How I Built a Fortune Buying Businesses Nobody Wanted | Codie Sanchez

Rich people have a secret, and they know that if you want to become truly wealthy, the only way you get there is through ownership. 68% of millionaires in the US own a business. So if you want to become a millionaire, you need to own a business. And yet increasingly, we do not own businesses. Well, what's, what's happening? Who's stealing our ownership? Primarily is private equity. I think we have an interesting point to take back some of the wealth from concentrated powers and diversify wealth by buying these small businesses that are too small for private equity.

When you look at Warren Buffett, for instance, most people don't realize Warren Buffett didn't start out buying $100 million businesses. He started out buying $15, $20, $30 million businesses at the end of the day. And where did most of his best returns come from? The smaller assets.

If you are a crazy person that has an idea you can't sleep for the want of, then raise the capital. Do the wild thing. Thank God there are people like you. But if you're not one of those, also, no harm. There's actually a fascinating study that shows entrepreneur starts a business, burns the bridges, quits the job, goes all in. Entrepreneur starts Does it on the side, side hustles? Which one succeeds more?

Codie Sanchez, welcome to Change Order.

Thanks for having me.

Excited to have you back in New York. Did you live here at some point?

Yes, but not for very long. That was like 2009, 2010, something like that. That was right when they got the— remember when they got the new building downtown?

Oh yeah, that's right when they had that storm. The big storm hit, right?

Yeah, you're right. That— yeah, and all the freeways and everything were iced.

Mhm. And it was the only building, I think, in New York that had electricity at that point in time.

I think I might have been in Chicago by then, but the same thing happened in Chicago.

Oh, wow.

It wasn't the only building that had power, but it was the only employer that made us go in that day, which was on brand, actually.

Oh boy.

That was like us and McDonald's or something.

You guys and McDonald's? That makes sense. Yeah, that makes sense. Two big corporates with their own generators. They have backup.

Yeah, yeah, yeah.

Well, so 2009, 2010, that was a good amount of time ago. You've accomplished a lot in 14 years.

Isn't that wild? It doesn't feel like 14 years ago, but thank you.

I think at the same time, it feels like the macroeconomy and a lot of the changes in the demographics have occurred in the country. And I was reading your incredible new book and you mentioned about the silver tsunami that's happening in America. Tell me about the silver tsunami, what's happening today?

I think there's a couple of things I realized that I wish I would have realized earlier. You know this all too well. Rich people have a secret and they know that if you want to become truly wealthy, the only way you get there is through ownership. And you can do that lots of different ways. But if you don't have some sort of ownership, very hard to become very wealthy. There's a problem, though, with that. And the problem is that Americans in the 1800s, about 80% of us owned a business. We were a nation of owners. Today, 6 to 10% of us own a business. And that is really problematic for a lot of reasons, but maybe the most important reason is because 68% of millionaires in the US own a business. So if you want to become a millionaire, you need to own a business. And yet increasingly we do not own businesses. And you know, we're not doing a good job because Canada has a 7.6% ownership. So when the Canadians are beating us, we're in trouble. You know, and then you might go, okay, what's happening? Who's stealing our ownership? And in my opinion, there's many groups, but one primarily is private equity. And if you look at private equity ownership of businesses in 2000, it was about 4%. 2020, it was 20%. And I don't think it's just them alone, and they're not evil guys. I used to be in private equity, so I should know this all too well. They're really actually brilliant. It's all about incentive alignment. And so we have big corporations and we have big government, and the big government is incentive aligning through carried interest interest allotments, tax incentives, allowance for lower interest rates if you have pooled capital, securities loans, all these things that sound not interesting if you don't have money. It sounds too complex. This allows the really, really big to have an unfair advantage to ownership, in my opinion. With all of that happening, that's very hard to push back against. As a normal human, you're like, okay, what am I going to do with that? Sure, quote unquote, I don't like Blackstone or I don't like BlackRock or whatever words that people say when they talk about these big industries, but there's not much a normal person can do. And then I started realizing about 3 and a half years ago that there is a weird generational wealth creation event, in my opinion. These don't happen that often, right? You have like the internet age. You could say we have the AI age right now, maybe too soon to tell, but we have a baby boomer generation that owns 60% of all small businesses in this country. So about 49% of all jobs from this 60% of businesses, and they're retiring. The youngest of them are aging out. What's interesting is if you flash forward into the future, what does the future look like? Well, it kind of looks like Japan, right?

Yeah.

And Japan has already seen this. You know, they have a multi-billion-dollar government economic incentive program to allow one generation to buy from the other because all over the country businesses are closing and they're afraid that they'll lose 10% of all jobs, which is catastrophic for an economy, not just for the people who lose their jobs. So I think we have an interesting point to take back some of the wealth from concentrated powers and diversify wealth. And that is by buying these small businesses that are too small for private equity. They're too small for big corporations. They're really hard to aggregate, and they're perfect for somebody who maybe wants a little bit of ownership and skin in the game. And so that's the idea of what's happening today.

It's really interesting because I think when you look at the real estate world and you look at single-family rentals, the mass American does own single-family rentals. They actually own more single-family rentals than institutional owners like the private equity guys we're talking about. Meanwhile, Main Street is so far behind. Why do you feel like that is the case with small businesses that were so far behind?

Since Bill Clinton said the American dream was owning a house, we have had government programs to incentivize homeownership. We have had a normalization of homeownership as part of the American dream. We don't at all think it's weird that you would get a mortgage and buy a house, right? Even though a house is actually a liability, it doesn't cash flow for you. Single-family homes have one of the lowest rates of return Right?

Yeah.

Real estate market, 3 to 4%. Stock market, 10%. Private equity, 12 to 15%. So we sort of normalized this liability as the American dream, which is okay and maybe nice in some ways, but we certainly haven't normalized business ownership in that same way. And you could say there's a myriad of reasons. More volatile, harder to do, requires a lot of grit and determination. Anybody who's owned a business of any type knows that there's a day where you really wish you didn't. Like, we've all had it. You're like, the thing is, I'd like to be an employee today. Like, I get it. So I think for those reasons, but my prediction is in the next 10 to 20 to 30 years that buying a business will be just as normal as maybe commercial real estate and normalizing along the lines of small business. But to date, we just haven't had the incentive programs and people didn't talk about it. I mean, when I started talking about this 3.5 years ago on the internet, people thought I was crazy. Like, and, you know, when I first started buying businesses, let's say 10 years ago, like quietly by myself, I don't know who I could have turned to to look for doing that. Like, that didn't exist as far as I knew it. You could look at Warren Buffett, but come on, Codie Sanchez, then Warren Buffett, like, there's a little bit of a canyon there. And so normal people weren't really talking about buying these small businesses. In fact, I did it on the side because I was a little bit embarrassed. Like, Goldman Sachs to a laundromat, that's weird, you know? And also, can I do two at once? How do people feel about that? Am I going to get fired from this job I make a ton of money at? So I think there are a lot of reasons why that wasn't that normal, but that is changing now. And, you know, first time on The Wall Street Journal they've had HVAC owners as millionaires. I was laughed at for that 3 and a half years ago. And so I think people are waking up to it, but there will be a lot of pushback. In finance, I think we are very smart as an industry. This is a smart industry of people in finance. Mm-hmm. But we also really benefit from not normalizing finance. We benefit at the cost of 2 and 20. We benefit from more ownership and from people giving us their dollars to invest. BlackRock and Blackstone can buy more houses and more businesses if we don't know how to invest because we give them our money, they use that money, but then they also get a decreased interest rate. Let's say we get 8%, they might get 3% because of pooled capital. Then they have $100 million, let's say, from all of us. Well, then they can take a levered loan on it at 90% rate potentially, and they can have 2 to 3x our money. And so there's a lot of reasons why people don't want you to think that you can buy an individual business, not because people are evil, but incentives matter.

I totally agree with you. I mean, when you look at Warren Buffett, for instance, most people don't realize Warren Buffett didn't start out buying stock and like buying $100 million businesses. He started out buying $15, $20, $30 million businesses at the end of the day. And where did most of his best returns come from? The smaller assets. You're right.

Yeah.

So I, I totally agree. When I look back though, the history of your career, and I was talking to our mutual friends Sahil Bloom, and, you know, both of you went through this transformation. You both realized that there were other ways you could make money. What were some of those pivotal moments leading up to where you are today that helped you realize there were other paths to go down?

Well, I think if I was in venture, I probably would have thought differently. I think venture, you take massive risk. You know, you have a portfolio with a lot of companies that will fail. You have to help those companies. There's a lot of incentive alignment. It's not super litigious. You know, people aren't suing each other all the time. You know, there's a lot of optimism. That's needed in it. In private equity and in investing, like what I did previously, it's a gnarly game. Everybody's suing everybody. I mean, I've been 6 ways sued from sideways as part of a company. D&O insurance is super important. It can get really gnarly. There's a lot of lying to you. It's a tough industry. I mean, the Cerberus guys were one of our LPs. And, you know, I remember the first time he screamed at me on the phone, not like the 50th, right? Like, it is rough. And so I remember looking at that industry, at the people who were 10, 20 years in front of me and thinking, no fucking thanks. I don't want to be you. You don't seem happy. You're on your third wife and your 47th Corvette or yacht, or we're comparing boat sizes, then I find this all completely uninteresting. And so, and I don't think it's that interesting to scoreboard financial arbitrage on a company that you're not really trying to grow that materially. You're trying to maximize your return until you flip it to the next guy and the next guy and the next guy. Now, more power to them. They make a shit ton of money. I don't think there's a better way to make money in the world. Actually. But at some point you make enough money and you're like, it also has to matter. And so I'm sure Sahil could tell you the same thing. You look forward and you're like, I don't want to be that person. And so I realized that at some point, and that's when I started buying these things quietly on the side. I was too much of a wuss. I didn't have what a lot of your portfolio companies have, which is like, I will will my belief on the world. I will build this thing out of nothing. I will have a crazy amount of belief in it and fuck anybody that says differently. I was like, I don't have a crazy idea. You know, I'm, I don't know, I'm like stressed and overwhelmed working. So like, why don't I just try this private equity thing like on the side, really small and quietly, and like I won't let it bankrupt me and I'll do a few of those and maybe that'll make enough money. And at some point it started making me more than I made, you know, in finance. And that was a material amount. And, you know, I remember one of my partners being like, you know, that's cute, that thing you do on the side, the laundromats. And I was I was pissed for something else at that point. So I remember telling him like, I make 3x with my portfolio than what we make here. You have millions of my dollars in this portfolio. There's no prestige that makes private equity or VC or being a doctor a better way to make money than anything else. You know, Wayne Huizenga, multi, multi-billionaire from trash. It has just as much honor in it as anything else. And so I think I found that annoying. At some point I was like, I think that labor by and large has a ton of honor in it, and I'm going to push back on the things I don't like in the world. And I think everybody has that boss they don't really like at some point, or that partnership that wasn't right. And I had a few of those, and I'm probably pretty unemployable. So that was a category of it too.

I think Adam Grant would appreciate you. You know, in the book Originals, he talked a lot about how actually some of the best founders in the world started out moonlighting their ideas.

Oh yeah.

And they just had the guts to get into it, to learn the job on the job, but not go full bore into it because of the fact that a lot of them have risk. Like, not everybody can leave their job and a stable paycheck and go all in on a startup without a salary on day one. A lot of people have families, a lot of people have needs. And so I think it's really admirable, honestly, to start something on the side. And then my guess is you bought something, started to work, you probably learned some hard lessons, and then you bought another thing, probably learned other hard lessons. And then once you got to a place of sustainable conviction, you probably went all in.

That's exactly right. You know, there's actually a fascinating study that shows all things being equal, entrepreneur starts a business, burns the bridges, quits the job, goes all in. Entrepreneur starts the business, does it on the side, side hustles, which one succeeds more? It's actually the one that does it on the side. 33% higher likelihood of success. Now, I don't know if that would be true in VC land because not every business is a VC-backed business despite maybe the last 10 years and what we've seen a lot there. But, you know, People don't want to have to sleep on their couch or work out of a garage for 10 years. They might want like a family and a little bit of freedom, and they're doing the thing to make enough money to live the life that they want. And I think that's beautiful too. And if you are a crazy person that has an idea you can't sleep for the one of, then raise the capital. Do the wild thing. Thank God there are people like you. But if you're not one of those, also no harm. You know, go and get creative financing for your business and have a beautiful business that cash flows more like a bond than a growth stock.

100%. I mean, my family were all small business owners.

What kind?

Everything from a manufacturing company of steel products for the footwear industry to identity theft protection. And ironically, I remember I was in high school, I went to go work at my uncle's company and VCs offered him cash and he turned it down. And years later we've had this conversation because eventually he actually sold his business to private equity. I said to him, I actually think you saying no to the VCs was the best decision you could have ever made. He's like, well, why is that? I'm like, well, you think about it. You would have been on the hedonic treadmill of life trying to grow and grow and grow and grow and grow. You'd have had to raise more and more and more capital. All of a sudden you're getting diluted. And then would you have been able to make the same amount of money? Maybe, maybe not. And you know, you're going all in, whereas by growing it with cash flows, Yeah, maybe it was a little bit harder, but he also had, you know, plenty of money coming in the door from a cash flow basis. Then when he sold it, he owned 100%. And there's a lot of value to that that I think, candidly, people miss in the market today. And I actually don't think that VC dollars are the best for everyone anyway. So it's okay.

No, they're totally not, you know, and it's— there's no like wrong way, just like there's no wrong way to make money unless it's illegal. Like, I always think that's funny when people are like, well, this way is better. Well, this way. And I'm like, Stop. Everything has honor. Simultaneously, there's no right way to get financing for your business. You know, there's— VC is not better than PE, which is not better than seller financing, which is not better than a bank loan. And so it's all just options. We got a bunch of crayons on the table. The colors are different. You figure out the right one to draw your picture with. I think the problem comes with like a lot of lack of education around this. You know, it's always been sort of the ownership class that understands these financing mechanisms and what levels of game you can play in order to make the most money. But if we sort of normalize that, then people we can just go, oh, unemotionally, this. Um, and I think we'll get closer to there as the internet starts making all of us be more open about this.

100%. I mean, VC at the end of the day has done something very well in the last decade, and it's PR.

Yeah, that's true.

I think the Social Network was a game-changing moment for venture capital, for better or worse. I actually think in many ways it was a negative because there's a lot of wantrepreneurs running around who don't actually want to build the multi-billion dollar company. And again, it's okay not to want to build the multi-billion dollar company, but you're gonna put jet fuel in your car, it's not gonna work. So, but if you put jet fuel in a jet plane, then it's great.

Yeah, it's so true. It's like the Oracle of Delphi said, most important question you can ask yourself is, who am I? What do I want? Know thyself. Once we know thyself, then we can determine what's best for us. But yeah, I have a good friend that, you know, I think saw a lot of founders, liked this term founder, which I've labeled myself many times before too, and thought there was a cachet to it and built a a business that was pretty miserable to run, made no money, got a little bit of VC, like enough to be interesting in the beginning, not enough to really do anything with, and then sort of zombied the way through the company. And I think if I was more cognizant of it early on, I would have said like, stop, think. Do you want to work 20-hour days for at least the next 3 years, but likely 5 to 7 to 10, look at the average IPO cycle, and obsess with this problem? Is this problem one that you cannot sleep because it keeps you up thinking about solving it? Are you pissed off or really excited every time you think about it? If you're not, don't do it. You know, go build a business that is the cash flow equivalent of it. Go buy the Main Street Millionaire equivalent of this business and live like a happy life until you find that thing that you want to spend the entirety of your youth upon. To your point, VCs had an incredible PR machine and we've been talked into becoming this like nation of founders and that's beautiful actually for society as a whole, but can be really tough for the human. And so maybe we need a little balancing there.

I agree. Well, people are probably wondering why did I want to sit down and have a conversation with you? There's really two reasons. The first is I do a lot of our vertical AI investing in SaaS companies, mainly that go after SMBs. And I've been seeing the rise of Main Street acquisitions, of private equity, in how game-changing applying software to the operations of these old-school, stale companies can actually be. The second reason why, though, is because of what we're talking about, because of the fact that I actually also see an opportunity for many people to go out and buy these businesses. And so prior to us meeting, I got my hands on a copy of your new book, and in that learned a little bit about the RICH method. Can you tell me what the RICH method is?

Yeah, totally. And one thing I want to add first that I think is really important. We have a fund, Contouring Thinking Capital, that's a small venture fund, and it is exactly focused on that. What we kind of found is we own all these businesses, and then I was like, "God, why is this car wash software so bad? And it's so expensive, and they have complete market capture and integration with hardware, and this is a beautiful fucking business." And so I tried to buy a few of those, and they kind of laughed at me. They're like, "You can't afford You know, I was like, oh, whoops, I didn't realize you were that big. And so after that happened a few times, I was like, we need to own some of these, these software companies that are powering our laundromats, our car washes, our auto companies. And so we started investing in the picks and shovels of the industry. And what ended up happening is a weird understanding. Like yesterday we did a post for Cary, which is one of our portfolio companies, and I was like, huh, I wonder what the power of media is plus cash. And my assertion when I left finance was that media is going to be more powerful than cash, that actually it'll become really hard to compete for, you know, ad dollars and to do it well to get attention. And so much of VC capital— what do they say, something like somewhere between $0.40 and $0.60 of every dollar from venture goes to the big four?

Facebook or Google. Yeah, exactly.

So if that's the case, then that means that 40 to 60% of every dollar you guys spend goes to me, goes to like distribution across attention individuals. And if that's true, then I'm like, wait a second. So what if I just replace the $0.40, $0.60 with my attention for my portfolio companies? What happens? So we started experimenting with that and it worked. And the fascinating part is with Carrie the other day, we did a TaxPost because, you know, it's a software that assists with small business owners and 401s. And what's fascinating is we had like a 57% conversion rate on this post that we did from clicks to leads. So they actually like clicked on the thing and then inputted their email. And I was like, huh, this is just so much higher product market fit or product audience fit because I know what I'm talking about in this industry. I'm trusted by this group. And then we have a product that's better than one I could ever create because I'm not a SaaS person. I think that's somewhere creators go wrong. They try to like create something that they are not skilled at at all, whereas I try to buy those or invest in them. And so I thought that was really interesting that you guys do that too, because probably 3 years ago, you know, it was looked as kind of bad to be in vertical SaaS. I'm sure you got that same thing.

Oh yeah.

Like, why are you investing in vertical SMB SaaS? Like, first of all, it has small in the name and you're going vertical. What's wrong with you? Did you get that same thing?

Oh, 100% of the time.

Yeah. How did you get— you just said, I have conviction in it.

No, I think we had insights around the markets that other people just didn't have. Have. And so one of them is that the TAMs are way larger than people think. And because there's far more businesses that are out there and far more ways to monetize them if you have a deep relationship with the owner. And I think that's a really important distinction because if you look at the attach rates of additional products that get sold into enterprise software companies, they're not as high as when you go into vertical software companies. And so it's easier for us to underwrite underwrite higher market penetration and market share for a company if they're going to go out and sell specifically into one vertical versus trying to go after many verticals.

Yeah, I agree. And I think they also have a value discount.

100%.

You know, whereas let's, let's say most of like the broad-based AI, woo, like I can't really underwrite that. You just have to assume positivity in some way, shape, or form.

And at the end of the day, I think one thing that's interesting about what you're talking about, aside from the fact that you have the media, you also have the assets. And so what a lot of founders don't realize in SMB tech is that the best way to go to market in a capital-efficient manner is to find one-to-many distribution strategies. And what's the best one-to-many distribution strategy? Right now, you either have to sell into the vertical software companies like the Service Titans of the world, or you need to go to the Codie Sanchez of the world and say, hey, give me a shot. Let me work with one of your companies. Let me prove that it works. And then let's expand it out in your portfolio. That's how we've actually seen— there's one software company that went $0 to $30 million of revenue in 2 years, profitable, only raised $4.5 million. And you can't do that if you're going to pick up the phone and try to call every small business owner.

Yeah, you're exactly right. One of our founders in the portfolio basically was giving his monthly update and just did the infinite sign for runway. I just had a little chuckle. When you focus on profitability upfront, then, you know, my my 10 or 50x doesn't have to come from massive size, actually. And so it'll be interesting to see how this plays out. So far, I've been pleasantly surprised at this market, and I think it's really interesting for young founders and builders who maybe do want to build SaaS, or they do want to build tech, but they don't want to have to compete with the Sam Altman's of the world, or, you know, they don't want to have to compete with the highest level of tech entrepreneur. Well, you know, in vertical SaaS, that's probably not necessary. You don't have to do that. I mean, we just got a company acquired, like, that's a year and a half old and it got acquired and the founder, you know, got 15x for his stake. Is that a $500 million exit for me? No. But is that $15 million-ish to that individual founder that'll change his life forever? Totally. So that's pretty cool.

I think what's fascinating about your model is that you have an unfair advantage when it comes to investing in startups to then getting them customers. So in many ways, if you get them a dollar of revenue, that dollar of revenue could actually be worth $6 from an enterprise value perspective. And so when you invest, if now, and it sounds like now you do know how much value you can bring to the table from a customer base perspective, it's easier to underwrite. But when it comes to buying Main Street businesses, how do you go out and try to find that same asymmetric upside?

It's hard now. You know, when I first started buying businesses, I didn't think about it as a portfolio. This was my own cash on the side. I wanted to make a couple million bucks in cash flow a year, and I wanted to do it from businesses, and I wanted that to be direct to me. And I really didn't want to have any investors or LPs. I didn't care about synergies between portfolios. I didn't care about investment thesis. I didn't care about how I would exit an exit strategy in 7 to 10 years. Like, I didn't need any of that. And so all I did was look for two things, which was basically where do I already have an operator? Because I had a job, so I was like, I don't have time to run these. Where do I have an operator that's trusted? And we have a little framework we use to find small business operators, you know, that's trusted, experienced, and proven. And then where do I have a business that I can understand simply? I can apply like traditional private equity screens to it to make sure I underwrite or due diligence it properly, and then it can cash flow sufficiently. And that was it. It was like 3 things. So I did that with most of our first businesses, and that was great. And I wasn't on the internet, so I didn't care about media or attention at all. There was a point where I saw, wow, I could just turn this into a PE fund. I could just like scale this up after we did our third laundromat and then our fifth, after we did a third car wash and then our sixth and seventh. I was like, well, these are roll-ups now. And if I wanted to integrate them and put a single backend process for all of them and brand them appropriately, like then I have real enterprise value. But then I was like, God, then I'm a real son of a bitch because I'm no better than the people that I was talking about. And then I'm going to end up having this like multi, multi-billion dollar if I'm any good and if I'm so lucky, but I'm going to be buying businesses all over the country and then they're not going to have a lot of soul, which is one of my problems with traditional private equity. Again, like gross generalization, but I mean, you go to a Starbucks here, like actually they're probably the best in New York. It's not a good example. But if you go to a Starbucks in any other city, you know, they don't know your name, they spell it wrong, they don't really want you there, they're dirty, the coffee's shitty, let's be honest. And yet there's a premium price associated with it. And I think that's because at a certain scale, businesses that are supposed to be like community-focused, these like third spaces, like that was supposed to be. It's hard to do that at scale and like the soul kind of gets sucked out of it. And I think that's what's happening to our main streets all over the world. And, you know, we humans were supposed to be like quasi-tribe-based, small, communal. And so I just— I don't think that's good for society. And so, you know, at some point though, we started growing this portfolio We don't talk about all of our companies publicly because a lot of them don't benefit from it. Like, how is me telling the names of where our car wash is located going to help them get more car wash users? It's not, especially if they're not branded all the same or we don't want to sell to PE. Then I started realizing, wow, we can't keep buying these same types of businesses and make it make a lot of sense for us. And so I would say like right about, you know, when we owned about 25, 26 companies, is when I realized like, huh, if we want media attention to matter, we have to play a different game. And that's when we started thinking about what are the companies we have where one, attention matters. So we were like, huh, venture style companies would matter and media attention would materially help them. And then we also started looking at, we call it the core satellite strategy, but for acquisitions, sort of like equities. So if our core is we teach people about small business, both buying scaling and eventually selling or exiting them, then what are all the products and services we could own around those niches so that we could do the same thing you're talking about with vertical SaaS? Like, what if we treated ourselves kind of like a vertical SaaS company? So it's like, well, then we would own the marketplace where people go and sell small businesses. So we bought that and we're scaling it. Well, then we would also own part of the Rob's company that does 401 loans for them. Well, then we would also probably own part of of an accounting company that does, you know, background for small businesses. And so that's how we started to think about it. So then I started to buy these companies that were largely professional service businesses. And so today we own those. And then the only, like, allowance I kind of gave for small businesses for us to own at scale was there are just some people that probably shouldn't buy a small business outright. Well, actually, there's a lot of people that shouldn't.

I was gonna say, who are those people?

There's a lot. Lot. If you're not willing to do really hard, awful, boring things for a long period of time, you shouldn't buy a business or run a business. It's not that it's rocket science, actually. It's just kind of miserable sometimes. I think it's worth it, but it's kind of miserable. And so if you can't do that, you shouldn't do it. And then there's a second group of people who like, they just need more guardrails. They're like me at the bowling alley. Like, I need the bumper lanes to start. Then I might eventually be awesome, but like to start, I'm going to be in the alleys the whole time. And so for those people, that's why we, uh, now own a business called Resi Brands, which is, you know, window cleaning, painting, roofing, handyman, but it's a franchise. And the idea is that you get bumper rails if you want to start a business. You get some— a hand to hold, as opposed to buy a business and kind of do it by yourself.

It's like the systems and processes are already in place that you guys have perfected or mastered that now they can use.

That's the idea.

Yeah, it's like rinse and repeat.

Yeah, exactly. And I think those are good starter businesses for when you're like, I've been a W-2 employee. You either start by buying a business, but a smaller one, or you start with the franchise where you get a group of people around you. And so I don't really have a preference to model. I just want there to be more options for owners.

I really like that as well. I had spoken to Josh Dorkin a while back. I don't know if you ever met Josh at BiggerPockets, but yeah, for sure. It really feels like what you're building at Contrarian Thinking is the bigger pockets of acquiring businesses.

Yeah, well, I have a lot of respect for Josh and what he's built, and I think that's part of our idea, um, is at least to democratize access to ownership. What I hope to do— the way that higher education works today won't be around in 20 years in the same way, or 30 years, and that it's, it's overpriced, um, it's unfairly burdensome on the individual because because you, you know, you can't bankrupt your way out of it if you get, if you get student loans. It actually is teaching you a lot more theory than practice. And I think the best way to learn is to do. And so what we hope to become is we're working on accreditation right now with partnering with two universities. We're working on CE credits for our courses so that they become continuing ed for professionals. And the idea is we want to create a real academy, an institute of M&A and then of scaling and of selling. I wish we're actually a part of my MBA, but we're not. Not, sadly. Georgetown's a beautiful institution, but if I wanted to learn about political theory or international relations, it's a great place to go. But Jesus, I mean, Wharton has a 2-day M&A program that's $15,000, and you're telling me that that is the way that somebody learns to do deals? No, it's fucking not. The only way that you learn to do deals is typically what you and I have been blessed enough to do, which which is you're in a private equity fund, you're in a venture capital fund, and you learn by doing it. And that just doesn't exist in the world. And so I want to create that.

I think the reality too is that if AI plays out the way that people are talking about AI playing out, there's going to be the need to upskill and to reskill a large percentage of the labor force. And it feels like to me in many ways what you're building by by creating this education system is essentially the next-gen vocational school. You know, there were plenty of kids growing up that went to vocational school, and turns out that the guy driving, you know, the Corvette or the woman driving the Ferrari in your local town probably bought businesses or started businesses in the trades. And I think just too many people ran away from it, it felt like, over the couple of decades.

I kind of understand why people went away from it because they taught you to do a trade. They didn't teach you to go become a GC and manage a construction site and then eventually ask the owner for a piece of the business where you're a subject matter expert and thus will be uniquely skilled to know how to take over that business or to leave and go start your own or buy another one. They taught you the trade. So welding, you're a welder. Congratulations, you're certified. Well, what about when the lifespan of you being able to weld runs out? Out. Then what do you do? Well, you should probably reschool yourself to be able to get ownership to go to the next level. And so we have that. That's probably what the traditional MBA is, but it's from a leadership track. It's not from a subject matter expert track to then becoming an owner track. And so that, that's something else that I thought was missing and that we are trying to insert.

Yeah, I thought you could pay like $200,000, go to HBS and start a search fund now though.

Oh my God, don't get me started. I'm gonna get so much shit on the internet. Those guys hate me.

It's this interesting time thing though, I think a lot of people get scared to do this. They don't know where to start to get out of the gates. And the reality is there's so many founders, even in venture-backed world, where they've never worked in healthcare before. I mean, look at Elon, uh, from K Health. Elon was one of the co-founders of Vroom and was the former CEO of Wix. Did he have any background healthcare? No. But he's now started an AI healthcare company that's a unicorn, and he just learned how to do it on the job. And he actually took a brand new lens to it, which I think can create a lot of advantages to business owners. And it feels like going back to your— you're going up through trade school, you never learn how to run the business, but you know how to do the job. People who want to come in and start to operate these businesses might actually have an advantage.

I think they have an advantage in some ways. Here's my take: if you come in and you buy a business, this. You should probably not assume that you know more and are going to do better than somebody that's been doing it for 10 to 20 years. That's a dangerous assumption. It actually could be true, but you should assume that in the valley of death, which is the first year that you acquire anything and anybody, you know, you know that from doing deals, that first year that you acquire something is when you find all the dead bodies. You're like, "Oh, shit. I thought this was profitable. Wait a second. What's this? Oh my God, there's a lawsuit. This one year is really tough." Well, during that valley of death, you should assume that the guy who's running it for 10 to 20 years probably did better than you and is going to. And so you should set up the transaction that way, in my opinion. But then past that 1 year and year 2, 3, 4, and 5, yeah, having the Harvard, you know, business network even, being able to raise capital a lot more easily, even understanding the vernacular of finance, for instance, being able to think about roll-ups and acceleration, you're gonna have a super unfair advantage longer term. Short term, we gotta be careful and we should have a lot of humility, but long term, Man, yeah, I think that's actually a really powerful combination. Where I think all of us in finance can get a little— in finance and having gone to any sort of school that's semi-fancy, not that Georgetown is Harvard, is that, you know, we have to be honest about the fact that they teach us theory and not practice. And so, you know, I see a lot of these, you know, they apply to our companies often. You know, a lot of these guys are like, I'm gonna take, I'm gonna raise $50 million, I'm gonna roll I'm gonna call up 12 HVAC companies. I'm gonna do it in 24 months. Here's the graph. My usual question is like, have you ran one yet? Let's just start with one. Start with buying one of these bad boys. Figure out how to stabilize it. We in our program think about acquisitions like an MBA in a 3-year stint. First year you learn how to buy a business. You know, you do acquisition, you learn acquisition. Somewhere between like 8 and 18 months, you're probably ready to do some sort of acquisition. Maybe not giant one, but you can get ready in that period. That second year You're optimizing and scaling. It's really how can I stabilize this business and then can I grow it? And then year 3, I like to start with the end in mind. So I think about selling the business. How could you turn this into a sellable asset if maybe your first deal isn't going to be your last deal, which is probably likely? And so, you know, with a lot of these types, I'm like, man, if you start with some humility, the likes of which, like some of the employees who have bought businesses in our group, some of the tradesmen who have bought businesses in our group, you're going to go so much farther than coming into these founders of these, you know, businesses that have been doing it for 20 years and telling them all the things that they're doing wrong and how great you are because of credentials that they don't give a fuck about. Not a great idea. And so it's not always the advice people love the most, but it at least has worked for what I've done and what we've seen in our 3,000 students.

It's like anyone that goes in to take over a business shouldn't just shake things up from day one. They probably need to go around and sit down with every single employee and understand what they do and show empathy and build trust and get to know them and get to know why they're doing the things that they're doing the way that they're doing it. And then over time you can see how it works, and then you can start testing things. But it sounds like, again, your people are finding product-market fit within the operations of the business first, and then you're telling them, okay, now you can go ahead and challenge the status quo.

Totally. Yeah. And, you know, we have a portfolio company, Splat, Cash. They started by buying a pool cleaning business. That is categorically a hard business and not one that is going to scale at great length. And so would you start, you know, a VC-backed business by buying a pool cleaning business? Well, I wouldn't typically recommend that, or I've never seen it before. Um, but they really wanted to understand that market, and so they did. And then they built a bunch of SaaS specifically for the problem set that they knew that they had, and now they've scaled it up quite substantially. I'm impressed by a lot of these modern-day founders who, you know, they're not out there creating the next AI at the highest of level, but they're solving a problem that is so needed and so underserved. So I think that's pretty cool. And I kind of like, I don't know about you, but I just like, I think also all of us who are in finance or VCs, we kind of are like, yeah, but don't you want to own a car wash? Like there's just something about touching owning it, having the asset, having it be in your neighborhood. So I can't tell you how often VCs come to me and they're like, okay, but the next deal, fuck the long-term game. I want cash flow and I want to own it locally. And I'm like, yeah, I get it.

Yeah. I mean, I read through your book in maybe 2 days and I don't think I've read through a book in 2 days in a long time. So it speaks to that. And one thing though, going back to even just VCs saying that they want that cash flow or they want to do other things. Underlying all of that, I think, is trying to figure out what a human being wants. And one of the things that you wrote about in your book, which reminds me of an exercise that before I actually joined Primary I did, which was the ikigai exercise.

Oh yeah, that's a great one.

Your zone of genius reminded me of that. How do you go through that exercise personally? And is it something that you did way back when, or is this something that you try to revisit now on an annual basis?

The idea and how I think about it is like 3 circles. We call it the perfect fit business, and they're sort of overlapping like a Venn diagram. And one circle is passion, or what I prefer really is obsession. Like, we're not talking about painting. Where can you not stop looking stuff up in this? Where are you kind of obsessed with something? And then your skills. So what do people come to and ask you for advice on? What do you give advice on frequently? What are the things that you find yourself doing and getting paid for? And then your third is network, which I think is really underfocused on. But where do you have an uncle who's a plumber who like would love to work for your company? Where do you have a couple of investors that have a lot of cash but like haven't had anything to invest in yet? And so we put people through what's called a deal clarity worksheet. And this is for that exact idea. It's like in private equity, you don't really ask like, what would make me happy? Like, which business would I just love to own and work on? Right? Like, that's just not—

You're like, this is the best returns.

Yeah, exactly. You're like, money, how fast, when? How much money? Much. And so in this way, I thought we should add the will I like this? Will I hate my life after I make this acquisition, or will I actually enjoy it more? And so the Deal Clarity worksheet goes through all the typical things you would in a deal box or your investment thesis, like how much money you want to make, where is it located, blah, blah, blah. But it also focuses on like, what do you really like to do? You know, would you actually want to own this type of business? Let's ask yourself that question. How could you do this deal feel with as little risk as possible to you not liking the business. So that might mean like, can you go shadow? Can you apprentice for a bit? Can you talk to some of the people who have the life that you are going to step into and see what that looks like? And so that's the idea, but we have to do it a lot more now. You know this all too well, but I've found the, the faster we grow, the faster my perfect fit changes. And so it used to be on an annual basis we looked at it. That wasn't fast enough, so then it became quarterly. That actually wasn't fast enough, so now we get it. It's not like a set process, but maybe every other month, maybe monthly even. Because what we found is like, I got a chance to talk to a huge name on the internet who does deals and is sort of, you wouldn't really call, I guess you would call them a celebrity. And they own a bunch of businesses. And they said this thing to me that I was like, oof, I got to sit with that for a second. He was basically like, any deal you do today will be a bad deal for you in one year, given where you guys are going. I was like, whoa, that's crazy to think about. And he expanded on it and basically it was like, well, if you're growing like this and your name is associated with it and your cash is associated with it and you can grow it this fast, then like it's going to be hard for you to negotiate a good enough deal now unless you own everything for it to make sense for you in a year. And so that explained to me a lot of the reasons why people on the internet do the type of deals that they do. I always found and in talking with a lot of other creators today, I'd say like stay out of the messy middle. Like private equity basically owns everything. They own the whole business by and large. And then VC owns very little. And so why do they stay out of the middle of like the 10 to 20 to 30% typically? Well, because you have all of the pain of owning the whole business, which is like it's material. You care about it. It was a lot of cash. Your name is associated But you have all of the control of venture capital, which means at some point you're going to be pissed about how the business is running and it might not work out. And so now we go back to it a lot and pretty consistently. But I think maybe that's the same for, for everybody because you guys do a lot for your portfolio and you probably have the same thing.

Totally.

It's hard to even express the value in that to people until you have like multiple case studies.

100%. And I think one of the pieces of advice that one of my partners gave me as I started to get further along in my career, and all of a sudden the number of board seats, you know, hit 10+ was, you know, every deal that you do, you're committing to the next 10 years of your life. So whenever you make a decision, you have to be thinking about that, because you're gonna have to go through the ups and downs, not only with the business, but with the founder. And so making sure, especially today, as deals move super fast in comparison to 5, 6, 8 years ago when I first got into the business. You need to spend more time getting to know the human being behind the business and going back to your zone of genius, like what motivates them.

Yeah, it's, it's very true. And I would say it's the same for buying small businesses with whoever your operator is going to be or your operating team. You know, I, I won't do a deal now where I don't have an operator in place. And so that means that I have some key man risk and I also have that same risk of like, will I want to be with this person forever? It's really, it's a little bit like marriage. It goes back to that Carol Dweck, you know, do they have a growth versus fixed mindset? How, you know, you can't really build a big business and not have an ego, I don't think. But like, how in control is that ego? And what trips it up? You know, how aligned are the two worlds that we live in? Like, do we see the future the same way?

How do you try to suss that out? Out?

Hard. You know, the best advice I ever got was actually from an ex-CIA guy. And he said to me, "You always get the information in the evening." And I was like, "What do you mean like that?" He's like, "Well, anybody can be on with like a coffee at 8:00 AM ready to go." He's like, "As the day progresses, as things hit, as, you know, obstacles come along, as we get later and later into the day, it's harder to hold up a front. And so people will more often show you who they are in the evening." Now, I think he meant that in a day span, but I think he also meant it just time. So it's just an exposure thing, I've found. Uh, I try to believe that when people show me who they are, uh, that I should believe them, and that if I can spend as much time as possible with that person, I'll suss out the areas that are going to be an issue. And listen, I'm not perfect by far. I have issues if you want to partner with me. Yeah, but like, we need to know and be honest be honest about that. And I think when you have a power imbalance like you do in VC because you're giving them cash, and like I do because I give them cash, they're not going to show you it as much. You're going to be probably pretty honest. You're going to be like, I'm going to acquire X and Y and Z, and if you don't like it, this is what we do, and it's no big deal if you don't like it, you can go over here. But if they really want it, well, then they are courting you. And so they are not going to tell you the truth to their own detriment. And so it's kind of your job to like help them out to say like, ooh, you actually don't want to date me because I'm a vegan and you love burgers and you're going to get annoyed by that at some point. So like, that's— it's not bad I'm a vegan. It's not bad you like burgers. Like, we're not a great fit. And so I think about that a lot. I do this in interviews too. Like in an interview, I might say like, hey, we have a lot of job openings right now, which we typically do. We have 3 that are kind of in this same area that you have. The one that you applied to is biz We also have one in marketing and we also have one in ops. So like totally different things. I can't decide which one you would be best for. Like, is biz dev what you really want or are these other things maybe something more fitting? 9 times out of 10, like I only ask them that when I'm like a little bit concerned that they might just want a job, not this job. And when you give them the out, they'll take it.

That works like a charm every time.

It works every time.

The other thing that I saw you do that I tend to do is I try to put a little fear into the people that we're talking to, mainly because you never know where things are going to go and you want to make sure that somebody is up for the job. And so I remember, and I think our analysts would tell you the story, that when I hopped on the phone with them, I was like, hey, Gen Z gets a rep about maybe not wanting to dig in and not wanting to work super hard. And, you know, this is a hard job. Like, at the end of the day, an analyst could be the one that finds the company that could be worth $10 billion. And by the way, the analyst is also going up against Peter Thiel and Reid Hoffman and their networks. And like, it's a hard job if you want to win. Like, are you sure you want something that's going to be this hard? And I find when you sit down with somebody and you say that to them, you see them either lean in like they want this and that's like go time, or you kind of see them lean out and like their mind is like spinning a little bit and they question whether or not this is the place they want to be.

It's so true. Yeah, I got a lot of shit on the internet for saying that if you bring up work-life balance in an interview, like, my company is probably not right for you. And it's just not. I mean, the media company, Contrarian Thinking, is a startup. It's only 3 and a half years old. That thing's a baby. It's a toddler kamikaze-ing its way through life, almost about to die, always. And that's just like what a 3 and a half year old business looks like. It's like unreasonable to think your 3 and a half year old will act like a 10 year old business. And so that business requires people who are on alert all the time. Trying to not let the toddler die. Then the holding company, that thing's more stable. It's been around there for a while. People who are in that company could probably chill a little bit more, except we're starting to ramp up deals. And you know, when you're doing a deal, like, there is not Monday through Friday. There's not 8 to 5. It's like whatever is required. And that's not always good for everybody, but I'd rather that I didn't lie to them. And so I do think the best thing that you can do is screen the people for the type of business that you have.

Yeah.

You know, if somebody comes and they work in like maybe one of our portfolio companies, like one of the car washes or laundromat businesses, that's not the same thing. You could have a beautiful, calm 8-to-5 life with like probably not a lot of stress or risk. Yeah, but you can't have that in the other two. And so we should be honest about that. But the internet doesn't love that all the time.

I mean, if you look at these people who are going out to buy businesses, You mentioned this zone of genius, and part of what you talked about is like, what are you passionate about? And what I find fascinating about that is if somebody writes down a category that they're passionate about and they say they want to go and they want to buy a business, and it's probably not going to happen until months 6, maybe 12, chances are they're going to have to geographically look elsewhere. How flexible do people need to be, geographically speaking, to deciding what business they want You know, I have a bias.

My first business, if it is a brick-and-mortar business or a business that is not online, that it's close. That if there's a fire in the middle of the night, like a literal fire, you can get there pretty quickly. And so in my opinion, the first time you do a deal, or at least I'll say when I first do a deal, I want geographic proximity. Now, if I can't have geographic proximity, I want my proxy, my operator, to have geographic proximity, and I better really screen that operator. I mean, I remember I almost I bought a dental molding company in Chicago, Illinois. And I was very close to closing the deal. It was on paper, excellent company, you know, very profitable and pretty like loaded business. They had like some great long-term contracts. And I went out to go do the final site visit and it was like a fucking blizzard in Chicago. And then we had to drive from the airport like 45 minutes to the next thing. And then the office was kind of an older office building. I remember sitting there and I'm thinking, "Nope, I'm not gonna do it. I'm out." And I was like, I don't want to own a business where there's gonna be a blizzard, where I have to drive 45 minutes, and where this roof eventually has an issue and I gotta come out and deal with it. And I didn't know the operator enough to trust them. So I just said, "Hey guys, I'm really sorry. You know, this is not the deal for me." That business papered. For somebody, that will be a great business, just not for me. And that's the beautiful part about when you're not in a private equity company. You're, you're just like, I don't want to do that. I want to buy a golf rental company in Phoenix, Arizona, because my husband likes to golf, you know.

He might have appreciated that.

He would have. Yeah, the dental business, he would not have. So, and then for people who are first-timers, I just think you already haven't bought a business before, right? This is going to be your first time doing one thing. So like, try to limit the number of brand new things that you can do. That's why I'm kind of like, listen, if you're an accountant, can you buy an account a business that is really simplistic, but the finances or the accounting of the business is like the most important part of the transaction. You know, if you're a doctor, can you buy a medical practice? Can you buy a vendor that you already work with in your practice? Like, how can we work with your unfair advantage of things you already touch and kind of understand?

Yeah.

As opposed to going and buying a laundromat. I just use laundromat because it's an easy example.

Well, what's fascinating too about that market market, there's less supply of buyers, right? You don't have that many doctors who are going out to buy the assets. And so the chances are the return profile is better, right?

Oh, 100%.

Do you have any concerns as we sit here today and this topic of buying businesses is getting so much sexier in the US that the returns are going to compress?

You know what's wild is I think we live in our Twitter spheres and in our bubbles. We think that this stuff sounds super normal, but the growth chart on ownership in the US is not positive, actually. The, the starting rate of businesses in the US is actually quite high. Like, we have had in some ways more businesses created since 2020 than we have over the prior 10-year period. And that could be, you know, it's like if you determine LLCs, is it multi-LLCs? That gets a little messy on how the data is collected, but trajectory is correct. The problem is that it's also never been harder to create a profitable business. So we actually have this gap between a bunch of people starting and a lot of people never making any money. For business ownership overall, we literally are on a downward trend of a percentage of Americans that own businesses. It's declining year over year and continuing to. So it's interesting because the mouthpiece is loud, right? People talking about ownership. The actual execution of it is low. I think we overestimate this market saturation and, you know, I think we also overestimate it because So many businesses are our jobs. So what a lot of us might be buying if we're not pro, pro, pro is like, I'm a photographer. This photographer is retiring. He's 65. I want to buy his client list. I want to buy his website and Google reviews. I want to combine the two of them. Is that buying a business or is that like acquiring a client list? I don't know. I do know that typically that business just dies.. And I think that's problematic because what typically happens when a business like that dies is the market share isn't like disaggregated in an equal manner. It's that the bigger businesses pick up that market share for $0. So if instead the little guys can buy up these jobs, I think that we can have an increase in ownership overall, profitable ownership. And then simultaneously, there's just too many baby boomers. I mean, you look at the demographic chart, it's actually staggering for everybody that's like, "Everybody's doing it." I'm like, "Every single one of you fuckers could buy a business and it wouldn't be enough. You could buy 2 and it wouldn't be enough." Because just look at the number of baby boomers versus the next generations. There aren't enough of us to buy these businesses. And so I think we have a much bigger risk actually of not buying them. Now, the flip side of that is like, you gotta buy them at the right price, the right terms, and the easy-to-buy businesses will be quite competitive. And I think that's true.

So I should stay away from BizBuySell.

Yeah, exactly. I think any of those sites, BizBuySell, ARS, BizScout, are great. But the problem is you don't want to go to the ones that look great because those get bought up really easily.

Yeah.

You've got to be working with the business owner to see if you can get them to a reasonable sell price and help make that transaction happen. It's just very, very high touch. Touch.

Totally. I mean, we don't sit here, you know, and go on LinkedIn and just look at every founder who raised money the year before to figure out who we're going to invest in. We do a lot of outbound.

That's right.

And we find people and we network and we get deal nodes, and those people come to us and they tell us about things. And hopefully, if you build up a large enough network, you're going to see stuff before other people. And the beauty of that, as we both know, is you probably won't pay the highest price at that point because you've got it off market and off market means you can typically get it for a better price tag.

Yeah, it's very true. You know, we're about to buy this business right now. It's in the defense space and there is a billionaire that we oddly happen to kind of know in Texas and he really wants to buy this business and he brought it up to one of our friends that works for him. Anyway, the owner's been telling him no forever. Old guy, kind of crotchety, located in a different state. One of our members of our community brought the deal to us and Chris is obviously in defense, and so he understood the value of this deal and was like, how'd you get this deal? We know another guy wants to look at it and is offering them crazy money. And he's like, nah, he doesn't want to sell to somebody he doesn't know. And the guy who brought us the deal happens to go to high school with this kid. He wants somebody from the area. And so for that reason, we're going to have our operator plus us buy a business a billionaire can't buy, and not for lack of cash. And so I think that happens way more than we anticipate, especially because think about it, you're 65, 70, maybe 75. Are you trying to juice out like the last million or two if you're selling a business for 10 or 15? No. You're like, make my life easier. Make me like you. Make me believe that what I built was worth something. Make my legacy stand over time and treat the people that I've hired and worked with over the last 20 years well. That'd be great.

That is a lost art in the Zoom world, I feel like. Like.

Yeah, it's very true. All of us, but, but especially young guns who come in kind of like, I buy companies for 2 to 5x, and you know, my professor did XYZ. It's like, oh my Lord.

Totally.

You know, my dad, my dad sold two businesses, very small ones, you know, didn't go to college, was an entrepreneur many times, um, small businesses, and he would never call himself an entrepreneur or founder. He'd be like, I sold rocks, you know, because that's what he did. And so So they just have a different mentality. And I think we got to be honest with them about that.

I totally, totally agree with you. I mean, one of the things that I think a lot of people, when they first get their heads around what you're doing, are probably like, you know, maybe I don't have the rich uncle.

Yeah.

Or I don't have the neighbor who can give me money, or I didn't have the great job and I can't go out and raise money. What is it about this zero down? I think you have a method called the bathwater method. How, I mean, how do people go out and how could they buy a business for $0 down?

Well, first I like to give a little caveat, which is like, there's no free lunch. You're not going to buy a business in 20 minutes that will, you know, give you millions of dollars and you never have to work again. Like, that doesn't exist. We all know that, but sometimes you got to say it.

It's not The 4-Hour Workweek.

No, it's not. I've never figured that one out, although I love Tim. But here, here's the truth that we know. So the bathwater method is this idea. Idea that every single entrepreneur at some time in their life will be tired of their business. And if you catch them at the right moment where they are about to close their business down or throw the baby out with the bathwater, you can actually swoop in to buy a small business for basically nothing. And this happened a lot during COVID so I use that as an example. You know, we have a member of our community, Brittany, who bought like 2 or 3 gyms using this method. It was basically, hey, I'm gonna shut my gym down because I can't afford to stay open during COVID It wasn't a profitable business before that?

Yep.

Did it have a bunch of assets? Yep. You know, was this business something that could be accretive to Brittany's gym? Absolutely. And so what did she do? Well, originally she called me and she's like, you're gonna be so proud of me, I'm buying all this equipment. And I was like, from who? Like, where's the equipment coming from? And she's like, these closing businesses. I'm like, I'm not proud of you. Bad idea. Abort, abort. I'm like, what should we be doing instead? Let's buy the whole thing. Let's buy as an asset sale the client list. Let's buy the professors. Let's see if the lease is better than yours and it's transferable. Yes, let's buy the equipment, but let's try to buy as much as we can and basically just use future potential revenue as a payment to this entrepreneur. And here's why that's fair to the entrepreneur, because they were going to shut down their business. You have just taken them from a failed entrepreneur, which is how they might feel inside, to an I exited my business. I sold my business. Like, you know all too well how that changes how an entrepreneur feels about themselves. Getting that first exit under your belt is huge, and you have the ability to give that to them. Nobody needs to know that it was a revenue share model. Nobody needs to know that it was under bad terms or an asset sale. So that's, that's the baby with the bathwater. And I think what we don't realize is that as people get older, as people get sick, panic, as people get bored, as people want to move from one location to another, they are going to throw the baby out with the bathwater. And so you can swoop in and help actually give them annuity to their business and help them stop closing costs. I mean, it's expensive to close a business. Do you know the average closing cost for a business is $100,000?

No way.

$100,000 it costs you to shut down your business.

That's government regulation issue, but you Yeah, it probably took me about a year and a half to shut down my first startup, so I'm not surprised.

You know this. And how expensive was it? Do you remember?

I don't even remember. I tried doing all the work on my own and I probably made a bunch of mistakes. The government probably will come after me one day. But, uh, no, I, I ended up just figuring it out by doing a lot of research, but took a ton of time and I had a full-time job after that.

Yeah, and it was probably really disheartening.

Yes. And now, you know, when we end up finding companies or we're invested in companies that need to shut down, we bring in shutdown specialists and they typically cost at least $25,000 to $50,000. $100,000, and then there's ongoing expenses, which for them is a good business.

Well, we just invested in a company called Sunset, and that's what they do. They take, you know, largely venture-backed companies right now and they shut them down, but they also try to see where cash is left and then distribute that to the investors.

And so I always wonder though, how do you find those people who are in the middle of that life transition at the exact moment of time? I've helped my brother, who's a real estate agent, you know, think about this. And, you know, Jeff's amazing at working with clients and getting them to close on deals. But as the market's going down, you know, you can't just think about who's going to make the referrals anymore. You almost have to think about like who's having those major life events. And I wonder how you guys do it on your side.

Yeah, well, we have a lot of different methods. So one, you should read the book. You can now gift him this. But in the book, I think we only teach 3 methods in the curriculum We teach 12 or 13. But there's lots of ways to go about it. One, I always play this game every time I'm speaking somewhere because what do we all do? Realtors do this all the time. We're always in rooms networking, right? And a fun game to play, and you guys could try this too. No, actually they won't tell you because you'll have backed them. But the next time you're in a room with a bunch of owners, just ask all the owners to raise their hand and then ask them to keep it up and say, "How many of you guys would sell your business at the right price and the right terms?" There's like 2 that go down every time and I go like, "Fuckin' liars," because every single owner would sell their business at the right price and using the right terms. It's just you communicating to them and them knowing you exist. It's part of the reason I'm on the internet so much. Yeah. Because I get so much deal flow from this. That's at least why I started. But another thing to do is to label yourself. You know who does a good job at this? Harvard guys. They say, "I buy small businesses that are under $5 million in revenue, located in Louisville, Kentucky. That's what I do." And I think more of us need to do that. I buy businesses that are in X area for why. So first of all, label that you're out there so that when you're engaging with people, they actually know that you might be the solution to their problem. And then typically what'll happen is as you're engaging with people in your local community, you'll meet some people that fit perfectly. So you'll say that, they'll say, what do you do? And they'll be like, oh, I run a business kind of like that. You're like, that's amazing. No pressure at all, but if you're ever interested in even just getting like evaluation of how I might think about buying a business like that. I'm happy to run you through it. Worst case scenario, you kind of know what a random person would buy your business for. Best case scenario, maybe there's a deal here. And it's very low pressure, but it's just making that, that comment.

I love that for two reasons, by the way. One is the fact that the person's going out and they're going to get deal flow from it. But the second is, if you read the psychology studies about when you tell people that you do something, you're going to hold yourself more accountable for it.

That's a really good point. I haven't thought about about that. We've found that the studies appear to be very true about accountability. So if you actually want to do this, you should really get in rooms where other people are doing it. It's actually part of the reason why we started the Academy, because it's just not normalized enough. And so for you to learn and read a book on the internet, I think could be enough for high performers. That could be sufficient. For a lot of people, they're gonna need to be around a bunch of other people analyzing things consistently, and they need a hand. It's like me and the gym. Like, my husband's an animal at the gym. He just goes in, he keeps his word to himself, he does it every day, he hazes himself, he does a really hard, intense job. I go to the gym, I kind of fuck around. I'm on my phone, like, I might be distracted. Maybe I, like, don't do the 10 reps, maybe do 8. And so what do I need? I have to have a trainer. The trainer yells at me, the trainer tells me what to do. And so I think having another human with you who's your accountability buddy— so that's what we do in our group— is really, really helpful. People. And even better if it's a cohort and you have set times. And we talk about like if you want to copy this strategy in the book, there's a plan for like here's how to have accountability. Otherwise, I think this is just, it's really a long-term game like Naval says, right? Play long-term games with long-term people. And you're just, most of us aren't wired for long-term games.

Do you have an executive coach?

I do.

You do?

Yeah, I have a couple.

I was curious because I was looking at your LinkedIn in, and I was like, wow, you've accomplished a lot and done a lot over the last 5 years since you've left, you know, this beautiful city or other major metropolitan areas. And I've like even thought about my last 6 years here at this firm and how all of my systems have broke time and time again, and executive coaches have been incredibly powerful. But for you, I'm wondering what your secret perhaps is to time management and how you make sure you're prioritizing your day-to- day?

I ascribe to the Mark Twainism: if you're going to eat a frog, eat it first thing in the morning. If you're going to eat two, eat the big one first. And so I'm pretty religious about, like, I kind of get up, I do some of the normal bullshit of like maybe a cold plunge, maybe a quick workout, a black coffee.

You live in Austin, I live in—

it totally tracks. And then I like get to work. And usually the first thing I'm doing every single day is I don't do calls in the morning, so until 10:00 it's hardcore on like I write a list every single day. What is the 1 or 2 things that if I did, everything else is irrelevant? And I try to tackle some part of 1 or those 2 things. I've found that it doesn't work for me on my list to have to cross those out. They're often not something that is cross-outable in a day. And so I've always found that advice of like, get your list, do the hardest, most important thing first. I'm like, that would take 3 weeks. So it's forward progress every day. So can I spend at least those first 2 hours 2 most important things, then the day might get me and they might let me move. But those first 2 hours I kind of want to get after. And then the second thing that some of my coaches have taught me is that, man, I for so long tried to do it all myself. It's such a squishy thing. I had to really get good at leadership because it's the only thing that has been a force multiplier for the things I want to have in the world. And so really ponying up for the best talent imaginable. And getting quite good at briefs and comms and async communication and structure and processes is the only way that I've been able to achieve what I've done thus far. Chris helps me a lot on that because the military is actually quite good at briefing.

Very good at that.

Yeah, yeah, yeah, yeah.

Did you go out and did you meet with a bunch of founders? Did you read books, podcasts? Because one thing that stands out to me about you is you have an immense amount of frameworks it seems like that you operate within, and I'm wondering where you got those.

Yeah, I'm, I'm definitely a stealer. I like hearing something that seemed to work for another and stealing their 10,000 hours. I hope people do that with mine, and I hope they also beat up my ideas. Like, I was on another meeting this morning and I said, let me talk this through with you. Here's how I think the roadmap is for us to make money. And I think every business has like 7 things they do at max that lead to money, and most businesses don't understand their road to money, and so they do all these things that don't actually lead to revenue, and revenue is the most important thing. I kind of talk through it and I'm like, what didn't make sense? And so I hope— I found that talking a lot helps me beat up my ideas. You'll be like, that doesn't make any sense. I'll be like, oh, you're right, I should say it this way instead. And so I listen a lot to other people, and I'm a former journalist. So I think where I got lucky is back in the day, I was covering really complex, terrible subjects about human trafficking and so I had to learn to ask the right questions, maybe not get very many of them, and then learn about something I understood nothing about really quickly and then simplify it. And that was actually great for investing. I didn't realize it would be.

Michael Moritz from Sequoia was a journalist as well.

Oh, I didn't know that. I'll have to read about him.

Yeah, it's all about distilling things down. And I think his partners like Doug Leone and Roloff would always comment on the quality of questions he asks and his ability ability to get to the heart of the issue every time. It was just so clean, so quick. That's amazing.

Interesting. Yeah, I think it can be quite annoying, us journalists too, because it's almost like we can't function until we fully understand it. I'm like, I don't get that, explain it to me like I'm 6. Like, I really don't get that, explain it to me like I'm 3. And we don't have a perceived bias of like, if I don't understand this, that means that I am dumb. And that was a huge benefit for me in private equity because that's not normal in private equity, actually. I found that I wasn't smarter than any of my partners at all. Many of them were much more credentialed than I, but I really was never afraid of asking questions or looking dumb. And so because of that, we could get to more truth.

I'll tell you, having pitched I think over 100 venture capitalists as an operator, the only correlation was between the quality of the investor was matched with the ease or basicness of the question.

Interesting.

And I think it's because they didn't care. They were so successful already, they could sit there and feel very comfortable being exposed, whereas other people who are younger VCs might sit in a room and want to overcomplicate things and show off their intelligence in order to try to win over a founder, when in reality the founder just wants to make sure that you understand what they're trying to build and why they're trying to build it, and then how they're trying to build it.

That's such a good point. Yeah. You know, when I'm not doing the podcast circuit, I often think it's fine. I think you can tell also who is a good investor by who wants to tell you all the things that they're doing typically or not. Typically, I don't care that much about that. I'm mostly like, huh, I don't understand these couple of things and I'm not going to project upon you what I think the future is and I don't actually care at all what anybody else on the team thinks the future is. I really just want to narrow in on these couple of questions. And so that's the same thing with due diligence on a business too. It's like leave the postulating and all the other things aside and just try to get to the heart. I remember I have a good friend, Alex, who had dinner with Warren Buffett. And I remember this was way back in the day. And I remember one thing that was so cool. I was like, dude, how cool are you? Why did you get to have that dinner? I want to do that. And then second, second, I was like, how'd it go? Like, what'd you learn? Like, notepad ready, let's go. And he's like, fuck. He's like, I just realized that he had me talk the whole dinner. All he did was ask me questions. And, you know, Alex is like a pretty successful guy, and so that kind of makes sense. He's like, I got nothing out of him. I didn't even really— like, the way that he maneuvered me to where I was talking the whole time is actually astounding. I kind of try to keep that in the back of my mind for meetings in general, unless maybe you're trying to inspire your team or something. Then otherwise, kind of shut up and listen.

It's the, you know, we have two ears and one mouth, and we should probably listen and speak in that proportion.

That's why it's great to host a podcast. It's actually my favorite part of what I do right now.

Really? Yeah, same.

Yeah, because so often you're probably talking a lot, you know, you're pontificating, you're, you know, all the things that I do. And then for this, I'm like, I just don't understand and seed oils. Can we talk to somebody about that? And then I get to ask all the idiotic questions about it. By the end, I'm like, the thing is, no more seed oils. This seems bad.

Maybe I only have probably 2 more questions, then I have to let you run back on the circuit. But, uh, you talked a little bit about people's fear of jumping into this and getting going and buying a business. What's your relationship with self-doubt been like?

I always doubt myself to this day. You know, I'm constantly in fear that we're going to lose everything. And Chris and I always joke that, uh, we both feel poor still every day. Like, every single day, I'm still convinced that there's like a credit card that might bounce. And I think that actually it's hard to get over that if you grew up really poor. I think it just sits with you. Maybe it's good in some ways, maybe it's bad. And so self-doubt is like my constant companion. I think we have a bunch of tools that allow us to minimize it, and that's why we do all the hippie shit, like the cold plunge and the workout and the walks and the meditating, it's not because we're so centered, it's because we're fucking crazy. And without all of those other things, I'd be like a walking anxiety ball because it is scary. When I first got on the internet, that was one of the scariest things I think I had ever done because it is an immediate feedback loop of do people like you as a human or not? Think how weird that is. You'll see it as you start doing it. You're like, like, hate, you're an idiot. The word, it's wild. And so when that first happened, especially in some ways as a woman on the internet, it's a real pleasant place, that was hard actually. But it was really good too because you kind of get this armor where you're like, well, you can't say anything worse than that to me. So I'm pretty good by now. But I'm scared all the time. As the founder of Shopify, I was going back and forth with him on Twitter the other day Codie Sanchez. And he had this tweet that I really liked. And to sum it up less eloquently, it was like, "Most people think that you have a knowledge deficit. That could be true, but you probably have a risk deficit." And I think you can't spell the word rich without risk. And I wish I had learned that earlier because I didn't take big enough leaps and big enough risks early on. Now, compared to my parents, they think I'm crazy. They're like, how do you get comfortable with this level of risk? So like the generational risk was real. But if I went back to young Codie Sanchez Sanchez, I would have said jump. Like, like when you made your first million buying businesses on the side, you're fine. Let's go. And so be scared, do it anyway.

Yeah. I always think a lot of people believe that the floor below their feet is far lower than it actually is.

That's so true. Bill Perkins has become a good friend, and I have to steal this line from him. He was at our event the other day and speaking to a group of business buyers, and he had this idea of ego risk. Have you heard him talk about this before?

No.

It was so good. He's like, listen, he's like, I grew up with nothing. You know, I used to make like $17,000 a year. You know, he's like, I'm a black dude. Like, I didn't grow up from money. What I've realized more than anything else, and this is before he made his Xs, Uh, he was like, we don't have real risk in America. Like, we do not actually have risk. What do I mean by risk? Like, your likelihood, if you're listening to this podcast, of becoming homeless and destitute and starving is like almost zero. It's almost zero. And so if you don't have real survival risk, then what do you have? You have contextual ego risk, which is basically, I am at this level, my friend group is also at this And if I go down, I now have lost. So my floor is actually just me versus them. And I fall into this all the time. And so because I'm worried about like a status game versus them, I never really can break free on the upside because I'm too scared of losing. And you know, that's real. Like, think about it. Like, what if you make a huge mistake here? You lose the firm a ton of money, they fire you, they tell the whole industry, you don't hire him and the only thing that you can go do is bartend. Well, in New York you could probably make like $75,000 to $100,000 a year bartending. You would probably be just fine. And through— with that $75,000 to $100,000 a year, you could think about your next venture and you could move forward. And so I think for most of us, we have to stop playing the status games, but that's not very popular to say because it feels so scary and everybody's response is, must be nice if you're privileged, must be nice if you don't have any real risk, you don't live in my shoes. Yeah, sure, think that, but it's not going to help you. So I'd rather help you than make you feel better.

I hear you. I think if I got fired from this job, I'd probably go find a seller finance deal though and go into acquisitions.

But we can check that out down the line.

What kind of business? Do you know? I haven't gone through my ikigai exercise yet, so by the end of next week I'll send you an email.

Send me an email and tell me what it would be.

I will, I will. Uh, all right, one last question. I usually ask everybody, if they were the mayor of New York, what's one change they would make? But if you'd like, I can alter that to Austin.

Got to think of like how un-PC I want to be with this response. Um, you know, you try to think about not what's right in front of you, but what would have the biggest impact overall. I think by and large it's just how could I decrease regulation? So for Austin, for instance, you know, there's just no way to get common sense anything fucking done in that city. And the mayor right now is trying to do a better job. He's like an old school Democrat, a reasonable one. The problem is it's not a really powerful position. So the city council has all of the power in Austin, actually. And the city council is full of a few individuals that are useful and many that could not tie their shoes and probably need Velcro. The bummer there is I think when you have people in political positions who have never run a business, who have never taken real risk, who actually don't like you as business people, your city will suffer. And that is how Austin is. And I think it's a tragedy. So if it was up to me, we should have way less regulation and we should be able to do way more common sense things. For instance, It's next to our office in Austin. You can only make this up there. There is a kind of an empty plot of land that I was trying to buy actually, but doesn't look like it's gonna work out now. And in this empty plot of land, somebody who's homeless has moved in. Now they've built a non-permitted, non-allowed structure there. They are lighting fires on the nightly and there's sanitation issues. There's no No, there's no thing. Now, if a non-homeless person did that, you'd immediately get fined, you'd go to jail. But because we won't deal with societal issues with homeless people, they are allowed to do whatever they want. And then I have my employees have an issue next door. Then we have East 6th Street, which is so dangerous in the evening that they actually recommend that you don't take side streets down them because we allow allow people to do criminal acts without any repercussion. And, you know, listen, I'm a Latina. I came from not a lot of money at all as a background. This isn't a racial issue. This is a should we allow people to do whatever they want and ignore rule of law, and what will be the repercussions if we allow that for certain sects. So I think we should have like common sense regulation. But thankfully, we have, we have some crazy people coming into office who I think will make major difference.

We shall see. If not, I heard Argentina's a nice place to live.

Now, which is wild. You know, I got ran out of that country at one point.

Did you?

That was back when Cristina Fernández was in office. Yeah, they outlawed all foreign investment from Argentina because obviously the local currency was cratering. And so we sold investment products denominated in the US dollar out of Miami that people diversified pensions— have always done that, diversified into the US.

Yeah.

And overnight they made it illegal. She did. And nationalized our business.

That's wild.

Yeah. Yeah.

Well, thank you for coming in, Codie Sanchez. Appreciate you joining me.

Thank you. This is so fun.