Small Business is the new CRYPTO - Episode 095

Welcome back. Another episode C Suite Unfiltered with Mike Andes. How we doing today, sir?

Good man, Good man, doing good.

Fantastic. Well, I know you had a new pretty big release with Copilot. Didn't know if you wanted to talk about that at all, which maybe we can get into that later. But I wanted to do kind of a a Wednesday reading, if you will. So I found a very interesting thread on Twitter and thought or X. Excuse me? On X, the Everything app. Everything's happening on X. That's tagline. But I found this Twitter thread and I don't even know who this person is, the person that posted it. They have a lot of followers. This post got a lot of interactions, but basically they were talking about small business and I was like, well this is a perfect topic for you to discuss. So I'm just going to start reading and my thought process is I will read and then maybe you just interject and give us your thoughts on where this person might be right, where this person might be wrong. And I wouldn't say anything in this thread is overly controversial, but it is very topical in terms of the kind of fad of buying small businesses, if you will, kind of of the general get rich quick schemes that are out there nowadays. So here is what this first tweet of the thread is. Culturally, buying a small business is now squarely in the same category as flipping houses, multi level marketing and crypto portrayed as a secret shortcut that will make you rich because you're smart enough to know it. If you're serious about buying a small business, you need to ask yourself why is there an opportunity to make millions with little money or experience? What does that mean I am actually. What does that mean I'm actually getting paid for? And why is buying a small business kind of like buying an 18th century cargo? The first crucial understanding as a searcher is that buying a small business for 3 to 5x EBITDA means you're buying it cheap. The worst comparison is to look at where public companies are trading and then feel like you're getting a good deal. Small businesses aren't an asset that will spit off cash and go up in value. The best way to think about a small business is an 18th century cargo sail ship. If you sail in the right direction, with the right crew, with weather the storms and maintain the ship, you can make a bunch of money. Buying the ship or owning the ship doesn't make any money. And just because the last captain made a bunch of money with the ship doesn't mean you Will. I will pause there if you have initial reactions.

Yeah, no, I agree. It's. It's much of a fad. It's really, really good TikTok clickbait. And so because it's really good TikTok and short, anything that works well in shorts, like whether it be crypto going way up, whether it be stock flipping now buying small businesses, if it can make a good short, it becomes a fad because 10 million people can see it, 50 million people can see it. And so specifically the ones that are easy to run, quote, unquote, which require no labors. AI ran is now the new thing. AI made this business that makes me $1,000 per month passively. This is the new craze. And so, yeah, anything. Anything that's trending well is usually something, you know, long term you're going to steer away from.

Yeah. Do you think that like the. And I'm just going to use her as an example. I'm not speaking to her character. We think that Cody Sanchez is almost like a prime example of that. Like her kind of rise to fame was all around like, yeah, I flip like old laundromats and I flip all this. That or the other type businesses and her rise to fame, although successful and like what she shares about business and she's very smart. Like, do you think that that is what's kind of started this trend, this fad like Cody Sanchez and the like.

There's a whole bunch of them. Yeah, Cody Sanchez is one of them. Because like I think that what does better on social media and from a view perspective is things that can reach the masses. So if you start talking about hiring people, you immediately eliminate like 80 to 90% of businesses that will even have more than two or three employees. And so when you actually talk about like things like a laundromat or a gas station or like a vending machine service where it can be operated by one person, it's much more wide, mass market because the vast majority, you can do it because it's quote, unquote passive. And so as soon as you include passivity, it's not even a matter of people wanting to do that. It's just the audience size on social media is larger, so it gets shared more often. If I did a short and I was like, my business made $1.4 million in revenue last year, but I hired a general manager, a regional manager. I have all these trucks, all these employees had to get this lease and all these other. Now I just disqualified 99% of people from actually being able to do it versus if I say everyone can do it. Because all you need to do is, you know, buy $800 vending machine and in passive, you know, go touch it once a week and put in chips and drinks. Then it makes the audience size larger. And so because the audience size is larger, it gets shared more often. It goes viral. And because it goes viral, then people see it and the people who really should not be going to business start doing it. So. And that's how you have a trend.

Yeah. You know, can I, Can I have a hand up moment? A moment of. Moment of honesty? We're not gonna. We're not gonna talk about the HQ building by any means, because people ask, you know, when are you guys gonna have your headquarters done? But there was a thought, you know, this is when you announced the hq. All right, keep it, keep it.

I know exactly what you're gonna say. You're gonna want a vending machine in the command center.

Exactly. The. The context was it was three years ago. I was still learning the game of business, right? And I was. I was caught into these fads and different things, and I was like, maybe I'll pitch Mike on letting me own machines at hq. But obviously that pitch never happened. And, you know, we. We're past it. So I don't want to be made fun of by anyone in the comments. It was just a thought. Just a thought. Three years ago. Inexperienced Lee, you know, I didn't know much about the world. I was just trying, trying to make a quick buck, getting caught up in the fad. But in terms of his analogy of the 18th century cargo ship, I kind of like it because it comes back to a lot of what we say at training for new owners at Augusta. And really a lot of what your content is about is about the person at the helm. It's about the leader. It's about the person driving the ship. Like, you can have the worst business and someone who's a great leader can turn that business around. Right. You have your whole turnaround series. You could have the best business and put in a really, really bad operator or sell it to someone who really only cares about the money, doesn't care about the employees, the crew, the customers, whatever. And all of a sudden that that business is in a horrible state. So that kind of analogy really stands out to me. How do you feel that that kind of relates to home services? Because you've said a lot of times that, you know, the home service industry as a whole has been behind.

Power curve. It's Been lagging in a lot of different ways. And I feel like that analogy holds true with a lot of home service businesses.

Yeah, like, I think use the shipping analogy. It's like someone's like, well, all I have to do is I have to, you know, go, go from Europe. I just start the engine and a few days later I wake up in New York and I'm good. When I was like, okay, you're going to be navigating icebergs. And as soon as you start seeing these icebergs, that's when knowledge, experience actually matters to the captain. Because yes, anyone can steer a boat. But when you really need experience is when you start navigating through ice and you start navigating around shallow waters and rocks and there's lighthouses around you and knowing depths, death depth charts and navigating GPS and radioing in. And so, you know, everyone can start. Very few finish. Because in between is lonely. Like going across the ocean as well as across the ocean, you will see small specks of ice. And only the experienced Iowa will know that below that, that small speck of ice is a massive iceberg that can sink your ship. And so that's why so often, other times it is glossed over. The in between part, it's like, hey, if you just start today, get your vending machine, great, and you're going to make X amount per month and they just skip the whole ocean in between and all the icebergs and all the things like navigating this and like, okay, so let's just play this out. Let's assume that you have 20 or 30 of these, or 50 or 100 of these vending machines. Are you going to constantly the rest of your career be moving around chips and drinks? Probably don't want to do that. So what do you do? You're going to hire it out. Okay, great, you hired out. Now your $6,000 a month just cut, cut down to like $1,000 a month because you hired someone. Oh, and by the way, they're going to mix up the wrong inventory, they're going to forget, they're going to get sick. And so ultimately every business becomes a people management company business, regardless of what industry is as it grows. And so most people gloss over that part. It's like, okay, so let's play this out. If it scales, and usually it becomes like any other business which is managing people, managing, managing customers. If you're in a service business or if you're in a product business, it ultimately leads back to the customer. And so yes, yeah, no, no, I will.

I'll push back a little bit on that. I do agree with you. It is about managing people. But to go back to the analogy of like an 18th century ship versus a modern day ship, right, we're talking wooden hole, we're talking steel hull, we're talking sails, we're talking a diesel engine. You can effectively probably maintain a steel hold boat much easier than a wooden hold boat. You can also probably maintain large diesel engines with a smaller than a bunch of people to manage, you know, manual sales. Right. Huge sales and ropes and cloth and all of that. So I agree with you. It is a people business. But if the business is built better, I. E. If the ship is made of steel and has diesel engines, more than likely you can probably run it with less people. Would you agree with that point?

Yes. But it still comes a matter of like, okay, so if you scale this business, eventually you have multiple captains, eventually you have multiple crews. Eventually you'll need to start negotiating ports. And like, it always is a matter of scale. Like, yes, if you want to keep one boat, I. E. One business, then yes. But like, do you want to be doing this next 20 years or are you going to try to get multiple locations? Are you going to have multiple, like diversify into other industries? If so, all the businesses start to look the same, which you have a general manager that is captain of the boat and then you have multiple boats and then you need a port. Like you create a port, then you need to like have someone negotiating those port fees. So it ultimately always kind of looks the same if you scale it. I agree a lot with the premise that if you're going to have a vending machine or a car wash or whatever, and you're going to keep one boat, then yes, the industry that you pick is important because you just want it to be as simple and basic as possible. Now, do I think there's a moat around that? Not as much. Because that's why when people say location, location, location, the reason it's important to have a great location is because you have no other moat. Like if you have the best chicken wings, if you have the best steak, people will drive to you. But if you, if you don't, if you have a mediocre product that has no moat around it, the only reason to go to that restaurant is because of the convenience of it and the location of it. Same thing with a car wash. Like, if the car wash is not on a really good street, you're not going to drive one block extra to Go to the car wash. And so everything revolves around location, location, location, which now means you are at the mercy of a lease, a mortgage, a land developer, zoning requirements, etc. And so every business has risks. People like to gloss over the middle and make it look good because usually they're incentivized for people to start. And so they sell the outcome like, this is what it's going to be. They talk about starting how easy it is, and they gloss over the in between part. And it's like, even something like, recently we started to share the item 19 of Augusta we try to be very careful of. And I was like, hey, we have for the very first time showing what the end looks like after three years. And so the part like door calls is like, okay, just FYI, that was three years of pain and it was very hard. It's not easy. And yes, there were people that started from zero and went to 2 million, but there were also people that failed. Like, they got. They got in the middle of the ocean and they drowned. They got drowned in the spring rush. They had too many leads, they gave up, like, et cetera. So getting really clear about that, I think is important to give people an accurate depiction of what entrepreneurship is, because painting a rosy picture is usually someone has an incentive. And so whether it be toady, which, you know, I think she's great, or other people that it's like, what are you trying to sell me to get me to start? Because usually it's like, oh, join my coaching program, you know, join this course. And so I don't think those things are bad. I think everyone learns, even if you get in the middle of the ocean and you do drown, you figure out what route not to go next time. So I don't think it's a bad thing. I just be careful about anything that's taking off on social media because it is reaching the masses.

Yeah. And. And that's where I was kind of wondering, you know, using the Alex Horosi phrase of sell the vacation, at what point does selling the vacation almost become inauthentic? Right? And. And if anyone's unaware of that analogy, basically Alex is talking about in sales, you know, if I said, hey, do you want to go to Hawaii? Your obvious answer is yes. Great. So I'm going to sell you the white sand beaches. I'm going to sell you the Mai tai, I'm going sell you the warm, cool breeze, whatever. I'm going to sell you this amazing vacation. However, I'm not going to sell you the fact that you're going to have to go through TSA and they're going to go through your luggage, and you're going to get a middle scene on a plane, and, oh, yeah, the plane's hot. And then they're going to lose your luggage, and then you're going to have to wait in a line to get an Uber and then you're going to get to your hotel. Right. Like, I'm not going to sell you all those steps. Those steps are necessary to get to Hawaii, but I just want to sell you Hawaii. So where's the balance of that becoming inauthentic, if you will, from the, the person that is selling?

Yeah, I think it becomes inauthentic when you don't share this. The, the satisfaction rating of the vacation after people have gone. So, like, okay, so great, you show me the vacation. Now, here's the ratings and reviews of people that have gone on the vacation. Some are lower, some are higher, some are great, some are okay. And this is why we share the item 19. Because now instead of you just selling the vacation, you say, this is the destination. Like, these are the numbers. These are the vetted numbers behind what the, the actual destination looks like. So instead of me having to sell you on the vacation, I'm just going to show you other people said about the vacation. Right. And so I think leaning on proof instead of making a bunch of promises is the key here. And so if these people were honest about.