How To Build And Expand Your Portfolio

Build single threaded teams at the planet level. Every single business unit gets its own leadership team. If there is one thing that I've seen that is massively overrated in holding companies, especially holding companies where they're not all doing exactly the same thing, it is the word synergy. We have tried this again and again and again. Oh, let's buy this company, let's bring it into the fold and let's have our marketing team do marketing for all of these different companies. It'll be great. It literally has never worked.

How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Dice. Welcome to another episode of Business Lunch and today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com www.businesslunchpodcast.com and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

Two sessions the first session that we're going to go through we call the Portfolio Entrepreneur and it's exactly what Sam talked about. How do we go about operating, owning and operating multiple companies at the same time? One way that we do it is we don't operate them. Okay. And so when you heard from Richard earlier, and I say you need a Richard, you know, eventually you're going to need a lot of Richards if you want to have a lot of companies in your portfolio group. So we're going to speak to structure, we're going to speak to general best practices. If you have questions related to this topic, write them down, hold them. We're going to tackle all your questions. When we go through the second part of this session, we're going to go through how to invest like an entrepreneur, how to be an entrepreneurial investor, and how we invest our own money. As these businesses generate a lot of distributable cash. As you have exits, what do you do with that money? Do you just give it, you know, put it in a, you know, in an index fund? You just give it to a fund manager. You know, what do you do with the money? We're going to share what we do. Disclaimer. This is not individual investment advice. Past performance is no indicative of future performance. Your results may vary. Okay, how'd I do so that Pretty good.

And you're very likely to lose your full investment.

Yeah, you'll almost certainly lose your full investment. But we're going to tell you, we're going to say this is what we do with our money, because I think that that's a fun way to do it. So let's get started. The portfolio entrepreneur. How to run multiple companies at the same time. Essentially, this is what you get to do when you achieve exit number three. And so in all of our businesses, anytime we're foolish enough, and thankfully we've largely gotten out of this practice, but anytime we've been foolish enough to start a business, we are overstarting businesses. Every now and then we'll have an idea and it's like, let's not start it. Let's go see if we can buy one instead.

I'll generally give him my favorite financial advice or business advice on starting a business. And I'm like, that's really cool, Ryan. We could make hundreds of dollars.

Hundreds of dollars? Hundreds of them. All the hundreds of dollars. No. Our goal in anytime we're involved in needy business is for us certainly to achieve exit number three to exit the org chart. Also, when we're working with entrepreneurs, if that's their goal, we want them to do it as well. What we're talking about here is what you get to do when you achieve exit number three. How do you achieve exit number three? You have an operating system in place and you got an operator to operate the operating system. That sequence, by the way, is really, really important. A lot of people want to try to get a Richard before they got an operating system. It's kind of tough, right? What you really want to do is bring somebody in to help you create the operating system, and then you bring the operator in to run the operating system. If you got an operator, cool. And have them do that. But generally sequence system, then operator to operate the operating system. Let's say we got all those things. Exit number three. We've exited the org chart. Now, if you want, you've got a couple of choices that you can make. You can say, okay, all I want to do is focus on this one core business. I want to Focus on it. I want to grow this, this one business. And that could be a really good focused thing. I just want to keep all my focus here. And I know lots of entrepreneurs who have done that. What you can also say is, this is great. I want to do more of these. Does anybody else suffer or struggle with entrepreneurial adhd? Yeah, people have said they're like, you know what? I think you would have been a lot more successful if you just focused on one company and just grown that one company. I don't know that that's necessarily true in many cases. I don't think it's true. Here's what I know. It wouldn't have been as much fun. Would have been. Certainly not for me. Here's the other thing. I know every major company at scale eventually becomes a holding company. Every big company at scale that you know of eventually begins to acquire other businesses and bring them together. So even though you think it's one business, it is not. Roland talked about rollups, gave you lots of examples. So even if you're thinking, oh, I just want to focus on this one business, really good chance, if you focus on scaling one business, that one business is going to turn into a holding company. So what is a holding company? Holding company is a company whose primary interest is. Is to own a controlling interest in other companies. Pretty simple. That's a holding company. It's a company that. Wait for it holds companies. I know it's day three, but are y' all following so far? Okay, what are some types of holding companies? Rollups. This is what Roland talked about yesterday, right? These are companies that look to accumulate businesses that all do more or less the same thing in pursuit of that magic business word. Synergy.

Right?

Synergy and economies of scale. So waste management did this. And anytime there's, there's an industry where there's a lot of small little players, pretty common, go in there, roll them all up, give them similar branding. Obviously, that's what Sam's doing right now.

Our buddy Marcus Lamanis said that. Yeah, he's got one of the more well known ones.

What and what for those who don't know, who is he and what does he do?

Oh, Marcus has had a show called the Prophet for several years. He's got a couple new ones that are out now. But he's a friend of ours who is the CEO of. What is the name?

Camping World.

Camping World. So he rolled up RV parks.

It's really, it's really funny because if you know Marcus, you know, he's not really A camper.

I don't see him as a.

He's not really an outdoors kind of guy. No, I don't, I don't see. He's definitely not. Yeah. So that's a rollup. So the idea of a rollup is we're rolling up the same types of businesses, generally putting them under one brand, but we're trying to get a bunch of them all in one grow inorganically. The second is the accumulator. We're talking about a cluster of different businesses. They're generally in the same industry or they have the same business model, but you're not necessarily looking to integrate them together. Right. Roland mentioned yesterday, lvmh, Louis Vuitton, Moya Hennessy. Right. What this is is this is an accumulation of luxury brands. So in this case a lot of different brands that have very similar systems, very similar playbooks. Right. They've got, they're going through similar distribution channels. When they're buying another high end liquor, they can place those and slot them right next to their other high end liquor.

It's also generally known as a house of brands. That's another common way of talking about. About it.

Yep. Constellation Software. How many of you have heard of Constellation Software? Raise your hand. Not a lot of people. Actually. Constellation Software is one of the most valuable software companies in the world, based out of Canada. Most people don't know Constellation because they basically have bought up a lot of legacy software companies, particularly software companies that aren't SaaS, they're not in the cloud and they've accumulated all these companies and they've built just billions and billions of dollars of enterprise value. So that's the accumulator. You have a pure Holdco. A pure Holdco is just a portfolio of completely unrelated businesses that primarily it's functioning in a capital allocation capacity.

Also known as a conglomerate.

Also known as conglomerate. Also known as Berkshire Hathaway. Right. So Warren Buffett there, you know, he owns Geico, he owns Coke, he owns, you know, large chunk of Apple, I think still. What do these companies have in common? Nothing. What resources they share? None. Okay. This is a pure holding company. And then there's another group, kind of a subset, the platform. This is a holding company that's made up of multiple accumulators. And what you see is that the holding company is fractal. So it's very common. And this is the case with us where our holding company will acquire a company and that company will eventually become a holding company and then it has another company which is another holding company. And this whole thing's right, it's kind of like a family. Kids have kids and you got grandkids. So you have holding companies that have holding companies and they get moved around. And most of the really large Fortune 500 companies that you know about that are listed as one company are really a combination of a lot of different companies. Most of your billion dollar companies are actually a collection of 10 and $100 million companies. Most of your $100 million companies are collections of million and 10 million dollar companies. That may not be how their entity structure is their accounting, but that's functionally how it works.

Yeah. And let's talk about. Because a lot of you ask about entity structure. So probably the most common question is, do I need to have a company for every company that I've got? And the answer depends. But the answer is really dependent upon what is the goal or the outcome that you've got. Because if generally, from a legal standpoint, as an attorney, which I'm not advising you with no legal advice being dispensed.

Here, is entertainment purposes only. Are you entertained? Are you not entertained?

But what we generally say is you want a separate company to provide a liability shield from each of the other companies so that the assets of one company are not at risk should something go awry with the other companies. And when you're doing this personally, you can decide what is my acceptable level of risk. So you generally should start with one company. It could be an LLC or a corporation. It doesn't really matter for liability purposes. It does matter for tax purposes. But from a liability standpoint, when you get enough in that company and you're thinking about doing something else, then it's a good idea to take a pause and say, would I be upset or financially disadvantaged if something bad was to happen with this new thing I'm thinking about doing and I was to lose the assets of this company. Usually when you get to a certain level, the answer is yes. And so we start a thing called an spv. So SPV is the attorney's way to charge big fees to form an entity. That is that you can get on legalzoom for nothing. But we call it that because it's for a special purpose. So spv, special purpose Vehicle, which is different from sales profit value. But so each time you want to do a new deal, I do recommend that you set up a new SPV and let that operate. And then you'll ultimately start with one company as it acquires the next thing, it's a holding company, as you get to the point where you don't want the assets of that company to be at risk. Then you start a new company. You might also play with or talk to your tax advisor about the difference between C Corps and LLC and sub S. Sub S generally you're going to be out of because you're not going to qualify. But, but the tax liability gets frozen in a C corp. And it can be advantageous if you live in a high tax country or state to have entities that are in tax advantaged states or countries. Apple does this, Google does this. Everybody that is financially sophisticated and has enough money to make it make sense, does it. Because then you're, you're, you're going to end up. Corporate taxes right now cap out at 21%. If you have a corporation that's a C corp in a tax free state, you're paying 21%. You don't care about capital gains because they don't have capital gains. So maybe you buy a company and you flip it. And if you flipped it personally, you're in roughly a combined 45 to 50% state and federal tax combined rate and you could save 39%. Right? Is it no 29%, 29% of what you sold it for had you just had a right, had the right structure. So it can be very significant to do this in the right way. And when you think about how compound interest works when you're saving 29% and then that's compounding at say you're only getting 30% on your money over year after year after year, it really adds up quick. So that planning on that structure is super, super important.

My rule is always to pay as many taxes as possible because I think they just do such a great job with it.

They do. And what's nice is you can just ask them and they'll calculate it for you.

It is nice they do that.

I've heard that.

So the way that we, excuse me. The way that we think about this and we approach it, kind of the visual that I use and I drew this to try to explain it somebody one day. We think about it like a solar system analogy and an orbital portfolio. So if you think about the center, you've got the sun. This is your main holding company. Okay. This is your main holding company. There's not a lot. There's no activity taking place there. Generally it's there to hold the other businesses, the planets that are orbiting around it. These are your actual operating entities. Okay. Your operating entities are there now. It's common and to the point that Roland made. Sometimes you want to try something new. You're going to launch a new product or you're going to launch a new media property, and you don't necessarily want to spin it out into its own business yet. You know, you want to just see is this thing going to, you know, is it going to take off? And so what we'll do, we think we call that a moon. We'll think about it like a moon. We won't give it its own management team or anything like that. It's still too early. We won't necessarily even set up a separate entity. Maybe not day one, but we might give it its own class, for example, you know, inside of your accounting system. We want to still be able to think about it a little bit separately.

Usually as more of a project manager than like a CEO or, or a dedicated employee.

Right. It might have. It might have a marketing manager, it might have a program manager, but it's going to have a really, you know, small kind of scout team team that's associated with it. That's a moon. Now, sometimes moons grow in mass to where they can spin out and they can maintain their own orbit around the sun. And when this happens, that's when the special purpose vehicle, the spv, is set up. That's when it's spun out. That's when it gets its own management team. That's when it becomes its own planet. Sometimes it doesn't get big enough to do that and it keeps swirling back around. That's fine. That just means it's a product, a program, a service, a media property of the other planet. And so this happens. And sometimes again, things will go back and forth. We will have business units that take off and then maybe they don't are quite able to maintain. So they got to get pulled back in the gravity of the company that launched it. So this is kind of how we think about the analogy. And I so you'll hear me talk about suns, you hear me talk about planets, you hear me talk about moons. The sun is your overarching holding company. The planets are the individual operating entities. The moons are the crazy little moonshot ideas that you have that you want to try out. Okay, so hopefully that analogy will help. I want to give you seven rules for running a holding company. Again, we're going to go through these seven rules. We'll riff on it. Any questions you have, hang tight. I'm sure there's going to be a bunch. When we go through the entrepreneurial investing, we'll answer all the questions up front. So rule number one, and this is really, really important, build single threaded teams at the planet level. Every single business unit gets its own leadership team. If there is one thing that I've seen that is massively overrated in holding companies, especially holding companies where they're not all doing exactly the same thing, it is the word synergy. We have tried this again and again and again. Oh, let's buy this company, let's bring it into the fold and let's have our marketing team do marketing for all of these different companies. It'll be great. It literally has never worked.

It's interesting because we like the idea of shared services and shared services is a good concept. But what we have found is that when it comes to the marketing team and the sales team, they're not shared well because they've got the things that they're doing, they've got the list that they're working with, they've got their email campaigns that are already scheduled, their promos, their content and it just is hard to get anything new in there. And so it's actually been very frustrating and cost us tens of millions of dollars in deals that we did early on where we would get equity in a company and then couldn't do anything and ended up giving it back feeling bad because we couldn't free up the time in marketing. So like if you think you guys own digital marketer, so I've got a SaaS company, I should basically let you acquire part of my SaaS company because now I'll be the SaaS company of digital marketer and you guys can do my marketing. It won't work. Ask me how I know. I've watched it. Very frustrated several times. We're both like why doesn't this work? What works to share is finance and HR and things like that. But when you get to marketing, it's really legal. Would also be another one that's good to share. But when you get to marketing it's a challenge. And even within the company, what we've started doing is having one marketing team per value ladder. So when you've got a value ladder and you say this is my entry level product now these, these are the upsells and downsells that go with that. That's one marketing team for us now because otherwise you'll, you'll have other things that you acquire, you create, you, you know that, that come into being and you're ready to launch that. And the marketing team will try because you told them to, but it will take away unless you Unless you're very sophisticated and have a true chief marketing officer. I mean a true. When you're paying them 300,000 plus a year, you are not going to get the full benefit of that new product or service that you just got or launched. And it's painful. But that one marketing team per value ladder, one sales team per value ladder has made a big difference, I think for us.

Yeah. And in the inverse, failing to understand this has cost us, like Roland said, tens of millions of dollars because we thought that one team could do it all. And we can get into. If you have actual like let's say you were to acquire an agency and so it's used to having multiple clients, that could be a slightly different animal because it's built to manage multiple clients. But there's a rule of that.

Let me ask you this. If you like all the agencies that.

You'Re using, they all just crush it, right? Universe. I don't see, Do I see any hands? I don't see any hands. Yeah, yeah. So build single threaded team. So what does this mean? It means if you're going to launch a true, an additional new operating entity, a planet, it must have an operator. That person could be a general manager, a president, a CEO. It kind of depends on the size of the company. But it must have a singular operator. It must have somebody who is uniquely focused on growth, which is typically two people, sales and marketing. Right. And somebody who's uniquely focused on the customer, client experience, somebody who's focused on product, somebody who's focused on fulfillment. And that may be two people. Okay. They cannot be shared with any other one. Okay. If you share, if you try to deploy synergies and that's where your cost savings come from, it won't work. Okay. It's just not going to work. If you're even going to launch a new, like Roland said, let's test a new product idea, a new value ladder. So we're going to be testing a new funnel. Great. At that stage it should have its own dedicated marketer associated with it and ideally its own dedicated. Maybe it's a csm, you know, client success manager, that kind of person. I like to have somebody who's uniquely focused on the growth, somebody who's uniquely focused on the, on the product services, the customer experience. So build single threaded teams. Don't share resources across human resources across those channels. When it comes to the functional business units around sales, product marketing, you got it. What you can, and Roland already said this, you can centralize ops and admin. So at the sun level at the holding company level, if you do want to have centralized accounting and finance, if you want to centralize hr, then there actually are tremendous gains. We will launch a new company and when we launch a new company or if a company comes into our fold, they might only have six or seven people in that company day one, as soon as they come into our holding company, they now get to benefit from the HR resources of the group. And so if you know anything about the way health insurance works, somebody goes from basically having no health insurance plan as a business to now being able to tap into a really sophisticated group plan where they get health, vision, dental, 401k matching, all that stuff because they get to write off the group. So it can be very, very effective to bring people into that and it could be a huge incentive when it comes time to doing both acquisitions and recruitment. So I do like the idea of centralizing ops and admin. Similarly, the goal should be to centralize your tech stack, specifically the core business functions, right? Your CRM, your erp. Now, it's not always appropriate. Day one and certainly if you're doing acquisition, if you've got some complex customized Salesforce instance or something like that and you go and buy a business to. We worked with a company one time, we sold a business to a very large company and they had their own custom proprietary tech stack that they demanded that everybody put on. And as soon as they ported us into their tech stack, it just imploded the business. So you got to be a little bit careful and not necessarily force it on day one, but this should be the goal.

It is also some of these things are important when you're thinking about being acquired because your acquisition criteria as you get bigger and more sophisticated will include that there's a strong preference to acquire companies that are already using the same primary tech stack, or at least the biggest parts of it that you're using. So if you're a salesforce house or a HubSpot house, you're going to prefer when you're acquiring to acquire somebody that's got that. When you're looking at being acquired, if you know that the industry standard, or you've got some strategic acquirers in mind, or you have an idea of who might be acquiring, then think about using the industry standard software. Think about managing your tech stack in a way that will be friendly to theirs because they're going to. When they're looking at valuing you, think about what's fall off look like what are the costs of integration, what are the Dis synergies that exist so that we're going to have a hard time here. And so when we're looking at some of these things, that's really helpful. You having a centralized management team, which I think was the last slide, and having having a centralized and similar tech stack is going to make a difference in maybe a point or two in your multiple on your valuation. Because if multiples are like say between 6 and 8, you want to lean towards 8 and I'm going to push for 10 or 11, but I can't do that if there's too many things that are friction in the integration phase. So think about that.

It's not something a lot of people.

Think about, but it is a big advantage when you get to that point. And here's another thing. Chances are that the industry standard is the industry standard because it's good, because it works. And you might hate it, but you might find that as at scale and this happens a lot with a lot of the more the lesser known softwares that we have used that really was like this is the cool webinar platform because it does this and that and the other and all the big guys don't do that. But as we scale it breaks because it hasn't stress tested and load tested. And so that's one of the reasons that maybe you might think that some of the bigger, soft, bigger tech stacks that bigger companies are using are not that great. The truth is, is that they're reliable and at that level, reliability trumps functionality.

Yeah, for a lot of the marketing stuff, you can get away with it longer. The one area that I would look to centralize day one is get everybody on the same accounting platform. So if you're using NetSuite internally and you acquire a company and they're on, you know, QuickBooks, then you got to convert them over. If you know somebody's on FreshBooks and you're on, you know, you get the idea, try to get everybody on that same because that's an apples to apples and finance and accounting is where you really want to make sure you're always comparing apples to apples similarly. Also, it's never perfect, but the more your chart of accounts can be similar across, especially if you're in similar industries, that's going to be big as well and allow you to compare the performance and gross margins and things like that across all your different business units to know which ones are worthy of additional capital investment.

And also if this sounds like I don't know what chart of accounts is and that kind of stuff. You, you honestly don't need to. You just need to know that these things are important so that the people who are in charge of that in your company do know that and that you at least know to hold them accountable to these things. So I would strongly recommend you not to go deep into any of the functions you don't already know. You want to be a CEO, you want to be a manager, you want to be a leader. Stay out of the weeds, but know enough to ask the people who are working for you if these things are happening.

Yeah, it's not your job to have all the answers. It is your job to ask the questions. I absolve you. This is this. First mountain thinking is believing you need to have all the answers. Second mountain thinking is knowing that you need to ask the right questions and build a team that can answer those questions. Rule number four, don't force teams to use internal resources. If you do go out there and acquire a marketing agency or some other services agency because you say, well, we're already paying this company anyway, right? You're saying let's do some kind of vertical integration and acquire the company that we're all. So that everybody can use it and it basically becomes free. That can be a good strategy unless you then force ev all the other companies across your holding group to use that service.

Also, don't discount the services or say, well, now the margin from that company is gone because it'll disincentivize every person at the company you acquired. When you acquire that company, mark to market at favored nation status, meaning that you don't offer internal services at a rate that is lower than the rate you give your best customer. That's a really important one. And another hard learned lesson for us is that it's like, oh, well, we own that now, so marketing's free. Well, now there's no accountability and there's also no motivation for the people that you just acquired.

You'll never have good leadership over there because you won't be able to afford to incentivize them. So the performance of this shared service agency will go to crap. Now we had as a company, we still do events today. I mean, as recently as the one you're at right now. But there was a time in the history of our organization where we did a lot of events across a lot of different companies. So it made sense for us to own an event management company. And that was exactly what we did. We had an event management company. But you better believe that event management company charged businesses like Digital Marketer to manage traffic and Conversion Summit even though all those people were on the same payroll.

Same thing. Same thing for even for not in the acquisition environment, but the same thing for email. I have to sell. Well, Deanna who runs Epic has to sell Rich on sending an email to the scalable list for Epic and vice versa. And so Rich is going to be what's the DPL on that? You know, what's it likely to generate? Because it's an opportunity cost. So when you think about it like that, everybody's got to pull their own weight and they should. It should have to. We shouldn't send a crappy email that we haven't tested or hasn't performed when that's going to do a DPL of eight when this one's doing 12. Right. That's just dumb. So that's a really important thing to think about too.

Yeah, it needs to function as its own business. And here's the other thing, have agreements between entities. So going back to the example before our event management company Evolve didn't just charge Digital Marketer to run Traffic and Conversion Summit, there was a contract. And that contract was actually a multi year contract which meant when Digital Marketer Planet took Moon Traffic and Conversion Summit, spun it out into its own spv, its own entity, a new planet, and then sold that to a Blackstone owned company, it was very simple for us to say to this very sophisticated buyer, I mean talking about one of the largest, you know, one of the largest private equity hedge fund, you know, capital accumulators on planet Earth, we were able to say to them and going along with this are these contracts. And so when we sold the business, guess what? Those contracts went with the sale because they existed. Had we tried to argue for during the sales thing. Oh, and we want you to continue using this company over. Here they go.

Well, why?

Well, we own it. Okay, well we're going to bid that out. They didn't have a right to do that. But because the contracts were there, they were already in place. It was simple enough for them to be like, yeah, we'll continue to honor the contracts that are already in place.

Similarly, in the operations environment we had a situation where one company where basically two companies were dealing with a client that was the same client for different services. One of the companies contracted with a contract with the client, the other company had an oral agreement and didn't and there was six figures of profit at risk. It could have been way worse if both companies were forced. Basically if we like abnegated the One to the other. Our pnp, our policies and procedures for the one company were good and held. The other company learned a lesson.

Right.

That's also important.

So having that autonomy of companies within the internal of your company, which is what we're talking about here, but also with the external world is also good. And they can learn from each other as we did in that case.

Yep. And so make sure that you give. When you have different holding companies and you have different CEOs, President GMs running these things, everybody needs to know that they all have permission to say no to one another. We're not going to force anybody to do anything. It would make sense. We're all friends here. It would make sense to work together, just as those of you who are in a mastermind group together or something like that. Why wouldn't you work with people you already know like and trust? Of course you would go there first. It'd be weird if you didn't. But you're not required to. Rule number five and Roland already alluded to this, everything eventually needs to be in its own spv. Right. Maybe not day one, but in general I like to think like when it's clear that something is has million dollar momentum, we're not going to wait for it to get to a million dollars in revenue. But once something starts to kind of run rate at about a million dollars, that's when it truly can begin to afford its own leadership team. Right. And so that's generally the benchmark that we use. This moon looks like it's run rating to a million dollars. If it's going to run rate to a million dollars, it's likely to develop enough of its mass that it's going to become a planet. Let's give it its own leadership team. Let's give it its own P and L. Let's give it all of its own books, set up all its own bank accounts and, and let's give it its own entity. Okay. That's generally how we do it. Anything you would add to that? Yeah. Rule number six, have managers for your managers. Can you speak to this one, Roland?

Yeah. Just as you get, as you get larger and the roll up that we're doing with Sam is a great example of it. So we're going to acquire a bunch of companies. We need somebody. All those companies have managers and employees in them. But we need somebody that's going to manage those people. And as you acquire companies as a holding company, your holding company needs to have its own team. It can't just be you Own it and you're the team. It still needs a cmo, a CEO, a coo, a CFO more than any of the others because it is a big company. It is certainly a bigger company than any of its individual companies. So it's kind of weird when we very often see somebody's got a holding company and it's just, well, yeah, I own everything through this company. Great. Who runs that? I mean, just holds myself. I don't need anything. Well, who in the holding company is holding the managers of the other companies accountable? I mean, I look at stuff and see, okay, good, good. But that's not how companies work. You're terribly inefficient. Your people who are managers need coaches and your holding company managers are the coaches for your other team.

Also, if you have this in place, and look, there does need to be a decent amount of scale to accomplish this. But when you have that scale and when you have these people in place, it also means that if a critical person at one of your operating entities leaves. Right, which they will. If you sell it, which they, they will.

Absolutely like, your goal of not working in that operating company is that you don't want a five year golden handcuff contract answering to a 20 year old MBA who has no idea how to run the business and is telling you that you were wrong. Right. You don't want that. The way that you force that on some other poor unsuspecting soul is that you have managers for each of those companies.

Yeah, but even if you still own it and one of those functional business leaders leaves, if you have somebody managing all of those functional leaders, they can drop down in an interim role and their job is to replace themselves so they can move back up. Does that make sense? What that ensures is that you don't have to do it. And we see this happen a lot of times with holding companies because they don't have any duplication of roles at the parent company level coaching those folks, there's no one to step in when they leave. And so they just very quickly have to scramble to try to hire somebody new. It's not a great way to hire someone when you got a massive vacuum to have somebody step in, do it on an interim basis so you can take that important critical hiring process slow. That's, that's a far, far better way to do it. So make sure that you have managers for your managers. Rule number seven, last rule. You got to ritualize the masterminding between business units. We had this beautiful vision when we had this holding company that all of our heads of marketing and growth, that they would all meet regularly and they would share ideas with one another, that our GMs would share ideas, that our CSMs would do it. And I remember one time, because Roland and I have generally different portfolio responsibilities. So there's companies in our portfolio that he's primarily responsible for and looking at, and there's ones that I'm mostly looking at. You'll see this. If you have partners, some will kind of more look at other things, some will look at others and you'll sort of share ideas. And he and I'll talk. I'll be like, hey, what's new? What's cool? And he'll tell me about this amazing new marketing strategy that one of our holding companies over here just executed that crushed it, made $100 billion. And I'm thinking to myself, oh my God, that's so cool. He's like, yeah, yeah, we've been doing it all year. I had no idea. Well, surely this person talked to this one, right? I would think so. Go back to him. Hey, did you know they were. Nope. Never heard of it. Had no idea.

Fortunately, it would never be a year before I did that because we do like to compete friendly, like with each other in sharing those things, you know? Well, the companies that I'm running just did that.

How did yours do?

But. But we talk all the time and our teams don't. They don't. If we just hope they will.

Yeah.

So that's what you're.

And it's not that they're hoarding information and it's not even that because we've had, you know, we try not to create a culture of extreme competition between different companies and different industries. Maybe that's something that you want to do. We don't necessarily try to do that in our org. The problem is they're just busy and they're busy and they're focused on their own thing. And so what you need to do is you need to ritualize. You need to ritualize the masterminding of your functional business units. So one of the reasons that we had digital marketer create a marketing mastermind is so that four times a year there was a place where all of our marketers, across all of our portfolio companies, could go and. And share ideas because I got sick and tired of learning about stuff or this person over here not doing something that somebody else is doing that would work. Like, I believe that synergy and the sharing of resources doesn't work. And it's not the sharing of Ideas should.

And it's not that they could go, it's that they must go.

Yeah.

And so that's part of their job description. It's part of the sops of the company. So that's what he means by ritualizing. Make it. It's part of your job to do this.

It's not an option. Yep, we have a number of founders board members and they're members, but they don't go. They're founders board members, but they, they invest in multiple memberships for all of their portfolio company CEOs and they send them. They might pop in for a day or they might meet the day before, but they will use the founders board mastermind as the cadence to share ideas with each other and get them from other folks as well. So it's a really great way to use it. But again, whether you ritualize it and create the rhythms around one of our groups or create your own, it needs to be a ritual. It needs to be something that people just do. If you make it optional, if you encourage it, if you create a shared slack group. We tried that. That didn't freaking work either. You've got to set aside the time. You got to set aside the time. And when they're at the group now, they compete who's got the best, coolest idea. And if they know that they're going to be competing for your favor, for valuable prizes, they'll go nuts. And they'll make sure that they actually do cool and new stuff because nobody across any of your holding companies is going to want to show up at that mastermind meeting with nothing new to talk about. Okay, so those are the seven rules of portfolio. Being a portfolio entrepreneur, having a holding company, all those rules. There's lots of other details and nuance that we can get into in the Q and A in terms of structuring and things like that. Those are the hard earned lessons that have literally cost us tens of millions of dollars. So if nothing else, if those seven things don't at least save you a lot of money, a lot of heartache, I'll feel like we did our job.

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