think we're gonna do $10,000 to $14,000 this month in revenue." And maybe there's like a variance of 10 to 20%. And that's when it becomes a game. Like it's just like a video game where you're like, "I know if I go to this level and I have this many coins and I, you know, if I go beat up that wizard, like my likelihood of winning is X." Right.

But then the question becomes, you know, how do you optimize that conversion rate? Are you optimizing for more door knocks at the top of the funnel, or are you optimizing for like further down the funnel, improving the conversion rate on closes per 100 door knocks?

Yeah, well, every business has quality or quantity metrics, right? And so that's what you're talking about. The easiest to control are quantity because quantity is fact-based. 200 doors knocked— there's no way you and I can disagree on doors knocked, right? You're like, did you knock on the door? Did you not. That's the definition. Quality is hard because it's qualitative. So you might be like, "I did a good job closing." And I might be like, "No, you didn't. Here's 6 things that you didn't do a good job on." So I like to start with quantity metrics, easier, and then we get to quality, which is like, I am the decider of quality because I have a higher close rate than you do. So the things that I say will close determine quality. Every business is really just a definitional business. So if you can't get people on the same page of what a door knock is defined as or what a quality close is defined at, you won't win. And so in business, your goal is: 1, what are my outputs and inputs that drive my business to grow? 2, how am I defining what those actions are? 3, does everybody understand what those definitions are? 4, do they agree with what those definitions are? And then finally, 5, do I have alignment. So if they agree that this is a quality close and 200 doors, have I given them incentive-based compensation to get them to do the thing I want them to do? And that is where you get this, like, virtuous circle of the perfect business sort of operating in sync. Hmm.

Speaking of operating, and we talked about this a little bit pre-show, how do you find a great operator? Like, what makes a great operator, and how do you know when you found What's a good one?

Yeah, well, we have an operator scorecard basically, which probably surprised nobody if they've continued on to this podcast by this date. I think about, first I start with definitions. So we call it a cheetah versus a house cat. So both cats, right? But if you want to fight, a cheetah is probably better than a house cat, right? So what does a good operator look like? We say one that has spots, not stripes. We don't want a bunch of house cats. Cats. We want a bunch of cheetahs.

Ah, my house cat actually has spots.

Oh, well, fuck. Now we're in trouble. This is not going to beat my cheetah. So we're looking for something that has spots. And these things are just useful for your employees or team to remember. So it's like, is it a stripe or is it a spot? And you're like, fuck, it's kind of a stripe. They're like chill. They don't do that much. Maybe that's not a right fit. OK, so then we define what is a cheetah versus a house cat. For us, we We have a 5-rank scorecard. A high performer, 1, has already performed somewhere else that is similar to the role that we already have. So, like, I'm hiring a CEO of a laundromat. They've already been a CEO of a laundromat. Okay, cool. Laundromat is the same size. A $100 million laundromat company CEO, very different than a $1 million company CEO. Is it the same size? Is it the same sector? For instance, if it's a laundromat versus a dry cleaner, that could be similar but not the exact same. The next is known talent. So, that's like, do I know that person personally? Like, have I engaged with them? The second degree of that would be like, do you know them? Like somebody else that I trust, a referral. And then the last aspect of it is sort of a culture fit. So, is this the same type of human that we would want in the company that we have? Because, I don't know, let's say we have a conservative media company, they've worked at Vice. Oof, that's probably not great. They've worked at Daily Wire. That's probably a great fit. Vice versa. If I'm hiring for Vice and they're from the Daily Wire, oof, probably not a good fit, right? So those 5 characteristics are gonna tell me, is this person good or not at a high level? Then we got to go down and we got to measure hunger. We've got to measure drive. We've got to make sure capability, but we start at least with those levels and we give them a score 1 through 5 on each of them. 5 5 being incredible, 1 being not good.

What's your feeling about in-person versus remote?

The data seems to say across the board that in-person companies outperform, and people on the internet hate this, and I get why, because it's annoying to go into an office. And oftentimes when I'm alone, I'm like, I'm so much more productive. Here's the thing, it's not about you, it's about the team. Is the team more productive remote, or are you more more productive remote? And the answer is that teams need to be together. They have to have proximity. Proximity is power. And so when people say, but I'm more productive remote, I say, but are you a team player? Or if you want to be an individual contributor at another company, that's awesome. Go there, but not here. And people yell at me at the internet for this, and I was a remote employee forever. It is just easier. If you are a new CEO, I highly, highly, highly recommend in person. In order to do remote, which you can totally do, well. You have to be a level 10 CEO, you have to be a level 10 communicator, and you have to have a level 10 team.

Yeah, the reason that I ask is because from the point of view of an employer, from the point of view of somebody who's hiring, it— going hiring only in person really narrows that pool of job candidates. And for me, I live in New York City, but for a lot of people who are listening who live in a smaller town, that pool of job candidates is going to be quite a bit smaller in, you know, because they live in a small —Yeah, there's a way to get around this, right?

So if you can't have enough people in person, that is the default. That is the easiest thing to do, and you'll have the highest success rate with in-person as long as you don't have a terrible culture, but that's a whole different issue. If you want to or need to have remote, then you need to become a better CEO, a better communicator, and you have to have a better team. Having low-level performers remote, really, really hard. Simultaneously, the more incentive aligned and the more expectations set, the more you can go remote. For instance, if you have a salesperson and that salesperson has to have 10 calls a day and they have to close 50% of those calls and that is their only mandate, well, then it's okay to have remote because it's very easy to track. Did you win? Did you lose? What was your percentage? Okay, you don't hit that, then this isn't a fit. The more they're knowledge workers and it is, it's hard to exactly define what they do. Like they lead a team. How do you define leading a team? That's harder. Then it's much easier to be remote. And so if you can't be in person, you better set expectations really well. You better stay on top of expectations and you better be sure that you have incentive alignment. Right.

So that's how you find great operators, but how do you harness those operators? What's that final H? Yeah.

So when I think about harness, I think about this. Many people want to work in a business for the rest of their lives, and I think that's amazing. There are some people that want to harness the power of the business to create empires, and this last section is really about you thinking about your business and what you want out of it, and do you want to create a lasting legacy and something bigger? I wanted to give people a taste of what's possible. Again, it's not that it's easy. It is hard. But this last chapter will show you what you can do if you build a holding company, if you build a multi-fund strategy, if you have a company that is a strategic acquirer of multiple other companies. And I think a lot of times, like, we can't be what we can't see. And so the idea was I wanted to paint a picture of like, what's the unicorn of boring business? What could we really aspire to if we are really hungry and we want to own local businesses and we believe in purpose? But we also want to be huge. And the reason why is because I called this originally, I was going to call something, the book, something with boring businesses or small businesses. And then I realized that words mean things. And I don't want people to think that because you start with a small business, you have to end with one. You do not. I don't want people to think that because the business is quote unquote boring, their life will be boring. It is not and will not have to be. And so this chapter really can show you what the power is of acquisition. At Scale. So in it, we talk about what have the biggest guys done to create empires using small businesses. I mean, I don't know if you knew this, but you know who the richest woman in the world is? What her background was? I don't. I would think it would have been like Walmart heir maybe, which I could have seen, or maybe Oprah. I was trying to think of who would this be? It is actually a woman who owned a roofing company, who built a roofing company right here in the US. When I saw that, it made a lot of sense to me. I was like, when we look at the Forbes 100 list, most people on the Forbes 100 list either inherited it from people who started or built or bought businesses, got access to it from being an investor of active businesses, not passive ones. It's actually very rare for hedge fund managers who do purely passive investing to get on the Forbes list. That's not very common at all. It could be a Carl Icahn. Icon or something, but it's not going to be an individual who only invests passively, except maybe the Renaissance founder. It's also people who bought businesses again and again and again. And so what I thought about when I was writing this chapter is like, how can we paint a picture of how many people have built incredible lives off of making their communities better through small business? And I mentioned, you know, Wayne Huizenga and Artie Moreno, but there's so many more of them. I mean, we have like the Koch family, which like them or not, one way or the other, have built one of the biggest family offices and biggest multigenerational wealth centers in this country since the Rockefellers. And that was off of a mixture of certainly energy, but also home products and services like toilet paper and paper towels. We also have people in that chapter that I talk about, like the Kraft family, who are like the biggest coal mining company in the the world. And if you were to talk to Joe Kraft, he's got that Kentucky twang. He started out in a mine himself. He was a good old boy from Kentucky, and he would say that he was blue collar all the way. And so I just think that this chapter should be like an inspiration to people about what you can do next. And then we do share some tactics in there about, all right, if you're serious and you're going to buy multiple businesses, here's what to do and here's what not to do.

What's one major thing to do, major thing not to do?

Major thing to do is you really don't want to buy 5— well, let's start with a not-to-do. Don't buy 5 companies at once. That's the most common thing. People go, okay, I'm gonna buy this company, this is coming, this company, and I'm gonna put them all together and I'm gonna scale it up. This is like Harvard MBA 101. Yeah, they're like, if I could get a dollar for every time I have an ex-Harvard grad or Stanford grad in my DM saying, I've got to do a roll-up of landscaping companies. I'm like, have you started with one? Why don't we try one? You see how you can run that thing, and then we'll or the 57 other, like, take it easy. But we've convinced these people that in order to be valuable, they have to go huge from day one. I totally disagree. I think you're going to have a pretty high failure rate. So don't buy 57 companies at once. Start with one. Have some respect for what that other person has built. Built it up a little bit, then you can start thinking about your empire.

The irony of like to move fast, you have to move slow.

100%. Move fast on learning. Move fast on getting to be as expert level as you need in order to take action. Then move fast once you're at that level to do your first acquisition, then move fast to operationalize and scale that acquisition to full understanding, and then finally move fast to the quickest way to do growth, which is often acquisitions. But that's not step 1. And so I think they misplace it and they put that step 1 often. So that's what not to do. What to do? Surround yourself with other people who already have the thing that you want. I think the most common reason why we invest in the stock market stock market is that it's proximity to somebody else who had already invested in the stock market. So if our parents invested in the stock market, we have much higher likelihood of investing in ourselves. If they started us early, we have a higher likelihood of being rich. There's proximity is real power. And so I'd say upfront you want to get in the room with other people whose dream day is, or whose Tuesday is your dream day. And I wish I knew that earlier. It's not necessarily the tactics. It's can you be around whose instead of how? That is like what a level 2 entrepreneur thinks like. Right.

And that's how you operate the business as well. It's ask who, not how.

Always. I mean, a good friend of mine wrote that book and, you know, and I was chatting with him the other day and I really think there's 3 levels to entrepreneurship. I think first level entrepreneur has a problem and thinks, how do I fix this? What's the answer? Second level entrepreneur thinks, who can I go to to fix this? A third level entrepreneur thinks, how can I buy the solution to this problem with the highest with certainty. And so that's like Jeff Bezos is like, "Huh, I want to get faster delivery service across the country and I want to do it as quickly as possible." Could he have gone and bought a bunch of warehouses and built it out and figured out the how? Of course. But instead he went and he bought Whole Foods. Not necessarily for the grocery business, although that's nice too, but for the distribution capability that he got overnight through one smart acquisition. And so that is how I think really good entrepreneurs think, but we got to go through the first two levels before we we can get to the third. Mm.

Codie, thank you for spending this time with us. Where can people find you if they would like to know more?

MSMbook.com, mainstreetmillionairebook.com, or codiesanchez.com is where the book's at. And, and then I'm on all the socials as Codie Sanchez. And the only thing I ask is, you know, the main reason why people leave a job is a boss that they hate. So just don't become that. Right? Exactly.

Exactly. Be the boss you wanna see in the world. That's right. Perfect.

Well, thank you. Thank you for having me. Super fun.