At the End of the Day Business Models Rule with Chris Volk

Welcome to this edition of the Million Dollar Mastermind podcast. This is where we pick the brains of high achievers from all walks of life and get their hard earned real world insights on winning. I'm your host, Larry Wydell. I'm here with Chris Volk and we're having fun talking about his new book that I'm getting the idea. Chris, this book can really revolutionize your life in how you approach where you put your money and especially just organizing your thinking around not just a company. But how is this company creating wealth? That's a great way to orient yourself and to have a concept that allows you to evaluate that or you're starting a company, it allows you, like the old Stephen Covey thing, start with the end in mind. If you start in a company, you're saying, how am I going to create wealth? You talked about earlier, earlier episode about companies that generate more wealth than it took to start them. Not every company gets to that point, but the idea of how can I build wealth with this new company I'm creating, having that in mind and having an equation to work with has got to give you an incredible advantage.

Sure it does. I mean, if you're wanting to start a business, there are three essential ingredients it takes to start any business. I mean, the first is you have to have a solution that you want to sell to customers, which is really your product. And the second is you have to have a good team around you of people that are going to help you execute this. Because if you're going to try to raise money, money was never raised just by one person. So you need a team of people. And the last thing you need, and it's absolutely critical, is a solid business model. I mean, how do I take this solution I want to make and this product I'm creating and wrap a business model around it? You're sitting there, you think about the guys who started Google, who they came up with an Internet search solution. And then the question is, okay, I got the search solution. I think people are going to like it. How do I turn it into a business model? I mean, that's a $64,000 question. That's the big deal, right? And translating great ideas through, through great people into a business model that can generate more wealth than what a company costs to create. So they can create wealth from thin air. That's how the top 1% got there, by and large. And that's certainly how the richest people in America got there. You go in Forbes 400, almost universally, that's what they did.

And so talk me through how a person would do that who's just getting familiar with the concept. I guess I'm sure that's in the book. But in a simple way, like if they, they're not sure, it seems like Google, for the longest time, even Facebook seemed like Facebook just copied, waited till Google figured it out and they just copied the ad spend model at Google. Seems like Facebook's done a lot of copying of Google over the years. But how do you go about putting that in the real world? Because so much of starting a business is you don't know what you don't know, you're not sure it's going to work, it's going to be profitable, people are going to respond. How can you get to that point?

Well, first off, money can be made in so many different kinds of businesses. So we're talking about Facebook and Google, which are high tech companies. Took them probably a few years to make some money and then they finally did really well. The companies I've started have been a lot different. I mean, they've actually made money in the first six months. They turned positive profits. Now on the other hand, I couldn't make as much money for my businesses as could Larry Page and Sergey Brin from Google or Zuckerberg from Facebook. Different types of companies, different kinds of issues. And I think it's just important for people understanding that they can make just enormous amounts of wealth from overall companies. They don't need to be doing this in high technology companies that take years to turn the corner and become cash flow positive. So as you're building your business model, you will be building the business model either on old world or new world kinds of concepts. And, and even overall companies can get their business models changed for the better. You know, so there are all kinds of technologies that people use today to run businesses that didn't exist several years ago. So, and all this is designed to take a business and make it worth more than it costs to create. And if you can do that, that's where wealth just kind of showers down on people, you know, I mean, when you can, if you can pull that off, you know, wealth sort of showers down on people. And like I say, most companies in the world don't rise to that level. Most people can save some money, they work for themselves, they draw a paycheck, but they'll be lucky to have their business worth more than it costs to create. But for the folks that really become wealthy in this country, they've almost universally been able to find a way to create a business model that allows them to shower wealth on themselves and the people that they work with.

So let's look at, you know, the statement that you made that we're elaborating on here is at the end of the day, business models rule. And put a little light on that concept so people can marinate on that a little bit and realize that's something that you, you know, there's certain things in life, in business that you phrases, concepts, sayings that you really don't want to forget. And this seems like, see, this seems like one that you wouldn't want to forget. You wouldn't want to be operating your business without this somehow in your consciousness. If you're running a business or you're evaluating businesses, models rule.

Well, you know, that kind of comment becomes important, especially when people start paying attention to some of the gyrations that happen in the public markets. I was privileged to listen to Warren Buffett and Charlie Munger talk about a month ago at their annual meeting in Omaha, Nebraska, where they managed to rail on the kind of casino nature of the stock market.

Right.

Which is, which is for sure the case. And what you find in the stock market oftentimes are companies that have enormous values, but nobody even understands what the business model is yet. Right, right. Because the companies either aren't making money or if they are making money, the returns are very low and they're in high hyper growth mode. And so, and I think it's important for people to put this in perspective. There are less than 4,000 public companies in the United States. So it's a fraction of what the businesses are in America. And for all those people running private companies, they don't have the luxury of running without making a profit. They have to make a profit. If you don't make a profit, you can't pay your lenders. If you don't make a profit, you can't pay your staff. And you can't be keeping going back to the market and just raising money all the time. So for most of us, you know, certainly for my career, I've never had the luxury of just not making money. You know, there is an economist, John Maynard Keynes, who, I quote a little bit in the book, who was, you know, clairvoyant a little bit, and he talked about the notion of animal spirits, and this is in the 30s or something like that, where he was describing why it is the stock markets don't always follow the logic of numbers. You know, so when you say finance is a universal language, it is a universal language. But Sometimes the markets can actually violate where you have companies having enormous values, but yet financially are poorly performing. But at the end of the day, you know, whether it's at the end of the 1990s when the dot com came busting down, or at the end of the 80s when the Nikkei stock market fell back into place in Japan, markets tend to gravitate towards where the business models can support value. And so at the end of the day, if you're, if you're focusing on what really matters over the long term is business models. They are the, the only thing that matters, and the rest of it is kind of noise. And for, for us and the private world especially, the business model is everything.

Amazon kind of ruined logic for a lot of people because they lost money for so long and even now today they make like 1% on retail and started making more money when they've got into cloud and these other services. But how did, how do you explain, or how did you look at Amazon when they came along, were so far in the hole from, or took so long to make money?

Well, if I were looking at them even today, Larry, I kind of look at them with amazement. So if I were in the Federal Trade Commission today, if I could do wave one, and this is probably controversial a little bit, I'll say it. I'd want to take Amazon and Amazon Web Services and break them apart into two separate companies so that people could actually invest in either the web services company or Amazon. Because I'm not sure even to this day if Amazon makes money on the fulfillment side. Because when you look at the financial statements, you'll see revenues and you'll see cost of goods sold, and you'll see almost no profit margin from this. And you'll see general and administrative expenses, which are pretty big. But the really big number is this number called fulfillment. And that's many billions of dollars. And that's what cost to get the product to your door or my door. And I remember one time I ordered for my iPhone, I think I had to order a small dongle device to hook it up to my car or something because they always keep changing the attachments. And the thing cost 25 bucks. But some guy from Amazon drives up to my house in a Prius and drops this off, right? And I'm thinking there's no way this thing makes any money. I mean, the Amazon just lost money on my sale by having some guy drop it off in a Prius. And, and I think that even today I order a bottle of olives or something like that and it shows up at my door in a box. I'm going, well, how do you make money doing this? And, and I'm not sure they do. If so, you know, at the end of the day, I think all of us have to be accountable for the business models that we create. And I'm all for I am a big believer in the free enterprise system and I want people to compete fairly and generate wealth. I am a big believer in the virtues of business and that's what makes this country one of the best countries in the world to live in, if not the best. And but you know, people have to make money at the end day. Business models are the things that just really kind of matter.

Thanks so much, Chris. Thanks for listening to the Million Dollar Mastermind. If you felt there were any valuable takeaways from this episode, please take a minute. Leave us a five star review. Your feedback is important and really helps us get the word out to a wider audience. Remember, we have a valuable webinar that is absolutely free. Register for it right now@whitealawnwinning.com thanks for listening.