Episode 497: How the Richest People in the World Created Wealth 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 talking with Chris Balk. Hey, Chris, how are you?

Larry, it's great to see you.

And you're in Alabama. You're in your Alabama home right now, is that correct?

I'm in my Alabama house today, yes.

And for those who don't know, we're in for a treat because Chris knows business and he knows what works, what doesn't work. He's a former co founder, just for example, former co founder and CEO of Storr Capital, which is privately held specialty finance and asset management company. They did 211 million in revenue in September of 2021. And so he's tasted success. And in those kind of companies, they work, you know, you work with like, how can we make more money? You know, what's, who we're going to be? What are we going to put our energy behind? Now, Chris has had a lot of those kind of jobs. Member of a board of directors for Franchise Finance, among other things. And so he's got a new book, and it's a unique business book. He's going to tell us the Value Equation. And you're going to see the parallels between successfully run businesses and successfully run lives because companies come from the people that are behind the scenes. And so, Chris, tell us about your book.

Larry. The book is called the Value Equation. It's been about 25 years in the making, to be honest. It starts with a lot of pieces I did a long time ago, but the idea was to tell people how businesses create wealth. I mean, that's the simple idea. And why it's so important is because in all the books about how to get rich, there are no books on how businesses create wealth. And yet the richest people in the world all made their money in business. So I figure if you read this book, you're, you're going to figure out how the richest people in the world got that way. And so that's what I did. It's called the Value Equation.

And take me through it. Is this for a layman, is this a technical thing or what are the applications?

Well, some of the reviews that have gone up on Amazon would say to you that it's got parts of it that are easy to read and then there are parts that you probably have to read maybe twice. So it's not a long book. It's less than 250 pages, but it's got some math in it. It's middle school math, but it's. You know, if you're going to do business, Larry, and you're going to talk about how wealth is created, you got to have a little bit of math in there. So it does have some of that. And. And there is an equation at the middle of it, which is an equation I developed in 1999 and wrote an article that won an award for it. And I won't go into the equation with you now because it's just it on the radio. It doesn't really work too good. But I would say it just focuses on three things that people have to do in business. And the one thing is be operationally efficient. And that's when you think about operational efficiency. And almost all business people are familiar with this. It's thinking about how you price your products, what kind of margins you're getting, what kind of cost controls you got. And the second kind of efficiency is going to be asset efficiency, which is basically just trying to control how much money you got to tie up in your business. And then the last one is capital efficiency, which is basically controlling the cost of your equity and all the money you borrow from other people or get money from leases even. So those are the three efficiencies. And they all kind of get down to six variables. And you do those six variables, and you can start to figure out pretty quick how to value a business, how to determine what. What your returns are going to be. And most importantly is how much wealth you can create. And you know, Larry, the people that are the business folks out there that have created the most wealth have created companies that are worth a lot more than what they cost to create. And most companies in the world do not rise to that level. But this book will show you how you do that and to create a business that's worth more than a cost. And if you could do that, you could basically create money out of thin air, which is what wealth creation is.

Yeah. And that would be the goal. So where do people go wrong? How quickly did you come. How did you come across the equation that far back in your. Are you. Were you just the light bulb? The angel sang, the clouds parted, and you saw how. Why were you in a position to realize this?

Yeah, well, Larry, you're a working guy. You know, I don't think you think that happens. I mean, anybody that's. Anybody that's worked hard as you have and has made as much money as you have. And some of the people listening know that things just don't happen automatically. So I started my life off as just a credit geek. You know, I was in a bank and I modeled out a lot of companies. And as I'm modeling out companies, I'm starting to realize that I can sort of take the models and reduce all the variables, you know, take as much out of it. So you get the model simpler and simpler. And if you do it and you get simple enough and you get down to six variables, then you can start throwing away the spreadsheet. And so basically, that's what you get to in the book, is how to sort of understand what a business is going to do and be able to even do it without a spreadsheet.

And so were you at the credit, you were at that level in the credit business when this kind of came to you?

You know, I've modeled out about a bazillion companies, and I was just sitting at my desk one day in 1999 or 1998, and I was modeling out a company. And sometimes when you model out companies, you pick numbers out of thin air. So you say, oh, I'm going to start off with sales of a million dollars or something. And if you're ever modeling a company where you start off with sales of a million dollars, then basically you start to realize that whether you use the number or not, it doesn't really matter. You could say a dollar. You could, you can say whatever you want to. So I realized that I didn't really actually need the numbers. I could do it with just relationships of fields. So basically, that's what the value equation does. You could toss away the numbers and create some universal business truth.

And that's a lot of what we do on the personal level is identify, try to toss through it and find the universal business truths as related to making decisions for running your own life. You know, how you could choose options that would give you the highest odds of success in any given situation. And so when you were sitting at your desk and this came to you, the itch had to come to you, Chris, I need to get, get where I could put this into action and play with this in a more specific way. Because it's one thing, the general thing, but, you know, where the rubber meets the road, that's another. A lot more fun.

Yeah, so I thought it was cool. And I. You know, every now and then you do something in your life where you just, like, you dream something up and then you say, this is really cool. And I Basically thought, this is pretty neat. And so I wrote an article on it, and the article won an award. But then I started.

Where do you publish an article like that? I'm just curious.

All right, well, this article ended up in a magazine called Strategic Finance. And so it's kind of a trade publication, and it goes out to the association of Management Accountants, although I think the audience is a little bit broader than that. And so then the gold medal award was named after William Lybrand, who was one of the founders of Coopers and Lybrand Accounting. And so I got a gold medal award in my Arizona house. Somewhere on the wall.

How do you submit? You're sitting at a desk. You come up with this concept. You get excited about it, say, this is cool. You write an article. How did you get them to think it was cool enough to publish it to begin with?

You know, I've always networked with people in the literary business. And so, you know, I ran it by somebody to proof it because I wanted to see if they thought it made sense. And. And the person I ran it by wanted to show it to somebody else. And he was involved with this particular publication, so he asked if he could, you know, print it. And I said sure. And then. And then every year, the publication takes all of its articles and throws them into the hopper for an award. So you get that. So. And. And I was on my way. Yeah, so that's how it happened.

Well, what does that mean? You network. You've always networked with literary. Literary people. I've never heard that phrase. Or people. That's not something I find out that people commonly do.

Well, you know, I mean, I've written a lot of articles. I've written dozens of articles on finance and on financial statement analysis and real estate. And so when I write them, a lot of times, I'll give them to people to proofread. And they could be in the business, or, I mean, they could be in the real estate business, it could be in the finance business. They're people whose opinions I respect, and oftentimes they have relationships with publications, and they'll say, I could show this to somebody. So, for example, the book that's out is published by Wiley, which is a very nice publishing firm. A close friend of mine also had a book published by Wiley. So he introduced me to some folks at Wiley. I'd already written the manuscript, and I gave it to them, and they liked it, and here it is.

Yeah. And so how do you get to the point where. Where were you in your career? This is 97. So this is.

Yeah, yeah.

So I wasn't right out of college at that point.

No, no. So I was, you know, I was probably 51 years old, and I was running. I was president of a publicly traded company that I'd taken public. And it's. CEOs spend their times in different ways. As a CEO, I spent my time really sort of understanding the mechanics behind the business and the numbers. And I found sometimes, you know, in the United States, oftentimes people think of they're busy, they're productive, you know, but sometimes when, you know, being busy is not the same thing as being productive. And the best thing you could do is be sitting here at your desk with a blank sheet of paper and a pencil, or sitting there on a blank spreadsheet thinking about your business. And I would do that a lot. And so it was in one of those deals where I started modeling out what became the value equation. And then it's been a really. It's been a journey from that point. I mean, I would say when in writing this book, which I started doing in 2020, there were observations that I gleaned in 2020 just in the art of, you know, in the act of just writing the book, and that I hadn't really thought through completely. So. And what's exciting to me about the book, in a way, is that the value equation just snowballs into so many other things that you can do with it. And. And so the book became pretty engaging to write, and I enjoyed it.

You wanted to write a book about the equation, and in the process of explaining that, the applications, I guess, occurred to you. That's the great thing about writing a book is you. Forces you to get, you know, think things through. A lot of times you change the title of the book because it goes in another direction, but yours was very fixed from the beginning. But talk about that process.

Yeah, I mean, I would say that I didn't want to write so much about the equation as I wanted to write about what the implications are. It's sort of like. It's like being in business where people confuse products with solutions. Business are all in business of selling a solution. They're not selling a product. Right. And so you always solve the solution. You saw the benefit, and then the product is just that thing, you know, that you've got. But the benefit is why people use you. And so in the case of the value equation, the value equation is sort of the product, but the benefit is that it really helps people more easily understand how to create a business, it helps them understand how to invest in public companies. You know, it helps them sort of dissect how companies are creating value and wealth for folks. And and if you're in the fortunate enough to be in the position of leading a company or thinking about creating a company, using the value equation can help you dissect how you turn an idea into a business model. Because at the end of the day, business models rule, you know. You know, finance is a universal language. It's like music. And accounting, on the other hand, is not universal language and it's not like music. And so what you want to do is get entrepreneurs and investors too to think about the world in financial terms that are simple and digestible. And that's what the value equation.

Fantastic. 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@whiteallonwinning.com thanks for listening.