YAPClassic: Codie Sanchez, 7 Boring Businesses to Replace Your Income

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0:01:13 (upbeat music)
0:01:23 What’s up, YAP Fam?
0:01:26 Earlier this week, we aired my latest interview
0:01:28 with a remarkable investor, entrepreneur
0:01:31 and influencer, Cody Sanchez.
0:01:32 We talked about the gospel of ownership
0:01:35 and our new book, “Main Street Millionaire.”
0:01:38 It’s all about how you can become extraordinarily wealthy
0:01:40 from buying very ordinary businesses.
0:01:43 If you haven’t checked it out, then believe me,
0:01:46 you’ll want to do so, but why stop there?
0:01:47 Last year in episode 231,
0:01:49 I interviewed Cody for the first time
0:01:52 as you’re about to hear in this YAP Classic.
0:01:53 We talked about her background
0:01:55 as an award-winning journalist,
0:01:58 her jobs at places like Goldman Sachs and Vanguard,
0:02:01 and how she gave it all up to become an entrepreneur
0:02:03 and investor with her own portfolio
0:02:06 of what she calls boring businesses.
0:02:09 Cody shared some of her contrarian investment ideas
0:02:11 about how to earn horizontal income
0:02:13 and create multiple revenue streams,
0:02:15 as well as some tips for buying boring businesses
0:02:18 like laundromats, car washes or vending machines.
0:02:20 So young and profitors take some time this week
0:02:22 and listen to both of these conversations
0:02:24 with Cody Sanchez.
0:02:25 They’re packed full of insights
0:02:27 about how you can transform yourself
0:02:30 into a fully-fledged, financially independent business owner
0:02:33 by learning how to spot some awesome investment opportunities
0:02:35 that are right under your nose.
0:02:38 And here she is, Cody Sanchez.
0:02:43 Cody, thank you so much for being here today
0:02:44 on Young and Profiting Podcast.
0:02:45 Welcome to the show.
0:02:48 – Thanks, I’m excited to be here, finally, actually,
0:02:51 since we messed up earlier, but now we’re gonna crush it.
0:02:53 – Yeah, we had some technical difficulties,
0:02:55 but all that matters is that you’re here now.
0:02:58 So, ooh, Sal, let’s just have a great interview.
0:03:00 We’re very, very pumped to have you on the show.
0:03:03 I was telling you off camera how excited I was
0:03:05 to have you on the show because it’s not so often
0:03:08 I have such a great female business leader
0:03:11 on the podcast, really few and far between.
0:03:13 So I appreciate you coming on the show.
0:03:15 So you have an unorthodox background
0:03:16 for an entrepreneur and investor.
0:03:18 You actually started as a journalist.
0:03:21 You started back home in your state of Arizona
0:03:23 and not just any old journalist.
0:03:24 You were an award-winning journalist
0:03:26 that covered really important issues
0:03:28 like human trafficking, drug smuggling
0:03:30 and Mexico border issues.
0:03:34 So can you tell us what made you get into journalism
0:03:36 and why you ultimately left that field?
0:03:39 – Idealism, really, you’re young and you wanna save the world
0:03:42 but you haven’t even figured out your own life.
0:03:43 And I think that was me.
0:03:45 And so, if you’re young and listening,
0:03:48 I imagine there’s a moment in time where you think
0:03:50 everything’s screwed up, nothing’s the way it should be
0:03:52 and I’m gonna be the one to fix it.
0:03:54 That was me at a young age.
0:03:56 And I thought, it doesn’t seem right
0:04:00 that so many people don’t have while few have.
0:04:01 It doesn’t seem right that I’m Latina
0:04:03 and a bunch of Latinos are hanging out to dry
0:04:07 along the US Mexico border and maybe I could make an impact.
0:04:09 And I think that was a noble, beautiful idea
0:04:13 in a lot of ways, but also pretty ridiculous in some.
0:04:16 Which is that I really hadn’t figured out life in general
0:04:18 and it’s hard to give much if you don’t know much.
0:04:21 And so, at that time, I was in school,
0:04:24 I graduated about a year early from Harvard to the West
0:04:26 really, AKA Arizona State.
0:04:31 And I was looking for what my purpose was gonna be in life
0:04:32 and I needed to make some money
0:04:34 ’cause I didn’t have any either.
0:04:37 And so, I got a grant from the Howard Buffett Foundation
0:04:41 and decided that I was going to go cover border issues
0:04:42 along the US Mexico border.
0:04:46 And I did that for a while until I really realized
0:04:49 there is a difference between being the one
0:04:53 that tells the stories and getting someone’s story rewritten.
0:04:55 I wasn’t rewriting anyone’s story.
0:04:58 I was just telling them in an almost voyeuristic way
0:05:01 to avoid of humans that really didn’t make much change
0:05:02 and that didn’t sit well with me.
0:05:04 And so, I thought I better figure out
0:05:05 how to become something besides a journalist
0:05:08 or I’m gonna become very jaded, very young.
0:05:10 – So then, from my understanding,
0:05:11 you went into the finance world,
0:05:13 you ended up working at Vanguard,
0:05:16 Golden Sachs, you were head of Latin American investments
0:05:19 for First Trust, really exciting stuff.
0:05:21 And you were in corporate for 12 years
0:05:25 before you decided to take the golden handcuffs off.
0:05:27 So why do you feel like you were in golden handcuffs
0:05:30 and what made you ultimately leave the finance world?
0:05:32 – It’s amazing how fast 12 years flashes,
0:05:33 which is something only old people say,
0:05:34 which apparently I’m nearing.
0:05:38 But the beautiful part about working in corporate America
0:05:40 is you learn on somebody else’s dime.
0:05:44 And I’m a huge advocate for failing often
0:05:46 without the ability to bankrupt yourself.
0:05:49 These days, there’s so much entrepreneurship porn
0:05:51 about how you have to sleep on somebody’s couch
0:05:52 and you’ve gotta do it the hard way.
0:05:53 And if you weren’t homeless for a minute,
0:05:55 you’re never gonna make it.
0:05:56 And I don’t actually think that’s true.
0:05:59 I think you right now could be working in a corporate job
0:06:03 and feel like you are stuck because your lifestyle
0:06:05 has crept up to the point where it matches
0:06:08 or sometimes even exceeds what you’re making,
0:06:10 even if you’re making a decent amount of money.
0:06:13 And those handcuffs will tie you to a job you hate,
0:06:16 working for people you don’t like on things you don’t want
0:06:18 where you are no longer the architect of your life.
0:06:20 And that’s what happened to me
0:06:21 and what I mean by golden handcuffs.
0:06:24 They’re self-imposed, but they’re still there.
0:06:27 – Yeah, and I really like how you’re highlighting
0:06:29 that you didn’t feel that this 12 years was a waste.
0:06:32 You actually gained a lot of experiences.
0:06:33 And without those 12 years in corporate,
0:06:35 you wouldn’t have gained the skills that you know now
0:06:37 to buy all these businesses.
0:06:39 And I’m sure you learned a lot from private equity
0:06:42 and this area in the world in terms of how you’re investing
0:06:44 as an everyday person now, is that right?
0:06:45 – Absolutely.
0:06:49 I mean, I was a young idiot just like the rest of us.
0:06:51 When I was first investing, I thought I knew everything
0:06:53 until I lost my first dollar and then a couple dollars
0:06:55 and then a couple more dollars.
0:06:59 And so big corporations are soul-sucking in many ways.
0:07:02 But one thing they do well is they usually invest a lot
0:07:05 in their employees because they understand the numbers,
0:07:07 which is simply that if you hire somebody
0:07:09 and then that person doesn’t work out,
0:07:14 you typically spend at least twice the cost of anywhere
0:07:16 from three to six months of their salary.
0:07:18 In some companies, it could even be a year.
0:07:21 So you basically waste hundreds of thousands of dollars
0:07:24 for every employee you hire that doesn’t work out.
0:07:26 And so they do a lot to try to train the people
0:07:29 that they have in the seats that they need them.
0:07:31 And I benefited from that.
0:07:32 One of the companies that was at Vanguard,
0:07:35 they told us, who knows if that’s true,
0:07:37 that they spent about $100,000 on the training
0:07:39 of the group that I was in,
0:07:41 which was this accelerated development program.
0:07:43 So I actually think you can learn a ton
0:07:45 by working for somebody else.
0:07:46 And you’ve probably seen this too,
0:07:49 because in internet land, there are a bunch of people
0:07:51 that have never worked for anybody,
0:07:55 that have never been an employee, never had an employee,
0:07:57 never had a boss, never really been a boss,
0:08:01 except maybe to vendors or some one-off individuals.
0:08:04 And they’re almost kind of like these cute little morons
0:08:08 running around with no idea how real business works.
0:08:10 And I think it’s a huge disservice to them.
0:08:13 And if they had just spent like a few years working
0:08:15 for or with somebody else,
0:08:17 then they could go jump to the next level
0:08:19 and build something big as opposed to what happens
0:08:21 is they build something kind of big fast,
0:08:23 but then they don’t know how to sustain it,
0:08:24 what a business is, what a P&L is.
0:08:26 And that’s actually all hard to learn
0:08:28 while you’re on the rocket ship.
0:08:29 – I completely agree with you.
0:08:31 And I’ve seen that for myself.
0:08:33 So we both started in corporate.
0:08:35 And for me, I was at Hewlett Packard in Disney,
0:08:38 had leadership roles, I ended up leaving.
0:08:40 A lot of it had to do with COVID
0:08:42 and having more opportunity and starting a side hustle.
0:08:44 But at the same time, I also felt a little bit
0:08:46 like I didn’t get the same respect
0:08:48 like other people my age
0:08:51 with the same experience level of experience.
0:08:53 And so I decided to leave the corporate world.
0:08:54 I’m wondering from your perspective,
0:08:58 did you feel like any sort of patriarchy
0:08:59 in the corporate world
0:09:01 or were you treated differently as a woman?
0:09:03 – Yeah, I mean, I’ve had my,
0:09:04 I’ve had my ass grabbed more times
0:09:06 that I count finance for sure.
0:09:08 And that was 12 years ago.
0:09:10 So could you imagine like 20 or 30?
0:09:12 I mean, they must have just been,
0:09:14 no wonder those women are kind of hard.
0:09:15 I remember when I was coming up
0:09:19 and there were a few, very few women above me in finance.
0:09:20 You know, I was always like, oh,
0:09:21 I don’t want to turn into her.
0:09:23 She seems kind of mean and mad.
0:09:25 And I kind of get why, actually,
0:09:27 because there was always sort of, there was allowed to be one.
0:09:30 It wasn’t a real rule, but it was kind of there.
0:09:31 On the flip side though,
0:09:33 I do think you get to choose your reality.
0:09:35 And the reality that I chose was,
0:09:36 I look different than everybody else.
0:09:38 You look different than everybody else.
0:09:42 So every Chad, Brad, Tom, Matt, Larry
0:09:45 is gonna be forgotten in their gray, blue, or black suit.
0:09:48 And I’m gonna be probably remembered
0:09:50 just for having a name that’s a little bit different.
0:09:52 And I look slightly different than them.
0:09:54 And the way that I communicate my skill set
0:09:55 comes across differently.
0:09:58 So I think there’s huge benefit
0:10:01 to being slightly outside the norm.
0:10:03 And our lizard brains just don’t realize it
0:10:05 because we still think that we’re on the savannah
0:10:08 and could be eaten by a lion at any point
0:10:10 when it feels slightly uncomfortable to not fit in.
0:10:13 But it took me a long time to get that.
0:10:14 I mean, I remember one time,
0:10:15 I’m sure you have stories like this too,
0:10:17 but I remember one time,
0:10:19 I kind of was giving somebody a hard time
0:10:21 about the way they were acting at a company event
0:10:22 and they had been drinking.
0:10:25 And I thought that they were making some poor life choices.
0:10:28 And so I said something like that to one of them, a gentleman.
0:10:30 And he was like, and this is why we don’t hire women.
0:10:34 And I was like, whoa, oh God, there it is.
0:10:37 But on the same vein, at that point,
0:10:39 I was just kind of like, hey, fuck you, man.
0:10:40 Like what a dumb thing to say.
0:10:42 You’ve been drinking too much, go home.
0:10:43 And then the next day he comes in,
0:10:45 he’s like, I’m super embarrassed.
0:10:46 What a silly thing to say.
0:10:49 And so I think there’s always colors for shades of gray
0:10:51 to the fact that for a long time,
0:10:53 men have been in charge of much.
0:10:56 But I also have an incredible dad and an incredible husband
0:10:58 and incredible guy friends that have lifted me up.
0:11:00 And so I try not to paint paint too,
0:11:03 but broad of strokes for one particular sex or the other.
0:11:05 – I love that perspective.
0:11:07 I really, really agree with your approach.
0:11:09 It’s like, there are some downsides
0:11:10 and some things that you have to deal with,
0:11:12 but there’s also a lot of opportunity
0:11:15 and looking different and being different and standing out.
0:11:18 And a lot of people are really supportive
0:11:19 in the corporate world as well.
0:11:22 Okay, so let’s talk about contrarian thinking.
0:11:24 I really want to go deep on this and get an understanding.
0:11:27 So you have a blog called Contrarian Thinking.
0:11:29 You talk about this topic a lot
0:11:32 and the benefits of being a contrarian investor.
0:11:35 So what is the transformation that you take people through
0:11:38 in terms of gaining financial freedom
0:11:40 through this approach?
0:11:44 – It started in 2020 when what I really wanted to do
0:11:46 is I wanted humans to question any of the narratives
0:11:48 that were being thrown at them.
0:11:50 That point, I’m really big on one thing,
0:11:52 which is freedom for every human
0:11:56 to make their own personal life choices as often as they can.
0:11:59 And my understanding at a baseline
0:12:02 from starting in Latin America was
0:12:04 the difference between me, Last Name Sanchez
0:12:06 and all these other Last Name Sanchezes
0:12:08 was really that I had some economic freedom.
0:12:11 I was born like lower middle class in the U.S.
0:12:14 And so I had more opportunity than a lot of these people do.
0:12:18 And so I thought, gosh, if finance is the cornerstone
0:12:20 to financial freedom, if it’s at the bottom,
0:12:23 then the next level is physical freedom.
0:12:24 So like you can do what you want,
0:12:25 where you want with whom you want.
0:12:28 And then at the top of it is philosophical freedom,
0:12:32 AKA I can think what I want, I can do what I want.
0:12:34 I can’t get people to think for themselves
0:12:36 until they feel safe and secure for the most part.
0:12:38 It’s hard for most people to do that.
0:12:39 They need a roof over their head,
0:12:41 they need to know they can pay their rent.
0:12:43 And so contrarian thinking came from this idea of,
0:12:45 I want people to think differently,
0:12:47 but my Trojan horse is money.
0:12:50 It’s if I can tell you how to become
0:12:52 really ridiculously wealthy,
0:12:55 then, and I can kind of glean that towards humans
0:12:57 that I think are by and large good
0:12:59 because they also believe in freedom,
0:13:01 which I find is an underlying principle,
0:13:02 is really important.
0:13:04 Then that means finally,
0:13:06 once these people become financially free,
0:13:09 they can share this pervasive mentality I have,
0:13:10 which is we should question the world around us
0:13:12 and that should be okay.
0:13:13 And so at contrarian thinking, that’s what we do.
0:13:15 We talk about civilizing the mind,
0:13:17 we talk about building the bank account,
0:13:19 and we talk about making savage the body
0:13:22 because you need to have a strong bank account,
0:13:24 to have a strong mind,
0:13:27 and in order to have a strong mind and bank account,
0:13:29 it often really doesn’t make any sense
0:13:32 if you’re unhealthy and sick and overweight and fat.
0:13:36 And so let’s try to have this kind of third degree black belt
0:13:38 in three areas of our life.
0:13:41 And that is a life’s pursuit that I think is worthy.
0:13:41 – Interesting.
0:13:44 And then in terms of contrarian investing,
0:13:48 from my understanding, the basic definition of this
0:13:50 is basically going against market trends.
0:13:52 So you sell when other people buy,
0:13:53 you buy when other people sell,
0:13:56 but I think you’ve got a lot more that goes into this.
0:13:58 So can you elaborate more in terms of
0:14:00 what you mean by contrarian investments?
0:14:02 – Sure, I can’t remember.
0:14:04 It’s a famous investor, but I can’t remember which.
0:14:05 It might have been Carl Icahn
0:14:06 or it could have been Warren Buffett,
0:14:08 but one of them said,
0:14:09 in order to make a lot of money in investing,
0:14:11 you have to do two things.
0:14:13 You have to be contrarian and then you have to be right.
0:14:15 And that tends to be true,
0:14:19 but very hard to do, although simple to say.
0:14:22 And what I’ve found is that you don’t have to be
0:14:25 the most intelligent person out there
0:14:28 if you can find where the narrative is different
0:14:29 from the numbers.
0:14:30 And what do I mean by that?
0:14:34 These days, the narrative is what you hear on Twitter
0:14:37 and Instagram everywhere, which is AI is incredible.
0:14:41 And the next GPT launch and the, you know,
0:14:44 my new startup that’s raised $50 million
0:14:45 from these venture capitalists,
0:14:48 this is the altar at which we pray
0:14:51 as Americans in capitalism right now.
0:14:52 And so if that’s the narrative,
0:14:55 then I started looking at the numbers and I said, okay,
0:14:57 well, I kind of get it from a venture capitalist perspective,
0:14:59 the people given the cash out,
0:15:02 they make a lot of money because they give it
0:15:03 a lot of money to a lot of people
0:15:06 and like two out of 10 of every their portfolio companies
0:15:09 make it big and those two out of 10 have to hit 100X
0:15:13 to wipe out the fact that the other eight largely lost.
0:15:15 And so I was like, huh, that’s the truth.
0:15:17 Then we have eight founders in that mix
0:15:19 that spent on average three to 10 years
0:15:23 hating their life, sleeping on floors, making no money
0:15:26 and eventually failing in their startups.
0:15:27 And that is what it takes to innovate
0:15:29 at a venture capital level.
0:15:32 So I thought, well, where are the numbers different
0:15:33 for founders and entrepreneurs?
0:15:37 If that game has 80% potential failure rate,
0:15:39 where is there an 80% potential win rate?
0:15:42 And what I found is there in something called
0:15:43 boring everyday businesses.
0:15:46 When you buy a business that’s already profitable,
0:15:48 that is already operating as is
0:15:50 and that business has been in existence
0:15:53 for more than three years, in some cases, 20 years
0:15:55 and you know that that business has done X
0:15:58 for the past three or 20 years,
0:16:00 the likelihood of it can continue to do X
0:16:03 for the next three or 20 years is pretty high.
0:16:06 So as long as you don’t spend too much money acquiring it
0:16:08 and you structure the deal right
0:16:09 and you know how to analyze it,
0:16:11 you’re de-risked as opposed to a startup
0:16:13 where you have to pray, hopes and dreams
0:16:14 that you can succeed.
0:16:16 And so that’s the way we think about
0:16:18 can train investing right now.
0:16:22 I think the trade is in these boring everyday businesses
0:16:23 but it’s really finding that difference
0:16:25 between the noise and the narrative.
0:16:28 – I’m so excited for this conversation, Cody,
0:16:30 because even as me, I’m an entrepreneur,
0:16:32 my company is something that I founded,
0:16:35 it’s really innovative, but I’m really excited
0:16:38 about the idea of investing in boring businesses
0:16:40 that really might not be a lot of legwork
0:16:43 for me to start up and have some passive income.
0:16:45 So very excited about this episode
0:16:46 and I think a lot of our listeners
0:16:48 are gonna be really excited about this topic
0:16:50 ’cause nobody’s really talking about this
0:16:52 even though it’s bubbling up
0:16:55 with you sort of leading the charge honestly, so okay.
0:16:58 – Can I interrupt for one second?
0:16:59 – Of course.
0:17:00 – There’s two words you said there
0:17:03 that I’m so particular on these days, passive income.
0:17:06 I know you don’t actually live by the mantra
0:17:08 that so many people on the internet does
0:17:09 because you’re an entrepreneur,
0:17:11 you’ve built something, it’s a profitable thing,
0:17:13 you’ve been in businesses, you’ve been in exec
0:17:16 at high level companies, but I think these days,
0:17:19 those words used to not bother me and now they do
0:17:23 because what passive income meant back then was
0:17:25 your time wasn’t tied to making money
0:17:27 and so if you own a piece of real estate
0:17:29 and somebody lives in that but you don’t,
0:17:31 you could make money that is unrelated
0:17:33 to the work you are doing.
0:17:35 Now I like to use the word horizontal income
0:17:37 because passive income has become used
0:17:40 by a bunch of 20-year-olds on the internet
0:17:43 telling you you can get rich in 36 or 90 days
0:17:45 if you follow my foolproof plan.
0:17:46 Although oh, by the way, I only make money
0:17:48 by telling you about my foolproof plan,
0:17:50 not actually doing the thing.
0:17:52 Huge issue and you’ve seen them too.
0:17:55 This shit is not easy but it is simple.
0:17:58 There is a road to follow but nothing I talk about
0:17:59 is like click a button and oh, by the way,
0:18:01 you’ve got an Airbnb arbitrage model
0:18:03 and you’re just off to making hundreds of thousands
0:18:05 that doesn’t work, it doesn’t work.
0:18:07 If it worked, nobody would tell you about it,
0:18:09 they would just do it all by themselves
0:18:11 and so I talk about horizontal income.
0:18:13 Vertical income is like your salary.
0:18:15 So you work at a company, you’re there eight to five,
0:18:16 you make money when you’re there.
0:18:19 Horizontal income means you might have a little bit
0:18:21 of your time along the top, kind of like this.
0:18:25 Sometime always involved basically no matter what
0:18:27 but you could stack lots of them
0:18:30 because you could have a real estate portfolio over here,
0:18:32 you could have a stock portfolio over here,
0:18:34 you could have a boring business that you find
0:18:37 and operate or run so it only takes you a few hours a week
0:18:39 but there will be an upfront cost.
0:18:41 All right, thanks for coming to my TED Talk,
0:18:43 that’s my rant on passive income.
0:18:46 – I appreciate you differentiating that
0:18:48 and I agree with you 100%.
0:18:51 By passive income, I basically meant like instead of,
0:18:53 I’m always having to think of new processes,
0:18:55 how do I build this, how do I do this?
0:18:57 Whereas when you buy a boring business,
0:19:00 according to stuff that I read from you,
0:19:02 you need SOPs, you need to make sure
0:19:03 that everything’s already in place
0:19:06 so you can kind of take it and scale it, right?
0:19:08 Instead of having to create everything from scratch.
0:19:10 So I just meant it’s sort of easier
0:19:13 than having to reinvent the wheel every single time
0:19:14 starting your own business.
0:19:17 – Totally, you know, my father said something
0:19:19 that always sticks with me, which he was like,
0:19:23 you haven’t actually been an entrepreneur or run a company
0:19:26 until you’ve woken up at two in the morning
0:19:30 in the middle of the night and sat in your living room
0:19:33 on your couch in the absolute darkness
0:19:35 and wondered, how are you gonna figure any of this out?
0:19:37 And until you’ve had that moment
0:19:40 where you just are not sure,
0:19:43 you are living in a cloud of uncertainty
0:19:46 and that uncertainty feels catastrophic,
0:19:48 you’ve probably never run something
0:19:51 and you’ve probably never built something.
0:19:53 I think we can decrease that likelihood,
0:19:56 but at some point for almost anybody who’s willing
0:19:58 to do a hard thing, like own their life
0:20:01 and own their outcome and own their own business,
0:20:02 there will be a moment.
0:20:04 And so I think you’re exactly right.
0:20:06 It’s like, can we ready people for that?
0:20:08 But tell them that it’s so worth it.
0:20:11 Just like you’re gonna feel sore after you do a workout,
0:20:12 but you’re gonna be glad you did it.
0:20:14 – I totally agree with you, Cody.
0:20:16 Let’s hold that thought
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0:22:00 Hey app bam, launching my LinkedIn secrets masterclass
0:22:01 was one of the best decisions
0:22:04 that I’ve ever made for my business.
0:22:06 And I didn’t have to figure out all the nuts and bolts
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0:22:12 I needed a monthly subscription option.
0:22:14 I needed chat capabilities.
0:22:16 I needed a laundry list of features
0:22:20 to enable what I was envisioning with my course.
0:22:21 But here’s the thing,
0:22:23 all I had to do was literally lift a finger
0:22:25 to get it all done.
0:22:27 And that’s because I used Shopify.
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0:22:36 to sell online or in person.
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0:23:31 Yeah, fam, if you’re anything like me,
0:23:33 you didn’t start your business
0:23:36 to spend all your time managing finances.
0:23:39 Budgeting, invoicing and tax prep,
0:23:42 not exactly the fun part of entrepreneurship.
0:23:45 My COO Jason is great at the finance stuff,
0:23:48 but even he doesn’t wanna switch between five different apps
0:23:52 for banking, expense tracking and contractor payments.
0:23:54 We wanted a tool that could just do it all
0:23:56 and save us our time.
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0:25:03 They also offer an optional paid product, Found Plus.
0:25:10 So let’s talk about this idea
0:25:12 of having multiple income streams.
0:25:14 I’ve been running this podcast for five years
0:25:17 and I always see like trends in and out, right?
0:25:18 So like when I first started,
0:25:20 everyone was like multiple income streams.
0:25:24 And then lately, lots of talk about focus on one thing.
0:25:26 Like just how to Alex Ramosian, Layla Hermose.
0:25:28 Their whole thing is like focus on one thing,
0:25:30 Matt Higgins, former shark.
0:25:31 Also said the same thing,
0:25:33 like really just focus on one thing.
0:25:35 Later on, once you’re rich,
0:25:37 you can diversify your portfolio.
0:25:39 But in the beginning, focus on one thing
0:25:41 and get really good at it and get rich from it.
0:25:45 So I know that you suggest you have multiple income streams.
0:25:46 Do you wanna give your perspective
0:25:49 on what you think about this topic?
0:25:49 – Yeah.
0:25:52 Well, I’m friends with Alex and Layla, so I love them.
0:25:54 I think there’s multiple things.
0:25:56 One, I just don’t like risk.
0:25:58 I want to never have a likelihood
0:26:01 where I can’t pay my mortgage or pay my rent.
0:26:03 I don’t want you to sit there wondering
0:26:05 if you’re going to have to pack up and move the kids out
0:26:07 because you have taken one huge swing
0:26:09 and you have fallen down short.
0:26:12 What we forget is what the numbers tell us.
0:26:13 I go back to the numbers.
0:26:17 And the numbers tell us that most small businesses fail,
0:26:19 that most startups never even make it
0:26:21 to their first million dollars.
0:26:22 For every case on Twitter,
0:26:25 showing you how easy it is to start something,
0:26:27 if you go to the numbers,
0:26:31 it tells you that that is an anomaly by and large.
0:26:34 And so for me, somebody asked me the other day
0:26:36 in one of our groups where we talk about buying businesses,
0:26:38 they were like, I have a $250,000 job,
0:26:40 I’m working at a company,
0:26:42 but I really want to focus on buying a small business.
0:26:44 I don’t know if I can do both at once,
0:26:45 should I quit my job?
0:26:48 I was like, absolutely not, absolutely not.
0:26:49 You should keep that income
0:26:52 and take a small incremental risk
0:26:54 that allows you to get to the next step.
0:26:57 The hard work is like, yeah,
0:26:58 why don’t you work two jobs for a period?
0:27:00 I’m not saying there’s like a free lunch thing,
0:27:02 but don’t put yourself in a position
0:27:04 where you’re not able to feed your family or yourself.
0:27:06 I don’t think that’s necessary.
0:27:07 Now, to their point,
0:27:10 there’s something called the 80/20 rule or Pareto’s law,
0:27:13 which is basically that 80% of your outcomes
0:27:15 will come from the 20% of the things that you do
0:27:16 and almost everything in life.
0:27:18 And so I do think they’re right
0:27:21 in that focus is critical.
0:27:24 In my business right now, I own 26 businesses,
0:27:27 but 80% of my time goes to one business.
0:27:29 And the rest of those businesses
0:27:32 are operating with independent operators
0:27:33 like a private equity model.
0:27:36 If I had to split focus between 26 businesses,
0:27:38 I wouldn’t be here.
0:27:40 And so there’s this balance
0:27:42 where two things can be true and have nuance,
0:27:45 which is if you feel something so strongly
0:27:47 that you couldn’t sleep for the want of it,
0:27:49 you have to build it, then do it
0:27:51 and focus on that thing exclusively.
0:27:52 But for a lot of people, they’re like,
0:27:55 man, I just wanna spend three more weeks this summer
0:27:59 with my kids, or I just wanna go on one more vacation
0:28:01 that I can, or like, I’d like to just not have to worry
0:28:05 about the price of guacamole and avocados on the side.
0:28:07 And so for me, wouldn’t it be nice
0:28:09 if I could just have this little extra?
0:28:12 And so anytime anybody’s listening to anyone,
0:28:14 including me, I think you should be asking yourself,
0:28:17 do I just want this because that’s what she is saying,
0:28:19 as that’s what he is saying,
0:28:21 or do I actually want this myself?
0:28:23 And where can I question everything
0:28:24 and find the truth for me?
0:28:25 Because there is no one truth.
0:28:28 There is just what is appropriate for you.
0:28:29 – Exactly.
0:28:31 We talk about that a lot on this show,
0:28:32 like defining your rich life.
0:28:35 We had Ramit Sadion, and he was talking about
0:28:37 defining your rich life, what that means to you.
0:28:39 Okay, unconventional acquisitions.
0:28:40 So you have this program.
0:28:41 And by the end of it,
0:28:44 you hope that these people have 12 different
0:28:47 income streams after one year.
0:28:49 And I read that the average millionaire
0:28:50 has seven to 10 income streams.
0:28:52 So it’s no wonder why you want people
0:28:54 to have these multiple income streams.
0:28:57 Can you help us understand what this might look like
0:28:59 having 12 different income streams?
0:29:00 How is that manageable?
0:29:01 I know you mentioned, you know,
0:29:04 some things previously in terms of having operators
0:29:05 for some of them.
0:29:07 But can you just walk us through how that’s manageable
0:29:10 and give us an example of what that looks like?
0:29:11 – Yeah, so what I really want people to do
0:29:12 is learn the framework.
0:29:16 So I want you to be able to buy your first business
0:29:18 that either supplements your salary
0:29:20 if you want to exit your company
0:29:22 or supplements your expenses.
0:29:23 And so I want to teach people,
0:29:25 how do you buy a small business
0:29:27 that can either replace what I’m making right now
0:29:29 or that can replace my expenses
0:29:31 so that I can continue to do the work
0:29:33 if I want to at my job.
0:29:34 But I never have to.
0:29:36 I can have my fuck you fund
0:29:38 that’s funded from something else.
0:29:40 And so that’s the first step.
0:29:41 And then what you’ll quickly realize
0:29:43 is once you buy a business
0:29:45 and the average person who goes through our program
0:29:47 buys a business typically in 11 months
0:29:50 and that business is somewhere between $100,000
0:29:52 to $10 million in total revenue.
0:29:53 And we screen people
0:29:55 because not everybody should do this.
0:29:58 And so we screen them to kind of make sure,
0:30:00 are you sure you’re ready for this?
0:30:02 And what I’ve found is what happens
0:30:04 is you’ll buy your first business
0:30:07 and then you’ll spend anywhere from 90 days
0:30:09 to a year, a year and a half
0:30:11 kind of stabilizing that business, running through it.
0:30:13 But then you’re going to add different
0:30:15 what I call revenue lines
0:30:18 that could be income lines to an individual
0:30:19 through your business.
0:30:22 So you’re going to say, all right, I bought a laundromat
0:30:24 and now I want to increase the revenue of the laundromat.
0:30:26 So I’m going to add vending machines
0:30:28 as another revenue line.
0:30:30 And then because I see how that works,
0:30:32 I’m going to add vending machines for soap.
0:30:33 And then because I see how that works,
0:30:35 I’m going to add a wash and fold service.
0:30:37 And then I’m going to add a delivery service.
0:30:38 And what you’re basically doing is you’re diversifying
0:30:41 your revenue streams through one business.
0:30:44 So there is a focus or a through line to your business,
0:30:45 but you’re being really smart
0:30:48 in acquiring your new profit centers.
0:30:49 That’s something I wish I learned earlier
0:30:52 because I always thought you had to grow organically.
0:30:55 Like I’ve got to go and I’ve got to get this one customer
0:30:56 or this one client,
0:30:59 but what if instead you could acquire the clients
0:31:01 and wrap them up inside of your business?
0:31:04 And that’s what I tend to do again and again.
0:31:06 But the only caveat I would say there
0:31:11 is that I do think you need to focus on skills early
0:31:12 as opposed to income.
0:31:16 So I have a model that says, learn, earn, invest.
0:31:18 Most people go, I want to invest.
0:31:20 I want to invest and make money.
0:31:21 But really what you have to do is first you have to,
0:31:24 let’s say you wanted to buy a boring business,
0:31:26 you need to spend a minute learning
0:31:28 about buying a boring business.
0:31:31 90 days, some people take a year,
0:31:34 but let’s say that one year trial period
0:31:36 of really learning how to execute on deal making.
0:31:39 And while you’re doing that, I want you to earn money
0:31:39 and I want you to learn
0:31:41 how to increase your earnings potential.
0:31:43 So whether that’s negotiating for a higher salary
0:31:46 or whether that’s getting a better job with a better salary
0:31:48 or whether that’s doing commissions.
0:31:50 And after you’ve done those two things,
0:31:51 then I want you to use that money
0:31:54 and I want you to invest it in something
0:31:56 or invest your time or expertise.
0:31:57 And that’s kind of how I push people
0:32:01 to start thinking about diversification of revenue lines.
0:32:03 – That seems like a really, really smart framework.
0:32:04 Something that I want to follow up on
0:32:07 is you mentioned that you’re screening people
0:32:08 and making sure they’re ready for this.
0:32:11 So what is a typical profile of someone
0:32:13 who might be ready to have a boring business look like?
0:32:15 – I was counting them the other day.
0:32:19 I think there’s six paths to buy a business with $0.
0:32:20 So let me share that with you first
0:32:22 and then it’ll kind of tell you
0:32:25 what type of person can do what.
0:32:26 Because it differs.
0:32:28 So if you want to buy a business with $0,
0:32:30 you can buy a business basically
0:32:32 by using seller financing.
0:32:36 So you can say, hey, I’d really love to buy your podcast.
0:32:38 You don’t want to do it anymore.
0:32:39 How about I take over the business,
0:32:41 your business makes 100K a year,
0:32:44 I’ll pay you 300K for the business over the next three years.
0:32:47 You take all the profits, I’ll grow the business,
0:32:48 anything that’s the Delta’s mine
0:32:50 and I own the business at the end of the year.
0:32:52 So that’s called seller financing, super common.
0:32:54 Then you have revenue share.
0:32:58 So you might say, hey, your podcast is doing awesome
0:33:00 but I bet you could monetize it better.
0:33:01 What if I came on board
0:33:03 and whatever your podcast is making right now,
0:33:04 I don’t want any of that.
0:33:09 But if your podcast, if I could make you an extra 20%
0:33:11 or an extra $200,000 a year,
0:33:14 I’d like 25% of that in perpetuity
0:33:17 and maybe we could negotiate for a percentage of your business,
0:33:18 like 5% of your business.
0:33:20 And so I don’t have to put any money in
0:33:23 but I’ve just given you $200,000 more
0:33:25 for just my sweat equity and revenue share.
0:33:27 And you could do that same thing with profit share.
0:33:28 You could be like,
0:33:30 I’m not gonna do it from top line revenue.
0:33:34 Instead, only when you put dollars in your actual pocket
0:33:38 will I take 20% of the profits that I grow you.
0:33:40 And I’d like to take a small piece of equity
0:33:41 in the business too.
0:33:43 So I get to continue to be paid in perpetuity.
0:33:45 And then you could also say, okay,
0:33:49 what about if you are a business right now
0:33:51 and you have assets.
0:33:53 So let’s say you have a trucking company
0:33:55 or something you have a bunch of trucks.
0:33:56 Why don’t I go get a loan on the trucks?
0:33:58 And because I do a loan on the trucks,
0:34:01 I can buy your business with this capital.
0:34:02 And then the fifth way would be like, I go raise money.
0:34:04 I hear Cody’s got some money.
0:34:06 I hear Alex and Layla are flush with cash.
0:34:07 So I’m gonna go ask them for some money.
0:34:08 I’m gonna buy your business.
0:34:09 They’re gonna take a part of it.
0:34:11 I’m gonna take a part of it.
0:34:13 And then the last one is like an asset sale.
0:34:15 So like, oh man, a bunch of businesses
0:34:17 are going over under with COVID.
0:34:22 What if I reached out to my other podcast friends
0:34:25 that aren’t gonna do their podcasts anymore.
0:34:27 And they actually had some sponsors and info products
0:34:29 that they’re just shutting down.
0:34:31 What if instead I kept those going
0:34:32 and I just paid them a commission on them.
0:34:35 So I’m gonna let them have 10% of those products
0:34:36 for the next three years.
0:34:38 And the rest goes to me and I’ll run it all.
0:34:39 Don’t worry about it.
0:34:42 And so we could do an asset purchase.
0:34:45 And so when the people come into the group,
0:34:47 what I say to them is it really depends
0:34:49 on what type of purchase you’re gonna do.
0:34:51 You could buy a business tomorrow
0:34:54 with very little risk if you do a revenue share,
0:34:57 a profit share, an asset sale.
0:34:58 There’s no skin in the game.
0:35:01 And if you go bankrupt or the company fails or anything,
0:35:02 you’re not gonna go bankrupt.
0:35:03 You’re gonna be fine.
0:35:05 Now, if you’re gonna put your own money on the line
0:35:07 or get a loan, we need to make sure
0:35:09 that you have enough money and understanding
0:35:11 of running a business so you’re not gonna go under.
0:35:14 And those are the things that I try to talk people into.
0:35:16 Typically, if you’ve run a business before,
0:35:18 you should be able to buy a business.
0:35:20 If you’ve been an executive company before,
0:35:22 you should be able to buy a business.
0:35:23 If you’ve done real estate before,
0:35:26 you should be able to buy a business.
0:35:29 And if you have some excess cash so that no deal
0:35:31 can ever go sideways enough and ruin
0:35:33 what your momentum you already have,
0:35:34 you could buy a business.
0:35:37 But I’m really conservative again, ’cause I hate risk.
0:35:39 So I’m always like, please, dear Lord,
0:35:40 just don’t come over even and talk to me
0:35:42 if you’re not ready to do the work,
0:35:43 because it does take some.
0:35:45 – Yeah, and I know that a lot of my listeners
0:35:48 are entrepreneurs and as an entrepreneur
0:35:49 and a founder of a company,
0:35:52 you can also use some of these strategies to your advantage.
0:35:55 So for example, all of my executive team,
0:35:56 they’ve just put in sweat equity
0:35:58 or have taken a reduced salary
0:35:59 and they’ve got equity in my company.
0:36:03 But as a result, I have four other really smart people
0:36:05 helping me build my company.
0:36:07 And I go so much further with my team members.
0:36:10 So it’s like a win-win for both parties.
0:36:12 – Exactly, and then what you want them to do,
0:36:14 this is where it’s fun and we can always talk about this later
0:36:16 in case this is too technical for all your people.
0:36:18 But what’s really fun is for somebody like you,
0:36:21 you also have a different type of purchase you can do,
0:36:22 which is audience.
0:36:25 So lots of people like you do sponsorship deals
0:36:27 or add deals and that’s great.
0:36:29 You have a high level of integrity,
0:36:31 so you only do things that are great for your audience.
0:36:33 But you know what a better play would be?
0:36:36 Is you look for a few companies that you really like
0:36:40 and you say, I wanna do distributing equity deal with you.
0:36:41 I’m not gonna take any cash upfront
0:36:43 or I’m gonna take a decreased cash rate.
0:36:47 And instead, I don’t know, I love this notebook company.
0:36:51 And so notebook company, I wanna put you as the sponsor
0:36:55 for all of our podcasts or for some of our podcasts.
0:36:59 And that would typically cost you $100,000 in ad spend.
0:37:03 Instead of that, you’re going to give me $100,000
0:37:07 in value in the company as I drive X, Y, Z metric.
0:37:11 And I want a percentage payout every quarter
0:37:14 based on the ownership percentage I have in the company.
0:37:16 So I wanna profit share or a rev share.
0:37:18 ‘Cause you don’t really wanna do just an equity deal
0:37:20 because then you end up not making any money
0:37:22 and you still gotta pay your employees and everything.
0:37:24 You need some cash to come in.
0:37:25 And so distributing equity is a really cool way
0:37:27 to do a deal if you have an audience.
0:37:28 – Oh, that’s really creative.
0:37:30 And I have a podcast network,
0:37:32 so I will definitely keep that in mind.
0:37:35 Can you give us some insight into how much money
0:37:38 it actually costs to start one of these boring business?
0:37:41 Like what does this investment typically look like
0:37:43 for some of the popular ones?
0:37:43 – Really varies.
0:37:45 I mean, the cool thing about businesses
0:37:47 is you can go as big as you want.
0:37:50 I mean, I was doing deals when I was in private equity
0:37:52 and running my own funds that were hundreds
0:37:52 of millions of dollars.
0:37:55 And I’ve been a part of billion dollar deals,
0:37:57 although I didn’t lead that deal.
0:37:58 So it can totally vary.
0:38:01 What I would say is if you wanna use your own cash,
0:38:03 it’s a good metric to think,
0:38:04 I’m probably gonna have to put something
0:38:09 like at least 10 to 25K down to buy a small business.
0:38:11 Can I put 10 to 25K down?
0:38:13 Then I can use my cash and I can buy a small business
0:38:15 using seller finance.
0:38:17 Like you can do that for sure.
0:38:19 If you want to get creative
0:38:20 and not use any of your own cash,
0:38:24 which I was just talking to Alex and Layla about,
0:38:25 how do we do more transactions
0:38:27 without a bunch of cash up front,
0:38:30 then technically you don’t have to have cash.
0:38:33 You could just do a deal using sweat equity, rev share,
0:38:37 or the fact there are these 11 million small businesses
0:38:39 and they’re looking for homes.
0:38:41 Like these people need to sell.
0:38:43 We had a guy the other day actually
0:38:45 who was in unconventional acquisitions, it was so cool.
0:38:47 So he worked in Phoenix, Arizona
0:38:51 and he was a general contractor.
0:38:52 He was in the construction trade.
0:38:54 I can’t remember if he was general contractor or not.
0:38:57 And he worked for a guy and he’d worked for a guy
0:38:58 for 10 years in this construction business.
0:39:01 But the gentleman who headed the company was getting old
0:39:02 and he listened to one of my things
0:39:04 and then on our next Monday call,
0:39:06 ’cause we do a call every Monday, he got on
0:39:09 and he’s like, I went to my boss essentially
0:39:10 and I sat him down and I said,
0:39:13 “Hey, I don’t know if you were ever thinking about this,
0:39:16 but if you ever were gonna retire from the business
0:39:18 or think about selling the business,
0:39:19 I’d love to talk to you about it
0:39:23 because I would love to buy this business from you
0:39:24 and I’d have to figure out a creative way
0:39:27 to get cash to do it ’cause I don’t have a lot.
0:39:28 But if you’re ever looking for somebody
0:39:29 to take over your business,
0:39:31 I’d love to have that conversation.
0:39:35 And his boss basically was like, oh, this is great.
0:39:36 Like, I’m ready to retire.
0:39:38 I just, none of my kids wanted this.
0:39:39 I didn’t really have any idea.
0:39:41 Would you wanna start figuring out a plan
0:39:42 inside the next 30 days?
0:39:43 He’s like, I only really,
0:39:44 I wanna work like two days a week,
0:39:46 but I don’t wanna work five.
0:39:48 You could just use the profits from the business
0:39:49 to buy it from me.
0:39:51 I can watch and make sure you’re doing a good job.
0:39:53 And if you hit all your metrics within 90 days,
0:39:53 we start to transition over.
0:39:56 He literally had the whole plan for his employee.
0:39:58 And that doesn’t happen every time,
0:39:59 but you’d be so surprised.
0:40:01 Or actually, you wouldn’t probably,
0:40:03 but people listening would be surprised
0:40:06 how often running a business is so tiring
0:40:10 after 10, 20, 30, 40 years.
0:40:12 They’re like, please dear God, take the thing.
0:40:15 But I don’t wanna just shut it because it’s my baby too.
0:40:17 – Yeah, seller financing is something
0:40:19 that we really don’t think about often.
0:40:20 So it’s very interesting.
0:40:22 And something else to your point right now
0:40:25 is finding a highly motivated
0:40:27 person who wants to sell their business.
0:40:29 So talk to us about what we should look for
0:40:31 and why it’s so important to find somebody
0:40:34 who’s actually highly motivated to sell their business.
0:40:34 – It’s so true.
0:40:36 I think you never sell anyone at anything.
0:40:39 You only find people who are already predisposed
0:40:40 to want what you’re selling.
0:40:43 You find people who are ready to sell.
0:40:45 You don’t teach people that they need to sell.
0:40:47 In that case, they kind of look like this.
0:40:49 There’s two archetypes, if you could think about it.
0:40:50 There’s you.
0:40:52 You are young, entrepreneur.
0:40:56 You’ve only been doing it for five years or less.
0:40:58 You’re excited, your business is growing.
0:40:59 It’s in a cool industry.
0:41:01 Your brand’s associated with it.
0:41:03 There’s all this optionality.
0:41:05 You might take some cash as investment
0:41:07 if you wanted to accelerate your company,
0:41:09 but you’re probably not ready to sell your business
0:41:11 because you’re still excited
0:41:12 and there’s all this room for growth
0:41:14 and you have a cool curve.
0:41:15 The opposite and what we’re looking for
0:41:18 is somebody who’s probably over 50.
0:41:21 They’ve run the business for five years or more.
0:41:23 The business has very marginal growth,
0:41:25 three to 5% growth a year.
0:41:27 They’ve been running this business in an area
0:41:29 that’s pretty commoditized.
0:41:33 Think roofing companies, landscaping, the counting,
0:41:37 and they don’t have a big growth plan for the business.
0:41:41 They work a lot typically or they’re looking for change
0:41:46 because of death, divorce, disease, unhappiness.
0:41:48 There’s a different word for it
0:41:51 but I always forget the D for it and also disaster.
0:41:54 They call them like the five Ds of selling
0:41:56 and if one of those is happening,
0:42:00 then you are primed and ready as a motivated seller.
0:42:02 – And then once we find a motivated seller
0:42:04 and we’re evaluating their business,
0:42:07 I’m assuming we need to look at profit and loss statements
0:42:09 but what other things should we look at?
0:42:11 – I think there’s three things you need
0:42:13 to get 80% of the way to a deal
0:42:15 and the devil is in the 20%
0:42:17 but if you wanna get 80% of the way
0:42:19 to figuring out what a business is worth
0:42:22 and maybe should you buy it, you need these three things.
0:42:24 And they are first, you need a profit and loss statement.
0:42:26 So what does the business make
0:42:28 and what does the business spend each month?
0:42:31 And typically you want that to be expanded
0:42:34 so you can look at it weekly and monthly.
0:42:35 You don’t just want an annual one
0:42:38 ’cause some businesses have a lot of what’s called seasonality
0:42:41 so variability in their sales or expenses.
0:42:43 Then the second thing you want is their tax return
0:42:45 because they put together the P&L
0:42:48 but the IRS puts together the tax return
0:42:50 and so very seldom is a small business owner
0:42:53 going to pay the IRS more because they lied
0:42:56 about their business making more than it really did.
0:42:58 So you wanna match those two up.
0:43:00 And then the third thing that you typically need
0:43:03 is there’s in almost all businesses,
0:43:05 there is some, there’s that 80/20 rule again.
0:43:08 There’s like the 20% that really matter.
0:43:10 So let’s do an example of like a car wash.
0:43:12 Your lease really matters
0:43:14 or the cost of the real estate really matters
0:43:16 ’cause that’s one of your biggest expenses.
0:43:18 The utilities really matter
0:43:20 because electricity and water
0:43:22 are one of your biggest expenses.
0:43:24 So you wanna find out what is the other 20%
0:43:28 that is gonna drive 80% of the success of your purchase.
0:43:30 – That makes total sense.
0:43:33 I heard you say before that you should really only
0:43:36 consider businesses that are easy to understand
0:43:38 or that you already understand.
0:43:40 Why is that so important?
0:43:43 – We’re learning a new skill as is here, right?
0:43:46 We’re learning deal making, how to buy a business,
0:43:47 how to do a deal.
0:43:49 If we don’t have to layer on another skill
0:43:52 which is an industry specific skill
0:43:54 and an industry that’s hyper complicated, that’s a win.
0:43:57 Keeping deals simple wins deals.
0:44:00 I think the worst thing that you can do
0:44:02 is allow a really fancy PowerPoint
0:44:04 to come into the mix here
0:44:06 and give you a bunch of false hope in projections
0:44:09 about what could be as opposed to what is.
0:44:11 And so I like really simple businesses
0:44:13 because then it’s easy for me to understand.
0:44:15 I think most deals go wrong
0:44:17 because if the deals doesn’t make sense
0:44:21 on the back of a piece of paper or on a napkin,
0:44:25 then the deal probably doesn’t make sense in general.
0:44:28 So most people in our world in finance, you know this too,
0:44:31 people in finance want things to seem complicated
0:44:34 so they can charge you a lot of money for them to solve it.
0:44:37 But the truth of it is, it’s usually a lot simpler
0:44:38 than we talk about.
0:44:39 Nobody’s curing cancer here.
0:44:41 You can understand how a laundromat works,
0:44:44 how a car wash works, how a roofing company works.
0:44:46 It just takes some work to understand it.
0:44:48 So that’s why I don’t like anything
0:44:52 that says proprietary on it or bioengineering
0:44:57 or complex patents or even complex attorney companies
0:44:59 because there’s too much ability
0:45:01 for me to not understand what’s happening.
0:45:02 Keep it stupid simple.
0:45:04 – Yeah, that makes a lot of sense.
0:45:08 We’ll be right back after a quick break from our sponsors.
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0:46:39 Something else that I’ve heard you say before is
0:46:41 you’ve got to really look at the profitability
0:46:43 and not just at potential for growth
0:46:46 because everybody could say, we’re projected to do this
0:46:50 or it’s such a fast-growing space or whatever it is.
0:46:53 Why do we actually have to look at the actual profitability
0:46:55 and only really consider that?
0:46:58 I believe in buying companies based on realities,
0:46:59 not hopes and dreams.
0:47:01 That’s the difference, really, if you think about it,
0:47:03 private equity versus venture capital.
0:47:05 Private equity, which is what I do,
0:47:06 sort of buy these boring businesses.
0:47:09 Private equity buys businesses based on the money
0:47:13 they make today, and they apply a very small idea
0:47:15 to the money they think they could make in the future,
0:47:16 but they buy it based on what it makes today.
0:47:19 Venture capitalists invest in a company now
0:47:22 with the hope that the company becomes something else
0:47:23 in the future.
0:47:26 If the company that a venture capitalist invests in
0:47:29 stays the same, the day that they invest in it,
0:47:33 as the day they go to sell the company, big, huge issue.
0:47:35 That means the investor is not going to make any money.
0:47:38 If a small business stays the same,
0:47:41 the day that I bought it as the day that I sell it,
0:47:43 that’s okay, because I anticipated that.
0:47:46 And I just cash flow on that bad boy for some amount of time.
0:47:48 And that’s really the difference between the two.
0:47:49 – Yeah.
0:47:51 Another tip here that I’ve heard you say
0:47:54 is look for a business that doesn’t do a lot of marketing
0:47:56 or advertising and still is profitable.
0:47:57 Why is that?
0:47:59 – I always call it the fax machine test.
0:48:01 Every time I see a fax machine, I get all tingly
0:48:05 because it basically means that they haven’t spent much money
0:48:08 on technology, probably haven’t done much marketing.
0:48:10 And that’s something that’s called value add.
0:48:13 It basically is just the same as a piece of real estate
0:48:16 in which you’re like, oh, look at this awful shag carpet.
0:48:17 And then you peel up the corner and you’re like,
0:48:20 beautiful original hardwoods, awesome.
0:48:23 Like they don’t even realize what they have.
0:48:26 Oh, they boarded up this room and made it
0:48:28 into something ridiculous when in fact,
0:48:30 when I peel it back, the room’s way bigger.
0:48:31 Look, there’s a window underneath here.
0:48:33 I don’t even have to add the window.
0:48:35 That’s what a lot of these boring businesses are.
0:48:37 They’re kind of a pain when you first take them over
0:48:40 because there’s nothing systematized, right?
0:48:43 You know, a lot of these guys have their tax returns
0:48:46 in paper folders, scattered around their office.
0:48:48 So it’s like not hard to do,
0:48:51 but it’s a lot of work to systematize that.
0:48:54 And then you get to layer on the fun stuff like,
0:48:57 gosh, could you imagine if a company
0:48:59 actually paid attention to reviews
0:49:02 and had software to get them at the top of Google reviews,
0:49:03 I could instigate that.
0:49:05 This company’s never once tried to get a review
0:49:07 and I think we could change the company.
0:49:09 And so we have something called the 3M’s,
0:49:11 which basically talks about,
0:49:15 it talks about markets, marketing and measurements.
0:49:18 And those three things all have
0:49:20 all of these different variables in them.
0:49:23 So like markets, if you own a business
0:49:26 and you are located in, I don’t know,
0:49:29 you’re a baby, you’re a toddler,
0:49:30 what are those called where you go
0:49:32 and you like take kids, daycare.
0:49:34 So say you’re a daycare for toddlers
0:49:36 and you’re like, okay, at this point,
0:49:37 we don’t take newborns.
0:49:39 Well, a new market might be,
0:49:40 you start to take newborns.
0:49:43 Another market might be that you add a preschool in the back.
0:49:48 Another market might be you just add another one 25 miles away
0:49:49 in a new location.
0:49:51 So you think about what are all the different markets
0:49:53 we’re not serving that we could get revenue lines on.
0:49:55 And then you go to marketing,
0:49:57 which might be like, we don’t use Facebook ads,
0:50:00 we don’t use TikTok, why don’t we have a YouTube?
0:50:02 What about if we had cold call outreach?
0:50:04 And then measurements is what inside the business
0:50:05 are we not actually measuring right now?
0:50:08 Where if we measured something,
0:50:11 then we actually usually outperform in it.
0:50:13 And so we apply this three M strategy
0:50:14 to all the businesses that we run.
0:50:16 – This information is still good.
0:50:17 So I wanna give you a moment to tell us
0:50:20 where we can find more information
0:50:23 for unconventional acquisitions, your program,
0:50:25 any sort of free resources that you have,
0:50:27 ’cause I personally wanna learn more.
0:50:29 – Well, if you can spell unconventional acquisitions,
0:50:31 which is actually harder than you think,
0:50:33 there’s a lot of eyes in that.
0:50:35 Then you can go to unconventionalacquisitions.com
0:50:37 and there’s a free blog.
0:50:38 I think everybody should get on.
0:50:39 It’s called The Boring Business Brief.
0:50:42 And every week we basically break down
0:50:46 a different idea of business to buy, a deal done,
0:50:48 lessons learned, that one’s really good.
0:50:53 And then if you also go to contraintthinking.co/recession,
0:50:55 there’s a really good piece that we have.
0:50:56 I think you download it.
0:50:58 It’s basically all the ways to make money
0:51:01 on buying businesses, starting businesses,
0:51:03 in recession, and both of those I think are really useful.
0:51:04 – Amazing.
0:51:06 So we’ll stick those links in the show notes, guys.
0:51:09 All right, so I wanna do a quick-fire segment.
0:51:11 We’ve got about 10 minutes left of the interview,
0:51:13 and I do wanna get some of your day-to-day
0:51:15 conventional wisdom at the end.
0:51:17 So right now I wanna do a quick-fire segment.
0:51:20 I’m gonna name some boring businesses.
0:51:23 And I’d love for you to tell me what’s the upfront cost,
0:51:25 typically, if you have, if that makes sense,
0:51:28 pros and cons, basically, a data dump for us.
0:51:31 So let’s start with a laundromat.
0:51:33 – Laundromat?
0:51:33 Well, how about this?
0:51:35 I bought my first laundromat for 100K,
0:51:38 made me 67K a year,
0:51:40 then ended up buying two more laundromats,
0:51:43 rolling those up, and we sold that for close to a million bucks.
0:51:45 You can buy a laundromat,
0:51:47 typically for less than $100,000,
0:51:48 all the way up to a million dollars.
0:51:52 And you can do seller financing on these as well.
0:51:55 You typically pay three to six X the profit
0:51:57 of the business for a laundromat.
0:51:58 They’re what I call the gateway drug,
0:52:00 good business to start with and learn with.
0:52:02 For you, I’d say, don’t buy a laundromat.
0:52:06 You can do a higher ROI and a higher returning deal,
0:52:08 but a good one for a person who’s just like,
0:52:09 I wanna do this for the first time ever
0:52:11 without a big, huge business.
0:52:12 – And what are the cons of a laundromat?
0:52:14 Like, what do we have to look out for?
0:52:17 – The biggest con, I think, is that you can’t typically
0:52:19 make like tens of millions of dollars with a laundromat.
0:52:22 You can make a couple hundred K to maybe a million or two.
0:52:26 The second con is the customer that you’re serving,
0:52:28 can be challenging.
0:52:29 You’ve been to laundromats before.
0:52:32 They’re typically not in the nicest neighborhoods.
0:52:35 You typically have machinery that can get broken into.
0:52:38 I haven’t really had any vandalized, but that can happen.
0:52:41 So your customer segment is not Tiffany’s.
0:52:43 This is a different customer segment.
0:52:44 So you have to be thoughtful on that.
0:52:46 And then the other thing about laundromats
0:52:51 that’s just worth noting is they take a lot of equipment.
0:52:52 And so if you’re gonna buy one,
0:52:54 you really gotta make sure you understand
0:52:55 what that equipment is worth.
0:52:56 Otherwise you could get into a point
0:52:58 where you buy a laundromat with all these machines,
0:52:59 but the machines are all old
0:53:00 and they’re not gonna work anymore.
0:53:02 So you gotta do some work on the equipment
0:53:03 and get an appraisal.
0:53:04 – Got it.
0:53:07 Okay, so the next one is vending machines.
0:53:09 So I’d love to understand the pros and the cons
0:53:11 of buying this type of business.
0:53:12 – Vending machines are great
0:53:15 because this is a very cheap business to start or buy.
0:53:17 I see people buy vending machine businesses
0:53:21 for anywhere from 3,000 to maybe $300,000.
0:53:24 So it’s a really good, again, entry-level business.
0:53:28 The problem with vending machines
0:53:31 is that you can’t sell very much out of one location.
0:53:33 So they’re not very efficient.
0:53:35 You might make a couple hundred bucks per day
0:53:37 per vending machine, but you’d have to travel all around
0:53:41 to go both fill them up again and collect the money.
0:53:42 So they’re not a very efficient business
0:53:44 where you can just go to one location.
0:53:45 They require some logistics,
0:53:48 putting money in, taking gear out.
0:53:50 The second problem with vending machines
0:53:53 is they don’t scale very well for reason one.
0:53:56 So there are some companies that have scaled vending machines,
0:53:57 but not very many.
0:54:01 And then the third issue with vending machine businesses,
0:54:04 I think, is it’s basically like a mini real estate place.
0:54:06 You have to go negotiate deals
0:54:08 with every single location that you go to,
0:54:10 and they could take those deals away
0:54:11 or they could require more cash.
0:54:14 So you have to make sure you know how to negotiate
0:54:17 and the right way to talk to a seller of the location.
0:54:18 The good parts about vending machines though
0:54:20 are they’re very cheap to start.
0:54:22 They’re really easy to run.
0:54:26 Again, easy, not simple, important caveat between the two.
0:54:28 And there’s a bunch of technology now
0:54:31 that’ll allow you to track your expenses,
0:54:33 your inventory and all of that remote,
0:54:34 which didn’t use to exist.
0:54:36 So that makes them a lot easier.
0:54:37 – So interesting.
0:54:40 Okay, the last one is car washes.
0:54:42 What are the pros and cons?
0:54:44 – So if I had to look at these three in order,
0:54:46 I’d say vending machine easiest business,
0:54:49 least cost, probably the least profitable.
0:54:51 These are all averages.
0:54:53 Second business would be laundromats,
0:54:58 medium cost, medium expenses, medium revenue.
0:55:00 The car wash is most expensive,
0:55:03 potentially the highest revenue of the three.
0:55:05 And so the good part about car wash
0:55:07 is all three of these businesses
0:55:10 can be relatively automated businesses.
0:55:13 And you don’t have to be on location all day
0:55:15 in all of those businesses, which is really nice.
0:55:17 The car wash has that same characteristic.
0:55:20 They also can scale pretty easy.
0:55:24 So car washes, you can add multiple bays to them.
0:55:26 You can offer in-person service.
0:55:27 I don’t do that with mine.
0:55:30 I like it better when it’s just a location
0:55:31 and you can self-serve,
0:55:33 which also means you make less money, obviously.
0:55:35 The thing to know about car washes
0:55:36 is the equipment’s extremely expensive.
0:55:38 It’s the most expensive of any of them.
0:55:40 So you really have to make sure you analyze the equipment
0:55:42 and make sure that it’s in working order.
0:55:43 And then it’s really real estate.
0:55:45 You’ve got to just look at the location,
0:55:46 location, location, equation.
0:55:50 Do you have at least 10,000 cars that drive by per day?
0:55:52 That’s called your car count.
0:55:55 Do you also understand your utilities and water bill?
0:55:58 ‘Cause that’ll be really big for a car wash.
0:55:59 And also, are there any taxes?
0:56:02 Sometimes they levy taxes on those types of businesses.
0:56:05 But I’ve owned all three,
0:56:07 and I think all three have a place,
0:56:09 maybe not for everybody, but to start.
0:56:10 – And I have to ask you,
0:56:13 are there any boring businesses that you want to mention
0:56:15 that are getting you really excited right now?
0:56:18 – Right now, the businesses that are most exciting for me
0:56:22 are probably, I really like buying professional services.
0:56:24 Like right now I’m buying accounting firms,
0:56:26 typically just bookkeeping.
0:56:28 I like the recurring revenue component of them.
0:56:31 So every single month, you pay somebody to do your books.
0:56:32 I like that.
0:56:35 I also like businesses and professional services
0:56:38 that do things like insurance.
0:56:40 Again, recurring revenue.
0:56:42 It also has something that’s, this is like very nerdy,
0:56:45 but if any of these terms you guys don’t know them,
0:56:47 I think of money has its own language.
0:56:49 You teach people this all day long.
0:56:50 Money has its own language.
0:56:52 And if you don’t learn to speak it,
0:56:54 you’re certainly never gonna get much of it.
0:56:57 And so if you don’t know words like recurring revenue,
0:57:00 or what I was gonna say is CAPX,
0:57:01 which means capital expenditures,
0:57:05 AKA the cost to build a car wash.
0:57:08 Things like insurance companies and accounting firms
0:57:09 or bookkeeping have less of that.
0:57:11 And so for somebody that doesn’t have a bunch of cash
0:57:14 to throw around, those businesses are kind of nice.
0:57:15 So I’ve been playing a lot
0:57:17 in the professional services realm right now.
0:57:18 Really cool.
0:57:20 All right, so let’s move on to some
0:57:23 of your conventional wisdom for entrepreneurship.
0:57:26 I saw you on Instagram and you’re making so much noise
0:57:27 in the digital space.
0:57:29 Congratulations on all your influence
0:57:32 that you’re going on Instagram, especially in other channels.
0:57:34 You talk about mirror selfies,
0:57:37 and basically you started taking mirror selfies every day
0:57:39 with your to-dos.
0:57:40 Can you tell us about that
0:57:42 and how it helps you stay accountable?
0:57:47 So I found that the most critical person to you
0:57:50 will be that person you see in the mirror every day.
0:57:51 And most people try to compete
0:57:54 based on follower account or bank account.
0:57:57 And I think the only account that actually matters
0:57:59 is the one that stairs right back at you.
0:58:01 So about maybe a year ago,
0:58:04 I started realizing that I was letting my days
0:58:07 slip away from me and that I was going along
0:58:08 with whatever was happening
0:58:11 as opposed to what I wanted to happen.
0:58:13 And so I started posting a selfie each day.
0:58:15 And the selfie was just me in the mirror.
0:58:17 And then it was my outline of things
0:58:19 that I have going on that day.
0:58:20 And the reason that I did it was a little bit
0:58:21 of accountability.
0:58:24 So am I actually going to do the thing I try to do,
0:58:26 which is 1% better every day
0:58:28 because compounding is magical.
0:58:29 And I thought maybe this is a good way to do it.
0:58:31 People do it a lot for working out,
0:58:34 but I don’t see very many people hold themselves accountable
0:58:35 to what do they do with their time,
0:58:37 their most precious commodity.
0:58:39 And that’s my idea.
0:58:40 – It’s really cute.
0:58:43 Steve, another exercise you call the one in 60 rule.
0:58:44 Can you tell us about that ritual
0:58:47 and how it helps you stay on the right path?
0:58:50 – So there’s a saying among pilots
0:58:53 that basically for every one degree
0:58:56 that you go off course at any given time,
0:58:59 at the end you’ll end up 60 miles away
0:59:01 from the course of destination.
0:59:02 And so when I heard about this,
0:59:06 I started thinking about it from a daily action perspective.
0:59:08 What if that’s also true in the things we do each day?
0:59:10 What if we have a plan,
0:59:12 but every day we just get slightly moved off course,
0:59:14 one degree off course,
0:59:17 would we also end up tens of miles or hundreds of miles away
0:59:18 from where we want it to be?
0:59:20 And I think the answer that we all know inside
0:59:22 is that yes, that actually is what happens.
0:59:24 And so when I realized that,
0:59:26 I like to put things into practice
0:59:27 by putting them on my calendar.
0:59:31 So I put on my calendar pretty much every week that I can,
0:59:34 a little time for me to sit down with a notebook
0:59:36 and I talk about what are my outcomes
0:59:37 that I wanna have happen that week.
0:59:39 And I ask myself a series of questions
0:59:41 and those questions lead me
0:59:43 to hopefully steer myself straight each week.
0:59:46 I think it’s less important what questions you ask
0:59:49 and how you do it and what day of the week that you do it,
0:59:51 but that you have a practice where each week
0:59:53 you’re gonna course correct slightly
0:59:55 for every degree that you get off.
0:59:56 – Young and Profiters,
0:59:59 this was an amazing episode with Cody Sanchez.
1:00:01 Cody, thank you so much for joining us here on YAP.
1:00:03 I really appreciated all your knowledge
1:00:07 about contrarian investing, unconventional acquisitions,
1:00:10 boring businesses, it was really, really interesting stuff.
1:00:12 So I end my show with two questions.
1:00:16 The first one is what is one piece of actionable advice
1:00:18 that our Young and Profiters can do today
1:00:21 to become more profitable tomorrow?
1:00:22 – You know what it actually is?
1:00:24 The piece of advice I would give is that
1:00:25 you don’t actually need advice,
1:00:28 you need to figure out your to-do list.
1:00:32 And most people spend so much time listening
1:00:34 to what other people say they should do with their lives.
1:00:37 When they know inside the things one through 10
1:00:39 they need to do to have a different outcome.
1:00:42 And instead of trying to perfect,
1:00:44 why don’t you try to do?
1:00:47 And I’ll listen to my own advice on that too.
1:00:48 – I think that’s brilliant.
1:00:50 And what is your secret to profiting in life?
1:00:52 And this can be beyond financial.
1:00:54 – The best deal I ever did was my partner.
1:00:55 It was my husband.
1:00:58 It’s also the deal that was the most costly to me ever
1:00:59 with my ex-husband.
1:01:02 So when you’re still young and you have this option,
1:01:06 be really careful who you tie your life to.
1:01:08 Because whether that person is your significant other
1:01:10 or that person is your business partner
1:01:14 or that person is a senior executive that you bring on
1:01:16 or somebody you decide to do a startup with,
1:01:20 your partner will be the single largest impact
1:01:22 on the human that you become.
1:01:26 And most people don’t pay enough attention to that.
1:01:29 So choose your partners carefully.
1:01:30 – I love that.
1:01:32 Well, Cody, where can everybody learn more about you
1:01:33 and everything that you do?
1:01:35 – ContrarianThinking.co.
1:01:38 Join the newsletter that’s the hands down the best place.
1:01:40 And then I’m Cody Sanchez, C-O-D-I-E
1:01:42 on all the internet of things.
1:01:45 Whether you like Twitter, TikTok, Instagram or YouTube,
1:01:46 we’re on every single one.
1:01:47 – Amazing.
1:01:48 Thank you so much.
1:01:49 – Thank you.
1:01:50 This is fun.
1:01:52 (upbeat music)
1:01:55 (upbeat music)
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