174 - Unlocking Wealth: Understanding Revolutionary Business Models for Entrepreneurs with Chris Volk

Welcome to Listening with Leaders. I'm Doug Noll, lawyer turned peacemaker. I teach executive leaders how to listen to emotions rather than words so that they can become the leaders everyone wants to follow. And I teach those same leaders how to be authentically present, available, and connected to their families despite being insanely busy. I have learned that we are 98% emotional and only 2% rational. Learning how to listen to emotions is, in my experience, the foundational skill of life. Stick around to the end of the show and I'll reveal how you can be on our next guest in 15 to 20 minutes. So let's get started.

Chris Volk, welcome to Listening with Leaders. You have got— well, I think the most important thing to say is you've been a very successful executive in holding roles as president and CEO of 3 different companies, all in real estate investment trusts that have been New York Stock Exchange listed companies. You're the author of a book called The Value Equation. You're currently the chairman of a company called Tenant Equity, and you have had a, by any definition, an extremely successful career in business. And so I think my audience and I are going to be very interested in learning more about you. Welcome to the show.

Well, Doug, thank you, and I'm really delighted to be here, and I look forward to our discussion.

Great. I just wanted to— one thing I forgot to mention is you can be found at your book website, which is called thevalueequation.com, and you're on LinkedIn, so people can reach you through, through your LinkedIn profile. So let's start off with a little bit about your backstory. Where— I know you've got the typical degrees and MBAs and stuff like that, but what got you started in business and got you interested in doing the kind of work that you ended up doing?

I mean, I might add that my undergraduate's in European history and French language.

So a good— a pure liberal arts guy. I love it.

So I started off pure liberal arts guy. And later on, I did get an MBA, but I got it at night school. So I was already well ensconced in business by the time I did it. I always knew I was going to be in business at some point. And I started my career in commercial banking. And the idea was that I would— learn a lot about other businesses, and I would learn a lot about commercial banking, of course, and, and could have chosen commercial banking to be my career. But I found out I really liked finance, I was good at it. And I ended up being associated with 3 real estate companies, but they were really real estate financial services businesses, if you get down to it. So we had real estate that we owned all over the country, and it was leased to people that use that real estate in their business, and they chose to have a landlord rather than a banker. And, and so we were basically a part of the capital stack that they put together for their business. And over the years, we deployed $20 billion under my watch of capital to companies, and our customers, many of them became hugely successful. And of course, we were happy to have some success ourselves.

So, so I'm thinking the business model was to build out or develop commercial properties that you would then lease to long-term leases to companies that would then lease from you.

Well, we, we didn't develop anything.

I was—

that was the brilliant part of it. We had companies that were pretty lean, so our customers would develop the properties themselves. They'd hire contractors, they'd say where the properties were going to be located if they were new properties. Sometimes it'd be buying existing properties. So you might have an early childhood education company that's buying another early childhood education company and they have lots of locations and we would acquire the real estate for that, which was a way of helping them finance the acquisition. Or if they were building new locations, they would pick out locations and hire contractors and get architects and build them and we would take them out. And sometimes we would do the construction financing. So we would sort of gradually fund the leases as well. But the idea was that, uh, all these companies had a choice of whether they wanted to own or rent the real estate, and we convinced them over many years that it was really better for them to rent the real estate.

Yeah.

And that their, uh, returns for their investors would be, uh, better, and their company would be more flexible to run. And so, uh, that was part of our successful formula. And we, uh, didn't really do a lot of big companies. We did some big companies, but most of it was just middle market American companies that, you know, people— companies probably never heard of. And they could have been anything from fitness clubs to veterinary care to chain restaurants, equipment renting companies, you name it. We did all kinds of stuff, so manufacturing as well. And so we ended up owning thousands of real estate properties throughout the United States.

And, and you would then lease it— it would be basically purchase the property from the company, then lease it back to the company at market rates or whatever the difference was. And then you would— and that would give you your return on investment and your return on capital.

Right.

And then all you had to do was manage, manage the properties and grow.

Yeah. And there really wasn't that much to manage because, I mean, there was stuff to manage if the properties— the tenant became insolvent or there was a problem and the assets were underperforming. There were things to manage, but the leases required that the tenants maintain the properties, keep them up, and that kind of stuff. So we really didn't have a very big property management group. We had no people getting entitlements on real estate. We had no people— they were focusing on developing real estate. We weren't targeting real estate in certain markets and saying, gee, this would be a great location. We were there simply to be responsive to our customers' needs for real estate capital.

So interesting model. And then you would— I take it you'd go out and raise the capital to acquire the real estate, and then your investors would, of course, get their ROI from the returns that you got from the cash flow that you developed.

Exactly.

Okay. And you did this 3 times?

I did this 3 times. Yeah. I'm proof positive that non-competes matter. You know, I— we sold our first company to GE Capital and my non-compete ran out. I sold our second company to an international consortium. I was able to get rid of the non-compete, and then we did the third time. So I've done 3 New York Stock Exchange listed companies, all doing very similar things. The model got better over the years. So we started in one direction and then we sort of narrowed our focus on what kinds of real estate we were going to do. But, and by the way, how we would run the company. So as you run, the great thing about doing it 3 times is you get to do it better and better. Figure out how to organize stuff. And so we did, we got better and better over, over 3 iterations of it. And, and it was a lot of fun.

What are you doing now?

Well, right now I'm doing things like this. I mean, I'm talking to you, I'm talking to students, I do a lot of teaching. You know, I wrote, you know, wrote my book here, you know, and, and the book is really on how businesses create wealth. It may be the only book that's ever been written on how businesses create wealth. And that's important because two-thirds of millionaires made their money in business and they did it by having decent business models. And so this book sort of delves into how you do that.

So when you wrote the book, it's called The Value Equation. This was based on just observations that you had and things that you had learned throughout your career. Is that correct?

Yeah, but it's also based on— I mean, there is a value equation and it's mine, and it's, uh, uh, something that I used in, in our business to, uh, help evaluate ourselves. And, uh, and, and then ultimately I was able to attract a lot of capital doing that. So, uh, you know, our last company, our biggest shareholder was Warren Buffett, Berkshire Hathaway, that owned 10% of the company, and And he's a gentleman who is a strong believer in fundamental—

Right.

Business model fundamentals. And so we were able to articulate this and attract their capital.

So who is your audience with the book, The Value Equation?

Good question. I think that it's people who are interested in starting a business. I think that if you're just out there and you have a job, And you're thinking, who do I work for? If you understand the fundamentals behind what it takes to create wealth, then ideally you want to pick companies to work for that exhibit these traits, because the companies that have the best business models tend to pay the most. They tend to have the best opportunities for people. Oftentimes they're the best resume material you can get and places that you can really learn from. So business models matter for them. And then if you're an investor, Uh, and especially if you're a value investor, and business models are everything. I mean, it's, uh, if you're truly buying a stock based upon its underlying fundamentals and you want to hold it, uh, it really helps to understand, uh, how you can take any company and dissect it, uh, fairly simply. And so the book will give you that. So really, it's entrepreneurs, leaders, and investors.

So how do you— I mean, I take it that the data that you use for evaluating a company is based primarily on its financial data?

Yeah, it's based on, on, uh, well, certainly if they're public companies, it's based upon publicly available data that you can get. And sometimes that data is better than others, of course. But, um, uh, and, uh, in, in our case, we evaluated our own business model based upon our aggregate financial data. But then you can sort of peel it back and get deeper into it when you're running a company. And And we would do this on just the investment levels. We're booking hundreds of millions of dollars worth of real estate investments over the years. We would focus on the investment fundamentals of that to make sure that we were exceeding our cost of capital, that we were generating returns that exceeded our aggregate cost of capital, which is really kind of how you make companies worth more than they cost. I mean, most companies in America are just the world. Most companies, period, oddly enough, aren't really worth much more than they cost to create. And, and so, you know, when you're looking at the people at the top of the Forbes 400, these are people that have made companies that are just worth wildly more than they cost to create. I mean, by factors of multiple factors, you know, and, and it's really driven by having just phenomenal business models. In our case, I was able to take a real estate company and make it worth 40% more than it costs to create. So it's not like, you know, we're not talking Steve Jobs, Apple kind of numbers here. It's 40% more than it costs to create, but you're creating wealth, you know, and that 40% of this company worked out to about $3 billion in value you're creating from thin air, right? By having just a solid business model behind it. And of course, that $3 billion really makes our investors better off and it's money that can make our staff and our employees better off. And so everybody wins.

So what's the— is there just one business model or are there a number of business models?

There are lots of business models, you know. So, you know, you look at, for example, you look at Apple, Apple's sales to investment ratio. So you have a— they have revenue and they have their business investment, what it costs to make Apple. Their ratio is about 2 to 1, you know. So it's a very high number. Our sales-to-investment ratio was 0.08:1. So basically we were making like an 8% return on our money, right? And so Apple just crushes us on sales-to-investment ratios. But Apple's operating profit margin is something like, don't quote me, but you're going to, I'm on a podcast. But let's say it's 30%. I mean, it's a high number. It's in the 20 to 30% range. Which is a very solid, super respectable number. Our EBITDA margin was more like 95%. I mean, it was really, really high. So we kind of made up for lost ground of having just sort of a lousy sales-to-investment ratio by having like a massively strong operating profit margin. And then there's some other things that go into the mix here as well. But those are the 3 most important things that kind of guide the rest of it. So And so, yeah, Walmart has a different business model. If you're looking at the FAANG index, in the book there's a discussion of some of the FAANGs. The FAANGs were basically Facebook, Apple, Amazon, Netflix, Google. So if you're looking at the FAANG index, Netflix, for example, has a much bigger business investment, you know, than let's say Apple on a relative basis, because you're buying all kinds of inventory and films and you got to pay for like lots of stuff. And Whereas Apple's more of an asset-light model. You know, you buy, you buy things and it says it's designed by Apple in Cupertino, California, but it's made somewhere else, right? And so, so the answer is yes, there are lots of business models. And this is really key because when you're sitting there trying to make a business, the first thing you do is you say, I want to help a customer. I mean, I want to— I have a solution for a customer and I'd like to deliver that solution. And that— and no business exists without that. So that's your very first step. But the next step is I have to raise money from investors to make this happen. How am I going to track that capital? And by the way, it really helps if I have a really solid business model, you know. So do I want to run this as an asset-light company? Do I not want to run it as an asset-light company? You know, how do I want to— how do I want to staff it? Um, are all my staff going to be local, or am I going to outsource some of my staff? So there are lots of things that people think about when they're putting the pieces together to run a business. And there's no time, by the way, to think about that any better than when you're starting the business. And, uh, and so when we were starting businesses, we would think very long and hard about how we would create the business. And, you know, just to give you an idea, the first company I ran, we had about 250 employees. Last company I ran, we had almost twice the assets, and we had, uh, just a little bit over 100 employees. I mean, so we were able to make our business model more efficient and make the staff more efficient.

We were—

and our staff, you know, we had more earnings per employee than almost any other company, certainly any company I'd run. And so all that was able to, uh, uh, help our employees to do better financially for themselves and their families. Our shareholders did better. Um, so yeah, I mean, business models are things that you really think about.

So here you are today, we're in 2023 and moving into the sort of the end of the year creeping up on us. What gets you up in the morning and gets you excited?

Oh, you know, it's basically the same thing that gets you excited. I mean, you're trying to make a difference for other people. I mean, I decided that I'd been CEO for a very long time. I'd started 3 companies and I was going to give other people a chance to do that, and I was going to help other people do the same thing. So for example, Tenant Equity is a company that I'm chairman of, but it's run by people that used to work for me. So it's fun to be able to work with them. And I think that by teaching students and other people how business works and trying to simplify it for people so that they understand exactly how successful businesses get that way, that I can make a difference in a lot of lives and more lives, frankly, than just running a company. And so at least that's my endeavor today. So I'm giving this a shot and I'm excited about the mission and doing podcasts like this is sort of part of that.

Oh, great. And I saw in your resume that you've done some teaching. Are you currently actively teaching anywhere?

Not a full course. I guest lecture a fair bit. So, and, you know, some of the schools I'm guest lecturing at are starting to use the book a little bit, which is also great, you know, so it can be done in the classroom. I mean, the book is only 250 pages long, so it's not like a textbook. And it's got a lot of stories in it, so it's not fully academic. It's got 16 chapters. So the first 4 are pretty simple, I think. The last 4 are not too bad. It's sort of the middle 8 that you might have to read twice. But nonetheless, you know, you can't make, you can't do a book on wealth creation without throwing some math in there. And the good news is the math's all middle school math. So it's simple for people to do it, but it's math, you know? And so sometimes it takes a little bit of time for people to think about it.

How many, as you look around as a pretty savvy business guy, how many companies do you, think, really think about their business model and actively plan around a conscious business model that they're choosing?

I think they don't. You know, I think a lot of companies don't do it. And I, you know, part of it is I don't think they teach it very well in business schools. So I'm out to change some of that. And I think that people don't always understand what their cost of capital is, for example. And, you know, I think that people don't always spend a lot of time trying to tweak their business models. If you think about sort of corporate reengineering, I mean, trying to make a company better off through changing processes, a lot of this just fundamentally gets down to making a better business model. I mean, you're taking a company, you're just trying to tweak it. And so you have to have some metrics to be able to do this with. And So I would say not always, business people don't always do this. And sometimes, honestly, if you're running a very big seasoned company, large seasoned company, it's almost easy not to do it. I mean, if you're running an inefficient organization, you know, nobody's like nipping at your heels all the time to try to make it much more efficient. But for most of us, we're running, you know, middle market companies, which is most of them. I mean, there are only like 4,000 public companies in the United States. So, so there are many times that, that are, that are, that are private and, uh, and capital efficiency and, and operating efficiency and asset efficiency. I mean, all, all these things like make a huge difference in, uh, people's, uh, livelihoods and how well they'll, they'll succeed.

Interesting. So what does it As you think about it, what is it that's unique that you brought to the table in all of this?

Well, what's unique that I brought to the table is that I, after several years of being in banking, I became a, you know, what I would call a credit geek. You know, I was a, I mean, I knew how to really rip apart a financial statement and look at it. And over the years, I've modeled, you know, just so many companies and And ultimately, what the value equation is, it's sort of like a business model that you would do on Excel spreadsheet, except it's done with a formula. Like, I was able to take a, you know, complex spreadsheet and get rid of the spreadsheet and reduce, reduce the equation down to 6 variables. And that are universal, work for any company. And, you know, behind those 6 variables, by the way, there are lots of other variables, but you're able to just sort of simplify it, get it down to its raw components, and then work with that and evaluate yourself with that. And so I say, what's unique? I mean, I guess the fact that I, you know, devised this means of evaluating businesses, and then when I was able to convince shareholders to invest with us on the basis of that, I think that's fairly unique. I mean, it's certainly proprietary in a sense. It's something I did, and I think other people could do it. I mean, so it's not patented. You can't patent any ideas in finance. I've done a lot of unique things in finance, and you just can't patent any of this stuff. Stuff. But that's good, you know, people can learn from it. And so I would say that if I had one special unique thing that I had done, that would probably be it.

You know, that sounds a lot about how I— when people used to— when I was trying cases many, many years ago, people asked me, well, what makes you unique? And I said, I have the ability to take very complex problems business problems primarily and simplify them so people can understand them and tell a story around it. And it sounds a lot like what you've been able to do.

Yeah, you know, that's, that's a really hard thing to do, to take a complicated problem and to distill it down to its essence. And, you know, if I had to sort of credit my liberal arts background for anything, that probably owes a nod to that because, you know, in liberal arts backgrounds, you're studying problems for which there's no solution, uh, and you're trying to net things out. Um, and eventually, of course, if you're raising money for companies, you're trying to make a corporate presentation on why should you invest money with me, you know. And, um, and a lot of your podcast is about listening, and of course you're listening very heavily to your investors in terms of getting cues from them and, uh, trying to see what interests them. But But you know that these investors all have choices. They could invest so many other places. And so you're trying to do this and you're trying to distill this down into a presentation. And any business, even the simplest businesses, are more complicated than people can dig into. And so you're trying to make something that's fairly complex somehow simple enough for people to understand it. And that's distilling it down. So important, right?

So you're right, this podcast is called Listening with Leaders because I think listening is a foundational skill that's way, way ignored by people. Tell me about how important listening has been in your career.

Um, well, listening has been hugely important. I mean, in, in that I, uh, you know, have been listening to investors for a very long time. I've been listening to other people in our business who have been competitors. I've been listening to them for a very long time. I've read a lot. I've written a lot over the years. Anybody who's worked with me knows that I have opinions, and so I'm not always the kind of person that just sits there like a wallflower and listens. I will talk and I will have an opinion on stuff. And I want employees that I work with to have an opinion. And, you know, it's so much better than if you can do that. And part of the challenge in running a business is to have open communications. Most companies have weak communications oftentimes because employees are afraid to talk, and they're afraid to say what's really on their mind. And, um, uh, they are afraid of the thought police. They're afraid that somehow they're going to look stupid. They're afraid that, uh, you just won't like their idea, and therefore you'll think less of them. Um, and so to get people to talk, you know, you have to build up a lot of trust with them so that they know that they can talk and that this is what you expect from them. When we sold our first company, you know, I'll be open about this. So we sold our first company to GE Capital, and GE Capital was a company where there was a lot of positivity in the company. I mean, so you would go down the hallway and somebody would say, well, Chris, how you doing? And the right answer was to say, hey, I am just so great today. It's fabulous. You know, And if I were to say, well, you know, today's just not really working out for me too well. I've got this problem, I have that problem, I gotta figure them out. I mean, you know, I had somebody who quit, you know, and I needed to replace the job. I mean, if you were to talk to somebody in a fashion like that inside of GE, you might be viewed to be perhaps not a team player, not a positive person, you know. And so, so what, what you end up with is you end up with this sort of this environment of like false positivity where people were always, you know, just chipper all the time, you know. And whenever you have companies where there's false positivity, the one thing you know is the company's being run by a very handful of people at the top, right? And no one else is really being included in that. And, and you really want to get everybody's input in how you're doing this and you have to cajole them to be able to do it. And you have to say it's okay to say your day's not the best day. You can be honest and open about it. And so I'm pointing this out because GE today is worth a fraction of what it was when I was there. It's been broken up in 3 pieces. It was one of the founding members of the Dow 5, the Dow Jones Industrial Average, Dow 30, and fell off that cliff. And in it. And I think that, you know, there were so many things that were factors in this, but the corporate culture always plays a role in that. And to have the employees be honest and open and forthright is a very important thing. So listening is important, but to listen, you have to get people to talk. And so that was also the key to it.

Well, there's a—

yeah, there's actually another type of listening that allows for that. What's interesting is that I'm reflecting on the fact that Google did a massive study a couple of years ago on why the top 1% of its teams were outperforming everybody else. And the one factor that this— that the researchers could isolate was psychological safety. Teams that had emotional and psychological safety outperformed all the other Google and Alphabet teams by orders of magnitude. Because there was no gossiping, there was no BS, there were no cliques, no judgment, no criticism. People were there to support each other, and the introverts could talk and not be afraid of getting squashed on. The extroverts learned how to restrain themselves. Exactly. And that's what made all the difference.

And you don't want, you know, as a business leader, you don't want people complaining to each other in the hallways about something to each other. If you want them complaining to the person who can do something about it, right? That's right. So if you're complaining to people who can't do something about it, then it's gossip. If you're complaining about it to the person who can do something about it, then that's basically constructive, you know? And so part of the thing you want people to do is you want them to be comfortable saying, here's a problem. And then you want them to be comfortable saying, here's a solution. I think I have a solution for the problem. 'Cause a lot of times people will put up, you know, the problem itself and they'll think, well, you'll find the solution or something. But if they would do an attempt at doing the solution, you may or may not use that exact solution, but it's so helpful and it's better for them, it's better for the company. And so you're wanting to get people to feel free and open to both criticize and to come up with solutions. And if you can, and to do that, you have to have psychological safety, as you said. I mean, you have to feel just incredibly comfortable in your own skin and know that the people that you're working with will take what you say constructively. And that's hard to do. But it's, you know, when people talk about corporate cultures, to me, these are like the building blocks of like really great companies.

Right. Well, that's why listening is so important. I teach a skill that I call listening other people into existence. And you're basically not listening to words, you're listening to emotions. And when you learn how to do that, you create exactly the kind of dynamic you're talking about because people feel safe, they feel deeply heard, they feel validated, and now they're willing to be authentic with you. But if you don't engage in that kind of listening when it's appropriate, then you get into the kinds of problems that we've been talking about. And so that's why listening is so foundationally important. And knowing that there are different kinds of listening that have got to be used at different times times in different contexts. And again, this is very sophisticated stuff that I've met— I haven't met anybody who really understands it, which is why I teach it. Because, you know, I mean, the power of this, from whether I'm working in a maximum security prison teaching a murderer to be a peacemaker using these same skills, or at the Congressional Budget Office where I've trained senior analysts how to de-escalate members of Congress, it's the same phenomena across the way. And it strikes me that, to your point, building a strong culture based on trust foundationally starts with the leaders being able to listen to their people.

And I think— Right. And, you know, the, the thing about it is, um, and you probably teach this, so I'm talking to the professors here, but, uh, when, when you're asking questions of people, um, and you're trying to get the answer how you ask the question is so incredibly important. And when, you know, as— so I learned this and cut my teeth on it being a credit analyst where you're looking at companies' financial statements very critically, you know, and you could ask kind of a question in a fairly snarky way where it just has a tendency to tick the customer off. Or sometimes people have a tendency to ask a question, but they insert a fact inside the question as if to say, I'm really smart, you know, I mean, I'm going to prove to you I'm smart because I'm going to like not just ask the question, I'm going to comment for while I'm asking the question. And, and so the best questions tend to be open-ended questions and, and they tend to be fairly short. And, and if you can do that, then people will just talk and talk and talk, you know, and, and you'll be able to then get a lot of snippets of really valuable information and know how to respond.

Simple question like, tell me more. Well, tell me, tell me about this. Hey, I see this, I'm seeing this on the financial statements. Tell me about that. What's going on?

I mean, literally, I would sit there with people as a— and we'd have credit analysts evaluating businesses, and I'd be saying, here's what you say: you've built this really amazing business. I mean, you started this business several years ago. How do you do it? And then you shut up. And they will just talk and talk, and they'll be proud of it, you know, and they'll be proud of the tone of the question. And then from there, you can sort of learn a lot of things that either you like or don't like, by the way, about the business. And it's so much easier than asking pointed sort of closed-ended questions, right? Exactly.

Oh no, yeah, yeah, we're obviously both aligned on that one, on that whole concept. Well, we come kind of the end of our our conversation here, Chris, one more question. What's one thing about yourself that we would not know about unless you revealed it to us?

Yeah, not know. Well, definitely most people don't know I was a European history and French major.

I—

most people assume that I had like a great GPA in college. I had a horrible GPA in college. So, and going back for my 45th reunion and and I'm pleased that I got admitted today. So I skated by, and so my GPA was sort of like C+, maybe B-, you know, and so most people assume that I did much better than I did.

Well, so college performance is not an indicator of future business success.

Well, it never has been. And, you know, I think, you know, the old adage about the C players, you know, the B guys working for the C guys, there's some, probably some, some, uh, small truth to that because the C people end up having to take risks with their lives. And, and they, they sort of, you know, for me, I had to work like twice as hard to sort of get ahead, you know, I mean, uh, uh, and sort of make up for lost time. And, uh, uh, and so I, you know, one thing about people that work really hard, and if you're a CEO or whatever and you're trying to start a business, I mean, it takes so much work to do it. And I, and you go, what, why do people work this hard? And the answer is oftentimes because there's a lot of insecurities that are driving them to I can do this. And, and so the key is to take all those insecurities and bundle them up and use them to your advantage.

There you go. Well, this has been a great conversation, Chris. Thanks so much for your time.

Um, I enjoyed every minute of it, so it's great to be with you.

Doug Noll here. Thank you so much for listening to Listening with Leaders. If you are a successful executive leader who would like to be on program, please visit podcast.dougnull.com/podcast. If you got something out of this interview, would you please share this episode on social media? Just do a quick screenshot with your phone and text it to a friend or post it on the socials. If you know someone that would be a great guest, tag them on the social media to let them know about the show and include the hashtag Listening with Leaders. I love seeing your posts and guest suggestions. We are regularly putting out new episodes and content. To make sure you don't miss any episodes, go ahead and subscribe. Your thumbs up ratings and reviews go a long way to help promote the show and mean a lot to me and my team. Want to know more? Go to my website, DougNoll.com, or follow me on LinkedIn, Facebook, and Instagram.

That's @DougNoll.

Douglass E. Noll. Thanks for listening, and we'll see you on the next show.