The Bottlenecks Billionaire Playbook Pt. 2: Secrets to Scaling Wealth Without Losing Control

0:00Hey everybody, welcome to another episode of the Business Lunch Podcast with your host, Roland Frazier, and the wonderful and slightly dentist-jacked-up Ryan Dice. Ryan, how are you doing today? Yeah, aside from not being able to feel the right side of my face. You hear that? I can't even talk right. It is. It's a little lopsided over there, like you got some numbing going on. That's good. Oh, they told me that it would be better by now. They were wrong. I had the same thing. I ended up playing pickleball right after my root canal, and the whole time I was like all swollen. It didn't like, didn't feel bad or anything, but it's like, you just walked around.

0:41It was like, yeah, it was like this deep cleaning. And so they said that like they needed to numb me up, but I don't know, it was stupid. I like it. All right, well, we're going to go through today. We've got something kind of fun because every September Forbes drops their list of the 400 richest Americans. And most people take a look at the names, they shrug and they move on, but hidden inside this year's list is really a seismic shift, we think, that almost nobody's talking about. And so for the first time in history, over 70 % of the Forbes 400 are self-made, which is crazy, right? That means three out of four billionaires did not inherit their fortunes.

1:22They actually built them. And the kicker is that the newcomers aren't really what you would expect. They're not like flashy app designers or Hollywood celebs. They're data labelers, energy exporters, freight platforms, coffee huts, like these completely different kinds of businesses than you might expect. So these people are getting rich today by not chasing the spotlight. They're actually buying the bottlenecks. They're controlling order flow and they're owning the boring infrastructure that everybody else overlooks and that most people don't think is very sexy. So if you've been told that wealth is about the next hot app or a viral TikTok or catching lightning in a bottle, you're right, it can be.

2:04But you've also been sold the wrong playbook if you think that is the exclusive playbook, because it's not. The real fortune is hidden in the levers, the deals and the choke points that turn small companies into billion-dollar exits. And in today's episode, we're going to break down those levers. We have identified 11 wealth engines that the Forbes 400 are pulling right now. and more importantly, how you can pull them yourself. So if you can remember that success leaves clues, this year's list is basically shouting them at us. So context here is that the Forbes list from the 2025, the key numbers, total wealth, a record 6.6 trillion with a T.

2:46The cutoff, the minimum to get on the list of net worth for that right now is up at an all-time record of$3.8 billion. And so if you can think about that, it takes almost$4 billion just to get in the door. It's really never been harder to get on the list in the past. The other cool thing is this, it went actually, and it wasn't a giant jump, but if you think about going from 67 % self-made last year to 71%, that's pretty crazy. Um, and, uh, and so Ryan, why do you think more than 70 % of the billionaires on that list of the richest people in America, uh, are now self-made? Would you say that's proof that opportunities more accessible than ever in the American dream is alive and well, or is it just harder than ever to get rich without capital and connections?

3:38Well, I just think, um, what previously the way that you would get, get rich, I guess was other than that was inheritance. And so there's just so much wealth being created right now that in a generation, in a decade, in a matter of years, you can create what would have taken a lifetime and then some to, you know, to create. So I just think there is so much opportunity. There's so much leverage right now. And that's, I was going to say, why? So you think it's leverage? Is it AI and the collapsing? all the things that we talk about here on the podcast or anything else that you would say is making that happen?

4:21Kind of like maybe the democratization of access to the tools that create wealth where they used to be like you used to need to have, you know, a railroad, you know, or an oil refinery or 20, you know, of those. And now you just need a computer or, Or, you know, or an app or, you know, something like that. Because anybody can get access to the tools of wealth, wealth is finding the right people. I mean, I really do think that that's the case. I mean, I think if this were 100 years ago, you know, there are sadly probably, you know, people with amazing ideas who just wealth and opportunity didn't find.

5:03And now it's finding it. And the pace is just happening so fast. so would you rather inherit a billion dollars then and protect it or start from zero and build five billion i mean i clearly i'd rather i mean i'd rather build it you know just it's funny because like if you inherited it you have it whereas if you build it you actually have to work for i'm i'm with you and it kind of annoys me because i feel like it's that's a dumb answer yeah i mean and and i and the answer would be the same if it were the same billion right because in your scenario there's five times as much because you built it i my answer would be the same if it was the same my my answer i think it'd be the same if it were half as much yeah um is that just the personal satisfaction of having done something yourself yeah and i i think i'm more of a builder than a capital allocator.

6:01So I don't know how great I would be if I had it at necessarily scaling it. I probably would need to give it to other people to invest. I enjoy the building and the creative process more. And I think it's important to know just that about you. What are you good at? Are you the kind of person who's good at the building side? Or are you better at the capital allocation side because we know a lot of builders who they built, they made the money and then they get into the capital allocation. They don't realize that they're not very good at that. They lose it all. And then they kind of got to start back over again.

6:38So yeah, I don't know, man. I think, and I do think that there's a lot of dignity in earning. That being said, I don't think there's anything wrong if you inherit it to building up that as well. Just for me, Like, what am I good at? What do I enjoy? What do I, you know, drive? It's a lot more fun to build it. Bingo. I like that. And so there were 14 newcomers who added a collective$113 billion in wealth. So that means that the newcomers had an average of$8 billion each. Four of them broke the$10 billion threshold. And so we were looking at kind of some of the patterns. AI infrastructure made sense that that would be one of them.

7:20uh that's edwin chen with surge ai um energy exports was another robert pender michael sable at venture global lng um fintech platforms vlad tennev at uh at robin hood um it was kind of cool to see him on there although you know the order flow thing with robin hood is is questionable in my mind uh scaled retail formats uh travis borisma from dutch brothers um these are not, like we said, these are not flashy apps. These are builders, like builders of the hidden plumbing of, of the economy. So, um, I think that's really interesting. Uh, only one, uh, not one of them, not one came from social media.

8:01And so does that surprise you or, or do you think it proves that quiet wealth is the new real wealth? Why? And I also just think that the, I mean, when you say didn't come from social media, do you mean from like as an influencer? Yes. And I mean, also didn't come from, you know, from like Facebook or like those are kind of set right now, I think, unless there's some. Yeah, exactly. I mean, I think the money has been made from that, you know, so. Yeah, I'm not surprised there. I mean, I think there's that that's like none of it came from the railroads. I mean, that was last generation's wealth builder.

8:36It's now going to come from a different place. Yeah. And real estate, which used to be giant also. Right. A lot of people would say, you know, 90 % of the wealth in America comes from real estate. It's not anymore. The real estate is digital primarily, I think, more than anything. Yeah, and there are plenty of places where you can still get very, very rich. It just may not make you one of the 400 richest people on earth. So it doesn't mean that$3.8 billion threshold is pretty crazy. Yeah, there are only so many things that will consolidate that much wealth. So the question is, how did they do it?

9:12And more importantly, how can you and I replicate the same wealth creation plays, but at a smaller scale? And that's where we created a framework that we are calling bottlenecks. And it's kind of cool because bottlenecks are one of the primary ways that these people do that. So that's creating choke points that you own. So, um, surge AI, uh, Edwin Chen there who was in at 18 billion built, uh, wealth controlling labeled data, which a lot of people have never even heard of. That's basically just human verified data that AI models use to train on. So, um, that's kind of interesting. And, and, uh, it's also, it's interesting in the picks and shovels kind of, uh, if you guys are familiar with that, you know, it's not necessarily the people that own the mines that get rich.

10:03It's the people that sell the people who want to own the mines, picks and shovels. And so in every gold rush, the richest person is not the miner. It's the person that controls the road to the mine, which I thought was an interesting thought. So the arbitrage play here would be identify some scarcity. And that might be power near substations. There's a lot of data centers that located there. It might be a HIPAA grade medical data. It might be zoning permits. It might be mining permits. And then once you've identified that scarcity, acquiring undervalued operators like transcription firms or regional utility contractors or boutique permitting consultancies, like these are kind of obscure things that you then professionalize, that's step three.

10:52You add compliance, you add enterprise contracts, you add recurring revenue, and then rebrand them as infrastructure and court the buyers that buy those infrastructure kind of companies. So that would be like big tech, Amazon, Google, et cetera, the FAANG, although I think those initials have changed a little bit. Cloud platforms like Databricks or Snowflake, infrastructure PE like Brookfield or utilities like Duke. Those are all potential buyers. And then you're exiting at a 10 to 12 multiple on something that you ended up acquiring in the three to four range. So I think it's a really solid play to own those bottlenecks in today's in-demand scarcity areas.

11:44And it's kind of like the modern monopoly, right? It's the Hunt Brothers, was it? They kind of tried to corner the silver market. Instead of cornering a commodity like that now, you're looking for something that is really powering the infrastructure of what's happening in the future. So do you think controlling bottlenecks is ethical or do you have problems with it? What do you think, Ryan? I mean, yeah, I don't have a problem with it. I mean, at the end of the day, if you cross the line, there's going to be plenty of government institutions that will be there to stop you. And also the market is going to create the competition.

12:21So I don't think you're going to have the opportunity to establish a full-blown monopoly. What I can tell you is that going out there and controlling a bottleneck of, you know, some of these very like these giganto markets, it's hard. And very often they're established. And so you might be thinking like, OK, fine. But like, I don't know that I can necessarily, you know, control and occupy the ground that the data centers are on or, you know, I'm not the energy company. So to think about the second and third order players that are out there, that's where I would be. That's where for me, I'd more be wanting to play.

13:05Well, that's kind of what we're saying, right? Because not only is there opportunity. What was that? That's what we're saying. So we're not saying. So the step one is what is the scarcity? And so it's power near substations, but you don't go and buy a substation. Right. That's going to be a tough one. Right. You don't go and buy a mine, but what you do is you look at who are the smaller undervalued operators. So like a medical transcription firm has, is a bottleneck because they have all of the data that they've created through transcriptions that can then be used for the AI labeling, right? That then is, so there are many bottlenecks, right?

13:45That they're not monopolies. And so that's why I think it's important to say bottleneck, not monopoly, because we're playing to the monopoly companies as acquirers of our small bottleneck mini moats that we've got. We've got the client that does underground tanks for generators that would go in the data centers, for example, right? And so you think about a data center, you think about all the stuff that goes into a data center. Nobody thinks about the person that needs to put in the underground tanks that are going to power the generator that needs to be there in the data center. And yet that's a hyper specialized company that just does that.

14:28Right. And that's one. You know, there's going to be dozens and dozens and dozens of smaller companies and contractors in and around just that one opportunity. and there's dozens and dozens of opportunities like that. So what are kind of the second and third order opportunities that these gold rushes are creating? So, yep, there's the picks, there's the shovels, there's the roads out to the mines, there's gold rushes all over the place. What are the picks and shovels and the second and third order picks and shovels that are creating the bottlenecks that you can get in front of? That are also going to appeal, that are bottlenecks in industries that are critical to are going to appeal the current trending monopolies is the thing I would add to that.

15:17So like, because I think that you can say, well, let's own the company that's doing the underground things. That is definitely, there's demand for that and everything, but it's not likely, there's not a lot of additional value transformation that can be added that's going to jump the multiple on it. Whereas if I buy a transcription company that's a bottleneck for data that can be used and repositioned as an LLM AI labeling, then the AI labeling company, which has more money than anybody now because that's where all the money is flown to, is going to pay a hefty premium for that because the premium they pay is still just a fraction of the valuation that they've got in terms of even in multiple, right?

16:02Because they're typically trading at public multiples that are crazy, crazy high. So I think that's, that's just the caveat is just be careful that you're, I mean, you can definitely make money with the one, but if you're like shooting for the, you know, let's hit that threshold. I think you have to, to look a little higher. Would you rather own a bottleneck in an emerging industry like AI or one that was more stable and boring like utilities? If it's me, I'd rather own the stable, boring one. Um, cause I'm a bigger fan of the trendy one. No, I give me the doubles and singles. Um, the, cause I'll tell you the other, the other thing about chasing trends, not only is it, is it very zero sum, um, but everybody's in it.

16:49Like there's just so much competition that, you know, it's not that I don't feel like I can compete, but, but I would much rather, you know, I'd much rather be the, the, the, the kid. I remember going back and, and when I was in high school, like, cause I'm not tall, you know that, but I remember when I was in high school, you know, going back to my junior high and a bunch of kids like, Hey, let's play basketball. And all of a sudden, what do you know? I was the tallest one there. Right. That's what I want to be. Right. I want to be the short high school guy playing against junior high kids. And so, and that ain't going in there and playing an AI today.

17:23So that's kind of more around living. All right. So the B in our bottlenecks acronym is actually bottlenecks. The O is order flow. And the perfect example here is something that was relatively controversial is how Robinhood made the most of its money. So Vlad Tenev, who was on the list with Robinhood, basically they profit by selling payments, by charging processing companies for order flow, meaning the processing of the tickets that the Robinhood trades generate. And so Robinhood democratizes investing by allowing you to purchase fractions of a share and get into the stock market and play it for not much money.

18:05And then they pass the order flow, the execution orders onto other firms that they charge, I think hundreds of millions, as I recall, like minimum processing to have the order flow and the firms buy the order flow and profit from it. And I thought that was kind of interesting because it's basically, you know, you don't have to, you don't have to sell the fish if you own the dock. Like they don't, they don't have to sell order flow because they already own the place that everybody is coming up to. And the arbitrage play here is acquiring fragmented brokers like freight claims brokers. Again, it's brokers, not the people in the middle.

18:45Commodity, adding AI automation for matching and pricing. So how does the broker then use AI to connect people and price dynamically? Roll up four to six of those brokers, get to a national platform, monetize the spread, the margin per transaction and the float, the interest that you're getting on the cash that you're holding, and then you're exiting to PE at eight or nine times, it's an easy 10X. You could have a$20 million investment cost that ends up being 200 million X because Robinhood makes billions, not by trading, but by selling the flow of trades. That's the genius. That's the trick. But the question is, does that only work until regulators step in?

19:28Or do you think that's going to be like, will that be in the current environment, which seems to be kind of deregulatory? Is that a play that you like? It would make me very, very nervous. It also starts to look a lot like skimming. We're not adding a ton of value. We're sort of just, you know, it's not a business that I would necessarily, if I've got my choice that I would want to go into, because you're likely spending as much money on lobbyists as you are on marketing and acquisition. Um, so I, and I would wonder, do I mean, it's, it's a control of an audience more than anything. Like if you look at Robin hood, mostly it's just the control of the audience by making something available that wasn't available before.

20:16So that play has worked in the past and will probably work in the future. And I think that Robin hood's method of making money is a bit sketchy, but there are, if you were just at, Like if you bought a freight group and then AI automated matching and, you know, we're holding money, making money off the interest. There's, there's a, um, there was a company that we were working with that, uh, that is a dump truck brokerage that brokers dirt, people that have dirt that want to get rid of it and dump truck owners that want to pick it up and take it to other places. And so I feel like they're adding tremendous value because they've created this marketplace of buyers and sellers.

20:56They've added AI automation and, you know, they get paid a fee each time they make a connect. They have true value. And so I think that like they have the audience and they're getting paid for order flow also. That's an interesting business. And one that I would never have thought of. The beautiful thing you and I get is we get to look at all these businesses. You're like, holy crap, how do you make money doing that? But would you say though, then that order flow businesses can scale beyond finance and freight or is like, or are they always risking being replaced by the platform that they're dealing with?

21:33You know, like the, I would, I would say, I'm trying to ask a question while I have seven in my head. So let me see if I can get it down to one. Do you think that this applies outside of finance and freight? I guess that would be the first thing. So yes, I mean, because I think a lot of it is any brokerage type business is going to somewhat look like this. And I think the question is, are you adding a layer of value beyond merely just controlling access? If all you are is a toll booth and you're simply saying, I got these people over here and I'm just charging them to get to you over here. At some point, these two parties are going to figure out a way around you.

22:18Yeah. Right. They are going to figure out how to bypass you. And so if you're not adding value in that exchange, then you got to know that you're going to get cut out because you deserve to be. And so I think that's the thing that you got to figure out is, is it, so can it, can it happen outside of finance? Yep. I think the reason that it works more in finance is it is easier to control the pipes in finance. Like there's just so many more ways inside of finance just to make sure that the two do not talk to one another. Just the lockdowns that exist in that particular market that technologically make it possible that don't in others, but you still see it.

22:59Yeah, I agree. Not a business that I love. That leads us to the T, which is tools, selling the picks and shovels, which I do happen to love. So you've got Jensen Huang who created NVIDIA and GPUs are the shovel and AI is for the AI gold rush. The arbitrage play here would be targeting niche AI tools. So like annotation QA, quality assurance on the annotations for AI, bias detection, hallucination guardrails, model monitoring, retrieval analytics, rights management, all of those things for training data. you could acquire 5 to 10 million ARR SaaS companies that were in those areas or that were adaptable to those areas at relatively modest multiples.

23:46SaaS multiples are down right now. Bundle that into AI DevOps suites with unified billing and support, cross-sell into enterprise accounts, scaling to 50 million ARR, exit to somebody like NVIDIA or another hyperscaler at 10 to 12 AR and you're, you're doing pretty good. So you've got Nvidia that's worth over a trillion right now dollars because it sells the shovels for the AI gold rush. But tools are only valuable until the gold rush ends generally. So how do you know which tool makers are going to outlast the hype and, and Nvidia, which went from graphics card to AI basically card, even though it's kind of the same thing.

24:26um like is that do you think that is there a way to kind of identify what's the next one of those and if you are nvidia are you a little concerned that you're you got a big target on your back and you got a whole bunch of people coming for you or do you think they've got it kind of safely tucked aside right now there's no business that's safe i mean that's like that's the classic only the paranoid survive. Intel, I think, just got an investment from the U.S. government because they were doing so badly, and they were the player for chips forever, right? Exactly. I mean, yeah. NVIDIA was just kind of like they sold little graphics cards to gamers.

25:09You know, the fact that those just happened to work the best for AI. Yeah, I mean, look, I'm sure that there was some foresight there. Nobody can convince me that there wasn't also a giant heaping help in the luck. They got the double luck though, right? They got Bitcoin mining, crypto mining first, and then AI, like, you know, just as crypto maybe was being questionable. It's like, oh no, now we've got this limitless demand for AI. I just don't understand how everybody else missed it. Yeah. I mean, I think what it is, is, you know, classic innovators dilemma. You had the biggest chip player in the world, Intel, saying, we got to just keep doing what we're doing.

25:53And they just didn't pivot fast enough. And I think AMD was so busy competing against Intel that they were just trying to beat them that they didn't see NVIDIA as being the competition they should have been competing with. It's why NVIDIA surprised everybody too, right? It was like, open AI comes and Google's like, holy crap. And then Apple's like, oh my gosh, we missed everything. Yeah, well, yeah. I think one of the most important decisions you make in business is your choice in competitor. And I think if you choose, because when you choose your competitor, what you're really choosing is the category that you're competing in.

26:31And so I think that was the mistake that AMD made. But they weren't as, they were able to move faster than Intel did, obviously. And so they're moving along faster. But yeah, I mean, it worked out great for NVIDIA. I don't know that there's a phenomenal model there beyond, yep, if you can be the big shovel. Yeah, I mean, if you can be the only one there holding a shovel in the gold rush, then you're golden. But I don't know. I mean, you tell me, like, would you rather be the startup making the shiny, beautiful AI app? Or, you know, do you want to be the boring toolmaker? Like, where do you want to be on the ecosystem?

27:14them. Every time, Toolmaker. And I like the play that we... So we're not laying out really become NVIDIA here, guys. We're laying out knowing that things like this come and looking and deconstructing the 11 levers that we see the people that are on this list of self-made billionaires doing. What could you do? You could absolutely acquire a$5 to$10 million ARR, annual recurring revenue SaaS, you could probably find one that's in trouble. And then it's not already an AI SaaS is the key, right? Then you're bundling that into this DevOps suite for AI. So the transformation in value is coming from, we've got a component of this thing that we know that the NVIDIA type companies are going to want to buy.

28:08And we are transforming the raw rock that we've mined by finding this company that will fit that mold into the gold or the diamond by applying the AI skin on top of that, that filter of now this could be just a boring SaaS or it could be AI DevOps, let's position it as AI DevOps. And then we put four or five of them together into a suite and we've got something. And so that just don't forget that that's like, we're not just talking about being the next NVIDIA, but we can't help but comment on that as we talk about the smaller play, right? Yeah. So the next thing - I think the thing you got to worry about when you're talking about the smaller play, just to look out for is if there is a bigger pick and shovel provider and you want to provide a smaller pick or shovel, just make sure that it's not clear, that obviously the bigger pick and shovel provider isn't just going to build in the thing that you're doing into their stack.