I Make $50M/year Buying & Running Boring Businesses

0:00:05 So that was the first Golden Goose, and then you said you started stacking geese like a rapper, you know, at the club.
0:00:06 So what’s the second geese?
0:00:08 I hope that becomes a term that we can use stacking geese.
0:00:09 Yeah, stacking geese.
0:00:10 We got to get some shirts, baby.
0:00:11 Goose over merch, baby.
0:00:12 Hey, merch guy.
0:00:25 So Brent runs Permanent Equity.
0:00:27 You started off as a founder.
0:00:29 You started buying companies.
0:00:32 And you then started raising money to buy companies.
0:00:35 So you raised like something like 50 million bucks for your first fund.
0:00:37 You started buying companies with that.
0:00:41 Then a couple of years later, you raised about $250 million to buy more companies.
0:00:49 And now you own, I don’t know, something like 16 companies that do over $350 million a year of revenue.
0:00:56 And I believe what you said was $50 million of free cash flow out of the portfolio now, which is pretty incredible.
0:00:57 So that’s who you are.
0:00:58 That’s what you’re bringing to the table.
0:01:00 And I think, Sam, what do we want to go with this?
0:01:02 Because we could ask you about buying businesses.
0:01:06 I have some questions around that, but I kind of want to start with something light before we go into like,
0:01:09 “Hey, can you teach me how to be private equity, please?”
0:01:11 Yeah, we can do the light stuff.
0:01:17 You also, you’ve got the, we call it the all shucks, Warren Buffett attitude, where you’ve got a list of one-liners.
0:01:19 You write amazing annual reports.
0:01:20 You’re a great writer.
0:01:23 So we have a bunch of one-liners that we want to ask you about as well.
0:01:24 Sounds good.
0:01:27 What, can you tell me what’s the, what do you buy and what are the biggest companies?
0:01:29 Do you buy like pool companies and HVAC companies?
0:01:34 Yeah, I mean, we typically, we’ve got everything from a children’s clothing brand to a military recruitment firm,
0:01:37 to manufacturing, construction, business services.
0:01:38 I mean, it’s really the 16 companies.
0:01:42 It’s a, you know, it looks like the island of misfit toys.
0:01:46 For us, they’re, they’re companies that we love the people who we get to work with.
0:01:48 They’re in industries that we feel like are not going to be changing.
0:01:51 And we can talk about how some of them maybe look like high change,
0:01:55 especially like the children’s clothing would seem high change on the surface,
0:01:57 but it’s actually not.
0:02:00 And yeah, we try to partner with them for a long time.
0:02:02 What’s the biggest one in terms of revenue and profit?
0:02:04 Let’s see, our, in terms of revenue and profits,
0:02:08 probably our fencing business out of Dallas, Texas is probably the largest.
0:02:12 So we, we have a big market share in the, in the Dallas market.
0:02:16 And yeah, it’s a, it’s a, it’s a pretty sizable business.
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0:02:51 I was going to ask you a similar question.
0:02:55 Like, you know, people are always like, you can’t pick a favorite kid.
0:03:00 And as an investor, you can, you have this portfolio and like some are better than others.
0:03:01 And that’s okay.
0:03:05 It would be weird if all of your companies were equally successful investments.
0:03:06 I wouldn’t believe you.
0:03:09 And so what’s like the golden goose for you?
0:03:12 So which one is like, like, I know in my portfolio, right?
0:03:15 I have like, I have like a mini version of what you do where we have like four or five companies
0:03:18 that we kind of have either bought or own a big stake in.
0:03:24 And I could tell you, I’d be like, oh, this is like for us, like the somewhere.com business was like my golden goose.
0:03:29 Partly because I got in on a great price, but also the business tripled since we bought it.
0:03:32 And it’s just this business that just spits out cash flow.
0:03:36 And it’s like the market keeps growing for this people need this.
0:03:38 And so for us, that’s been the golden goose.
0:03:41 It just keeps laying a golden egg every single month for us.
0:03:43 What’s the golden goose in your portfolio?
0:03:48 Oh, we’ve been fortunate to actually like we’ve kind of stacked golden geese on one another.
0:03:49 That is how I would describe it.
0:03:56 So the very first business I bought is called Media Cross is a military recruitment firm bought that in very early 2010.
0:03:57 Explain in layman’s terms.
0:03:59 What does that even mean military recruitment firm?
0:04:00 What’s happening?
0:04:00 Yeah.
0:04:04 So we at the time worked with two branches of the military.
0:04:06 Now we work primarily with one.
0:04:07 We had two contracts.
0:04:15 One was to recruit civilian mariners into a division of the Navy called military seal of command that resupplies the ships that never came into port.
0:04:20 So it’s about 1400 to 1800 civilian mariners a year or recruited into that division.
0:04:21 That’s our responsibility.
0:04:27 So we do all of the marketing and recruitment efforts and then the processing to bring them into that branch of the military.
0:04:30 Does that mean like you’re out you’re out on the street with people?
0:04:33 Or does that mean you’re running ads and you own like a lead gen website?
0:04:34 All of that stuff.
0:04:36 Yeah, but we’re doing we’re doing lead gen.
0:04:38 We have a whole processing center.
0:04:40 We’re actually doing qualifications for these people.
0:04:43 So it’s a complete soup to nuts operation.
0:04:48 And the government just pays you per recruit or how does that work?
0:04:54 Yeah, we’re on a fixed contract that escalates every year based on the staffing and needs of the business.
0:05:01 So we it’s basically a staffed contract and then we have sort of a built-in profit margin that’s on top of that.
0:05:04 What do you get per recruit or per referral for one of these things?
0:05:07 Oh, gosh, I don’t even know because we’re not we’re not based on that, right?
0:05:13 So we’ve done this for the contract is we’ve had it as a business for 30 years now.
0:05:14 It’s been forever.
0:05:18 And I mean, we’re so deeply embedded into what they do.
0:05:19 We know exactly what it takes.
0:05:23 We I mean, we are the outsourced function of that piece of the military.
0:05:25 And why is that business great?
0:05:27 Is it because you got this cash flow, but you have this contract.
0:05:31 You have the certainty and defensibility with that.
0:05:32 Is that what’s great about that?
0:05:33 Yeah, yeah.
0:05:38 I mean, so like for the most part, we know what our profitability is going to be in three years from now, right?
0:05:41 And so once you get that business optimized and you get great people in place
0:05:46 and the leader of that business we’ve had, I mean, she’s been with the business since the very beginning.
0:05:48 So we’re 15 years into the relationship.
0:05:50 She’s doing a great job and it just it clicks.
0:05:55 So that was that was I would call the original Golden Goose that allowed me to pay back the SBA.
0:05:58 I’ve heard you say you accidentally bought your first business.
0:06:00 Is that what you meant when you say you actually what does that even mean?
0:06:01 How do you accidentally buy a business?
0:06:05 Yeah, I got a call from a guy and he was like, hey, I want to introduce you to this guy.
0:06:07 He’s it’s your he’s in your industry.
0:06:14 You know, he said marketing marketing because I’d launched a call it an ad agency for all intents and purposes before then.
0:06:15 And he was like, hey, he’s in your industry.
0:06:17 She gets to know him and I said, OK, great.
0:06:22 And he’s like, oh, by the way, the guys he’s got left at the altar for the second time trying to sell his business recently.
0:06:25 And I was like, oh, OK, I guess I could take a run at it.
0:06:26 I had no idea what I was doing.
0:06:30 I was 24 at the time.
0:06:31 No idea what I was doing.
0:06:36 And I sat in front of this guy and and you know, we talked about it and we negotiated and he said,
0:06:38 I would never sell it to you for the price you asked for.
0:06:39 And I was like, that’s fine. No problem.
0:06:41 And I didn’t talk to him for seven months.
0:06:45 And then seven months later, he called me up out of the blue and said, just renewed our largest account.
0:06:47 Business is in great shape.
0:06:48 I’m exhausted.
0:06:49 I’ll give it to you for the price you asked for.
0:06:52 But you got to close all cash 60 days from now.
0:06:57 And it was one of those where you kind of like you make the sale on the go down the elevator and you say, oh, shit.
0:06:58 It was it was like that, right?
0:07:01 And I remember getting off the phone and I was like, oh, crap.
0:07:03 Like I just obligated myself to go buy like buy a business.
0:07:05 I have no idea what I’m doing.
0:07:07 Did you know anything about digital marketing?
0:07:07 Oh, yeah.
0:07:10 I mean, we had we had we did digital marketing work back then.
0:07:11 You have a marketing agency.
0:07:14 You stumble into this business.
0:07:17 You’re like, maybe somebody tells you there’s a chance to buy it.
0:07:18 You’re like, all right, I could try.
0:07:20 He says no to the first price.
0:07:21 He comes back.
0:07:22 You’re not even following up.
0:07:25 He comes back and says, hey, still interested, but you don’t have a lot of money.
0:07:26 You’re 24 years old.
0:07:29 So you go to the SBA and you get an SBA loan for this thing.
0:07:30 Yeah, correct.
0:07:33 Yeah, I asked my newly married wife to sign a personal guarantee and she was like, what’s that?
0:07:34 And I was like, God, don’t worry about it.
0:07:35 A big deal.
0:07:36 You’re like, good news and bad news.
0:07:39 Good news, no prenup, but you do have to sign this other thing.
0:07:40 Yeah, exactly.
0:07:42 She was like, what happens if this doesn’t go well?
0:07:43 I was like, it’s probably not going to be great.
0:07:45 Um, so yeah.
0:07:47 So somebody’s never done an SBA loan.
0:07:48 What can you explain?
0:07:50 Just like you put down X, you get Y.
0:07:52 What’s how it all works.
0:07:52 Yeah.
0:07:55 Back then, um, so the requirements have changed a little bit.
0:07:57 I think it’s like five or 10 percent you have to put down now.
0:08:00 And I think you can actually qualify with seller financing.
0:08:01 I’m not an expert anymore on the SBA.
0:08:06 I’ve only done the SBA one time and that was literally 15 years ago back then.
0:08:09 What I did was I count, uh, leveraged the accounts receivable from the existing
0:08:13 business as the down payment and then got the rest of the debt through the SBA.
0:08:16 And so, I mean, I put very little cash into the deal.
0:08:18 So you put basically zero down.
0:08:24 I mean, it was a, it was a lot of my, my money, but it was just tied up in other assets.
0:08:28 But yes, I mean, in terms of actual cash that was coming out of my pocket was not a lot.
0:08:29 I didn’t have a lot of cash.
0:08:34 Um, and so, um, yeah, I ended up asking my buddy at the SBA.
0:08:35 It was, it was part of an SBA lender.
0:08:38 I said, Hey, do you guys do like expedited SBA loans?
0:08:40 And he was like, not really, uh, we don’t do that.
0:08:42 And I was like, well, I need it in 60 days.
0:08:43 And he was like, that’s really not possible.
0:08:45 And I was like, can we make it possible?
0:08:46 Like let’s try.
0:08:49 How much, how much are you talking that you had to borrow?
0:08:50 It was a million bucks.
0:08:51 Yeah.
0:08:51 It was a million dollars.
0:08:57 And was this like your C’s candy, like Buffett bought C’s candy and it’s returned like
0:09:01 a billion dollars in free cash flow or more than that to the, to the headquarters over
0:09:03 the last whatever 50 years or whatever it’s been.
0:09:05 It’s, it’s, it’s like a 20 Xer.
0:09:06 Yeah.
0:09:07 So that’s amazing.
0:09:09 So that was the first golden goose.
0:09:13 And then you said you started stacking geese like a rapper, you know, at the club.
0:09:14 So what’s the second geese?
0:09:16 I hope that becomes a term that we can use.
0:09:16 Yeah.
0:09:17 Stack and geese.
0:09:19 We got to get some shirts.
0:09:24 Hey, merch guy, you know, like Rogan has like Jamie.
0:09:27 I kind of have this like fictional studio in the room.
0:09:28 I’m like, pull that up.
0:09:30 Hey, much guy, get on that.
0:09:30 Like there’s nobody here.
0:09:31 Merge guy, yeah, yeah.
0:09:32 Merge guy.
0:09:35 Um, yeah, I mean, I knew, I knew so little back then.
0:09:38 I remember my lawyer said, okay, we got to start due diligence.
0:09:40 And I literally typed into Google D O diligence.
0:09:42 Like due to like, I had no idea what it was.
0:09:45 Um, and I was, I was like reading about it as he was talking to me.
0:09:46 I was like, Oh yeah, we just asked questions.
0:09:47 Like how hard can that be?
0:09:51 Um, so anyway, uh, it was quite the adventure.
0:09:53 That’s amazing.
0:09:57 Yeah, another, another anecdote on that deal was a week before closing.
0:10:02 I said, okay, so I take all of my money and I give it to you.
0:10:03 You take all the money out of the business.
0:10:04 Like how do I make payroll?
0:10:08 And the guy was like, well, you obviously got a line of credit on the
0:10:08 business, right?
0:10:11 And I was like, no, I didn’t, I didn’t do that.
0:10:14 And he was like, well, the business is going to go under immediately.
0:10:16 And I was like, yeah, that’s not good.
0:10:17 What do we do?
0:10:20 And he was like, well, you got to figure this out because you’re getting
0:10:21 ready to close on the business.
0:10:23 And I was like, can I get a loan from you?
0:10:28 So he actually lent me money to, as a line of credit to keep the business operating.
0:10:30 Cause I didn’t even, I didn’t even think about it.
0:10:32 I didn’t think about like, Oh, well, he’s going to take all the money and
0:10:34 there’s not going to be any cash to operate the business.
0:10:38 I was, um, I was with this guy this weekend and he was like, Hey, should
0:10:39 I start my own business?
0:10:40 You know, I’m 28.
0:10:42 I don’t think I have enough experience though.
0:10:45 And I was like, yeah, I’m pretty sure like a lack of experience isn’t like,
0:10:47 hasn’t stopped a lot of people.
0:10:50 Uh, you can kind of be like a kind of a dummy and get into it.
0:10:53 And you’ll probably learn in like six months and you are a good example of
0:10:53 that.
0:10:55 You don’t really need to know much.
0:10:56 Huge dummy.
0:10:57 Exactly what I think about myself.
0:11:02 And like the lean manufacturing part, uh, like kind of philosophy, they
0:11:04 have this idea of like just in time, right?
0:11:07 You, you, you do things just in time versus doing everything ahead of time.
0:11:10 And so just in time learning is basically what you did.
0:11:12 It’s like, Oh, when I need to close, then I figure out what due diligence is.
0:11:16 Then when I need to take over the business, I learned what working capital is.
0:11:19 And you just, you learned each of the core concepts as you needed them,
0:11:22 which is actually the real way that people learn rather than I’m going to
0:11:23 learn everything up front.
0:11:26 Then I’m, then I’m fully prepared to now to go do this.
0:11:29 And like in reality, that’s not how, how life works.
0:11:29 Yeah.
0:11:31 And sometimes it doesn’t work out.
0:11:34 And I, you know, I joke that I’m a force come private equity for a reason.
0:11:34 So.
0:11:35 What else do you own?
0:11:36 That’s awesome.
0:11:37 Yeah.
0:11:40 So the next business we bought, uh, was a, as a pool business out in Arizona.
0:11:44 Um, and that was, uh, just with, uh, again, started occurring cash and, um,
0:11:46 started building that up and, and bought that business.
0:11:49 And again, that one turned out to be, uh, uh, great investment as well.
0:11:53 You say, you say that nonchalantly like, Oh, a pool business, but it’s also like,
0:11:54 dude, that would be really random.
0:11:55 I don’t think about pool businesses.
0:11:57 Nobody shows me a pool business.
0:11:57 So what were you doing?
0:11:59 You’re talking to brokers.
0:12:00 Where does that deal come from?
0:12:02 Like for you at that time.
0:12:03 Yeah.
0:12:04 So it was about, so let’s see.
0:12:08 So I had no idea I was doing after I bought the business, the meaty cross in 2010.
0:12:09 I was like, Oh, that worked.
0:12:12 Uh, I should do more of what works and less of what doesn’t at the time.
0:12:15 There wasn’t a lot of writing on the internet about this.
0:12:18 Um, so I mean, there was a little bit of, uh, stuff out of the Harvard,
0:12:21 a little bit out of Stanford around search funds, but there was very little
0:12:22 activity online.
0:12:24 And so, uh, I was like, well, I just need to ask ground was like,
0:12:26 are there other people doing this?
0:12:29 I didn’t even literally know that there was a thing called private equity.
0:12:30 That’s how little I knew.
0:12:33 I mean, I started, somebody was like, Oh, you did a private equity deal.
0:12:34 And I literally Googled private equity.
0:12:37 And I was like, turns out there’s a whole industry of people to do this.
0:12:38 Like, why would they not do it?
0:12:40 Like in smaller companies.
0:12:42 And, uh, that was my foray into it.
0:12:46 And so at that point we said, okay, well, if we’re going to go find other
0:12:47 businesses, I mean, how hard can it be?
0:12:48 This one just came to us.
0:12:51 There must be just tons of businesses out there just floating around ready
0:12:53 to be, uh, ready to be bought.
0:12:56 And so we started reaching out to people and developed deal pipeline.
0:12:59 And one of the deals that took us so that, that pool deal we first
0:13:02 saw in 2012, I want to say.
0:13:05 Um, and it took us about three years to get the deal done.
0:13:09 And, um, it was just hanging around the hoop and they actually went
0:13:13 with two other buyers before us and ultimately had a good relationship with
0:13:17 them and so the time between deal one and deal two was three years.
0:13:19 It was, uh, five years.
0:13:22 Sean, isn’t it crazy how long things take?
0:13:24 Like Brent’s like a Brent’s a big shot right now.
0:13:26 Like, you know, people know you and you like, you’re talking
0:13:28 about hundreds of millions in revenue.
0:13:31 But you started this in like 16 years ago.
0:13:35 Like that’s a, I mean, it’s a huge success and everything, but it like
0:13:39 really goes to show you that like you have to grind for, or at least
0:13:41 be consistent for a decade plus.
0:13:42 Oh, absolutely.
0:13:45 No, I mean, I, I say to people all the time, like if I had been given
0:13:49 $50 million to invest in like 2010, I like, I would have lost all the money.
0:13:53 Like it just took so long to build up, like to make a bunch of mistakes,
0:13:56 make a bunch of mistakes that were low stakes, felt like high stakes
0:13:59 at the time that were low stakes, uh, in order to be able to, to, to warrant
0:14:00 having more resources.
0:14:02 And so yeah.
0:14:05 So at some point, somebody did give you $50 million.
0:14:07 How’d you get somebody to give you $50 million to go by companies?
0:14:08 Cause I’d like that.
0:14:09 Yeah.
0:14:11 Uh, well, so, uh, funny story.
0:14:16 I met this guy named Patrick on the internet and, uh, literally he put out a
0:14:17 tweet, Patrick or Shaughnessy put out a tweet.
0:14:20 And this is when he was like an analyst at, at his dad’s firm.
0:14:22 And he put out a tweet about capital allocation.
0:14:23 I responded.
0:14:25 I was like, yeah, I can hop on the phone and talk about capital allocation.
0:14:27 I didn’t really understand when he was even asking.
0:14:30 He was asking about public markets, like capital allocators
0:14:32 and public markets, but I, I didn’t know much.
0:14:34 And so I just reached out and said, yeah, sure.
0:14:34 Let’s talk.
0:14:36 We get on the phone and he’s like, so what do you do?
0:14:38 And I was like, Oh, I buy these, these small businesses.
0:14:39 He’s like, well, how much do you pay?
0:14:42 And I was like, I don’t know, like between three and five times.
0:14:43 And he was like, what?
0:14:46 Like, are these businesses going out of business?
0:14:49 Like, are these, are these going under or these distressed?
0:14:50 I was like, no, these are healthy businesses.
0:14:51 And he’s like, I’ve never heard of this.
0:14:52 What is this?
0:14:54 And so we talked like two or three more times.
0:14:57 And then he said, well, can I come visit you in Columbia?
0:14:58 And I said, sure.
0:15:00 So he flew to Missouri and we spent a day together at the end of it.
0:15:03 He said, like, I want my family to invest in what you’re doing.
0:15:04 Like, I believe in what you’re doing.
0:15:07 And I said, sorry, like, we don’t take outside capital.
0:15:10 Like, I’m not going to do a two and 20, 10 year fun life.
0:15:14 Looked at that, don’t want to do a holdco and value the current assets and,
0:15:17 you know, get saddled with a bunch of partners that don’t know who they are.
0:15:18 Like life’s good.
0:15:22 Like we’re making a bunch of money and compounding and like everything’s fine.
0:15:24 And he asked me the question.
0:15:28 No one else had asked me because we flirted with some family offices to that point.
0:15:32 And and he said, well, what would it take for you to take our capital?
0:15:35 And I said, well, I don’t know.
0:15:37 And he said, well, why don’t you figure that out and get back to me?
0:15:38 And I’ll tell you if we can do it or not.
0:15:42 And so I whiteboarded out our current structure, which is like kind of
0:15:43 the opposite of traditional private equity.
0:15:46 So we take no fees of any kind, no reimbursements of any kind.
0:15:51 There’s no cash that comes from the portfolio companies or from the LPs to the GP.
0:15:55 Outside of we take a percentage of free cash flow above a hurdle as we return cash back.
0:15:58 You got to redo that last 20 seconds.
0:15:59 Can you dumb that down a little bit?
0:16:01 I got you, Sam.
0:16:05 He’s the guy working in Cinnabon that doesn’t touch any of the Cinnabons.
0:16:08 So he’s in an industry where everybody’s like feeing up everywhere.
0:16:11 They’re just getting high on the sugar and he’s like, I’m good.
0:16:12 I don’t need that.
0:16:18 Can we only do Cinnabon references or analogies because that was much easier.
0:16:20 They’re talking about hurdles and sprinting and whatever.
0:16:25 Yeah.
0:16:26 Well, so okay.
0:16:33 So traditional private equity, you raise a fund and you get 2% of the amount every year and 20.
0:16:35 Every year, by the way, you get 2%.
0:16:38 So which is actually like getting 20% of the total.
0:16:39 Correct.
0:16:40 Every year for 10 years.
0:16:41 Which is kind of insane, right?
0:16:42 It’s insane.
0:16:47 I mean, people in private equity get paid well because it’s hard to do and not many people can do it.
0:16:48 And it’s a rare skill set.
0:16:53 And yeah, I mean, it seemed high to me when I first looked at it, but I was like, okay.
0:16:54 Well, that’s the market for it.
0:16:55 So whatever.
0:16:59 And I said, I don’t need the fees because I’m already paying for the team and the overhead and everything.
0:17:01 And so I don’t need the cash flow from the fees.
0:17:03 Just I want it to be entrepreneurial.
0:17:06 If we make money, like we want to share in that making it together.
0:17:11 And so that’s our model and we don’t use debt and we hold it for a very long time.
0:17:13 So we have a 30 year initial term on our capital.
0:17:22 Typically a private equity firm will have 10 years and most private equity firms, you know, use a lot of leverage, put a lot of debt on the businesses at closing.
0:17:23 We typically use no debt.
0:17:27 And so we’re kind of in some ways the opposite of traditional private equity.
0:17:29 And yeah.
0:17:32 So I went back to him and I said, Hey, this is the structure that I think would work that we would take capital.
0:17:35 And he and Jim, his father said, okay.
0:17:36 Wait.
0:17:36 So I think I missed it.
0:17:38 What, what did you do as the carry then?
0:17:43 So you said, okay, no, no, no on the 2% fees, but what did you do for the profit share?
0:17:44 Yeah.
0:17:50 So we get 40% of the, of the free cash flow of businesses as we return it back to the investors.
0:17:53 So you don’t, you don’t have to return all the money upfront first.
0:17:55 You just start participating from day one with 40%.
0:17:56 Correct.
0:17:57 Correct.
0:17:58 But it’s only on what we returned back.
0:17:59 Only on what you returned back.
0:18:00 Okay.
0:18:00 Great.
0:18:02 And then you said you use no debt.
0:18:04 Correct.
0:18:04 Yep.
0:18:05 So these are completely unlevered.
0:18:09 They’re buying all cash, all cash deals using equity from day one.
0:18:10 Why don’t you use like a little bit of debt?
0:18:13 Probably like a little bit of debt.
0:18:13 Yeah.
0:18:16 Just, just, just a little bit of debt.
0:18:16 It’s not a big budge.
0:18:19 Just, just a little icing on top of the Cinnabon.
0:18:19 Yeah, exactly.
0:18:20 Just this one time.
0:18:24 You don’t even do seller notes like nothing.
0:18:26 We will occasionally do some seller notes.
0:18:31 Although we found that having the people that you work with be your creditors is not an
0:18:33 ideal situation often.
0:18:35 So we’ve really shied away from that as well.
0:18:36 Yeah.
0:18:40 No, we typically just close all equity and try to keep things just super simple.
0:18:44 I mean, we think that, that, that transitioning small businesses is a difficult and it’s
0:18:45 pretty stressful on everyone.
0:18:49 We can always lever them up after, you know, after we close, although we haven’t really
0:18:49 done that.
0:18:52 And it’s that strictly like a lifestyle choice.
0:18:55 You’re just saying that just helps you sleep better at night.
0:18:55 Yeah.
0:18:59 Is it a financial decision or a peace of mind decision to not use debt?
0:19:00 I think it’s both.
0:19:05 What I would argue is that the optionality that we have in doing some pretty interesting
0:19:09 things with these businesses to grow them is much better when you don’t have debt,
0:19:12 when you’re not paying all the cash to, to a bank.
0:19:13 I’ll give you an example.
0:19:17 So we bought an aerospace business in 2019 called Pac Air.
0:19:20 And I don’t know if you guys know this, but the aerospace business never goes down.
0:19:23 It always just goes up in the history of the industry.
0:19:24 Never really has a problem.
0:19:29 And I remember when we were closing that deal, one of the advisors to the seller
0:19:30 said, are you guys idiots?
0:19:33 Like this business does never go down.
0:19:34 Why wouldn’t you guys lever the thing up with debt?
0:19:36 And we said, Hey, here’s our philosophy and all the stuff.
0:19:40 Well, it’s not like we actually knew what was coming down the pipe, but 2020 hits and
0:19:44 we were literally the only business out there without debt on it, like literally.
0:19:47 And so we were able to take all the cash flow that we were generating because we were
0:19:51 still generating cash flow, even though the business was down a lot, and we were able
0:19:53 to go out and basically make 10 years of progress in two years.
0:19:58 And that business now is seven-ish times the size is when we bought it.
0:20:02 And everyone else that had debt is, you know, maybe grown a tiny bit out of
0:20:04 from 2019, but not much.
0:20:06 And so it’s really been a transformative experience.
0:20:08 We’ve had that happen over and over again in these businesses.
0:20:11 Like we never know what the future is going to hold, but we know that there’s going
0:20:14 to be options to invest in really interesting things.
0:20:16 If the cash flow is all going to the bank, you don’t have that option.
0:20:18 Right, right.
0:20:20 I’m going to still use a little bit of debt, but I think that’s good.
0:20:22 Can I ask one question?
0:20:22 Never hurt anybody.
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0:20:32 I feel this way about you and so many people that have come on this podcast where
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0:20:36 Like that person’s a master of what they do.
0:20:37 They’re kind of a master of the universe.
0:20:38 This is great.
0:20:40 And it’s so easy.
0:20:44 And it’s so easy, but I and forget the easy part for a second.
0:20:46 I’m just like, wow, that really works.
0:20:47 And it makes sense what they said.
0:20:52 They’re, they’re kick-ass my friends.
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0:21:36 All right.
0:21:37 Back to the episode.
0:21:41 And then if you look at people over like a 20 year period or
0:21:43 you know, like a longer period, 10 to 20 years.
0:21:47 There’s this base question which is like, if you just put money
0:21:49 in the S&P, you get some rate of return, right?
0:21:53 So like Sam loves to put money into the index and he’s like,
0:21:54 cool.
0:21:57 I like that because I do no work and I’m going to get, Sam,
0:21:57 what do you want to get?
0:21:58 Eight, nine percent, something like that.
0:22:00 I would be very happy with eight percent per year.
0:22:01 Okay.
0:22:02 So eight percent a year.
0:22:04 And so to be smart and do a bunch of work, you got to beat
0:22:05 that.
0:22:08 And so we’ve had people come on this podcast that when they
0:22:10 talk, they sound absolutely brilliant.
0:22:13 And then later you look at their returns and it’s like,
0:22:16 oh, they kind of don’t beat the index actually.
0:22:19 And I don’t even think that’s really like a knock on them
0:22:21 or I don’t even view that as like, they’re not like a
0:22:22 Charleston.
0:22:24 I just think it’s really hard to beat the index actually.
0:22:27 So what do you try to do in terms of like your rate of
0:22:30 return and what, what’s your score?
0:22:33 So if the S&P is doing nine percent of your compounding,
0:22:35 what are you doing out of, out of permanent equity?
0:22:36 Yeah.
0:22:39 Well, so I’m under all kinds of SEC regulations.
0:22:42 So I can’t actually talk a ton and I would love to talk
0:22:44 about that, but I can tell you what’s been put in the
0:22:45 letters or annual letters.
0:22:47 What are you not, what are you not allowed to say?
0:22:49 I can’t say anything that would be future looking.
0:22:51 I can’t say anything that would be inducing investment.
0:22:53 I can’t say anything that, that would be considered
0:22:57 marketing because we’re like top level registered SEC,
0:22:59 FINRA, all the stuff.
0:23:00 And what if we bleep it out?
0:23:01 What if you tell us and then we bleep it out?
0:23:02 So it’s not, it’s not on air.
0:23:03 Just tell me what to stop.
0:23:05 Yeah, yeah, yeah.
0:23:08 So, so what I can, yeah, here’s what I would say.
0:23:12 So we, we target the minimum underwriting that we have is
0:23:16 we target a minimum of a 30% IRR is, is minimum we
0:23:18 underwrite to, and we’ve historically been pretty
0:23:19 significantly above that.
0:23:20 Okay.
0:23:23 Um, but, um, you know, we really think about term things
0:23:24 in terms of cash, right?
0:23:27 So I think it was last year that we talked about, uh, you
0:23:31 know, our total cash out IRR is in the low twenties and
0:23:32 that’s without any marks.
0:23:33 That’s without anything.
0:23:35 So you, you know, you stack marks in the growing, obviously
0:23:37 cash flows on top of that and the numbers get pretty
0:23:40 ridiculous marks being, uh, the valuation, the valuations
0:23:41 of the business.
0:23:41 Yeah, that’s correct.
0:23:43 And so, I mean, if you, if you underwrite, I mean, if you
0:23:46 think about it, like kind of the bottom line, if you’re
0:23:47 buying a business with no debt, right?
0:23:49 So take the debt side off of it.
0:23:51 You just buying the business for all cash and you know,
0:23:55 let’s say on average, we’re paying between five and seven
0:23:57 times for a business kind of in that range.
0:24:01 And let’s say that the business is organically growing 7,
0:24:05 10% per year and we’re increasing that to, uh, start
0:24:08 to call it mid teens a year, maybe low twenties.
0:24:12 Um, the math gets pretty amazing pretty fast and that’s
0:24:13 without using any debt.
0:24:15 And so I think that’s where it’s obvious from the outside
0:24:16 looking in.
0:24:17 There’s gold in the hills, right?
0:24:20 If you look at small businesses acquisitions, I mean,
0:24:21 this is not a secret anymore.
0:24:24 I think when I first started talking about it in 15, 16,
0:24:25 right?
0:24:27 I remember going on Patrick’s podcast when it was brand
0:24:28 new, I remember Patrick being like, oh, hey, I’m thinking
0:24:29 about starting a podcast.
0:24:30 I was like, yeah, sure.
0:24:31 I’ll help a friend out.
0:24:33 Had no idea was going to turn into what it is, right?
0:24:35 Uh, but I remember going on there and people were like,
0:24:37 shocked, you know, at like what you could buy these
0:24:38 businesses for.
0:24:39 And people say, oh, well, that’s not fair.
0:24:42 It’s an inefficient market is, is inefficient, but it’s
0:24:45 inefficient for different reasons why people think it’s
0:24:47 inefficient, not because people are getting taken advantage
0:24:47 of.
0:24:50 It’s inefficient because it’s absolutely freaking brutally
0:24:52 difficult and it’s so easy to lose a bunch of money.
0:24:56 Like I had a guy reach out last week and say, Hey, I want
0:24:56 to be honest.
0:24:57 I’m looking for a job.
0:24:58 My wife and I went all in.
0:25:01 He was working at a big private equity firm based out of LA
0:25:02 as an operating partner.
0:25:05 He and his wife went all in on a business and it failed.
0:25:07 And now they’re bankrupt.
0:25:11 What attributes make you and others like you successful
0:25:13 versus this other guy, not successful?
0:25:17 Yeah, I mean, I think the, the, in the beginning, if the
0:25:21 first deal I had done gone south, um, and there’s plenty
0:25:22 of opportunities for it to go south.
0:25:25 And so I would say a lot of our success is, is attributable
0:25:26 to luck in the beginning.
0:25:28 And I mean, look, if you listen to any investor, if they
0:25:31 tell you that the early stuff they did wasn’t lucky, they’re
0:25:32 lying to you.
0:25:35 Um, I mean, I remember, uh, getting a chat with a Buffett
0:25:38 about this and I said, Hey, tell me about sand board maps
0:25:39 and Dempster Mill.
0:25:40 And he was like, Oh my gosh.
0:25:43 Like he’s like, if either of those investments go wrong,
0:25:44 there is no Warren Buffett.
0:25:46 No one knows about Berkshire Hathaway.
0:25:47 None of that stuff happens.
0:25:47 Right.
0:25:48 And they were that close.
0:25:51 Like that’s how he met when he met Munger.
0:25:53 He asked Munger, Hey, do you know anybody who could help
0:25:56 help basically turn around Dempster Mill because it’s, it’s
0:25:57 flailing.
0:25:59 And if that goes under, like my future’s done.
0:26:01 Wait, can you, can you, I don’t know the story.
0:26:03 Can you tell the story in more detail?
0:26:06 So Warren Buffett almost failed at the beginning of his
0:26:07 career.
0:26:07 What, what was it?
0:26:08 Can you tell the story?
0:26:08 Oh yeah.
0:26:12 So he had 70% of his assets into these two investments.
0:26:14 One was called sand board maps and the other was called
0:26:15 Dempster Mill.
0:26:17 Um, and this is early days of the Buffett partnership.
0:26:19 So this is pre Berkshire Hathaway.
0:26:20 What do those two companies do?
0:26:23 So sand board maps was a, was a mapping company.
0:26:27 Um, they basically had, uh, at the time, the thing about
0:26:30 this intellectual property for, for maps, right?
0:26:32 If you needed to go build something or if you needed to
0:26:35 navigate something, they had all the best mapping technology.
0:26:40 Um, and so, um, that business was a publicly traded business
0:26:43 and, uh, I think he was a minority shareholder in it,
0:26:44 but he was basically the controlling shareholder.
0:26:48 That one, um, I think turned around independent of him
0:26:51 installing new leadership, but Dempster Mill was a completely
0:26:51 different story.
0:26:53 He, he bought into that to control of it.
0:26:56 Um, and the business was just flailing.
0:26:58 So Dempster Mill, I can’t remember exactly.
0:27:02 I think they were building constructing, um, mills, uh, of
0:27:04 some sort, uh, hence the name Dempster Mill.
0:27:07 And, um, it was basically the biggest headache and he was
0:27:09 staring down the barrel like I did.
0:27:11 And I mean, I can talk about the early days, like we almost
0:27:12 failed like five different times.
0:27:13 So, sorry.
0:27:17 So he, he had 70% of his assets in these two companies, but
0:27:19 those were public companies where he’s just a passive investor
0:27:22 or he was like owned to the majority of those companies where
0:27:23 he could make a change in them.
0:27:24 Yeah.
0:27:26 So I think that he had, he may not have had a controlling
0:27:30 stake in, in, in Sanborn, but I know he had enough shares
0:27:32 where he could basically throw his weight around in that one.
0:27:34 Um, I think Dempster Mill, I think he actually did buy a
0:27:36 majority of it and have control of it.
0:27:38 And so those companies, they’re not doing well.
0:27:40 And you said he goes to Munger and asks him something.
0:27:41 Yes.
0:27:43 We just met this guy, Charlie Munger, uh, who had been back
0:27:46 into town in Omaha and he had kind of gotten a matchmaking
0:27:48 by a mutual friend who said, Hey, you guys are the two
0:27:49 nerdy dudes.
0:27:50 We know you should know each other.
0:27:53 It was like bromance, like love at first sight.
0:27:55 Uh, they get to know one another.
0:27:56 And I think it was actually Charlie who said, Hey, well,
0:27:58 like Warren, what’s your biggest problem you’re facing?
0:28:01 And he said, well, I’ve got these two, you know, problem
0:28:03 children, especially Dempster, you know, Dempster Mill.
0:28:06 And, uh, do you know anybody?
0:28:08 And, uh, Munger said, actually, I do know this guy.
0:28:12 His name’s Harry Bottle and he’s an accountant out here in LA.
0:28:13 We should go talk to him.
0:28:16 And so they took Harry Bottle lunch and pitched him on moving
0:28:20 his family to the middle of nowhere Midwest and, uh, running
0:28:24 Dempster Mill, Harry Bottle, uh, reluctantly agreed, turns it
0:28:27 around, makes Dempster Mill, uh, uh, uh, you know, a fortunate
0:28:29 surprise on the upside.
0:28:32 And, um, you know, again, he starts stacking geese.
0:28:37 As we talked about, so, um, everyone in the beginning.
0:28:41 I mean, look, you, you don’t, you don’t get to be successful
0:28:42 by not taking risks.
0:28:43 Like all investing is taking risk.
0:28:46 And so the question is just how much risk are you willing to
0:28:47 take?
0:28:49 And when you’re younger and you don’t have much, I mean, the
0:28:51 only way to get ahead is by taking more risk.
0:28:54 When you are doing all this research, are you an expert in
0:28:57 the pool business or are you just an expert in looking at
0:28:57 financial statements?
0:29:01 Are you an expert in understanding how leadership thinks and
0:29:02 how to find winners?
0:29:04 What are you great at?
0:29:07 I think I’m pretty good at seeing the big picture.
0:29:09 So taking all those pieces, like I’m not the best financial
0:29:10 analyst.
0:29:12 Uh, the joke is I can barely open up Excel.
0:29:13 Like I’m not an Excel guy.
0:29:15 I’ve never had the skill set and never learned.
0:29:16 I never worked at another, uh, firm.
0:29:19 Like I never took a finance class in my life.
0:29:21 So I don’t have a lot of the, what I would call like hard
0:29:24 skills that you learn as being an associate or an analyst at
0:29:24 a firm.
0:29:28 Um, you know, I think that I’m pretty decent at putting the
0:29:30 puzzle pieces together and then negotiation.
0:29:33 I, you know, I think, you know, and going back to Buffett,
0:29:35 he talks about, I’m a better investor because of an operator.
0:29:36 I’m a better operator because I’m an investor.
0:29:37 That’s true.
0:29:40 And I think operating and investing are two sides of it,
0:29:42 but I think there’s a third leg that’s not talked about a
0:29:44 lot, which is the dealmaking side.
0:29:48 Um, and I think that dealmaking side, especially as you get
0:29:51 into more inefficient markets becomes really the dominant
0:29:51 skill set.
0:29:54 So understanding how to put the puzzle pieces together and
0:29:58 like in that pool business, um, I saw a business that had a
0:29:59 clear track record of growth.
0:30:01 Uh, they were in a durable business.
0:30:03 I mean, you know, we, we kind of joke that, you know, until
0:30:06 people stop dipping their bodies in water for pleasure will
0:30:06 be fine.
0:30:08 It’s been happening for a couple of thousand years.
0:30:09 I think it’ll keep going.
0:30:12 Like we try to have these like very simple feces for everything.
0:30:15 And so if you look at somebody already has a dominant market
0:30:17 share in a market, they’ve had it for a long time.
0:30:17 The business is growing.
0:30:18 The market’s growing.
0:30:21 Um, you know, you look at the business model of it and you
0:30:24 say, okay, look, we’re an asset light business.
0:30:26 Um, they’re not investing in a ton of equipment.
0:30:29 It’s a very simple business model.
0:30:32 It’s fine customers that want pools, uh, do it better than
0:30:35 they could do it themselves and, and, and, and take a rip on
0:30:36 that on the upside.
0:30:39 You know, you start looking at, okay, who is the leadership
0:30:40 and how do you structure a deal and how do you make sure
0:30:42 everyone’s interests are aligned?
0:30:44 Um, how do you continue to find talent to build the business?
0:30:47 I mean, those are all, I, I say this, this is how to make
0:30:47 it sound simple.
0:30:48 It’s not simple.
0:30:49 It’s very difficult.
0:30:51 It’s just not complicated.
0:30:54 You gave one answer to the question.
0:30:57 I think the real answer just was based off of your, how
0:30:58 you’re answering it.
0:31:01 You are a, uh, really good storyteller.
0:31:05 You are very persuasive and you have, um, you’re, I could
0:31:08 just tell you’re a good leader because of how you dumb things
0:31:11 down to be relatively simple and easy to understand.
0:31:11 Right, Sean?
0:31:14 I mean, just him explaining that you’re like, oh, okay,
0:31:15 that’s you’re actually.
0:31:16 Yeah.
0:31:19 Like, uh, you don’t get stuck on the midwit mountain, right?
0:31:22 Like the middle, the middle part where it’s an over, over
0:31:25 analysis, over overthinking, over thesis out.
0:31:28 You know, you’re like, do I think the people are going to
0:31:30 stop dipping their bodies in water for pleasure?
0:31:30 Nope.
0:31:31 Exactly.
0:31:31 All right.
0:31:32 Cool.
0:31:34 Uh, you know, that’s great.
0:31:37 Do I think we’re going to get like, do I think tech, you
0:31:39 know, is AI going to take us out of the pool business?
0:31:39 Nope.
0:31:39 Okay.
0:31:40 Cool.
0:31:41 So this is an enduring business.
0:31:41 Great.
0:31:41 We got that.
0:31:44 Seems like this guy’s been paying himself a lot of money
0:31:46 every single year as the operator.
0:31:46 Great.
0:31:47 We’ll probably be able to do the same.
0:31:50 Also seems like this guy doesn’t do any marketing.
0:31:51 He says that and he doesn’t have any ads anywhere.
0:31:53 If we did a little bit, probably would help.
0:31:53 Right.
0:31:54 All right.
0:31:54 Cool.
0:31:55 Thesis done.
0:31:56 Check, check, check.
0:31:56 Right.
0:32:00 So like not, um, not over complicating things is a skill.
0:32:04 Um, I would also say like, it seems like you have a good
0:32:07 amount of level two luck, which is the action luck.
0:32:10 Like you were talking about that Patrick O’Shaughnessy example.
0:32:12 I thought that was a great luck example because you were like,
0:32:14 you didn’t have any investors.
0:32:15 You’re just doing this with your own money.
0:32:18 This guy tweets out, Hey, I’m looking for somebody, whatever
0:32:21 to talk to me about equities and capital allocation.
0:32:22 So you reach out, right?
0:32:23 And you reach out.
0:32:26 You don’t have some like imposter syndrome or insecurity
0:32:27 that prevents you from reaching out.
0:32:30 You take some action and you’ve probably taken a thousand
0:32:33 actions like that, you know, cheap lottery tickets where
0:32:35 the downside is very low.
0:32:37 The upside, if you made a valuable connection like you did
0:32:39 was pretty high actually.
0:32:41 And so you filled out a thousand of those scratch off tickets
0:32:44 and then he had luck on the other side, which was perception
0:32:46 luck because he’s like, Oh, you’re buying this company for
0:32:48 four times profit.
0:32:50 That means like if you put in a hundred dollars, you’re going
0:32:53 to get 25% yield every year, even without growing the business.
0:32:56 And wait, I’m in the stock market buying things at 25
0:32:59 times earnings and you’re buying them at four.
0:33:00 So like something is good.
0:33:01 That makes a lot of sense.
0:33:04 So he had that’s that third level of luck, which is like
0:33:05 you, you could spot it.
0:33:07 You could spot good luck when it shows up at your door.
0:33:10 And that’s why, you know, that was good on his part.
0:33:13 So I think that’s impressive to me and a good reminder of like
0:33:16 you got to take action to get that action luck.
0:33:18 And then when you know something and you spot something,
0:33:21 what he did a great job was he flew out to Missouri.
0:33:23 He got to know you.
0:33:23 He pitched you.
0:33:24 You said no.
0:33:25 And he’s like, he asked the magic question.
0:33:26 What would it take?
0:33:29 Whereas like, you know, 10 other people could have done most
0:33:31 of that and not gotten the result that he got.
0:33:33 You want to spend more time talking about why you’re successful?
0:33:38 Let me ask you a different question.
0:33:40 So I have, I have this goal.
0:33:42 I want to retire my sister.
0:33:43 So my sister has worked hard.
0:33:45 She’s got her own business, blah, blah, blah.
0:33:47 And she wants to just have an easier life.
0:33:49 So she wants to spend time with her kids.
0:33:51 She wants to travel like her business is brick and mortar.
0:33:54 So she stuck in the certain location where those businesses are.
0:33:56 She can’t really take her eye off the ball in that way.
0:34:00 So I want to buy her a business and I’m like buying businesses
0:34:01 sounds great.
0:34:03 You buy a business that’s already working.
0:34:04 It’s cash flowing.
0:34:07 You hire a CEO or you promote somebody internally in the company
0:34:08 to be the CEO.
0:34:11 But I know there’s obviously a lot of ways that can go wrong.
0:34:14 And so if you’re me and you want to retire my sister,
0:34:15 where do you start?
0:34:19 Like what is your thought process around buying that first business
0:34:24 that’s going to get you to 300 to $500,000 a year free cash flow?
0:34:27 What would you, where would you orient somebody who’s trying to do that?
0:34:29 Yeah.
0:34:30 I mean, I think it’s all about constraints.
0:34:34 Actually, I wrote a piece called how to buy your first smaller company
0:34:37 like literally because this is a question I get a lot from people.
0:34:41 And I can remember I had no idea when I first got going
0:34:45 and I mean, the thing is I, everyone’s got different constraints.
0:34:46 Where do you want to live?
0:34:47 How much do you want to travel?
0:34:49 What do you actually know about?
0:34:51 What are your, what are you good at?
0:34:51 Right.
0:34:53 So somebody with a very different personality type than me should
0:34:55 be buying things that are very different than what I bought.
0:34:59 Somebody who wants to live in LA should be buying things that are
0:35:01 very different than living in Missouri.
0:35:05 People who don’t want to travel a lot or who want to drive to the place.
0:35:07 Like that’s a very different constraint.
0:35:10 Capital constraints, how much cash do you have available to be able to
0:35:11 invest?
0:35:14 I mean, look, like, you know, if you have, uh, you can buy really,
0:35:18 really high quality business assets that are smaller for like seven,
0:35:19 eight, 10 times.
0:35:22 So if you want something that’s going to be more hands off, that’s
0:35:24 an incredibly durable business model, you can get something that’s
0:35:26 either software, software adjacent.
0:35:27 You can get something that has recurring revenue.
0:35:31 Like the, the more you pay up into the value chain, I mean, you’re
0:35:33 going to have decreased, I think total returns.
0:35:37 Um, but ultimately, like there are easier businesses to run.
0:35:40 So like there are like level 10 difficulty businesses.
0:35:43 Like I would not recommend buying into your local restaurant.
0:35:45 Like that would not be something that I would recommend doing, especially
0:35:47 if you want to quote unquote have an easier life.
0:35:51 Like it depends on if you want the role of a hybrid investor operator,
0:35:54 which really is you’re going through a short season of investment.
0:35:56 And then really you, what you’re doing is you’re buying a job.
0:36:00 Like that’s one very specific type of way to leverage your time
0:36:01 against your money.
0:36:05 Um, if you really just want to be in the investor seat, it’s very
0:36:08 difficult to only occupy the investor seat in the, in the world of
0:36:09 small businesses.
0:36:10 It can be done.
0:36:11 It’s very, very difficult.
0:36:15 The first three to $500,000 of cash flow coming from small businesses
0:36:18 are very likely going to require a lot of sweat equity in, in, in
0:36:19 exchange for that money.
0:36:20 Yeah.
0:36:21 You should go to that blog post.
0:36:25 He has a good Q and a, he goes, uh, the question is how hard will I have
0:36:27 to work harder than you’ve ever worked before?
0:36:31 The opportunity in small business, in the small business market is dressed
0:36:34 in overalls and likes to, and likes hard work.
0:36:38 Dude, you’re poetic when you’re right.
0:36:40 Uh, I love that way.
0:36:40 You’re right.
0:36:41 That’s my main skill set.
0:36:43 So yeah, yeah, that’s great.
0:36:45 Uh, you have some one liners that are pretty cool.
0:36:49 Can we just get you, can I read you a one liner that you’ve said and you
0:36:50 just kind of rant on it?
0:36:53 So just basically kind of like make your case for this thing.
0:36:56 Why, why you think this is true or why you believe it, why you think people
0:36:57 should pay attention to this idea.
0:36:58 This is the lightning round, right?
0:36:59 It’s a lightning round.
0:36:59 Yeah.
0:36:59 Here we go.
0:37:02 All businesses are loosely functioning disasters.
0:37:04 Some just happen to make money.
0:37:05 Yeah.
0:37:08 Uh, anybody who’s ever operated a business knows this is true.
0:37:10 The only people who have issues with this are consultants.
0:37:14 So if anytime I’ve said this publicly, the only people who come at me are
0:37:16 people who either got lucky the first time or have never done it.
0:37:20 And, uh, I mean, look, every business I’ve ever been involved in,
0:37:23 it doesn’t matter how profitable the business, how big the business.
0:37:26 Um, I’ve gotten a pretty good view into some very large businesses.
0:37:28 They’re all highly dysfunctional.
0:37:29 Why are they dysfunctional?
0:37:30 Because they’re full of people.
0:37:32 People are messy.
0:37:34 When you get a bunch of people together, that messing is compounds.
0:37:36 Like it is not a complicated concept.
0:37:39 Uh, and so I just think that people should lower their expectations
0:37:42 and, and understand what to expect when they get into a business.
0:37:43 It’s going to be hard.
0:37:45 It’s going to be hard in different ways.
0:37:48 Like, you know, the first time you had to put somebody through rehab,
0:37:50 your, your guide doesn’t show up at the, to me in the warehouse
0:37:53 because there’s been a domestic violence dispute and he’s in jail.
0:37:56 I mean, literally like these are things that we’re having to deal with.
0:37:58 Um, these are things that everyone’s having to deal with.
0:38:01 Now they may come in different flavors, depending on how professional
0:38:04 the business is, but the reality is that these are things that happen.
0:38:06 Sean, have you watched the land man?
0:38:08 I have.
0:38:09 It’s really good.
0:38:14 Um, it’s a, for those listening, it’s a show with Billy Bob Thornton on,
0:38:15 it’s about like the oil industry.
0:38:16 And they, there’s this great quote.
0:38:20 It says, our business is one of constant crisis interrupted by brief
0:38:22 periods of intense success.
0:38:23 Yeah.
0:38:25 How good is that?
0:38:25 Yes.
0:38:26 Yes.
0:38:27 Uh, yeah.
0:38:30 So I have a, I have a quote on my wall and it says, success is
0:38:33 founded on a constant state of discontent interrupted by brief periods
0:38:37 of satisfaction upon the completion of a job, particularly well done.
0:38:38 Um, all right.
0:38:38 How about this one?
0:38:42 The more humility a leader has, the more their business can grow.
0:38:43 What’s an example?
0:38:44 Yeah.
0:38:46 So, uh, look, what is humility?
0:38:49 Humility is acknowledging reality for what it is.
0:38:53 Um, and if you don’t acknowledge reality, you can’t get better.
0:38:58 And so lack of humility is basically a defense mechanism, right?
0:39:02 This usually is one of two forms is either self-protection or self-promotion.
0:39:05 And people are usually doing a combination of both when they’re in, uh,
0:39:07 some form of pride or arrogance.
0:39:09 Uh, they’re usually terrified, fearful.
0:39:12 I mean, I can say this from experience when I get prideful, uh,
0:39:15 is because I feel like I’m not enough and I’m not going to be enough.
0:39:17 And I’m worried that I might not have enough.
0:39:22 And so, uh, what is humility is, is laying that down and saying, Hey,
0:39:26 I, I want to see reality for what it is so I can learn and grow and become better.
0:39:29 And that’s the only way to do that is to get feedback from the world around you.
0:39:36 New York city founders, if you’ve listened to my first million before, you know,
0:39:39 I’ve got this company called Hampton and Hampton is a community for founders
0:39:43 and CEOs, but a lot of the stories and ideas that I get for this podcast.
0:39:46 I actually got it from people who I met in Hampton.
0:39:48 We have this big community of a thousand plus people and it’s amazing.
0:39:52 But the main part is this eight person core group that becomes your board of
0:39:54 advisors for your life and for your business.
0:39:58 And it’s life changing now to the folks in New York city.
0:40:02 I’m building a in real life core group in New York city.
0:40:05 And so if you meet one of the following criteria, your business either
0:40:09 does three million in revenue or you’ve raised three million in funding or
0:40:12 you’ve started and sold the company for at least $10 million, then
0:40:13 you are eligible to apply.
0:40:16 So go to joinhampton.com and apply.
0:40:19 I’m going to be reviewing all of the applications myself.
0:40:21 So put that you heard about this on MFM.
0:40:24 So I know to give you a little extra love now back to the show.
0:40:31 I like that lack of humility, self-protection or self-promotion though strong.
0:40:33 Charlie Munger says this thing.
0:40:35 He says, every time you see the word EBITDA, you should substitute it
0:40:37 with bullshit earnings.
0:40:38 Do you agree or disagree?
0:40:39 Yeah, for sure.
0:40:40 I agree.
0:40:44 I mean, like look, EBITDA can be a useful tool in some very limited
0:40:50 circumstances, but for the most part, it is dressing up something that is
0:40:54 more than often obfuscating reality.
0:40:57 So when you see EBITDA, especially in the small business world, there
0:41:00 usually comes a ton of capex, a lot of reinvestment needs that are on
0:41:01 the back end of that.
0:41:04 And what you have to really do is you have to figure out, okay, just in
0:41:07 a steady state, what is the business actually producing a free cash flow?
0:41:10 Like we look at businesses all the time that are making quote-unquote making
0:41:14 seven, eight, nine million dollars a year that you ask the owner how
0:41:16 much money they’ve taken out of the business and they’re taking out
0:41:18 maybe a million bucks a year, maybe two million bucks a year.
0:41:19 I got news for you.
0:41:22 For the most part, you don’t have a business that’s quote-unquote making
0:41:23 seven million dollars a year.
0:41:25 You have business making one to two million dollars a year.
0:41:26 That’s the reality.
0:41:30 Have you guys, Sean, have you ever learned the history of the idea of EBITDA?
0:41:32 Do you know that’s like a new-ish thing?
0:41:33 No.
0:41:36 So basically, John Malone, I believe, is that right, Brent?
0:41:36 He invented it.
0:41:38 Yeah, John Malone invented it.
0:41:40 So John Malone, his nickname is like the greatest nickname.
0:41:42 He’s one of the Cable Cowboys.
0:41:46 So John Malone, you would know him now as like the guy who owns or founded
0:41:49 Liberty Media, which owns F1 and all this other amazing stuff.
0:41:52 But basically, he owned a cable company.
0:41:53 It was like a small cable company.
0:41:57 I think when he took it over, it was like five or 10 million in revenue,
0:42:01 something like that, like relatively small, and he needed to get loans because
0:42:04 he found that if he could just acquire way more cable companies, cable
0:42:07 companies were incredibly sticky and it was recurring revenue.
0:42:11 I should go out and buy a ton in order to go and get more cable companies.
0:42:13 I need to borrow lots of money.
0:42:16 And for some reason, he came up with this idea that EBITDA was an amazing
0:42:19 metric to convince banks to loan him money.
0:42:23 And so he coined the term EBITDA because for his business, he had
0:42:25 lots of depreciation, lots of things like this.
0:42:28 So he was like, no, no, no, just give me like the earnings before all of this.
0:42:31 And I’m going to convince banks to loan me against that.
0:42:35 And that, I think it was the 80s, the mid 80s became like the term.
0:42:37 And I’ve hated EBITDA.
0:42:39 I think EBITDA is really stupid.
0:42:42 But what I think that like is kind of insane is that we’ve all
0:42:44 collectively agreed that this is like the metric.
0:42:48 And I always thought it was like weird, but I never had the courage to say
0:42:49 like, this is stupid.
0:42:52 And then I would like read about Buffett and all these guys and I was like,
0:42:53 God, I think it’s stupid.
0:42:54 Dude, I take the opposite.
0:42:55 I’m like, this is genius.
0:42:57 I need this in my personal life.
0:42:58 I need this.
0:42:59 I did the husband version of EBITDA.
0:43:05 It’s like, you know, my, my behavior before, you know, before football,
0:43:09 before taking out the trash, if you ignore all those things, I’m great.
0:43:11 I’m amazing actually.
0:43:14 Well, it’s crazy that like you don’t pay your personal taxes on EBITDA.
0:43:17 You pay your personal taxes on a cash flow, or you know, on a cash base.
0:43:20 It’s just there’s so many reasons why this is insane.
0:43:24 But, and also, you know, it’s the most insane thing, adjusted EBITDA.
0:43:25 What the hell does that mean?
0:43:27 It means whatever you want to be.
0:43:28 It’s, that’s insane.
0:43:32 You have another one, another quote you said, you either operate with high
0:43:35 authority, top down or delegated authority.
0:43:37 Hell is in the middle.
0:43:37 Yeah.
0:43:41 So this is hard earned because I would say is I think everyone’s
0:43:45 temptation is to be high authority when you think there’s something wrong and
0:43:47 then low authority when you want to be lazy.
0:43:51 And that, that combination just makes a mess of everything.
0:43:54 And so there’s really two ways to be involved with the company.
0:43:58 You either say, Hey, this is what we’re doing.
0:43:59 This is how we’re doing it.
0:44:00 You need to get in line.
0:44:02 I need people to go and execute this vision.
0:44:05 Or you say, Hey, I want to be supportive and helpful.
0:44:06 It needs to be your vision.
0:44:09 And I’m not going to intervene even when I think that something’s wrong.
0:44:13 I’m just going to go along for the ride and be helpful.
0:44:16 And very, very, very lightly interviewing.
0:44:17 And so you just have to choose.
0:44:19 And I think there’s both can work.
0:44:23 I think both come with certain upsides and downsides, um, but you can’t
0:44:26 do the middle because if you do in the middle, what you end up doing is you
0:44:29 end up saying to the leadership team, Hey, you’re responsible, but I’m
0:44:31 basically telling you what you have to do.
0:44:33 And so it removes all agency from them.
0:44:37 And ultimately everything that goes right is going to be their fault and
0:44:38 everything that goes wrong is going to be your fault.
0:44:43 But to make the lazy, when you say the lazy approach, I’m like, Yeah,
0:44:44 that sounds great.
0:44:44 Sign me up.
0:44:45 Yeah.
0:44:47 But that’s hard.
0:44:49 How do you make that work?
0:44:52 You have to find, uh, the right person and what attributes does that person
0:44:56 have and you know, Buffett and Munger always said that like incentivizing
0:45:01 manager was the number one goal of, uh, of was their number one job.
0:45:02 Is that true for you?
0:45:03 Yeah, absolutely.
0:45:04 A hundred percent.
0:45:07 If you’re going to, uh, try to truly be an investor and not an operator in the
0:45:11 business, uh, it all comes down to somebody has to do the work and somebody
0:45:12 has to exert judgment.
0:45:15 And if you’re not going to be the person to do the work and exert judgment,
0:45:16 somebody else does and you got to be interested.
0:45:18 Got to be aligned with that person.
0:45:22 And so yeah, when I say the quote unquote lazy approach, I mean, ultimately
0:45:24 this is the only way you scale, right?
0:45:26 I mean, if you look, if you look at, again, we keep coming back to Berkshire.
0:45:29 It’s a good thing to think about because when people say, Hey, let’s talk about
0:45:32 how, you know, Berkshire like buys businesses and leaves them alone.
0:45:37 That was not how they operated for a vast majority of the time that they’ve done
0:45:37 it.
0:45:40 Like they had to do that eventually because they got to a such a scale.
0:45:42 They literally couldn’t intervene anymore.
0:45:46 If you go back and look at Buffalo news, like Buffett and Munger were literally
0:45:47 living in Buffalo.
0:45:49 Dude, they’re writing headlines.
0:45:51 They’re, they’re writing like, have you ever read of that Sean?
0:45:57 They bought a newspaper and they would literally, uh, like they, they were news
0:46:00 guys, like they liked the news and they were like, here’s, I want this many ads
0:46:01 on the page.
0:46:03 I think the headline should be like this.
0:46:06 Like they, they, yeah, I did not know this.
0:46:06 This is amazing.
0:46:07 Yeah.
0:46:11 I mean, I was just saying is like Buffalo news is a good example of, of like
0:46:17 basically their, their mode of operation until the call it early 80s, mid 80s, when
0:46:19 they got to have so much money, they literally couldn’t be involved in the
0:46:22 stuff that they were doing was to be highly interventionist.
0:46:25 I mean, they would be involved in the smallest of details.
0:46:26 They would set the tone.
0:46:27 They would help on marketing strategy.
0:46:28 They would replace leadership.
0:46:31 They, I mean, they were doing all the stuff that I’m doing.
0:46:34 They would do all the stuff that anybody has to do because when you’re small,
0:46:35 you can do it.
0:46:39 When you’ve got less capital and more time, you can do stuff like that.
0:46:42 And by the way, the returns are higher when you could leverage your
0:46:43 time against your money.
0:46:44 It’s an advantage, right?
0:46:48 It’s not a disadvantage, it’s an advantage, but eventually you, you have
0:46:51 a limited amount of time and attention and as the money grows and your
0:46:55 attention stays the same, that ratio gets thrown all off and you have no
0:46:59 choice but to say, okay, I’m going to spread a much more thinly layered
0:47:03 amount of judgment over a much wider thing of grouping of things, which
0:47:06 means you have to step out of the day to day operations and then you have to
0:47:07 hire people who can exert great judgment.
0:47:11 And so Buffalo News, I mean, there’s a great quote from Munger saying,
0:47:15 hey, like I’m down to my last like million bucks that I can put into
0:47:15 Buffalo News.
0:47:18 Like after that, I’m calling uncle, like I’m out.
0:47:22 I mean, it was, there’s been various times in Berkshire’s history.
0:47:23 They’ve gotten, it’s gotten very hairy.
0:47:26 It was not a guaranteed success.
0:47:30 And even when they had a lot of success, it still gets hairy in various
0:47:32 points and I think every business has that though.
0:47:33 That’s what should be expected.
0:47:34 Like it should be an adventure.
0:47:38 There’s a great letter that you can read.
0:47:43 It’s from, it’s in 1972 and it’s the Buffett letter to the C’s Candy CEO.
0:47:47 If you Google that Buffett letter to C’s Candy CEO and he says, and because
0:47:50 I went into this, I haven’t like studied Buffett in depth the way that
0:47:53 you would if you’re going to do private equity.
0:47:57 And he, I just thought the, oh, he’s this, aw shucks.
0:47:59 He sits at the table.
0:48:00 He drinks his Diet Coke.
0:48:03 He, he just allocates the capital and he hires great people and they
0:48:03 just do magic.
0:48:07 And this letter, I was like, oh, Buffett had the mind of an operator,
0:48:08 right?
0:48:11 Because he goes, dear Chuck, I was out of Brandy’s a couple of days ago and
0:48:13 I have a few strong impressions to pass along.
0:48:17 Number one, and he basically, he starts talking like details about the
0:48:18 store.
0:48:20 So he goes, people are, people are going to be affected not only by our,
0:48:23 how our candy tastes, obviously, but what they hear about it from others
0:48:26 as well, the retailing environment and which it appears, this class of
0:48:29 the store, the packaging, the condition, like this is like Steve Jobs
0:48:31 talking about the Apple store, right?
0:48:32 Like a product oriented person.
0:48:37 And he just goes through like step by step kind of like things that he
0:48:41 thinks could be improved on, you know, in the store experience.
0:48:45 And I thought, wow, this is different than what I kind of the impression
0:48:48 you get when you hear about Buffett, just sitting in his room reading
0:48:52 all day, you know, making investment decisions off of, you know, financial,
0:48:53 you know, financial sheets.
0:48:54 This is a great letter.
0:48:58 By the way, how awesome is this that this was like a typewriter letter?
0:49:01 Does that make it, doesn’t that make it so much more substantial?
0:49:02 Totally.
0:49:04 He licked, he licked an envelope for this one.
0:49:07 I mean, he licked an envelope.
0:49:10 I kind of want to like start sending letters like this.
0:49:12 It just makes it feel like more authoritative.
0:49:13 Let me ask you something, Brent.
0:49:17 I have, like I said, we kind of, my business is a little bit different
0:49:20 than yours, which is I create content on the front end.
0:49:21 It’s the mullets.
0:49:24 I have content on the front end, which is what I love to do, what I’m
0:49:28 great at, but media and content is not a great business model.
0:49:32 So my back end is basically start or buy businesses that I know I can like
0:49:37 turbocharge and we’ve done this maybe four or five, six times now and it’s
0:49:37 going really well.
0:49:43 But one thing I’ve noticed is like, if I draw a pie chart of what makes it work,
0:49:48 it’s basically like 60% of the battle was just the initial market selection.
0:49:52 When we picked a project that was like the winds were blowing against us.
0:49:56 It didn’t matter how much effort we put in or how great the operator was.
0:49:58 It was always just an uphill battle.
0:50:01 And sometimes we pick these markets that are just like, it’s a pull market.
0:50:02 You’re being pulled in.
0:50:03 It’s just a sweet spot.
0:50:05 The people just need this.
0:50:07 It’s shooting fish in a barrel type of thing.
0:50:09 That creates a big part of it.
0:50:15 The second part of it, the next, I’ll say like 30% is the quality of the CEO
0:50:17 that we picked who’s going to run the business.
0:50:20 And when we pick a sort of limited CEO, we get limited success.
0:50:23 When we pick an unstoppable CEO, we get like massive success.
0:50:24 And the last 10% was just luck.
0:50:28 Like the ball bouncing our way on one or two things that could have easily
0:50:32 not happened, but that they happened or, you know, when the winds that didn’t,
0:50:34 maybe we missed out on something that we didn’t see.
0:50:39 I got a question about that second piece, which is hiring the CEO or evaluating
0:50:41 the CEO, evaluating the operator.
0:50:43 I want to get better at that.
0:50:45 If you sit down with somebody, you’re recruiting an exec.
0:50:49 Maybe it’s a, you’re interviewing somebody who’s maybe in the business
0:50:53 that’s going to become a CEO or you’re taking somebody external to come run this company.
0:50:56 What are you doing to, what are you doing?
0:50:58 That’s like not obvious to get that assessment.
0:51:01 Is there any little tips and tricks, anything that you’ve picked up
0:51:03 that, that helps you find the right operators?
0:51:04 Yeah.
0:51:09 Well, so actually, I think this is a, probably a pretty underappreciated aspect
0:51:14 of being involved in small companies is all about the people, right?
0:51:17 And so the better you can be at the people, the better it’s going to be
0:51:18 for the business.
0:51:24 And, you know, we’ve really deep dived into, I would say all personality
0:51:25 testing is wrong, right?
0:51:29 It just depends on what you’re trying to get out of it.
0:51:33 And so we have actually a huge battery of personality testing that we do
0:51:37 for people to try to get as close to a 360 view of who they are.
0:51:38 What do you use?
0:51:38 Yeah.
0:51:45 So we’re doing a combination of disk, Myers-Briggs and something
0:51:49 called habit story, which kind of has them see like, what are the habits
0:51:51 that they’ve built in their life and how are they kind of supporting
0:51:54 who they are with the structure and apparatus around them?
0:51:59 And I personally also do a lot of study of Enneagram.
0:52:03 And so I think actually, personally for me, when I meet somebody, I’m
0:52:06 instantly categorizing them as what I think their Enneagram number is.
0:52:10 And I’m automatically categorizing them across the four main Myers-Briggs.
0:52:12 Dude, this is crazy to me.
0:52:15 I thought that’s just horoscopes for dudes.
0:52:19 Like, do you really use this as like your core thing?
0:52:19 That’s amazing.
0:52:20 Yeah.
0:52:23 Well, so all of it tells you something about the person, right?
0:52:26 So if you think about, so Enneagram, most people don’t understand this.
0:52:29 So Enneagram basically tells you who you are at your worst.
0:52:35 And there’s nine numbers and basically everyone falls into a number
0:52:38 and then you have what’s called wings, which is kind of where do you tip
0:52:39 from that number?
0:52:42 So for me, I’m a three and I tip two.
0:52:45 So a three is they call the achiever.
0:52:49 My biggest insecurities is that I’m not enough and I want people to like me.
0:52:52 And so again, if you, if anybody’s proud of their Enneagram, it
0:52:53 means they don’t understand Enneagram.
0:52:56 Like, like it’s not a good thing, right?
0:52:59 This basically tells you what are your deepest fears and what, what is
0:53:01 the, your areas of greatest weakness.
0:53:04 But if you can know that about somebody, you can see them.
0:53:06 How is that playing out in their life, right?
0:53:09 So like I, when I’m in my least healthy, I’m a people pleaser.
0:53:11 I say yes to way too much stuff.
0:53:13 Um, I don’t tell people the truth.
0:53:15 Um, it’s really unhealthy.
0:53:17 It’s, it’s highly destructive behavior, right?
0:53:19 I’m very focused on hierarchy.
0:53:23 And, and, and my guess is that you guys have different Enneagrams, right?
0:53:26 I won’t, I won’t guess your Enneagrams, but can you do it?
0:53:26 That’s great.
0:53:27 Yeah.
0:53:29 Do it.
0:53:30 I can’t wait.
0:53:30 Yeah.
0:53:33 My guess is Sean, you’re a three and my guess is Sam’s an eight.
0:53:35 Uh, but what’s three and what’s eight?
0:53:37 Uh, the three is the achievable.
0:53:41 So threes and eights, uh, both achieved, but for very different reasons.
0:53:44 So, so, uh, threes achieved because they want people to love them.
0:53:46 It’s like less about the thing itself.
0:53:48 And then eights really want the thing itself.
0:53:52 So like as a three, like I don’t want money to just like want the, want the money.
0:53:54 Like I want the money because I want people to love me.
0:53:57 Uh, eights really want the money because they want the security and
0:53:59 they want the power that comes with the money.
0:54:04 Uh, so, so I want to learn the, I want to roll over so that I get Pat and
0:54:05 my tail can wag.
0:54:06 Sam just wants a dog treat.
0:54:07 Yep.
0:54:08 That’s exactly right.
0:54:09 Um, that’s right.
0:54:10 What do you think?
0:54:11 Yeah.
0:54:14 Well, like he’s, he’s describing everything in like the most positive way.
0:54:16 So like, yeah, sounds great.
0:54:18 Uh, I’m, uh, I like that.
0:54:21 And then I looked up who other eights were and it’s like Winston Churchill,
0:54:23 Martin Luther King.
0:54:24 I’m like, yeah, okay, cool.
0:54:26 Um, yeah, yeah, for sure.
0:54:29 What you do, but you, what this is like crazy fascinating.
0:54:31 You said like five different things.
0:54:32 So can you give us the exact?
0:54:35 So you said Myers-Briggs, uh, and then you said this, this other test.
0:54:37 What’s like the exact stuff that you’re using.
0:54:38 Yeah.
0:54:40 So, so I, well, there’s two things.
0:54:43 One is when I first meet somebody, I can, I can walk you through what I do.
0:54:47 And then I would say is separately from that in a hiring process.
0:54:50 We, we use that once we get serious about a candidate, then we put them through
0:54:52 a huge battery of testing to make sure we try to understand them.
0:54:53 Right.
0:54:57 For me personally, when I first meet somebody, it helps me so much to be able
0:55:00 to categorize them into what I expect based on just kind of how they’re showing
0:55:02 up in the world, uh, in Myers-Briggs, right?
0:55:04 So you have, you have I and E.
0:55:06 So are they introverted or they extroverted?
0:55:07 Right.
0:55:11 Are they S or they, uh, N, which is, are they, are they in the present?
0:55:13 Are they sensing or are they in the future?
0:55:14 Right.
0:55:17 Um, uh, then are they a thinker or are they a feeler?
0:55:18 Right.
0:55:21 So they, are they primarily excited about ideas or they primarily excited
0:55:24 about, uh, sort of the, the, the people themselves, right?
0:55:29 Um, and then the last one is T and P, which is, um, uh,
0:55:34 are they, uh, it’s kind of, excuse me, J and P, which is, are they, uh,
0:55:39 very focused on rigid schedules and on creating order or do they like to go
0:55:40 and test and try a whole bunch of things?
0:55:41 Right.
0:55:44 And how all these like sort of stack up and combine really gives you
0:55:48 a much more holistic view of who somebody is than when you then pair with
0:55:51 Enneagram, I think gives you probably those two together.
0:55:56 I think creates the most, the quickest and the most holistic view of
0:55:59 who somebody is, where if you can get like a, a pretty good idea quickly
0:56:03 of who they are, like how I would talk to somebody who’s present oriented
0:56:05 is very different than how I talk to somebody who’s future oriented.
0:56:09 And oftentimes, you know, we assume the whole world operates like the way
0:56:13 we do, like my wife and I are literally the opposites in every single one
0:56:13 of these areas.
0:56:17 So you can imagine in our marriage, like how she shows up and how
0:56:21 I show up is so different and it creates all kinds of miscommunications.
0:56:24 We’ve been married now for 16 years and it really, we went through
0:56:28 personality testing together about, oh, three and a half, four years ago.
0:56:30 It was game changing in our marriage.
0:56:34 It was, it completely explained a ton of behavior for her and for
0:56:38 me that had been bothering us for a long time and it was just largely
0:56:39 how we’re wired.
0:56:41 So that’s how we do it.
0:56:44 That’s how I think about doing it in the moment that helps me relate to
0:56:45 people a lot more.
0:56:46 It’s crazy.
0:56:51 By the way, Sean, 16personalities.com is like these websites are huge
0:56:52 that are doing these tests.
0:56:54 Yeah, yeah, yeah, they’re really big.
0:56:55 I mean, this isn’t, it’s an important piece.
0:56:58 I would say five voices is a really interesting one.
0:57:01 They, they, so it’s just the number five voices.com.
0:57:02 I think.
0:57:07 Yeah, those guys have created Steve Cochrum and Jeremy Kubitschek are
0:57:09 the two founders of that business.
0:57:12 They’ve created an overlay for Myers-Briggs that simplifies it.
0:57:15 I think a lot of their stuff is incredible.
0:57:19 And yeah, we definitely use a lot of their work as well.
0:57:22 Then we finish off with a quick tarot reading just to see how the future
0:57:23 is going to go.
0:57:24 And then we’re, we’re all set.
0:57:25 This is amazing.
0:57:28 This is so good.
0:57:31 You, you also have one thing I read that I really loved.
0:57:33 You go, you have this like asshole test.
0:57:35 It’s like, we don’t, nobody wants to work with assholes.
0:57:36 How do we sort of filter for that?
0:57:38 Nobody’s trying to present as an asshole in a job interview.
0:57:42 And you said like, you can eat with them, see how they treat the staff.
0:57:45 You could see them interact with their significant other.
0:57:47 That’ll tell you a lot in their home environment.
0:57:50 And then you said, the most telling environment is to travel with somebody.
0:57:53 It is impossible to fake it when you’re at the airport.
0:57:54 You’re grinding through security.
0:57:57 And if there’s a delay, your, their true colors will come out.
0:57:58 That was great.
0:57:59 Yeah.
0:57:59 Yeah.
0:58:00 It’s fun.
0:58:03 I mean, just want to, I mean, honestly, the business we’re in is predicting
0:58:04 people’s behavior.
0:58:05 Like that’s what we’re trying to do.
0:58:09 And because of all these businesses are predicated on the people who run them.
0:58:12 They’re, they’re all going to have the risks, the primary risks of all these
0:58:13 businesses are going to be the people.
0:58:15 And so what we’re trying to do is get to know people.
0:58:18 Have you guys ever been out with someone and they’ve actually been
0:58:20 an asshole to the wait staff though?
0:58:22 Whenever people say about this, this asshole test, I’m like,
0:58:25 I’ve never been around anyone that’s like rude.
0:58:28 Dude, you don’t remember the dinner we were at where this happened?
0:58:29 Yeah.
0:58:31 But that was like one out of a thousand.
0:58:31 Yeah.
0:58:32 Yeah, it’s true.
0:58:35 The, this guy, we, Sean and I went out with someone and he was like
0:58:39 shooing the waiter when he was like, it was, it was like, it was, it was, it
0:58:41 was, I was, I was ashamed.
0:58:42 I left that dinner.
0:58:46 I’d be like, I felt like, uh, like I had just like participated
0:58:47 in like a porno.
0:58:50 Like I felt like I was like, I’m so ashamed.
0:58:53 Like if people find out about this, like I’m going to be so embarrassed.
0:58:54 That’s rough.
0:58:57 Wow.
0:58:58 Dude, what a fun episode.
0:58:58 This is great.
0:58:59 Oh yeah.
0:59:01 I really enjoyed hanging out with you guys.
0:59:02 That’s the one we guys built.
0:59:03 Brent, thanks for coming on, man.
0:59:06 If you haven’t, go check out his blog and his annual letters.
0:59:07 They’re pretty great.
0:59:08 Follow him on Twitter.
0:59:09 What’s your Twitter handle?
0:59:10 Brent, be sure.
0:59:11 Just Brent, be sure.
0:59:12 Yep.
0:59:12 All right.
0:59:13 Good seeing you, dude.
0:59:14 Thank you.
0:59:14 That’s it.
0:59:15 That’s the pod.
0:59:18 I feel like I can rule the world.
0:59:24 I know I could be what I want to put my all in it like the days on for the road.
0:59:25 Let’s travel never looking back.
0:59:30 Hey, Sean here.
0:59:33 I want to take a minute to tell you a David Ogilvy story.
0:59:34 One of the great ad men.
0:59:36 He said, remember, the consumer is not a moron.
0:59:37 She’s your wife.
0:59:39 You wouldn’t lie to your own wife.
0:59:41 So don’t lie to mine.
0:59:43 And I love that you guys, you’re my family.
0:59:45 You’re like my wife and I won’t lie to you either.
0:59:48 So I’ll tell you the truth for every company I own right now.
0:59:51 Six companies, I use Mercury for all of them.
0:59:54 So I’m proud to partner with Mercury because I use it for all of my banking
0:59:57 needs across my personal account, my business accounts.
1:00:00 And anytime I start a new company, this is my first move.
1:00:01 I go open up a Mercury account.
1:00:03 I’m very confident in recommending it because I actually use it.
1:00:04 I’ve used it for years.
1:00:06 It is the best product on the market.
1:00:11 So if you want to be like me and 200,000 other ambitious founders, go to mercury.com
1:00:12 and apply in minutes.
1:00:16 And remember, Mercury is a financial technology company, not a bank.
1:00:19 Banking services provided by Choice Financial Group and Evolve Bank & Trust
1:00:20 members, FDIC.
1:00:21 All right.
1:00:21 Back to the episode.
1:00:24 (upbeat music)