AI transcript
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0:02:06 Episode 327. 327 is the area code serving Arkansas. 1927, the first solo nonstop transatlantic
0:02:13 flight was completed from New York to Paris. I love the new British Airways tagline, Breakfast
0:02:30 in London, Dinner in New York, luggage in Tokyo. Welcome to the 327th episode of The
0:02:34 Prop G-Pod. In today’s episode, we speak with Cody Sanchez, a former Wall Street investor
0:02:39 and the founder and CEO of Contrarian Thinking, a digital education company with over seven
0:02:44 million followers. We discuss with Cody her new book, Main Street Millionaire, How to Make
0:02:48 Extraordinary Wealth Buying Ordinary Businesses. We get into how to build wealth by buying
0:02:52 small businesses, including what to look out when buying, ways to finance a purchase and
0:02:56 which sectors have the most potential right now. I really enjoy this conversation. She’s
0:03:02 a unique woman and I love kind of this financial literacy or investing approach and that is
0:03:07 instead of talking about Nvidia or AI all the time, what happens when you buy a dry cleaner
0:03:11 or a carpet cleaning company. And I think there’s a ton of potential and if you think
0:03:16 about, I won’t talk more about this, but in some there’s this tidal wave of retirements
0:03:21 from the boomers who have small businesses and their kids all want to be baristas or
0:03:24 go to work for Google. And so there’s going to be a lot of small businesses up for sale.
0:03:27 It’s just, it’s an interesting overlooked part of the economy, a great way to build
0:03:31 wealth and kind of the millionaire next door probably owns car washes and doesn’t work,
0:03:35 you know, doesn’t work at Salesforce. Or maybe she does. Maybe she does anyways, but I really
0:03:39 enjoyed this conversation. She’s an impressive woman. All right, what’s happening? Some news
0:03:46 about the luxury auto space Jaguar unveiled it’s all electric type 00. Hmm. Concept in
0:03:50 Miami art week, marking the official start of the brand’s new era Miami art week. Does
0:03:53 that mean basil? I used to go to basil. I have no interest in art. By the way, I think
0:03:57 people who order expensive wine or expensive art are basically insecure people trying to
0:04:01 flaunt their wealth. I have done neither about a great, the only piece of art I own is a
0:04:05 Grayson Perry. I think he’s, I love that guy. I think he’s super interesting. He talks,
0:04:09 makes political art, lives half his year as a woman, half as a man, did that before it
0:04:14 was cool. And I just think he’s such an interesting cat. And I love he does cover these politically
0:04:18 charged pieces of art. That’s the only piece of art I own. Someone who means a great deal
0:04:22 to me took me to the exhibition of his in Istanbul, found something I liked and then
0:04:27 bought it for me and it’s, it hangs in my living room. And I just absolutely love it.
0:04:32 Back to Jaguar. They released their type 00. The reveal follows week of controversy after
0:04:37 Jaguar’s rebrand campaign went viral. Critics including Elon Musk. Oh, fuck. I agree with
0:04:43 Elon Musk. All right. So anyways, we’re clicked to kind of slam the avant-garde 32nd and which
0:04:47 featured models and a futuristic landscape but failed to show a single car. Remember,
0:04:52 this happened before. Infinity did this. This was the era of brand in the eighties. Let me
0:04:56 get like kind of a brief history of economic history and brands. Brands didn’t mean a whole
0:04:59 hell of a lot. The strongest brand up until World War II was the Catholic Church. Name
0:05:05 anything that engages in corruption, leveraging or exploiting the masses and just institutionalized
0:05:08 pedophilia and manages to be the most powerful institution in the world. They are the most
0:05:12 powerful brand in the world and they are in fact the best brand builders. They understand
0:05:17 distribution and place-based marketing. Let’s build the most beautiful venues in the world
0:05:21 bringing the most talented artisans in the world because we want to fool people in the
0:05:24 middle of believing that, yeah, there’s a decent job that God hangs out here and then
0:05:30 we’ll have robes and clothes and candles and music and it’s highly orchestrated and ruled.
0:05:35 I mean, these folks, these folks understood the Apple store before Apple understood the
0:05:40 Apple store. Best branders in the world. World War II comes along and then you have American
0:05:46 caterpillars left overseas rebuilding America. So yellow started to mean capitalism and rebuilding.
0:05:52 The US dollar, the strongest currency in history, that green hope, optimism, capitalism, winners,
0:05:59 losers, all of a sudden America caught on to the ability to take a shitty product, inject
0:06:05 it with emotion and get unnatural margins. So the primary algorithm for building shareholder
0:06:11 value in 1945 to 1995 was a mediocre shoe, salty snack or car and then wrapped these
0:06:18 amazing brand codes around it. Individualism, toughness, tough like a rock, European elegance,
0:06:22 30 cents a peanut butter paste gets turned into $3 a peanut butter. Why? Because choosing
0:06:28 mom’s choose Jeff, maternal love, right? So in addition, we could, after developing
0:06:34 these brand codes to inject into peanut butter paste, we could hammer these codes into people’s
0:06:38 brains using the most unbelievably inexpensive cheap, didn’t realize what a great bargain
0:06:43 it was called broadcast advertising where 60, 80% of America every night tuned into one
0:06:48 of three channels and you could raise awareness around a brand in a week. And if you want
0:06:52 to talk about efficiency, the Academy Awards, a 30 second spot costs five times as much as
0:06:55 it did 40 years ago and it reaches 130 the audience. So in some, the ROI has gone down
0:07:01 by 15 fold. You’re literally getting 6% of the ROI you used to get 30 or 40 years ago
0:07:05 on advertising. So that was the way to make money. That was the way to print money. And
0:07:10 then, and then came along the end of the brand era in the 80s and 90s was the introduction
0:07:15 of Google. And that is weapons of mass diligence said, well, you don’t know, you don’t need
0:07:20 to buy a Neralco or Gillette hair clipper to shave your head because we now have blogs
0:07:24 that if you type in best hair clipper in the world or best beard trimmer, they’ll take
0:07:30 you to this blog on shaving your head. And there’s some former factory in East Germany
0:07:34 out of East Germany that makes the best clip from the world. There’s just, oh, okay, four
0:07:37 seasons of Mandarin Oriental. Data used to always defer to those brands and stay there.
0:07:40 Why? One, cause someone else was paying, did a lot of consulting around the world, a lot
0:07:44 of speaking. And two, they were always a seven or an eight. And then I realized, oh, what
0:07:48 do you know? What do you know? The hotel du Cap is the best hotel in France and Greeks
0:07:53 have old European elegance. Oh, what do you know? The Soho House in Berlin has an incredible
0:07:58 gym. Oh, what do you know? Daddy likes to roll at the polo lounge. That’s where all,
0:08:02 that’s where all the celebs are. Daddy likes to hang out with the younger cool people, maybe
0:08:06 have some people over for a $54 Cobb salad at the brand of the Patty, whatever it’s called
0:08:12 next. I no longer need to defer to the brand. A brand is shorthand or due diligence when
0:08:17 you don’t have time, but now it’s very easy to do your own diligence. And the shorthand
0:08:22 or the automatic differential nod to a brand is no longer as obvious, meaning that brand
0:08:28 equity on top of a shitty product is no longer the algorithm to build shareholder value.
0:08:34 It’s brands that are built based on superior innovation, operations, distribution. Amazon
0:08:37 is one of the strongest brands in the world. Google is one of the strongest brands in the
0:08:41 world. What do these things have in common? What does any company have in common that
0:08:46 has added over $100 billion in value in any single year? They spend almost no money on
0:08:51 traditional branding. They spent it all on supply chain and innovation and actual 10x
0:08:56 better product. Instagram is a 10x better product as is or was Google. I’m not sure
0:09:00 it’s a 10x better product anymore. It hasn’t changed in 10 years, but the stuff that breaks
0:09:04 through is in fact either delivered differently through distribution, has better customer
0:09:09 support, has more interesting people talking about the product is scrappier around building
0:09:16 awareness and first and foremost uses digital technologies to unlock some type of innovation.
0:09:21 What are some of the assets you want in a brand? What are some of the things that really provide
0:09:27 sustainable advantage? One of those things is visual metaphors. We have been learning
0:09:31 from images or interpreting images for thousands of years. Thousands of years ago, people decided
0:09:37 to educate their kids by painting stories on cave walls. Don’t go over here. They will
0:09:42 kill you or plant the crops at this time of the year such that as a species, we could leverage
0:09:47 our core confidence as a species or our advantage and that is communication and cooperation until
0:09:52 the next generation helped them learn such that communication and storytelling basically
0:10:00 takes instinct. If you are blessed with a visual metaphor, oh my God, oh my God. Literally
0:10:08 Darth Vader or Goofy or the Matterhorn or Snow White or the Seven Dwarves, that shit,
0:10:14 those are really, really powerful metaphors. Visual metaphors, objects, symbols, the color
0:10:18 brown. If I’m driving and I see a big brown thing next to me, I’m like, oh, it’s UPS.
0:10:21 Oh, they’re nice people. They make good money. They work really hard. They’re handsome, dreamy
0:10:25 men. Sometimes they wear shorts, but they always wear brown and their trucks are always
0:10:30 really, really clean. Boom. I like that. I see a swoosh. I see a swoosh. I think you
0:10:35 didn’t win silver. You lost gold. I think of competitiveness. I think of Michael Jordan.
0:10:40 These things are just so powerful when you own one. What is probably the greatest visual
0:10:49 metaphor in the history of automobiles, at least until a few years ago, was the Jaguar.
0:10:56 I mean, look at this bitch of a … Oh, I mean, he’s out. He’s hunting. He’s graceful.
0:11:00 He’s out there. He’s got his partner, his spouse, and his cubs at home. They’re safe
0:11:04 for a time being, but it’s up to him to go out into the wilderness and he’s so strong.
0:11:10 He’s so sleek. He’s so agile. He kills. He hunts. He brings back the meat. Why? He’s
0:11:17 a jungle cat. That thing is so fucking beautiful. So beautiful on the front of a hood. I mean,
0:11:21 it also helped that they built some of the most beautiful cars in the world, but that
0:11:28 logo, elegant, sleekness, strength, yet a certain feminine agility and gracefulness
0:11:33 to it. Jesus Christ. And what do they do? What do they do? They went to fucking mid-journey
0:11:38 or some generative AI bullshit and said, “Give us a logo that feels like an AI software
0:11:45 company.” Oh my God. I can’t imagine anyone more deserving of being fired right now than
0:11:50 whoever’s in charge of design or marketing at Jaguar or Tata Motors. Oh my God. Come
0:11:56 on. What the fuck are you thinking? And it feels as if every CEO or CMO should do something
0:11:59 or take something that doctors have to take, and that is a Hippocratic oath. And the first
0:12:05 thing I say, and it’s actually, it sounds simple, but it’s really strong, do no harm.
0:12:09 And that is if you go in, if you change your doctors, if you’re having cancer treatment,
0:12:13 it’s sort of tempting for the new oncologists to say, “Well, thank God I’m here. You should
0:12:18 be starting this chemo.” But their commitment is do no harm. And so if you’re on a current
0:12:22 chemo and it seems to be working, they resist the temptation to pretend that they’re here
0:12:27 to save everything, and they say, “Okay, what is the easiest way to do no harm? What do
0:12:31 I do here first off to make sure that I’m not harming the patient?” I think every CEO
0:12:36 and CMO should take that oath. Because what I have found in my experience, consulting
0:12:41 to probably 34 of the 100 biggest companies in the world over the last 20 years, the CEO
0:12:46 of the CMO, is that there’s such a huge temptation when you’re the new guy or gal to change everything.
0:12:50 Thank God I’m here and fire the ad agency or change the strategy or whatever to put
0:12:55 your mark on something and take credit for it. And oftentimes, the guy or gal before
0:12:58 you was doing a pretty admirable job, and there’s a lot of good that you should hold
0:13:04 on to. So why are they doing this? The Type 00 of Man in Jaguar’s 90-year history, Jaguar’s
0:13:07 chief creative officer said in a statement, “You will feel uncomfortable, and that’s
0:13:13 okay. I’ll smell you. You will feel uncomfortable, and that’s okay.” Why the pivot? Jaguar is
0:13:17 betting on a complete brand to survive in the luxury EV market. Beyond that, Jaguar
0:13:21 wants a new identity. According to the company’s managing director, the target market isn’t
0:13:24 the traditional middle-aged banker anymore. It’s a younger, more affluent, urban and independently
0:13:29 minded demographic. Yeah, that’s your target from an aspirational standpoint. The majority
0:13:35 of people still buying luxury cars are primarily old white people. The Type 00 is just a design
0:13:39 vision for Jaguar’s upcoming electric lineup. Does that mean it’s not actually a car? The
0:13:44 first production model will be a four-door Grand Tour with a 478-mile range and a $127,000
0:13:49 price tag. It’s supposed to hit the market in 2026. I’m looking at some pictures. I
0:13:54 think it looks pretty cool, but I still like to see a big fucking jungle cat on the front
0:13:58 of the hood. Anyways, the big question is, will Jaguar succeed in building a luxury
0:14:04 EV brand? Oh God, this is a tough one. This is such a crowded market. And quite frankly,
0:14:08 I think the best-run company in the world right now, automobile companies, Toyota, who
0:14:13 bet big on hybrids. It appears that the charging infrastructure isn’t where it needs to be.
0:14:17 People are still insecure about range, the cost. There’s a bunch of things that have
0:14:21 appeared to be greater headwinds. Growth in the EV market has dramatically slowed. And
0:14:26 what has worked? Hybrids, which give you a little bit of this, a little bit of some
0:14:30 chip and some salsa, right? Some peanut butter and some chocolate. There you go. One plus
0:14:37 one equals three, some nitro and some glycerin. And Toyota’s sales have bumped up pretty well.
0:14:41 Tesla’s seem to be kind of flatlining. Is that fair? Probably still up. But it appears
0:14:47 that a lot of people have overinvested in the EV market and that the more measured Toyota
0:14:53 Smart to bet on hybrid and hybrid sales are booming. So I need to see this car. I’m looking
0:15:00 at it. It looks pretty cool. But I don’t know. How do we turn lemons and turn them into lemonade?
0:15:03 How do we chicken salad this chicken shit? Basically, they should come out and say the
0:15:08 overwhelming affection and pushback we receive from customers, design experts, and academics
0:15:14 and podcasters around the value of the logo has told us that we should not, we were abrupt
0:15:18 in our change. And while we have a fantastic new car, we’re going to maintain this unbelievable
0:15:22 metaphor that you’ve all expressed such incredible affection for. And here it is, and you plant
0:15:29 it on the fucking hood, right? They could turn a loss into a win here, but be clear.
0:15:37 Thus far, this is snatching defeat from the jaws of the jungle cat. We’ll be right back
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0:18:41 Welcome back. Here’s our conversation with Cody Sanchez, a former Wall Street investor
0:18:48 and the founder and CEO of Contrarian Thinking. Cody, where does this podcast find you?
0:18:53 Austin, Texas, actually. Nice. Let’s bust right into it. You have a book coming out
0:18:58 in early December titled Main Street Millionaire, How to Make Extraordinary Wealth Buying Ordinary
0:19:03 Businesses. In your book, you share your journey to building a nine-figure portfolio. So first,
0:19:09 what is your definition of rich? Well, I think mostly rich, I think of as freedom.
0:19:14 So it’s can you push back on the world and live the life you want to live? You know this
0:19:17 all too well, but as you start making money, there’s always a bigger number that sounds
0:19:21 more interesting. But I think the biggest thing is that you kind of get to do what you want
0:19:26 to do to some degree, and life still sucks, and it’s hard in many ways. But it sucks a
0:19:29 lot less when you have a bank account that allows you to kind of work where you want,
0:19:34 live where you want to, and build what you want to. And so I kind of have the words “rich”
0:19:40 and “more free” as synonymous. Yeah, you introduced this something called
0:19:44 the rich method. Can you break it down for us? Yeah. Well, the idea is basically four
0:19:49 segments of the book. So first thing is research. So a lot of people, when they think about
0:19:52 buying a business, they hear the idea, then they go think, “Well, I’ll go buy a business.”
0:19:57 And I’m like, “Eesh, you could actually really lose money buying a business or doing deals
0:20:01 or investing if you do it wrong.” And so the first part is, can you spend a little bit
0:20:04 of time actually breaking down what it takes to buy a business? We think there are like
0:20:09 10 steps to buying a business. So that first rich is a big component of doing your due
0:20:13 diligence and understanding what that even means, to figuring out what a deal might be
0:20:20 good for you, not just a good deal overall. And then next, we like to break into the eye,
0:20:25 which is invest. So now that you kind of understand what you’re doing, how can you start allocating
0:20:31 a little bit of either risk, so like your time, maybe your expertise, or capital, money
0:20:35 in order to do a deal. So I also don’t think you can spell rich without risk in some way,
0:20:41 shape, or form, whether it’s your time or somebody else’s. And then C is for command.
0:20:45 So the idea is that your first deal probably will not be your best deal in the same way
0:20:48 that your first job is hopefully not your last job. You’re going to get better at it.
0:20:52 You’re going to do bigger ones. You’re going to understand what investing is good for you
0:20:56 one way or the other. And then finally, we want to take it to the next level, which is
0:21:01 how can you actually scale in a significant way? Maybe that looks like a holding company.
0:21:05 Maybe that looks like you doing additional deals inside of your main business. I saw
0:21:10 when I was on Wall Street, most of the money made by financial professionals is not actually
0:21:15 coming up with brilliant startup ideas. They’re sold too well. 90% of them fail, but I think
0:21:19 the other part we don’t talk about is that the average income of an entrepreneur that
0:21:25 did a startup is like $47,000 to $67,000 a year, three to four years in. So it’s like
0:21:30 you lose money. You pay for the right to lose money multiple years in a startup. And then
0:21:35 most people don’t really make more than you would if you were in a corporate job, and
0:21:42 the very, very few make an absurd amount of money. But it’s actually quite hard. And so
0:21:47 I kind of obsess on this idea of what if we just focused on profitable businesses instead?
0:21:52 And what if when we had our brilliant business idea, instead of just going out and starting
0:21:56 it, unless we want to start the next Facebook, we can’t sleep for the want of the company
0:22:00 being in the world, then I think instead we should probably start with a nice little
0:22:05 profitable business and then maybe acquire a few others on top of it. And so we can actually
0:22:10 buy other people’s 10,000 hours as opposed to having to slay away for them for decades
0:22:11 ourselves.
0:22:17 Just a lot of it. So I’m that person that started a bunch of businesses because I didn’t
0:22:20 know how to buy a business. So I started a bunch and you’re right. It’s just riskier.
0:22:25 The upside, I think the few times, or the couple of times I got it right, I probably
0:22:31 made more than someone who bought a similar business. But I also just took more risk and
0:22:35 I had some zeros and it’s unlikely I would have gotten, you know, had zeros if I just
0:22:39 come into companies that were already working and bought them. Doesn’t it come down to similar
0:22:44 to the housing market? It’s all about the price you buy at. And that is buying a good
0:22:49 business at a decent price to make money. But if you at some price, if the market gets
0:22:55 crazy and everyone reads your book and starts crawling all over the country for small businesses,
0:23:00 as some private equity firms are doing, that it becomes too expensive, don’t you really
0:23:04 need to kind of figure out, and this is, I guess, part of your art research, what you
0:23:07 should be paying for this type of business?
0:23:12 Yeah. I mean, I had a mentor of mine that told me a line I really liked that I’ve remembered
0:23:16 for years, which is you can have my price in your terms or your terms in my price, but
0:23:22 you can’t have both. And that pros want to actually control the terms, want the price.
0:23:28 And so I think you’re right at the base level, which is it’s really hard to work your way
0:23:33 out of a bad deal done upfront. But more than obsessing on price, I would obsess on the
0:23:38 terms. Like, I could give you a million bucks for a business that only does $10,000 in annual
0:23:43 revenue if I got to pay it over the next 40 years out of future profits, as long as I
0:23:49 got to keep, I don’t know, $5,000 a month. So one of the things I’m hoping that we can
0:23:54 teach people is like, real estate’s funny because it’s been so commoditized now, you
0:23:59 can’t do a lot of term changes to it, right? You’re not like stellar finance me that house.
0:24:02 That’s pretty hard to talk to somebody into. You’re not going to ask them to change the
0:24:07 mortgage terms to go out a crazy different amount. You’re not going to say, well, if
0:24:11 I find X, can I have a little bit of capital I can hold back in case we did the valuation
0:24:15 wrong upfront? You can’t really do any of that real estate anymore. I’m sure eventually
0:24:21 businesses will be able to do less of it. But businesses just have so many levers that
0:24:27 I think the real goal here is can you control the terms so that what you think you’re buying,
0:24:32 like base level, yes, you need to know what a business valuation should be. But I think
0:24:36 the real problem is you get into a business, you’re like, hey, this guy’s been running
0:24:41 it for 30 years. I’m going to buy it for a million bucks. And I think the business makes
0:24:45 enough money in order for it to be worth a million bucks. And you quickly realize you’ve
0:24:49 never run a business before. And so you’re probably not going to do as well as the guy
0:24:54 immediately out the gate, and then you run out of cash. And so my biggest protection
0:24:59 is always how can we even pay a little bit more for something? I’m okay with a premium
0:25:04 as long as it’s over time and we decrease our risk by how we structure the deal.
0:25:07 One of the things we really enjoyed about your book is your focus on investing in what
0:25:11 you call mainstream businesses, industries, including plumbing, construction, cleaning
0:25:16 and electrical services. This is something we talk about a lot on the pod, how the skilled
0:25:21 trades are often overlooked. What makes these unsexy businesses so reliable for wealth
0:25:22 building?
0:25:27 Yeah. Well, that’s when I really like wanted to reach out to you originally was because
0:25:31 you have seen all sides of the trade. You’ve been a public market guy forever. You’ve also
0:25:36 been inside the university system. You know, you’ve also seen inside of even private entities
0:25:39 or some companies, maybe you want to take private from public, you’ve kind of seen the
0:25:43 full gamut of what a company can do. And I’ve been sort of yelling at the internet for the
0:25:51 past four years about the fact that during the 1800s, American ownership was 80%. Most
0:25:58 Americans owned their own business. This time around, we’re happy if 10% of Americans own
0:26:03 their own business. In fact, it’s about 6% of Americans own their own business. And you
0:26:06 know how we know we’re losing is that the Canadians have more ownership than we do.
0:26:13 They have like 7.8% ownership. And so, my theory here is that ownership leads to wealth
0:26:18 most often if that ownership is sustainable. And I think we have this like crisis where
0:26:24 we have a bunch of young people today having 452 LLCs that make no money. And so we have
0:26:29 a lot of like quote unquote company creation, especially since 2020, but they don’t make
0:26:35 any money, you know, 60% of all small businesses listed are single proprietorships with no
0:26:41 properties. And so why I like Main Street businesses are if you’ve been a landscaping
0:26:46 company for 10 years, you’ve been in existence, you never got funding from somebody to run
0:26:51 your business. You never got VC capital. That thing had to make money by itself year after
0:26:56 year in order for you to fund your salary. And so these Main Street businesses never
0:27:01 benefited from this huge glut of capital that came from venture capital and even private
0:27:07 equity firms, they take the company entirely. So if they value a company incorrectly, it
0:27:11 doesn’t hurt like the individual. It hurts their investors. And I think they’ve gotten
0:27:16 a bad rap, but they also are the thing that builds local communities. And I’d way rather
0:27:23 some corner coffee shops and local landscaping than a Starbucks or a PE owned roll up.
0:27:28 On the diary of a CEO, you listed three businesses that you really like right now. Senior care
0:27:33 centers, businesses that are services-based that don’t require a lot of upfront capital,
0:27:37 including window cleaning, pressure washing and painting businesses. And the third being
0:27:41 what you call gateway drug businesses. What did you mean by that?
0:27:46 Yeah. So gateway drug businesses are the business that allows you to get a little taste of what
0:27:51 the addictive game of business is, which is running a PNL, making money, being your own
0:27:56 boss. It’s awful, but it’s also amazing once you’ve done it. And so gateway drug business
0:28:00 would be a thing like what is typically called like a self-serve car wash. So they’re not
0:28:06 super expensive. You don’t have a ton of employees. It’s not a complex business to understand.
0:28:09 And thus you might be able to start with something like that. Mine famously was a laundromat.
0:28:13 That was my idea when I first started buying businesses. I was like, man, I’ve been a
0:28:17 corporate junkie for so long. I don’t know if I could run a business by myself. This
0:28:21 one’s pretty simple. I could probably run this one. It’s like dirty clothes, go into
0:28:25 a machine, get clean. I take a quarter, I make money on it. That makes sense to me. There’s
0:28:30 not that many levers to the business. And so a lot of these are called people light
0:28:36 or capital light businesses. So not that many employees, not that much operating expense.
0:28:40 These are the type of businesses that I think are interesting for people to get their hands
0:28:44 a little bit dirty on the game of business to start. And the only caveat there is we’ve
0:28:49 seen a huge increase in the multiple cost of these business since we’ve started talking
0:28:53 about that, both laundromats and car washes. So keep your eye on the prize that you do pay
0:28:58 the right price in terms. Yeah, that makes sense. And then also, you
0:29:03 talk about, or I think it’s in your book, but we talk a lot about here, about this silver
0:29:08 tsunami in that with so many baby boomers retiring, there’s a huge opportunity for younger
0:29:13 generations to acquire these businesses. What are some signs that a small business is ideal
0:29:19 for acquisition? What are some rules of the road for what feels like a good business in
0:29:22 your view? I have two methodologies. If you’re going
0:29:28 to buy a business, first thing is we buy realities and profits. We don’t buy hopes and dreams.
0:29:31 So I think where you can go really wrong in buying a small business is that you go and
0:29:36 buy a business that’s losing money today and you go, the thing is I can fix it. And I always
0:29:41 compare this to real estate. Like how many times have you redone a house and it’s under
0:29:45 budget and done quicker than you thought it was? The answer is like never. It’s just physics
0:29:49 or something. And so just make sure that you don’t buy turnaround businesses. I think that’s
0:29:53 for pros. If you’re a pro, you could do a turnaround, but you’ve done some of those publicly.
0:29:58 Man, they’re brutal and litigious and so stay away from that. The second thing that makes
0:30:03 a business really interesting to me, I think, is that you have an owner of the business
0:30:08 who’s been around for a long time. It has a managerial layer. So it’s not just a job,
0:30:13 it’s a business. There are other people running varying divisions of the business. It’s profitable.
0:30:18 The business is usually in a recession resistant sector. Like for instance, it doesn’t mean
0:30:22 that it can’t go down, but you might have a plumbing business. You might have a roofing
0:30:27 business. You might have a landscaping business. These aren’t so luxurious of items that you’re
0:30:33 going to die during the recession as opposed to a custom framing business, which maybe
0:30:36 is not the best business to get into with volatility.
0:30:39 And then the last thing that I think is interesting for these small businesses is you really got
0:30:44 to make sure that you don’t get in over your head. I say so simple grandma could do it.
0:30:48 And if grandma doesn’t understand your business model, then maybe that’s not the right business
0:30:49 for you.
0:30:54 People have been talking about this for a while, that there are a lot of mainstream businesses
0:30:58 coming up for sale and there’s a bit of an asymmetric or dislocation. What do I mean
0:31:03 by that? That young people find these businesses not sexy and there’s a lot of baby boomers
0:31:07 whose kids don’t want to inherit the business. If a dad has a carpet cleaning business and
0:31:13 makes good money, he wants to retire and he can’t find anyone. And there’s not a real liquid
0:31:18 market here. Is this market getting more liquid? Have you seen, you reference evaluations
0:31:21 have gone up, but you still feel there’s a lot of opportunity.
0:31:26 Yeah. Well, now we have some unique data on this market. So we bought a website called
0:31:30 BizScout, which is a marketplace for buying and selling small businesses. Now we have
0:31:36 68,000 listings on that website. We’ve connected about 3,000 buyers and sellers over the past
0:31:41 four weeks. And we’re starting to get sort of our first realm of proprietary data, which
0:31:45 is it’s a real bitch to get data in the small business space. You can go to the SBA. They
0:31:48 won’t really release any information from you. There’s a couple of behemoths in the
0:31:50 industry. They don’t really share third party data.
0:31:56 And so what we found from the 58,000 businesses listed is most of them are highly incomplete.
0:32:01 So we have this marketplace where it’s the opposite of Zillow and Redfin. There’s no
0:32:08 historical listings of pricing. There’s no uploaded QuickBooks or tax documentation to
0:32:14 confirm what the listings have located there. Very little usage of data room. They say that
0:32:20 less than 10% of all small businesses that are listed for sale run through a broker.
0:32:27 So most of the businesses are kind of a carefully concealed series of disasters. And they don’t
0:32:33 have a roadmap for you to actually see what you’re buying. And so because of that, I could
0:32:37 scream about this from the rooftops. But if people don’t actually know how to get inside
0:32:41 of a business, hold the hand of a business owner that’s done paper invoices for seven
0:32:47 years and move them into 21st century tech, they’re probably not going to close that sale.
0:32:53 And so I think we still have a lot of runway to go there. Plus, this is the perfect fragmented
0:32:59 market. I mean, most of these small businesses are probably jobs. But guess who wants a job?
0:33:02 Your 30-year-olds who are making less than their parents were at 30 as you’ve talked
0:33:07 about before, they’d be thrilled with a business where they could raise their prices more than
0:33:10 inflation each year, where they could be their own boss and where they might actually be
0:33:17 able to grow the business overall. And so businesses that are sub $10 million in revenue
0:33:21 are numerous. I mean, that would be businesses sub $10 million, but above $5 million or about
0:33:28 20% of the marketplace. And the rest is below $5 million in annual revenue, which is a very,
0:33:30 very small business.
0:33:35 Talk a little bit about financing. There’s different ways to finance a small business.
0:33:40 I would think a lot of people don’t consider us because I think I’ve got $20, $30,000 to
0:33:45 my name or no capital. What are different means of financing the acquisition of a small
0:33:46 business?
0:33:50 Yeah. Without trying to sound like a used car salesman saying that you could buy a car
0:33:56 with $0 down and no credit, the interesting part about the business landscape is the credit
0:33:59 is not your own. I think a lot of people don’t realize this. When you go to buy a house,
0:34:05 you go, “Okay, I got $200,000 in earned income. They’ll loan me whatever based on my earned
0:34:10 income, and I can’t buy a house that’s more than that. It’s all based on how much I earn.”
0:34:14 You go to buy a small business, the small business is what the loan is on. Now, they
0:34:19 also want to make sure that you are not going to fail and you’re not going to sit as a liability
0:34:22 on their balance sheet because you can’t run the business, but they’re really analyzing
0:34:27 the business. So your earned income is whatever the earned income of the business makes, which
0:34:30 is like a huge mindset for people to have to think about.
0:34:37 Now, we know the SBA will do loans up to 90% of the purchase price of a small business.
0:34:43 So that means you’re on the hook for probably 10% to 20% down for a small business. And
0:34:47 then you want to have float. You want to have enough cash on hand to make sure you can handle
0:34:51 operating costs for the business overall. But there’s three ways that we buy businesses
0:34:56 that people don’t think about. One, Uncle Sam, SBA gives you money to buy the business.
0:35:00 This is just getting expanded. For the first time ever, they’re allowing diversified investors.
0:35:04 So you don’t have to be the only one. You don’t even have to put up the 10 or 20% now.
0:35:08 You can have other people invest alongside you, put up the capital and be on the loan
0:35:10 with you. That’s just enacted this year.
0:35:15 The second way is seller financing or creative financing. I don’t really like to say seller
0:35:18 financing because it kind of sounds weird if you go to the owner of business and say
0:35:24 like, “You sell me your business using your future profits,” which is what it is. I might
0:35:28 say instead creative financing. In the book, we have like a couple of graphs that I think
0:35:33 help make this more reasonable as to why a seller would do this. But 60% of all small
0:35:38 businesses are sold with some component of seller financing, which is a wild number.
0:35:44 Now, not 80%, but 30% at least. And then the third way that we see small businesses getting
0:35:48 sold, and we’re seeing it like crazy in Japan, I think it’s going to start happening more
0:35:53 here in the US, is basically we’re seeing apprenticeship begin again. A small business
0:35:58 owner knows that they want to retire in the next five years. And because they want to
0:36:02 retire in the next five years, they are starting to look for somebody to take over for their
0:36:07 small business for them. And so it just happened with Jade, a member of our community. She
0:36:11 went to her boss, this is a military contracting company, and said, “I want to eventually take
0:36:16 over your business. Would you be open to selling to me?” And instead he said, “Why don’t we
0:36:22 start transitioning from the business from me to you, and I’ll continue to take up glorified
0:36:28 salary, really like a royalty payment on what you make over the next five, 10, or 15 years,
0:36:32 but I don’t even need you to actually buy the business from me.” And so if we don’t
0:36:36 do this, my thought is that a bunch of these businesses go away and they die, and we’ve
0:36:42 seen that happen. And so that is why I’m pushing people to say, “Yes, be careful of risk, but
0:36:47 these businesses are available all around you to purchase, and baby boomers simply will
0:36:51 not live forever. And if we don’t buy them, then those businesses will go away entirely.”
0:36:57 So say you’re sold on this, what’s the best way to try and cast a wide net and identify
0:37:01 these businesses? I wouldn’t even know where to start to try and find these businesses.
0:37:07 Well, I think the first thing you got to do is we call it deal clarity. So you got to
0:37:11 really make sure you know what you want in a business. I think a lot of reasons why people
0:37:14 get overwhelmed in searching is because they’re like, “Okay, I’m going to buy a business. I
0:37:17 guess Cody talked about laundromats, so I’m going to buy a laundromat.” And that’s not
0:37:23 actually right. If we call it a perfect fit business, so imagine three circles of N diagram
0:37:27 in the middle is the business that’s perfect for you. What I usually tell people today
0:37:32 is like, “Everybody listening has some sort of skill set that is unique to them. If you’re
0:37:36 an accountant, yes, you could go buy a landscaping company, and accountants actually are great
0:37:40 for buying businesses because you know how to analyze the P&L, but you might be better
0:37:45 off buying and counting from. You might be better off actually looking at your competitors
0:37:49 and some of the others in your same or similar industry.” So that’s more strategic. I always
0:37:55 think first, what is your satellite acquisition strategy where either you already have a skill,
0:37:59 you’re an employee in that business, you just go buy a business that is similar. Number
0:38:04 two would be what if you are an accountant, but you don’t want to stay an accountant.
0:38:07 You want to do something else. Well, then you might want to run around and look for a
0:38:13 business that necessitates somebody who has a strong financial acumen. And then third,
0:38:17 we kind of go through this, it’s called the deal box, this from investing, but we have
0:38:22 our investment thesis categorized by 15 different components that says how much money do you
0:38:26 want to make? Where does the business located? Do you want to run the business or do you
0:38:31 want to be an investor in the business? Do you want the business in which sectors? And
0:38:37 once you fill out this deal box, I think bumper lanes actually make it easier to hit the pins.
0:38:44 And so then you can start narrowing down your deal search. And we talk about the 100 to
0:38:48 50 to 10 to 1 rule, which is basically you’re going to look at 100 different companies,
0:38:53 just like you’d look at 100 different houses, high level on business sites, high level publicly.
0:38:58 And then you’re probably going to, you know, after you’re perusing your Zillow of business,
0:39:01 you’re going to narrow down to like 50 that you might reach out. Most of them are never
0:39:05 going to get back to you. Then you’re going to go down to 10 that you get kind of serious
0:39:08 with and you might go visit them. You might get to know the owner. Maybe it’s people
0:39:12 you already know you’re going to get into their financials. And then you get down to
0:39:16 one business that you actually buy. And I’m not saying that’s the right way to do it always,
0:39:19 but it’s a good rule of thumb.
0:39:24 We’ll be right back.
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0:42:47 Can I ask what you think about the MBA and college degrees right now?
0:42:52 I’m not the biggest proponent. Here’s what I can say. I have an MBA from Georgetown.
0:42:59 I went all credentials down the way. I started off at ASU, Harvard of the West, and didn’t
0:43:04 apply anywhere else. It was just where I got in for free. But then I was a Goldman in
0:43:09 State Street in Vanguard in first trust. So, I thought that in order to progress you had
0:43:14 to get an MBA. That was my idea. So, I went and I spent whatever $100,000 plus getting
0:43:20 the Georgetown MBA and added on a PhD to it. If I could go back right now and instead
0:43:26 take those two years back from my MBA and that $100,000 and instead buy a couple of
0:43:32 these businesses, I would. And to be perfectly frank, I learned nothing related to running
0:43:38 a business at my Georgetown MBA. I learned a lot about international business, which
0:43:41 is interesting at the time. And I learned a lot about how to make sure the government
0:43:45 doesn’t fuck with your business too much because I ran a pretty big international finance business
0:43:49 at the time. I also am not in touch with anybody that I went to Georgetown with. Like, they
0:43:53 say, “Well, if you don’t go for the knowledge, you go for the network.” I don’t know. I have
0:44:00 a better network from YPO and EO, which cost me like 4K a year and maybe like 10K a year
0:44:06 for YPO. So, I have a little bit of a jaded view about MBAs in particular. I think it’s
0:44:09 awesome when you’re like me, you want to climb a corporate ladder and you want a virtue
0:44:14 signal. Or if you don’t really know what you want out of life yet and so you just want
0:44:18 to see the full spectrum of jobs or opportunities available, then I like it. But if you want
0:44:25 to be a business owner, the best business school is business and it pays you.
0:44:29 You said you’d wish you had that $100,000 back to buy one or two businesses. What kind
0:44:33 of business? Give us an example of a business that you or someone you know has been able
0:44:38 to buy for $100,000. The type of business, the cash flows where it ultimately ends up
0:44:39 in three or five years.
0:44:44 Well, one of the first businesses I bought was a laundromat for $100,000. And it did
0:44:52 about $67,000 a year in “profit,” but that was also the operator’s payment. And that
0:44:56 business was perfect kind of because I had a guy who knew how to run a laundromat. He
0:44:59 was a real estate guy. Real estate guys are interesting to partner on some of these businesses
0:45:04 because they have to fix a lot of stuff. They have a handyman. They usually know like local
0:45:09 geography. And so he knew that this area was pretty good. We also ended up buying the property
0:45:11 that it was in.
0:45:16 So that business didn’t make me much money. Like I was in finance, $67,000 a year plus
0:45:21 split with the guy plus whatever extra expenses we have was basically not very much. But what
0:45:24 we realized from doing that first deal is we could add three or four more to those. And
0:45:29 that business ended up getting pretty healthy, $300,000, $400,000 a year in both of our
0:45:35 pockets, split between the two of us in our pockets. And that’s when I realized, oh, there’s
0:45:41 not that much difference between a smaller deal and a bigger deal, just confidence at
0:45:45 some degree. And then also once we did a couple of those, then we were like, huh, we would
0:45:49 need to add wash and fold to this. So then one of our laundromats, actually one located
0:45:54 here in Texas, ended up doing $3 million a year in total revenue and then more like
0:46:00 a 25% margin on just that one laundromat from a wash and fold add-on. And so even a laundromat
0:46:04 can scale up to a business that does a couple of million dollars a year if you have a few
0:46:08 of them, one individually know, and that’s a laundromat is probably the worst business
0:46:14 from a total return standpoint out there because you cannot scale it very high. And all these
0:46:18 VC companies have died at the altar of trying to spend a bunch of money on laundromats and
0:46:19 scale them up.
0:46:23 But for a new person who didn’t understand much, you know, that’s how I made my first
0:46:26 couple of hundred K outside of my nine to five.
0:46:30 There’s a lot of research showing restaurants where the owner is there just do tangibly
0:46:36 better. I mean, isn’t this about being really on top of your business and if you want to
0:46:40 scale, it’s about finding and retaining really talented managers. What kind of people do
0:46:44 you look for in your business to bring on to manage these different businesses?
0:46:49 Well, one good thing about a lot of these businesses is the word talent is so different
0:46:54 here than it is for a media company. Like the talent at my media company, they’re expensive.
0:47:02 They leave all the time. They don’t want to do all of the work. They have a lot of optionality.
0:47:07 And you know, I’m lucky in that we screen for kind of the right culture fit for us.
0:47:12 But that talent is really hard to manage. VC talent really hard to manage, really hard
0:47:16 to keep, really expensive. When I run these small businesses, I mean, God, Laura, one
0:47:24 of my operators has been with me for years and is incredible, like never asked for anything,
0:47:30 can run a business that does, let’s call it almost just seven figures a year and probably
0:47:36 will do it for decades for me and doesn’t require this really sophisticated product
0:47:42 knowledge or sophisticated talent set. I think, you know, we owned a mobile home park, for
0:47:47 instance. And like, do you know what the operator of a mobile home park makes a year?
0:47:52 It’s funny, my father actually, his fourth wife owned mobile home parks. So I know a
0:47:57 little bit about this. This is 20 years ago, but they made $28,000 plus they had their
0:48:00 rent paid for it. But that was 10 or 20 years ago.
0:48:04 Well, that’s, yeah. So I first learned this, I was shocked. I was like, wait a second, we
0:48:12 paid in my mobile home park, we paid like 300 or maybe 400 bucks a month to this to the
0:48:17 operator of the mobile home park, plus they got their rent for free, plus they got to
0:48:23 screen everybody that came in. So they ended up picking their friends and like family members
0:48:28 in order for them to come in as well. And that was the entire pay. And I remember when
0:48:32 I asked originally to the guy about the mobile home park, I’m like, why would somebody do
0:48:37 this job for so little? And, and he said a couple different reasons. He said, one, give
0:48:42 them the friends and family perk. They really like, they like self-selection their own community.
0:48:47 You know, to upgrade them, do whatever they want to their actual mobile home, like take
0:48:52 care of everything for them. And then, and then three, like, that’s it, just make sure
0:48:56 that they’re sort of taken care of from that perspective. And so, you know, she’s like
0:49:03 in her sixties, loved the job and ran a mobile home park that did, you know, God, I mean,
0:49:09 one and a half, $1.7 million a year. I think we underestimate how much we have to pay people
0:49:12 when we’ve been in these fancy industries. And then, you know, we ended up selling the
0:49:16 mobile home park and then she got a little piece of it, which was kind of cool at the
0:49:17 end.
0:49:21 The thing that always pops out to me about something like this is that return on investment
0:49:27 has inversely correlated to how sexy businesses, these are not sexy businesses. And, but what
0:49:32 is sexy as you get older is being able to take care of your kids and your parents. And
0:49:37 like you said, be rich, do it, do whatever you want. Is there anyone sector right now
0:49:42 that’s propping up that you think represents more opportunity than others?
0:49:47 I think rehab, individual rehab homes right now, we’re analyzing a bunch of them. I mean,
0:49:51 we have an addiction crisis here in the US, the likes of which really no country has ever
0:49:59 seen before. And that’s not going to get better in the near future. And we do not have enough
0:50:04 beds. We do not have enough resources for these individuals. And originally when I looked
0:50:08 at the sector, I thought, well, who has the money to like spend up a $10 million or $50
0:50:13 million rehab center that must be very aggressive. But actually there are all these grants for
0:50:19 you to do it with single family homes. And so there are these small little rehab, I don’t
0:50:23 even know if you would call it centers houses all around the country that are popping up,
0:50:28 but you get subsidized by the federal government. You also get a bunch of tax breaks on top
0:50:34 of it. You get to do something good for individuals. You also get some unique tax consequences
0:50:39 because it’s largely real estate driven. You get a landhold on the real estate overall,
0:50:45 and they’re not cheap to stay in. And so this one is, there’s not very many home services
0:50:50 businesses that I think can have like a real positive impact too besides the clean communities
0:50:54 I think are good for society. But this is one where I think you could make a real impact.
0:50:59 You can make some money, and it’s probably going to expand crazily. And then we’re going
0:51:02 to eventually see a bunch of PE guys buying it out.
0:51:06 Cody Sanchez is a former Wall Street investor and the founder and CEO of Contrarian Thinking,
0:51:12 a digital education company with over 7 million followers. She’s also the founder of Main Street
0:51:16 Holdco, a small business holding company focused on bringing Main Street businesses back to
0:51:20 the limelight and Contrarian Thinking capital, affirm that invest money back into the companies
0:51:25 that support small business growth. Cody, I think what you’re doing is really important.
0:51:29 Not only because it’s growing the economy and you’re creating jobs, but I think there’s
0:51:34 an unfortunate zeitgeist that if a kid doesn’t go to Dartmouth and end up at Google, that
0:51:39 he or she has failed. And there’s other pathways into the middle class and maybe even to the
0:51:43 upper income home. And I think you’re sort of destigmatizing it. I think you’re actually
0:51:48 playing them, not only an economically important role, but kind of an emotionally and psychologically
0:51:54 important role. Really, really appreciate your good work. And, you know, right on sister.
0:51:55 Well done.
0:51:59 Thank you so much. I appreciate it. It’s fun. I wish more people realized garbage men have
0:52:00 good times.
0:52:03 There you go. Sanitation engineers. Thanks, Cody.
0:52:20 I was very happy. My friend Adam gave me a piece of advice that always sort of resonated
0:52:25 with me. He has two boys, you know, both doing well, both wonderful boys, but they’ve had
0:52:30 like every other boy, they’ve had their issues at different times. And he said that the only
0:52:36 thing that worked consistently was time. And that is eventually things worked out or got
0:52:40 better. And it struck me. And even though I don’t act this way, I know it’s right, but
0:52:46 I don’t always act on it. My son is doing really well at school. Kind of, I don’t want
0:52:52 to say all of a sudden he’s always done okay, even good, but all of a sudden he’s just doing
0:52:58 incredibly well. And when I try to reverse engineer it to our environment or what we’ve
0:53:04 done for him, here’s the answer. Here’s what we did. Absolutely nothing. There’s nothing
0:53:10 we did. As a matter of fact, he wanted to take sports science. And our friends who are
0:53:14 all, you know, Ivy League or die in America said, no, don’t do that. And he’d say economics
0:53:19 or businesses, colleges don’t take sports science seriously. And so we had this big
0:53:24 intervention, tried to talk him out of it. And he pushed back on us, which I’m really
0:53:29 proud of him for. And he kept sports science and he’s getting commendations or whatever
0:53:35 they call as the one at the top in his class in it. And it just struck me that so much
0:53:41 of our stress around our kids is such unproductive stress. You know what you need to do? You need
0:53:44 to love them unconditionally. You need to spend a lot of time with them. You need to
0:53:49 try and instill a set of values in them. You need to model, right? You give your kids
0:53:54 the basics. And then you realize that the only thing that’s works over the long term or
0:54:01 doesn’t is time. And you forgive yourself, you do your best, you work out, you learn
0:54:07 about baseball. But once you’ve thrown the pitch, you know, it’s up to the batter, your
0:54:12 kid and God and the humidity in the air and the environment. So yeah, do you want to be
0:54:16 a little bit stressed out? Sure. But at the end of the day, when you look back, you’re
0:54:19 not going to be angry or upset about the bad things that happen to you or your kids. You’re
0:54:24 going to be angry and upset and how much pressure you placed on yourself and then inject it
0:54:30 into the relationship with your kid. The only thing that reliably works out over time, built
0:54:36 on a base of love and support and time is time.
0:54:40 This episode was produced by Jennifer Sanchez and Caroline Shagren. Drew Burroughs is our
0:54:43 technical director. Thank you for listening to the Prop G-Pod from the Box Me at podcast
0:54:48 network. We will catch you on Saturday for No Mercy, No Malice as read by George Hahn.
0:54:52 And please follow our Prop G-Markets Pod wherever you get your pods for new episodes
0:54:54 every Monday and Thursday.
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0:55:44 That’s AWS.com/learnmore.
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0:02:06 Episode 327. 327 is the area code serving Arkansas. 1927, the first solo nonstop transatlantic
0:02:13 flight was completed from New York to Paris. I love the new British Airways tagline, Breakfast
0:02:30 in London, Dinner in New York, luggage in Tokyo. Welcome to the 327th episode of The
0:02:34 Prop G-Pod. In today’s episode, we speak with Cody Sanchez, a former Wall Street investor
0:02:39 and the founder and CEO of Contrarian Thinking, a digital education company with over seven
0:02:44 million followers. We discuss with Cody her new book, Main Street Millionaire, How to Make
0:02:48 Extraordinary Wealth Buying Ordinary Businesses. We get into how to build wealth by buying
0:02:52 small businesses, including what to look out when buying, ways to finance a purchase and
0:02:56 which sectors have the most potential right now. I really enjoy this conversation. She’s
0:03:02 a unique woman and I love kind of this financial literacy or investing approach and that is
0:03:07 instead of talking about Nvidia or AI all the time, what happens when you buy a dry cleaner
0:03:11 or a carpet cleaning company. And I think there’s a ton of potential and if you think
0:03:16 about, I won’t talk more about this, but in some there’s this tidal wave of retirements
0:03:21 from the boomers who have small businesses and their kids all want to be baristas or
0:03:24 go to work for Google. And so there’s going to be a lot of small businesses up for sale.
0:03:27 It’s just, it’s an interesting overlooked part of the economy, a great way to build
0:03:31 wealth and kind of the millionaire next door probably owns car washes and doesn’t work,
0:03:35 you know, doesn’t work at Salesforce. Or maybe she does. Maybe she does anyways, but I really
0:03:39 enjoyed this conversation. She’s an impressive woman. All right, what’s happening? Some news
0:03:46 about the luxury auto space Jaguar unveiled it’s all electric type 00. Hmm. Concept in
0:03:50 Miami art week, marking the official start of the brand’s new era Miami art week. Does
0:03:53 that mean basil? I used to go to basil. I have no interest in art. By the way, I think
0:03:57 people who order expensive wine or expensive art are basically insecure people trying to
0:04:01 flaunt their wealth. I have done neither about a great, the only piece of art I own is a
0:04:05 Grayson Perry. I think he’s, I love that guy. I think he’s super interesting. He talks,
0:04:09 makes political art, lives half his year as a woman, half as a man, did that before it
0:04:14 was cool. And I just think he’s such an interesting cat. And I love he does cover these politically
0:04:18 charged pieces of art. That’s the only piece of art I own. Someone who means a great deal
0:04:22 to me took me to the exhibition of his in Istanbul, found something I liked and then
0:04:27 bought it for me and it’s, it hangs in my living room. And I just absolutely love it.
0:04:32 Back to Jaguar. They released their type 00. The reveal follows week of controversy after
0:04:37 Jaguar’s rebrand campaign went viral. Critics including Elon Musk. Oh, fuck. I agree with
0:04:43 Elon Musk. All right. So anyways, we’re clicked to kind of slam the avant-garde 32nd and which
0:04:47 featured models and a futuristic landscape but failed to show a single car. Remember,
0:04:52 this happened before. Infinity did this. This was the era of brand in the eighties. Let me
0:04:56 get like kind of a brief history of economic history and brands. Brands didn’t mean a whole
0:04:59 hell of a lot. The strongest brand up until World War II was the Catholic Church. Name
0:05:05 anything that engages in corruption, leveraging or exploiting the masses and just institutionalized
0:05:08 pedophilia and manages to be the most powerful institution in the world. They are the most
0:05:12 powerful brand in the world and they are in fact the best brand builders. They understand
0:05:17 distribution and place-based marketing. Let’s build the most beautiful venues in the world
0:05:21 bringing the most talented artisans in the world because we want to fool people in the
0:05:24 middle of believing that, yeah, there’s a decent job that God hangs out here and then
0:05:30 we’ll have robes and clothes and candles and music and it’s highly orchestrated and ruled.
0:05:35 I mean, these folks, these folks understood the Apple store before Apple understood the
0:05:40 Apple store. Best branders in the world. World War II comes along and then you have American
0:05:46 caterpillars left overseas rebuilding America. So yellow started to mean capitalism and rebuilding.
0:05:52 The US dollar, the strongest currency in history, that green hope, optimism, capitalism, winners,
0:05:59 losers, all of a sudden America caught on to the ability to take a shitty product, inject
0:06:05 it with emotion and get unnatural margins. So the primary algorithm for building shareholder
0:06:11 value in 1945 to 1995 was a mediocre shoe, salty snack or car and then wrapped these
0:06:18 amazing brand codes around it. Individualism, toughness, tough like a rock, European elegance,
0:06:22 30 cents a peanut butter paste gets turned into $3 a peanut butter. Why? Because choosing
0:06:28 mom’s choose Jeff, maternal love, right? So in addition, we could, after developing
0:06:34 these brand codes to inject into peanut butter paste, we could hammer these codes into people’s
0:06:38 brains using the most unbelievably inexpensive cheap, didn’t realize what a great bargain
0:06:43 it was called broadcast advertising where 60, 80% of America every night tuned into one
0:06:48 of three channels and you could raise awareness around a brand in a week. And if you want
0:06:52 to talk about efficiency, the Academy Awards, a 30 second spot costs five times as much as
0:06:55 it did 40 years ago and it reaches 130 the audience. So in some, the ROI has gone down
0:07:01 by 15 fold. You’re literally getting 6% of the ROI you used to get 30 or 40 years ago
0:07:05 on advertising. So that was the way to make money. That was the way to print money. And
0:07:10 then, and then came along the end of the brand era in the 80s and 90s was the introduction
0:07:15 of Google. And that is weapons of mass diligence said, well, you don’t know, you don’t need
0:07:20 to buy a Neralco or Gillette hair clipper to shave your head because we now have blogs
0:07:24 that if you type in best hair clipper in the world or best beard trimmer, they’ll take
0:07:30 you to this blog on shaving your head. And there’s some former factory in East Germany
0:07:34 out of East Germany that makes the best clip from the world. There’s just, oh, okay, four
0:07:37 seasons of Mandarin Oriental. Data used to always defer to those brands and stay there.
0:07:40 Why? One, cause someone else was paying, did a lot of consulting around the world, a lot
0:07:44 of speaking. And two, they were always a seven or an eight. And then I realized, oh, what
0:07:48 do you know? What do you know? The hotel du Cap is the best hotel in France and Greeks
0:07:53 have old European elegance. Oh, what do you know? The Soho House in Berlin has an incredible
0:07:58 gym. Oh, what do you know? Daddy likes to roll at the polo lounge. That’s where all,
0:08:02 that’s where all the celebs are. Daddy likes to hang out with the younger cool people, maybe
0:08:06 have some people over for a $54 Cobb salad at the brand of the Patty, whatever it’s called
0:08:12 next. I no longer need to defer to the brand. A brand is shorthand or due diligence when
0:08:17 you don’t have time, but now it’s very easy to do your own diligence. And the shorthand
0:08:22 or the automatic differential nod to a brand is no longer as obvious, meaning that brand
0:08:28 equity on top of a shitty product is no longer the algorithm to build shareholder value.
0:08:34 It’s brands that are built based on superior innovation, operations, distribution. Amazon
0:08:37 is one of the strongest brands in the world. Google is one of the strongest brands in the
0:08:41 world. What do these things have in common? What does any company have in common that
0:08:46 has added over $100 billion in value in any single year? They spend almost no money on
0:08:51 traditional branding. They spent it all on supply chain and innovation and actual 10x
0:08:56 better product. Instagram is a 10x better product as is or was Google. I’m not sure
0:09:00 it’s a 10x better product anymore. It hasn’t changed in 10 years, but the stuff that breaks
0:09:04 through is in fact either delivered differently through distribution, has better customer
0:09:09 support, has more interesting people talking about the product is scrappier around building
0:09:16 awareness and first and foremost uses digital technologies to unlock some type of innovation.
0:09:21 What are some of the assets you want in a brand? What are some of the things that really provide
0:09:27 sustainable advantage? One of those things is visual metaphors. We have been learning
0:09:31 from images or interpreting images for thousands of years. Thousands of years ago, people decided
0:09:37 to educate their kids by painting stories on cave walls. Don’t go over here. They will
0:09:42 kill you or plant the crops at this time of the year such that as a species, we could leverage
0:09:47 our core confidence as a species or our advantage and that is communication and cooperation until
0:09:52 the next generation helped them learn such that communication and storytelling basically
0:10:00 takes instinct. If you are blessed with a visual metaphor, oh my God, oh my God. Literally
0:10:08 Darth Vader or Goofy or the Matterhorn or Snow White or the Seven Dwarves, that shit,
0:10:14 those are really, really powerful metaphors. Visual metaphors, objects, symbols, the color
0:10:18 brown. If I’m driving and I see a big brown thing next to me, I’m like, oh, it’s UPS.
0:10:21 Oh, they’re nice people. They make good money. They work really hard. They’re handsome, dreamy
0:10:25 men. Sometimes they wear shorts, but they always wear brown and their trucks are always
0:10:30 really, really clean. Boom. I like that. I see a swoosh. I see a swoosh. I think you
0:10:35 didn’t win silver. You lost gold. I think of competitiveness. I think of Michael Jordan.
0:10:40 These things are just so powerful when you own one. What is probably the greatest visual
0:10:49 metaphor in the history of automobiles, at least until a few years ago, was the Jaguar.
0:10:56 I mean, look at this bitch of a … Oh, I mean, he’s out. He’s hunting. He’s graceful.
0:11:00 He’s out there. He’s got his partner, his spouse, and his cubs at home. They’re safe
0:11:04 for a time being, but it’s up to him to go out into the wilderness and he’s so strong.
0:11:10 He’s so sleek. He’s so agile. He kills. He hunts. He brings back the meat. Why? He’s
0:11:17 a jungle cat. That thing is so fucking beautiful. So beautiful on the front of a hood. I mean,
0:11:21 it also helped that they built some of the most beautiful cars in the world, but that
0:11:28 logo, elegant, sleekness, strength, yet a certain feminine agility and gracefulness
0:11:33 to it. Jesus Christ. And what do they do? What do they do? They went to fucking mid-journey
0:11:38 or some generative AI bullshit and said, “Give us a logo that feels like an AI software
0:11:45 company.” Oh my God. I can’t imagine anyone more deserving of being fired right now than
0:11:50 whoever’s in charge of design or marketing at Jaguar or Tata Motors. Oh my God. Come
0:11:56 on. What the fuck are you thinking? And it feels as if every CEO or CMO should do something
0:11:59 or take something that doctors have to take, and that is a Hippocratic oath. And the first
0:12:05 thing I say, and it’s actually, it sounds simple, but it’s really strong, do no harm.
0:12:09 And that is if you go in, if you change your doctors, if you’re having cancer treatment,
0:12:13 it’s sort of tempting for the new oncologists to say, “Well, thank God I’m here. You should
0:12:18 be starting this chemo.” But their commitment is do no harm. And so if you’re on a current
0:12:22 chemo and it seems to be working, they resist the temptation to pretend that they’re here
0:12:27 to save everything, and they say, “Okay, what is the easiest way to do no harm? What do
0:12:31 I do here first off to make sure that I’m not harming the patient?” I think every CEO
0:12:36 and CMO should take that oath. Because what I have found in my experience, consulting
0:12:41 to probably 34 of the 100 biggest companies in the world over the last 20 years, the CEO
0:12:46 of the CMO, is that there’s such a huge temptation when you’re the new guy or gal to change everything.
0:12:50 Thank God I’m here and fire the ad agency or change the strategy or whatever to put
0:12:55 your mark on something and take credit for it. And oftentimes, the guy or gal before
0:12:58 you was doing a pretty admirable job, and there’s a lot of good that you should hold
0:13:04 on to. So why are they doing this? The Type 00 of Man in Jaguar’s 90-year history, Jaguar’s
0:13:07 chief creative officer said in a statement, “You will feel uncomfortable, and that’s
0:13:13 okay. I’ll smell you. You will feel uncomfortable, and that’s okay.” Why the pivot? Jaguar is
0:13:17 betting on a complete brand to survive in the luxury EV market. Beyond that, Jaguar
0:13:21 wants a new identity. According to the company’s managing director, the target market isn’t
0:13:24 the traditional middle-aged banker anymore. It’s a younger, more affluent, urban and independently
0:13:29 minded demographic. Yeah, that’s your target from an aspirational standpoint. The majority
0:13:35 of people still buying luxury cars are primarily old white people. The Type 00 is just a design
0:13:39 vision for Jaguar’s upcoming electric lineup. Does that mean it’s not actually a car? The
0:13:44 first production model will be a four-door Grand Tour with a 478-mile range and a $127,000
0:13:49 price tag. It’s supposed to hit the market in 2026. I’m looking at some pictures. I
0:13:54 think it looks pretty cool, but I still like to see a big fucking jungle cat on the front
0:13:58 of the hood. Anyways, the big question is, will Jaguar succeed in building a luxury
0:14:04 EV brand? Oh God, this is a tough one. This is such a crowded market. And quite frankly,
0:14:08 I think the best-run company in the world right now, automobile companies, Toyota, who
0:14:13 bet big on hybrids. It appears that the charging infrastructure isn’t where it needs to be.
0:14:17 People are still insecure about range, the cost. There’s a bunch of things that have
0:14:21 appeared to be greater headwinds. Growth in the EV market has dramatically slowed. And
0:14:26 what has worked? Hybrids, which give you a little bit of this, a little bit of some
0:14:30 chip and some salsa, right? Some peanut butter and some chocolate. There you go. One plus
0:14:37 one equals three, some nitro and some glycerin. And Toyota’s sales have bumped up pretty well.
0:14:41 Tesla’s seem to be kind of flatlining. Is that fair? Probably still up. But it appears
0:14:47 that a lot of people have overinvested in the EV market and that the more measured Toyota
0:14:53 Smart to bet on hybrid and hybrid sales are booming. So I need to see this car. I’m looking
0:15:00 at it. It looks pretty cool. But I don’t know. How do we turn lemons and turn them into lemonade?
0:15:03 How do we chicken salad this chicken shit? Basically, they should come out and say the
0:15:08 overwhelming affection and pushback we receive from customers, design experts, and academics
0:15:14 and podcasters around the value of the logo has told us that we should not, we were abrupt
0:15:18 in our change. And while we have a fantastic new car, we’re going to maintain this unbelievable
0:15:22 metaphor that you’ve all expressed such incredible affection for. And here it is, and you plant
0:15:29 it on the fucking hood, right? They could turn a loss into a win here, but be clear.
0:15:37 Thus far, this is snatching defeat from the jaws of the jungle cat. We’ll be right back
0:15:47 for our conversation with Cody Sanchez support for property comes from mint mobile. Missing
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0:18:41 Welcome back. Here’s our conversation with Cody Sanchez, a former Wall Street investor
0:18:48 and the founder and CEO of Contrarian Thinking. Cody, where does this podcast find you?
0:18:53 Austin, Texas, actually. Nice. Let’s bust right into it. You have a book coming out
0:18:58 in early December titled Main Street Millionaire, How to Make Extraordinary Wealth Buying Ordinary
0:19:03 Businesses. In your book, you share your journey to building a nine-figure portfolio. So first,
0:19:09 what is your definition of rich? Well, I think mostly rich, I think of as freedom.
0:19:14 So it’s can you push back on the world and live the life you want to live? You know this
0:19:17 all too well, but as you start making money, there’s always a bigger number that sounds
0:19:21 more interesting. But I think the biggest thing is that you kind of get to do what you want
0:19:26 to do to some degree, and life still sucks, and it’s hard in many ways. But it sucks a
0:19:29 lot less when you have a bank account that allows you to kind of work where you want,
0:19:34 live where you want to, and build what you want to. And so I kind of have the words “rich”
0:19:40 and “more free” as synonymous. Yeah, you introduced this something called
0:19:44 the rich method. Can you break it down for us? Yeah. Well, the idea is basically four
0:19:49 segments of the book. So first thing is research. So a lot of people, when they think about
0:19:52 buying a business, they hear the idea, then they go think, “Well, I’ll go buy a business.”
0:19:57 And I’m like, “Eesh, you could actually really lose money buying a business or doing deals
0:20:01 or investing if you do it wrong.” And so the first part is, can you spend a little bit
0:20:04 of time actually breaking down what it takes to buy a business? We think there are like
0:20:09 10 steps to buying a business. So that first rich is a big component of doing your due
0:20:13 diligence and understanding what that even means, to figuring out what a deal might be
0:20:20 good for you, not just a good deal overall. And then next, we like to break into the eye,
0:20:25 which is invest. So now that you kind of understand what you’re doing, how can you start allocating
0:20:31 a little bit of either risk, so like your time, maybe your expertise, or capital, money
0:20:35 in order to do a deal. So I also don’t think you can spell rich without risk in some way,
0:20:41 shape, or form, whether it’s your time or somebody else’s. And then C is for command.
0:20:45 So the idea is that your first deal probably will not be your best deal in the same way
0:20:48 that your first job is hopefully not your last job. You’re going to get better at it.
0:20:52 You’re going to do bigger ones. You’re going to understand what investing is good for you
0:20:56 one way or the other. And then finally, we want to take it to the next level, which is
0:21:01 how can you actually scale in a significant way? Maybe that looks like a holding company.
0:21:05 Maybe that looks like you doing additional deals inside of your main business. I saw
0:21:10 when I was on Wall Street, most of the money made by financial professionals is not actually
0:21:15 coming up with brilliant startup ideas. They’re sold too well. 90% of them fail, but I think
0:21:19 the other part we don’t talk about is that the average income of an entrepreneur that
0:21:25 did a startup is like $47,000 to $67,000 a year, three to four years in. So it’s like
0:21:30 you lose money. You pay for the right to lose money multiple years in a startup. And then
0:21:35 most people don’t really make more than you would if you were in a corporate job, and
0:21:42 the very, very few make an absurd amount of money. But it’s actually quite hard. And so
0:21:47 I kind of obsess on this idea of what if we just focused on profitable businesses instead?
0:21:52 And what if when we had our brilliant business idea, instead of just going out and starting
0:21:56 it, unless we want to start the next Facebook, we can’t sleep for the want of the company
0:22:00 being in the world, then I think instead we should probably start with a nice little
0:22:05 profitable business and then maybe acquire a few others on top of it. And so we can actually
0:22:10 buy other people’s 10,000 hours as opposed to having to slay away for them for decades
0:22:11 ourselves.
0:22:17 Just a lot of it. So I’m that person that started a bunch of businesses because I didn’t
0:22:20 know how to buy a business. So I started a bunch and you’re right. It’s just riskier.
0:22:25 The upside, I think the few times, or the couple of times I got it right, I probably
0:22:31 made more than someone who bought a similar business. But I also just took more risk and
0:22:35 I had some zeros and it’s unlikely I would have gotten, you know, had zeros if I just
0:22:39 come into companies that were already working and bought them. Doesn’t it come down to similar
0:22:44 to the housing market? It’s all about the price you buy at. And that is buying a good
0:22:49 business at a decent price to make money. But if you at some price, if the market gets
0:22:55 crazy and everyone reads your book and starts crawling all over the country for small businesses,
0:23:00 as some private equity firms are doing, that it becomes too expensive, don’t you really
0:23:04 need to kind of figure out, and this is, I guess, part of your art research, what you
0:23:07 should be paying for this type of business?
0:23:12 Yeah. I mean, I had a mentor of mine that told me a line I really liked that I’ve remembered
0:23:16 for years, which is you can have my price in your terms or your terms in my price, but
0:23:22 you can’t have both. And that pros want to actually control the terms, want the price.
0:23:28 And so I think you’re right at the base level, which is it’s really hard to work your way
0:23:33 out of a bad deal done upfront. But more than obsessing on price, I would obsess on the
0:23:38 terms. Like, I could give you a million bucks for a business that only does $10,000 in annual
0:23:43 revenue if I got to pay it over the next 40 years out of future profits, as long as I
0:23:49 got to keep, I don’t know, $5,000 a month. So one of the things I’m hoping that we can
0:23:54 teach people is like, real estate’s funny because it’s been so commoditized now, you
0:23:59 can’t do a lot of term changes to it, right? You’re not like stellar finance me that house.
0:24:02 That’s pretty hard to talk to somebody into. You’re not going to ask them to change the
0:24:07 mortgage terms to go out a crazy different amount. You’re not going to say, well, if
0:24:11 I find X, can I have a little bit of capital I can hold back in case we did the valuation
0:24:15 wrong upfront? You can’t really do any of that real estate anymore. I’m sure eventually
0:24:21 businesses will be able to do less of it. But businesses just have so many levers that
0:24:27 I think the real goal here is can you control the terms so that what you think you’re buying,
0:24:32 like base level, yes, you need to know what a business valuation should be. But I think
0:24:36 the real problem is you get into a business, you’re like, hey, this guy’s been running
0:24:41 it for 30 years. I’m going to buy it for a million bucks. And I think the business makes
0:24:45 enough money in order for it to be worth a million bucks. And you quickly realize you’ve
0:24:49 never run a business before. And so you’re probably not going to do as well as the guy
0:24:54 immediately out the gate, and then you run out of cash. And so my biggest protection
0:24:59 is always how can we even pay a little bit more for something? I’m okay with a premium
0:25:04 as long as it’s over time and we decrease our risk by how we structure the deal.
0:25:07 One of the things we really enjoyed about your book is your focus on investing in what
0:25:11 you call mainstream businesses, industries, including plumbing, construction, cleaning
0:25:16 and electrical services. This is something we talk about a lot on the pod, how the skilled
0:25:21 trades are often overlooked. What makes these unsexy businesses so reliable for wealth
0:25:22 building?
0:25:27 Yeah. Well, that’s when I really like wanted to reach out to you originally was because
0:25:31 you have seen all sides of the trade. You’ve been a public market guy forever. You’ve also
0:25:36 been inside the university system. You know, you’ve also seen inside of even private entities
0:25:39 or some companies, maybe you want to take private from public, you’ve kind of seen the
0:25:43 full gamut of what a company can do. And I’ve been sort of yelling at the internet for the
0:25:51 past four years about the fact that during the 1800s, American ownership was 80%. Most
0:25:58 Americans owned their own business. This time around, we’re happy if 10% of Americans own
0:26:03 their own business. In fact, it’s about 6% of Americans own their own business. And you
0:26:06 know how we know we’re losing is that the Canadians have more ownership than we do.
0:26:13 They have like 7.8% ownership. And so, my theory here is that ownership leads to wealth
0:26:18 most often if that ownership is sustainable. And I think we have this like crisis where
0:26:24 we have a bunch of young people today having 452 LLCs that make no money. And so we have
0:26:29 a lot of like quote unquote company creation, especially since 2020, but they don’t make
0:26:35 any money, you know, 60% of all small businesses listed are single proprietorships with no
0:26:41 properties. And so why I like Main Street businesses are if you’ve been a landscaping
0:26:46 company for 10 years, you’ve been in existence, you never got funding from somebody to run
0:26:51 your business. You never got VC capital. That thing had to make money by itself year after
0:26:56 year in order for you to fund your salary. And so these Main Street businesses never
0:27:01 benefited from this huge glut of capital that came from venture capital and even private
0:27:07 equity firms, they take the company entirely. So if they value a company incorrectly, it
0:27:11 doesn’t hurt like the individual. It hurts their investors. And I think they’ve gotten
0:27:16 a bad rap, but they also are the thing that builds local communities. And I’d way rather
0:27:23 some corner coffee shops and local landscaping than a Starbucks or a PE owned roll up.
0:27:28 On the diary of a CEO, you listed three businesses that you really like right now. Senior care
0:27:33 centers, businesses that are services-based that don’t require a lot of upfront capital,
0:27:37 including window cleaning, pressure washing and painting businesses. And the third being
0:27:41 what you call gateway drug businesses. What did you mean by that?
0:27:46 Yeah. So gateway drug businesses are the business that allows you to get a little taste of what
0:27:51 the addictive game of business is, which is running a PNL, making money, being your own
0:27:56 boss. It’s awful, but it’s also amazing once you’ve done it. And so gateway drug business
0:28:00 would be a thing like what is typically called like a self-serve car wash. So they’re not
0:28:06 super expensive. You don’t have a ton of employees. It’s not a complex business to understand.
0:28:09 And thus you might be able to start with something like that. Mine famously was a laundromat.
0:28:13 That was my idea when I first started buying businesses. I was like, man, I’ve been a
0:28:17 corporate junkie for so long. I don’t know if I could run a business by myself. This
0:28:21 one’s pretty simple. I could probably run this one. It’s like dirty clothes, go into
0:28:25 a machine, get clean. I take a quarter, I make money on it. That makes sense to me. There’s
0:28:30 not that many levers to the business. And so a lot of these are called people light
0:28:36 or capital light businesses. So not that many employees, not that much operating expense.
0:28:40 These are the type of businesses that I think are interesting for people to get their hands
0:28:44 a little bit dirty on the game of business to start. And the only caveat there is we’ve
0:28:49 seen a huge increase in the multiple cost of these business since we’ve started talking
0:28:53 about that, both laundromats and car washes. So keep your eye on the prize that you do pay
0:28:58 the right price in terms. Yeah, that makes sense. And then also, you
0:29:03 talk about, or I think it’s in your book, but we talk a lot about here, about this silver
0:29:08 tsunami in that with so many baby boomers retiring, there’s a huge opportunity for younger
0:29:13 generations to acquire these businesses. What are some signs that a small business is ideal
0:29:19 for acquisition? What are some rules of the road for what feels like a good business in
0:29:22 your view? I have two methodologies. If you’re going
0:29:28 to buy a business, first thing is we buy realities and profits. We don’t buy hopes and dreams.
0:29:31 So I think where you can go really wrong in buying a small business is that you go and
0:29:36 buy a business that’s losing money today and you go, the thing is I can fix it. And I always
0:29:41 compare this to real estate. Like how many times have you redone a house and it’s under
0:29:45 budget and done quicker than you thought it was? The answer is like never. It’s just physics
0:29:49 or something. And so just make sure that you don’t buy turnaround businesses. I think that’s
0:29:53 for pros. If you’re a pro, you could do a turnaround, but you’ve done some of those publicly.
0:29:58 Man, they’re brutal and litigious and so stay away from that. The second thing that makes
0:30:03 a business really interesting to me, I think, is that you have an owner of the business
0:30:08 who’s been around for a long time. It has a managerial layer. So it’s not just a job,
0:30:13 it’s a business. There are other people running varying divisions of the business. It’s profitable.
0:30:18 The business is usually in a recession resistant sector. Like for instance, it doesn’t mean
0:30:22 that it can’t go down, but you might have a plumbing business. You might have a roofing
0:30:27 business. You might have a landscaping business. These aren’t so luxurious of items that you’re
0:30:33 going to die during the recession as opposed to a custom framing business, which maybe
0:30:36 is not the best business to get into with volatility.
0:30:39 And then the last thing that I think is interesting for these small businesses is you really got
0:30:44 to make sure that you don’t get in over your head. I say so simple grandma could do it.
0:30:48 And if grandma doesn’t understand your business model, then maybe that’s not the right business
0:30:49 for you.
0:30:54 People have been talking about this for a while, that there are a lot of mainstream businesses
0:30:58 coming up for sale and there’s a bit of an asymmetric or dislocation. What do I mean
0:31:03 by that? That young people find these businesses not sexy and there’s a lot of baby boomers
0:31:07 whose kids don’t want to inherit the business. If a dad has a carpet cleaning business and
0:31:13 makes good money, he wants to retire and he can’t find anyone. And there’s not a real liquid
0:31:18 market here. Is this market getting more liquid? Have you seen, you reference evaluations
0:31:21 have gone up, but you still feel there’s a lot of opportunity.
0:31:26 Yeah. Well, now we have some unique data on this market. So we bought a website called
0:31:30 BizScout, which is a marketplace for buying and selling small businesses. Now we have
0:31:36 68,000 listings on that website. We’ve connected about 3,000 buyers and sellers over the past
0:31:41 four weeks. And we’re starting to get sort of our first realm of proprietary data, which
0:31:45 is it’s a real bitch to get data in the small business space. You can go to the SBA. They
0:31:48 won’t really release any information from you. There’s a couple of behemoths in the
0:31:50 industry. They don’t really share third party data.
0:31:56 And so what we found from the 58,000 businesses listed is most of them are highly incomplete.
0:32:01 So we have this marketplace where it’s the opposite of Zillow and Redfin. There’s no
0:32:08 historical listings of pricing. There’s no uploaded QuickBooks or tax documentation to
0:32:14 confirm what the listings have located there. Very little usage of data room. They say that
0:32:20 less than 10% of all small businesses that are listed for sale run through a broker.
0:32:27 So most of the businesses are kind of a carefully concealed series of disasters. And they don’t
0:32:33 have a roadmap for you to actually see what you’re buying. And so because of that, I could
0:32:37 scream about this from the rooftops. But if people don’t actually know how to get inside
0:32:41 of a business, hold the hand of a business owner that’s done paper invoices for seven
0:32:47 years and move them into 21st century tech, they’re probably not going to close that sale.
0:32:53 And so I think we still have a lot of runway to go there. Plus, this is the perfect fragmented
0:32:59 market. I mean, most of these small businesses are probably jobs. But guess who wants a job?
0:33:02 Your 30-year-olds who are making less than their parents were at 30 as you’ve talked
0:33:07 about before, they’d be thrilled with a business where they could raise their prices more than
0:33:10 inflation each year, where they could be their own boss and where they might actually be
0:33:17 able to grow the business overall. And so businesses that are sub $10 million in revenue
0:33:21 are numerous. I mean, that would be businesses sub $10 million, but above $5 million or about
0:33:28 20% of the marketplace. And the rest is below $5 million in annual revenue, which is a very,
0:33:30 very small business.
0:33:35 Talk a little bit about financing. There’s different ways to finance a small business.
0:33:40 I would think a lot of people don’t consider us because I think I’ve got $20, $30,000 to
0:33:45 my name or no capital. What are different means of financing the acquisition of a small
0:33:46 business?
0:33:50 Yeah. Without trying to sound like a used car salesman saying that you could buy a car
0:33:56 with $0 down and no credit, the interesting part about the business landscape is the credit
0:33:59 is not your own. I think a lot of people don’t realize this. When you go to buy a house,
0:34:05 you go, “Okay, I got $200,000 in earned income. They’ll loan me whatever based on my earned
0:34:10 income, and I can’t buy a house that’s more than that. It’s all based on how much I earn.”
0:34:14 You go to buy a small business, the small business is what the loan is on. Now, they
0:34:19 also want to make sure that you are not going to fail and you’re not going to sit as a liability
0:34:22 on their balance sheet because you can’t run the business, but they’re really analyzing
0:34:27 the business. So your earned income is whatever the earned income of the business makes, which
0:34:30 is like a huge mindset for people to have to think about.
0:34:37 Now, we know the SBA will do loans up to 90% of the purchase price of a small business.
0:34:43 So that means you’re on the hook for probably 10% to 20% down for a small business. And
0:34:47 then you want to have float. You want to have enough cash on hand to make sure you can handle
0:34:51 operating costs for the business overall. But there’s three ways that we buy businesses
0:34:56 that people don’t think about. One, Uncle Sam, SBA gives you money to buy the business.
0:35:00 This is just getting expanded. For the first time ever, they’re allowing diversified investors.
0:35:04 So you don’t have to be the only one. You don’t even have to put up the 10 or 20% now.
0:35:08 You can have other people invest alongside you, put up the capital and be on the loan
0:35:10 with you. That’s just enacted this year.
0:35:15 The second way is seller financing or creative financing. I don’t really like to say seller
0:35:18 financing because it kind of sounds weird if you go to the owner of business and say
0:35:24 like, “You sell me your business using your future profits,” which is what it is. I might
0:35:28 say instead creative financing. In the book, we have like a couple of graphs that I think
0:35:33 help make this more reasonable as to why a seller would do this. But 60% of all small
0:35:38 businesses are sold with some component of seller financing, which is a wild number.
0:35:44 Now, not 80%, but 30% at least. And then the third way that we see small businesses getting
0:35:48 sold, and we’re seeing it like crazy in Japan, I think it’s going to start happening more
0:35:53 here in the US, is basically we’re seeing apprenticeship begin again. A small business
0:35:58 owner knows that they want to retire in the next five years. And because they want to
0:36:02 retire in the next five years, they are starting to look for somebody to take over for their
0:36:07 small business for them. And so it just happened with Jade, a member of our community. She
0:36:11 went to her boss, this is a military contracting company, and said, “I want to eventually take
0:36:16 over your business. Would you be open to selling to me?” And instead he said, “Why don’t we
0:36:22 start transitioning from the business from me to you, and I’ll continue to take up glorified
0:36:28 salary, really like a royalty payment on what you make over the next five, 10, or 15 years,
0:36:32 but I don’t even need you to actually buy the business from me.” And so if we don’t
0:36:36 do this, my thought is that a bunch of these businesses go away and they die, and we’ve
0:36:42 seen that happen. And so that is why I’m pushing people to say, “Yes, be careful of risk, but
0:36:47 these businesses are available all around you to purchase, and baby boomers simply will
0:36:51 not live forever. And if we don’t buy them, then those businesses will go away entirely.”
0:36:57 So say you’re sold on this, what’s the best way to try and cast a wide net and identify
0:37:01 these businesses? I wouldn’t even know where to start to try and find these businesses.
0:37:07 Well, I think the first thing you got to do is we call it deal clarity. So you got to
0:37:11 really make sure you know what you want in a business. I think a lot of reasons why people
0:37:14 get overwhelmed in searching is because they’re like, “Okay, I’m going to buy a business. I
0:37:17 guess Cody talked about laundromats, so I’m going to buy a laundromat.” And that’s not
0:37:23 actually right. If we call it a perfect fit business, so imagine three circles of N diagram
0:37:27 in the middle is the business that’s perfect for you. What I usually tell people today
0:37:32 is like, “Everybody listening has some sort of skill set that is unique to them. If you’re
0:37:36 an accountant, yes, you could go buy a landscaping company, and accountants actually are great
0:37:40 for buying businesses because you know how to analyze the P&L, but you might be better
0:37:45 off buying and counting from. You might be better off actually looking at your competitors
0:37:49 and some of the others in your same or similar industry.” So that’s more strategic. I always
0:37:55 think first, what is your satellite acquisition strategy where either you already have a skill,
0:37:59 you’re an employee in that business, you just go buy a business that is similar. Number
0:38:04 two would be what if you are an accountant, but you don’t want to stay an accountant.
0:38:07 You want to do something else. Well, then you might want to run around and look for a
0:38:13 business that necessitates somebody who has a strong financial acumen. And then third,
0:38:17 we kind of go through this, it’s called the deal box, this from investing, but we have
0:38:22 our investment thesis categorized by 15 different components that says how much money do you
0:38:26 want to make? Where does the business located? Do you want to run the business or do you
0:38:31 want to be an investor in the business? Do you want the business in which sectors? And
0:38:37 once you fill out this deal box, I think bumper lanes actually make it easier to hit the pins.
0:38:44 And so then you can start narrowing down your deal search. And we talk about the 100 to
0:38:48 50 to 10 to 1 rule, which is basically you’re going to look at 100 different companies,
0:38:53 just like you’d look at 100 different houses, high level on business sites, high level publicly.
0:38:58 And then you’re probably going to, you know, after you’re perusing your Zillow of business,
0:39:01 you’re going to narrow down to like 50 that you might reach out. Most of them are never
0:39:05 going to get back to you. Then you’re going to go down to 10 that you get kind of serious
0:39:08 with and you might go visit them. You might get to know the owner. Maybe it’s people
0:39:12 you already know you’re going to get into their financials. And then you get down to
0:39:16 one business that you actually buy. And I’m not saying that’s the right way to do it always,
0:39:19 but it’s a good rule of thumb.
0:39:24 We’ll be right back.
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0:42:47 Can I ask what you think about the MBA and college degrees right now?
0:42:52 I’m not the biggest proponent. Here’s what I can say. I have an MBA from Georgetown.
0:42:59 I went all credentials down the way. I started off at ASU, Harvard of the West, and didn’t
0:43:04 apply anywhere else. It was just where I got in for free. But then I was a Goldman in
0:43:09 State Street in Vanguard in first trust. So, I thought that in order to progress you had
0:43:14 to get an MBA. That was my idea. So, I went and I spent whatever $100,000 plus getting
0:43:20 the Georgetown MBA and added on a PhD to it. If I could go back right now and instead
0:43:26 take those two years back from my MBA and that $100,000 and instead buy a couple of
0:43:32 these businesses, I would. And to be perfectly frank, I learned nothing related to running
0:43:38 a business at my Georgetown MBA. I learned a lot about international business, which
0:43:41 is interesting at the time. And I learned a lot about how to make sure the government
0:43:45 doesn’t fuck with your business too much because I ran a pretty big international finance business
0:43:49 at the time. I also am not in touch with anybody that I went to Georgetown with. Like, they
0:43:53 say, “Well, if you don’t go for the knowledge, you go for the network.” I don’t know. I have
0:44:00 a better network from YPO and EO, which cost me like 4K a year and maybe like 10K a year
0:44:06 for YPO. So, I have a little bit of a jaded view about MBAs in particular. I think it’s
0:44:09 awesome when you’re like me, you want to climb a corporate ladder and you want a virtue
0:44:14 signal. Or if you don’t really know what you want out of life yet and so you just want
0:44:18 to see the full spectrum of jobs or opportunities available, then I like it. But if you want
0:44:25 to be a business owner, the best business school is business and it pays you.
0:44:29 You said you’d wish you had that $100,000 back to buy one or two businesses. What kind
0:44:33 of business? Give us an example of a business that you or someone you know has been able
0:44:38 to buy for $100,000. The type of business, the cash flows where it ultimately ends up
0:44:39 in three or five years.
0:44:44 Well, one of the first businesses I bought was a laundromat for $100,000. And it did
0:44:52 about $67,000 a year in “profit,” but that was also the operator’s payment. And that
0:44:56 business was perfect kind of because I had a guy who knew how to run a laundromat. He
0:44:59 was a real estate guy. Real estate guys are interesting to partner on some of these businesses
0:45:04 because they have to fix a lot of stuff. They have a handyman. They usually know like local
0:45:09 geography. And so he knew that this area was pretty good. We also ended up buying the property
0:45:11 that it was in.
0:45:16 So that business didn’t make me much money. Like I was in finance, $67,000 a year plus
0:45:21 split with the guy plus whatever extra expenses we have was basically not very much. But what
0:45:24 we realized from doing that first deal is we could add three or four more to those. And
0:45:29 that business ended up getting pretty healthy, $300,000, $400,000 a year in both of our
0:45:35 pockets, split between the two of us in our pockets. And that’s when I realized, oh, there’s
0:45:41 not that much difference between a smaller deal and a bigger deal, just confidence at
0:45:45 some degree. And then also once we did a couple of those, then we were like, huh, we would
0:45:49 need to add wash and fold to this. So then one of our laundromats, actually one located
0:45:54 here in Texas, ended up doing $3 million a year in total revenue and then more like
0:46:00 a 25% margin on just that one laundromat from a wash and fold add-on. And so even a laundromat
0:46:04 can scale up to a business that does a couple of million dollars a year if you have a few
0:46:08 of them, one individually know, and that’s a laundromat is probably the worst business
0:46:14 from a total return standpoint out there because you cannot scale it very high. And all these
0:46:18 VC companies have died at the altar of trying to spend a bunch of money on laundromats and
0:46:19 scale them up.
0:46:23 But for a new person who didn’t understand much, you know, that’s how I made my first
0:46:26 couple of hundred K outside of my nine to five.
0:46:30 There’s a lot of research showing restaurants where the owner is there just do tangibly
0:46:36 better. I mean, isn’t this about being really on top of your business and if you want to
0:46:40 scale, it’s about finding and retaining really talented managers. What kind of people do
0:46:44 you look for in your business to bring on to manage these different businesses?
0:46:49 Well, one good thing about a lot of these businesses is the word talent is so different
0:46:54 here than it is for a media company. Like the talent at my media company, they’re expensive.
0:47:02 They leave all the time. They don’t want to do all of the work. They have a lot of optionality.
0:47:07 And you know, I’m lucky in that we screen for kind of the right culture fit for us.
0:47:12 But that talent is really hard to manage. VC talent really hard to manage, really hard
0:47:16 to keep, really expensive. When I run these small businesses, I mean, God, Laura, one
0:47:24 of my operators has been with me for years and is incredible, like never asked for anything,
0:47:30 can run a business that does, let’s call it almost just seven figures a year and probably
0:47:36 will do it for decades for me and doesn’t require this really sophisticated product
0:47:42 knowledge or sophisticated talent set. I think, you know, we owned a mobile home park, for
0:47:47 instance. And like, do you know what the operator of a mobile home park makes a year?
0:47:52 It’s funny, my father actually, his fourth wife owned mobile home parks. So I know a
0:47:57 little bit about this. This is 20 years ago, but they made $28,000 plus they had their
0:48:00 rent paid for it. But that was 10 or 20 years ago.
0:48:04 Well, that’s, yeah. So I first learned this, I was shocked. I was like, wait a second, we
0:48:12 paid in my mobile home park, we paid like 300 or maybe 400 bucks a month to this to the
0:48:17 operator of the mobile home park, plus they got their rent for free, plus they got to
0:48:23 screen everybody that came in. So they ended up picking their friends and like family members
0:48:28 in order for them to come in as well. And that was the entire pay. And I remember when
0:48:32 I asked originally to the guy about the mobile home park, I’m like, why would somebody do
0:48:37 this job for so little? And, and he said a couple different reasons. He said, one, give
0:48:42 them the friends and family perk. They really like, they like self-selection their own community.
0:48:47 You know, to upgrade them, do whatever they want to their actual mobile home, like take
0:48:52 care of everything for them. And then, and then three, like, that’s it, just make sure
0:48:56 that they’re sort of taken care of from that perspective. And so, you know, she’s like
0:49:03 in her sixties, loved the job and ran a mobile home park that did, you know, God, I mean,
0:49:09 one and a half, $1.7 million a year. I think we underestimate how much we have to pay people
0:49:12 when we’ve been in these fancy industries. And then, you know, we ended up selling the
0:49:16 mobile home park and then she got a little piece of it, which was kind of cool at the
0:49:17 end.
0:49:21 The thing that always pops out to me about something like this is that return on investment
0:49:27 has inversely correlated to how sexy businesses, these are not sexy businesses. And, but what
0:49:32 is sexy as you get older is being able to take care of your kids and your parents. And
0:49:37 like you said, be rich, do it, do whatever you want. Is there anyone sector right now
0:49:42 that’s propping up that you think represents more opportunity than others?
0:49:47 I think rehab, individual rehab homes right now, we’re analyzing a bunch of them. I mean,
0:49:51 we have an addiction crisis here in the US, the likes of which really no country has ever
0:49:59 seen before. And that’s not going to get better in the near future. And we do not have enough
0:50:04 beds. We do not have enough resources for these individuals. And originally when I looked
0:50:08 at the sector, I thought, well, who has the money to like spend up a $10 million or $50
0:50:13 million rehab center that must be very aggressive. But actually there are all these grants for
0:50:19 you to do it with single family homes. And so there are these small little rehab, I don’t
0:50:23 even know if you would call it centers houses all around the country that are popping up,
0:50:28 but you get subsidized by the federal government. You also get a bunch of tax breaks on top
0:50:34 of it. You get to do something good for individuals. You also get some unique tax consequences
0:50:39 because it’s largely real estate driven. You get a landhold on the real estate overall,
0:50:45 and they’re not cheap to stay in. And so this one is, there’s not very many home services
0:50:50 businesses that I think can have like a real positive impact too besides the clean communities
0:50:54 I think are good for society. But this is one where I think you could make a real impact.
0:50:59 You can make some money, and it’s probably going to expand crazily. And then we’re going
0:51:02 to eventually see a bunch of PE guys buying it out.
0:51:06 Cody Sanchez is a former Wall Street investor and the founder and CEO of Contrarian Thinking,
0:51:12 a digital education company with over 7 million followers. She’s also the founder of Main Street
0:51:16 Holdco, a small business holding company focused on bringing Main Street businesses back to
0:51:20 the limelight and Contrarian Thinking capital, affirm that invest money back into the companies
0:51:25 that support small business growth. Cody, I think what you’re doing is really important.
0:51:29 Not only because it’s growing the economy and you’re creating jobs, but I think there’s
0:51:34 an unfortunate zeitgeist that if a kid doesn’t go to Dartmouth and end up at Google, that
0:51:39 he or she has failed. And there’s other pathways into the middle class and maybe even to the
0:51:43 upper income home. And I think you’re sort of destigmatizing it. I think you’re actually
0:51:48 playing them, not only an economically important role, but kind of an emotionally and psychologically
0:51:54 important role. Really, really appreciate your good work. And, you know, right on sister.
0:51:55 Well done.
0:51:59 Thank you so much. I appreciate it. It’s fun. I wish more people realized garbage men have
0:52:00 good times.
0:52:03 There you go. Sanitation engineers. Thanks, Cody.
0:52:20 I was very happy. My friend Adam gave me a piece of advice that always sort of resonated
0:52:25 with me. He has two boys, you know, both doing well, both wonderful boys, but they’ve had
0:52:30 like every other boy, they’ve had their issues at different times. And he said that the only
0:52:36 thing that worked consistently was time. And that is eventually things worked out or got
0:52:40 better. And it struck me. And even though I don’t act this way, I know it’s right, but
0:52:46 I don’t always act on it. My son is doing really well at school. Kind of, I don’t want
0:52:52 to say all of a sudden he’s always done okay, even good, but all of a sudden he’s just doing
0:52:58 incredibly well. And when I try to reverse engineer it to our environment or what we’ve
0:53:04 done for him, here’s the answer. Here’s what we did. Absolutely nothing. There’s nothing
0:53:10 we did. As a matter of fact, he wanted to take sports science. And our friends who are
0:53:14 all, you know, Ivy League or die in America said, no, don’t do that. And he’d say economics
0:53:19 or businesses, colleges don’t take sports science seriously. And so we had this big
0:53:24 intervention, tried to talk him out of it. And he pushed back on us, which I’m really
0:53:29 proud of him for. And he kept sports science and he’s getting commendations or whatever
0:53:35 they call as the one at the top in his class in it. And it just struck me that so much
0:53:41 of our stress around our kids is such unproductive stress. You know what you need to do? You need
0:53:44 to love them unconditionally. You need to spend a lot of time with them. You need to
0:53:49 try and instill a set of values in them. You need to model, right? You give your kids
0:53:54 the basics. And then you realize that the only thing that’s works over the long term or
0:54:01 doesn’t is time. And you forgive yourself, you do your best, you work out, you learn
0:54:07 about baseball. But once you’ve thrown the pitch, you know, it’s up to the batter, your
0:54:12 kid and God and the humidity in the air and the environment. So yeah, do you want to be
0:54:16 a little bit stressed out? Sure. But at the end of the day, when you look back, you’re
0:54:19 not going to be angry or upset about the bad things that happen to you or your kids. You’re
0:54:24 going to be angry and upset and how much pressure you placed on yourself and then inject it
0:54:30 into the relationship with your kid. The only thing that reliably works out over time, built
0:54:36 on a base of love and support and time is time.
0:54:40 This episode was produced by Jennifer Sanchez and Caroline Shagren. Drew Burroughs is our
0:54:43 technical director. Thank you for listening to the Prop G-Pod from the Box Me at podcast
0:54:48 network. We will catch you on Saturday for No Mercy, No Malice as read by George Hahn.
0:54:52 And please follow our Prop G-Markets Pod wherever you get your pods for new episodes
0:54:54 every Monday and Thursday.
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0:56:17 (upbeat music)
Codie Sanchez, a former Wall Street investor and the founder and CEO of Contrarian Thinking, joins Scott to discuss her new book, MAIN STREET MILLIONAIRE: How to Make Extraordinary Wealth Buying Ordinary Businesses.
They get into how to build wealth by buying small businesses, including what to look for when buying, ways to finance a purchase, and which sectors have the most potential right now.
Follow Codie, @codiesanchez.
Scott opens with his thoughts on Jaguar’s rebrand.
Algebra of happiness: the only thing that works consistently is time.
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