Ep 149: Will Fry on the Small Business Succession Crisis & New Opportunities in the AI Age

0:00There's a lot of doom and gloom on the internet that there's no jobs. AI's taking all the jobs. It's completely false. How is AI impacting small business? These service businesses are the last businesses to be impacted. These businesses will only go up in value. A lot of people think of AI and they think of cost cutting. That's not the right lens to look at small businesses. How can we leverage AI to reduce the amount of monotonous work that you're doing and reallocate it to something that generates revenue? There's a huge opportunity for young people to capitalize from this wave. We're literally creating millionaires on Main Street.

0:37Will Fry is CEO and founder of American Operator. This is one of the most exciting areas of our economy in the coming years. We have trillions of dollars of transactions because baby boomers are retiring, able to buy these businesses at three or four times cash flow. The government actually helps people become owners. And American Operator wants to help tens of thousands of people become new owners. It's a great area to invest in. I'm personally investing a lot into this area. and I'm really excited to hear from Will how AI, how innovation, how everything going on is going to transform this area of the small business economy.

1:07A lot of young people are wondering, what should their job be in the AI era? You don't need as many people joining law firms. You don't need as many analysts at banks or at McKinsey. You know what? We need a lot more owners in the American economy. We need millions more owners, over 2 million businesses that have to be sold, that people need to run. If you're a smart young person, you should look into this area. Welcome to American Optimist. Happy to have with us Will Fry, the CEO of American Operator. Yes. Thanks for having me, Joe. Will, you are empowering a huge number of people to become owners.

1:33You're helping support owners, really focus on the small business ecosystem, big part of our economy. Let's start with your background a little bit first, though. You grew up in a small town in North Carolina? Yeah. Drew and I share that. I grew up in Greenville, North Carolina. It's about 70 ,000 people, a bunch of tobacco fields, baseball fields, and small businesses. Tobacco fields, baseball fields, and small businesses. I love it. What small businesses do you remember from your childhood? What stands out to you as a business? So the Stallings family owned a Port-A-John business. And so for the local state college, East Carolina university, anytime there was a baseball game, football game, you'd see the Stallings Port-A-Johns out there and they made a good living doing it, hauling waste and bringing around Port-A-Johns.

2:12I love it. Give me one other one. So you have Port-A-Johns, what else do you remember? I mean, so my mom owned a small family medicine practice. There's obviously that in the community. There's roofing, kitchen repair and appliance. We We have a good family friend who owns a family farm. So do a lot of soybeans, tobacco. Small business with kitchen repair and appliance. These days, do people still repair things? So it's largely commercial oriented. Oh, okay. Yeah. So coming into... Yeah, so big... If you have like a big... Industrial kitchen. Industrial washer. You obviously got to repair these things when they break.

2:40Yeah. I love it. So you went on, you went to Penn and then Wharton for business? That's correct. Yeah. Good business school. So how'd you become an entrepreneur after this? So I actually started in high school. I loved building things. At the time, it was electronic kits, like 360 and one. And then the app store came out when I was in middle school. Through electronic kits. What does that mean? So you could essentially build like little motorized cars. You essentially buy those that come with like diodes, transistors, the whole nine yards. You figure out how to wire them up. No one really wants to buy the piece of crap that you built, but you build it and you share your friends.

3:09And so I did that throughout middle school and then the app store came out. And then that was kind of the aha moment of you have all of your friends who have their parents' credit card wired up to the app store and you could build software and people would pay you 99 cents to download your app. um what was one of the silly apps you built i built obviously a version of pong that's kind of like the intro to it i uh i then built a number of apps for i won this like competition for the epa you could essentially see the emissions uh in in the local town so i thought that was kind of cool um so it's like captain planet missions exactly yeah it was like gamified you can kind of like play around so that pick up trash or yeah you could see like the kind of what the water levels were and what was in the water it's a good idea rather than just like searching for Pokemons in your town.

3:51Why not do something useful? That was the goal. It was like, could you build an app that kids would like to use that gives them a little bit of education and hopefully also doesn't indoctrinate them. And I think we were successful. We won an award doing it. So did that throughout high school and then went up to Penn for undergrad. I love it. And so you came from this like entrepreneurial kind of background, a lot of small businesses around you. Like, what did you realize that there's something like a mission here that mattered for small business? There's a crisis brewing. Yeah. So it was actually a trip back home after graduating from college.

4:18A bunch of our family friends were going through what I would now call succession planning or lack of succession planning. So in Greenville, you know, you graduate from high school, almost everyone flees. They go to Raleigh, Charlotte, Wilmington. They don't want to be in Greenville. And so the default exit plan for all of those small businesses that I was mentioning earlier is no longer there. You can't just give it to your kids, your kids, your kids in Raleigh doing some other high power job. They don't want to come run your kitchen repair business. Exactly. And these are the same businesses that growing up, they would sponsor the Veterans Day Parade.

4:45Their signs were on the back of the baseball field as Little League sponsors. So it's very clear that they're like an integral part of the community. And the people who ran those businesses were also leaders in the community. So when hurricanes come through Eastern North Carolina, it's those businesses that are showing up to help. Often it's kind of like the first responders. And so I knew how important it was to the communities that these businesses stay on and stay on in a way where there's local ownership. And these businesses would often have employees. So there's a solution then to help the most responsible employees become owners.

5:12So that's all, that's always an option. Today at American an operator, I'd say around a third of the time, we're backing an internal successor. Maybe someone who's a VP, a general manager, a crew lead, help them become an owner. Two thirds of the time, they may not have that person internally. Maybe they don't have someone who has a risk tolerance or the all in nature of what it really takes to become an owner. And so we'll bring in a net new operator to take the torch forward. I love this as a career path for more people right now. I have a lot of friends telling me, Joe, there's all this AI stuff you guys are doing.

5:38It's going to disrupt everything. There's going to be all these people who are white collar and they're not going to be able to get jobs. And it seems to me like there's like hundreds of thousands. Is it a million businesses? How many businesses? There's millions of businesses. How many businesses have to be sold over the next decade based on, it's called the silver tsunami, right? Based on all these baby boomers, at some point they got to retire or die. So someone else has to run it. Like how many businesses is this? Yeah. So if you kind of think broad picture, you have 33 million businesses in the US.

6:04You shrink that into 6 million have employees. So those are the businesses that we focus on. Of those 6 million, roughly 2.1 are owned by baby boomers. Wow. So it's like more than a third of these 6 million small businesses. Correct. And the problem is if you go around, there's a lot of survey data on this, around 48 % actually have a plan for what they're going to do with the business. And so that's a huge amount of businesses that are at risk. More importantly... So over a million businesses are at risk. They don't even know what they're going to do. Correct. And there's livelihoods tied up in that.

6:34Obviously, there are a ton of employees. There's over 6 million employees tied to that kind of sector of the market. And then what I often talk to, to leaders at the kind of municipal and state level is that's your tax base. And you don't want that shutting down. You also don't want, you know, out of state buyers coming in, consolidating all that money is getting funneled out of those communities and out of your state. I love it. And you know, we recently had Kelly Leffler on the podcast. Huge fan. It could come out before this one comes out. And so she's running a small business association, the SBA for America.

7:01America's actually spends a lot of money helping people become owners. What role are you playing alongside what they're doing? Sure. Yeah. The SBA is a phenomenal organization. If you chat with anyone who is not from the US, the SBA is one of the prize jewels that they're very, very jealous of. In other countries, there are not zero subsidy taxpayer programs are essentially stimulating the GDP and stimulating job creation and new business starts. So they're really, really helpful. Where we come in is if you think about you're an owner and you're going to retirement. Today, you kind of have two options.

7:32You can decide to close your doors or you could sell to an out-of-state buyer. And you see more and more of this in the news where private equity funds are raising money and coming and kind of capitalizing. This is what everyone assumes. Whenever they see me, I've obviously been successful in other areas. If I start talking about small business, they're like, oh, it must be a private equity thing. And this is obviously not, and I'm an investor at American Operator with you, this is obviously not the goal. It's not to be PE. I mean, PE is obviously not bad in some cases, but how is it different than what PE would do.

7:58Yeah. So we're capitalists. We're not anti-private equity, but we do want to build an alternative for owners who want to keep their businesses alive in their communities. And so what we offer them is kind of the best of both worlds, where we bring in committed capital from investors like you and some of our credit partners to allow that owner to walk away and go into retirement. We'll also bring in a net new operator who ultimately will be the majority owner of that business. And so they earn into the majority. So they start off with some ownership, and then we help them earn into the majority as we get paid out.

8:26And then it's their business. Exactly. And we're literally creating millionaires on Main Street. And to kind of give you some quick math, one of the transactions that we can talk about that's been highlighted is one called Greenway. And so the operator that we backed there is a guy named Anthony. He's a former combat controller in the Air Force. He had double majored in undergrad at the University of Arizona. He, before partnering with us, was running a smaller painting contractor in Arizona. Made about 300, 400K top line. So he was taking home around 75K. Yep. We've now parachuted him as the operator for Greenway Painting, which is based in Jackson, Wyoming.

9:01Our friends at Fox News recently did a piece on it. And the really cool part there is he's drawing around a hundred K base salary today, and he has 10 % ownership in a business that's worth$2 million. Over time, we're working with him to grow that business. And as he goes from 10 % to 70%, assuming the business doesn't grow at all, all of a sudden he has$1.4 million of equity in a cash flowing business that's been around for decades, will be around for decades to come. And we believe that by partnering with him and some of the resources that we've built out of the American operator, we can really help him grow that and make that number even bigger.

9:31So hopefully he even owns millions of dollars of this business. Suddenly you're making a big success story before he was kind of stuck doing something that wasn't going to be big. Now all of a sudden he's a big business. Exactly. We're able to take folks who are very high capacity. They have grit, they have merit and leapfrog them in their ownership career. I love it. I love it. So small businesses, what's the context and history in America? I think, you know, our founding fathers, a lot of them were small business owners, right? We think of like George Washington or John Adams or. Yeah. I mean, John Hancock ran House of Hancock to big, big import export.

10:01You obviously have Ben Franklin, who amongst thousands of things that he did in his life, one of them was, you know, run a very famous printing shop. And so it's been instilled that there's this idea you can come to this country, you can build a better life for yourself, that you're rewarded for the value create for your neighbors. and those are your patrons. And it's really this ownership mentality that you see throughout the American dream, right? Like we're very focused on it and small businesses, you see the same thing in home ownership, you see in other, other areas of the American life. And we really want to celebrate that ownership mentality.

10:33It does seem like really core to America, to our towns in America to, I mean, frankly, to just a lot of people who are on the side of Liberty in America, I feel like, and obviously there's people who work with you who are on all political sides, but I'd imagine they tend to be more pro-capitalism, more pro-lipity, more pro-property rights. We work with folks from all over the political spectrum. I would say everyone is pro-America. I've yet to meet a business owner who doesn't want this country to succeed. And we take that seriously. And I think one of the cool stats is Gallup runs a poll every year on the top institutions that Americans trust.

11:03Small business has been number one since the poll started. It is 44 % higher than Congress, obviously. It's also 22 % higher than the healthcare system. And it is remain number one. And I think then you ask yourself, why is that? And it's because no matter what the political slogan is behind the counter, you're treated with respect. They want to deliver value to you. They care how your experience is. They have to care about the people around them in their community. They have to, otherwise they're out. A hundred percent. So it's a good alignment. And it's, you know, a lot of these people, they do love America, love our system.

11:33I feel like there's two big trends, Will, right now in the business world in general. We're talking about one of the big trends is this$10 trillion worth of these businesses that have to be sold because baby boomers are retiring or passing away. There's just 2 million that they own. So that's a massive trend. The other big trend, which you spend all my time talking about is AI. Sure. And AI is just changing what's possible in a lot of ways. I'm very optimistic about it. A lot of people have a lot of fear around it. Like how do they intersect? How is AI impacting small business? What does it mean for them and for what you're doing?

12:02Yeah. I'll preface it by this is a hard business to build and not every investor is interested in until about a year ago. And so we're lucky to have met allies like you who took a bet on us early. I would say right now we're at a very interesting thing where we're the perfect AI hedge, but we also have a ton of upside from AI. And what I mean by that is that if you look at kind of the anthropic spider chart, these service businesses are the last businesses to be impacted. If someone's going to, for now, if someone's going to come and fix your toilet, it's going to be a huge... Anthropic might not fix that.

12:33Yeah. Not yet. Optimus Prime is not running around inside your home fixing your toilet just And so we're at a very interesting time where these businesses will only go up in value. They're critical for the economy to function. And they do everything from protect our supply chain. There's a lot of metal fabricators that we work with, all the way to making sure that you're getting food, the food distributors, the manufacturers, and then the service businesses. So on one hand, these things are kind of hedged from a lot of the current AI disruption. On the other hand, isn't it easier to run a business with AI?

13:02A hundred percent. And that's an area that we've been investing a lot in the past couple of quarters. my mental framework for it is a lot of people think of AI and they think of cost cutting. And they're like, oh, we can really optimize our P &L. We can use AI, automate all these jobs, cut costs. That's not the right lens to look at small businesses. And it's not right for really one reason, which is that most of the folks in the back office of a small business are wearing multiple hats. If Susie does payroll, route planning, HR, and you automate one of those jobs, you're not coming to Susie and saying, congrats, you just got a 33 % discount on your payroll.

13:32She's going to walk out of the door and tell you're crazy. So what really it is, is it's a revenue growth story. What you have to do is work with your employees and small businesses, figure out, Hey, how can we leverage AI to reduce the amount of monotonous work that you're doing and then help you identify, okay, what's the best way for you to take that time and reallocate it to something that generates revenue? I love this. I think this is a really key point that a lot of people miss is that there's a lot of things that we wish we could do. We wish we could work on, wish we could build. They're not getting done.

13:59If you go to a small town, like there's lots of things you can see. There's fences that are not fixed. There's all sorts of things that are broken. There's all sorts of things in the business that aren't necessarily able to be gotten to. If you have more time, you can do more output, right? Exactly. And we see it, right? So to give you kind of some concrete examples on the painting business we own, there wasn't very much of an outbound sales motion there. It was largely word of mouth, which is both, you know, kind of benefit. You have some amount of moat there. Also a con, you don't really have the levers to grow quickly.

14:28We've been able to essentially you reconfigure Claude Cowork to do an outbound sales motion to property managers in the area, increase the number of bids out on a weekly basis and win rate. On another one, we're working with a second generation food manufacturer, a really cool peanut business owners. Peanut business. What does that mean? What's a peanut business? Yeah. So George Washington Carver. Yeah. So they blister peanuts in most of the grocery stores that you're probably aware of. They blister, right? So they get peanuts. They put them in these large vats where they boil them. They fill them with water.

14:56They then fry them. So the peanuts have blisters on them. They then coat them in a lot of different ingredients so they can flavor barbecue peanuts, ranch peanuts, what have you. You're very good at saying this word. I'm very worried about saying it on the air. Exactly. I mean, now we have unlimited nuts, right? And so this business, they obviously don't have a graphic design part of their team. It's been around since the 60s. The family has been in central PA for seven generations, actually, which is insane. um but recently one of the employees there has really gotten on the ai train they can now do really cool social media marketing so they can build kind of a direct to consumer uh peanut dynasty in addition to b2b and so like it's really cool to see these businesses that historically have been very you know offline if you will adopt ai and they can really hit the ground running uh sometimes faster than businesses that have been uh more more ai native i mean it feels like instead of instead of going to law school for example like or instead of like you know a master's degree in sociology or I don't know, like should more, more young people just be saying, I'm going to like go take over and try to learn how to run a small business.

15:57Yes. I think it's really important for them to have a time in the trenches working with humans. I think that takes time. And I think a lot of the things that are happening at like Texas state, a technical college, other areas to essentially get you the domain expertise about a certain industry, and then get you as much apprenticeship or time in the trenches with them. You have to be willing to go learn it. Basically you do, you do. And, and, and I would say the owners are very discerning of someone who's full of shit. If you don't know what you're talking about, if you don't have grit, if you haven't gotten dirt under your fingernails, they're going to sniff that out very quickly.

16:29The customers are going to sniff that out quickly. The employees will, so on and so forth. And so I think there's a huge opportunity for young people to capitalize from this wave. But I am always hesitant of the folks who are kind of leaving corporate America and thinking, oh, you know, I know so much more. It's not a get rich quick scheme. It's a have a vocation, have a career where you work hard. But if you do work hard, you can run these things and you can't make a lot of money and be very successful. Tons of money. You would be surprised. I mean, these things take some of the businesses that we've worked with just in the past couple of weeks.

16:56They're spitting off millions of dollars in cashflow. Normally, most of the family is drawing a W-2 from the business, even if they're not necessarily working. And then you have, you know, their whole fleet of family vehicles on it as well. There's no shortage of cashflow here if you know how to run a good business. You have to have the persistence and the grit, as you say. And so it feels like there's literally like millions of young people could be doing this path. There should be a lot of our smart young people. If they're instead of like the white collar professional, this is where they go.

17:22How do we, is this a cultural shift we need? Like, how do we teach more people about this opportunity? Because I think, I think a lot of people like they, they culturally see like, oh, I'm going to be a tech founder. I'm going to run something at a bank in New York. I'm going to be doing these like giant deals at the hedge fund. They're like, they're like, most people culturally don't think about, oh, I'm going to go work hard and like have a business that shoots off a couple million dollars a year for me. Like, what do we need to do to shift this? My mental model is two things. One, you need role models in a PR campaign to make people aware of this.

17:53Mike Rowe has done a phenomenal job of doing that for the trades. I know you're friends with Cody Sanchez. She's done a good job of doing it for small business as well. We need more allies like that, getting the word out that success is not just going to a four-year college, getting a liberal arts degree, and then working in management consultant. There are other areas for you to really build a great life. These are the real areas of America. In some ways, this feels like the actual businesses. You're actually there serving the community, doing the hard work, making sure that the electricity gets fixed, the toilet gets fixed, the fence gets painted.

18:23Yes. And it's a crisis here, right? In Texas, we're short 50 ,000 trades workers. We want to win this AI war against China. We have no shot of doing that if we cannot build the data centers. The data centers require the plumbers, the electricians, the general contractors, the HVAC technicians, so on and so forth. So I'd say it's critical that we attract more people in. I think the second piece of the problem is, okay, let's say that you solve the PR campaign. How do you get on ramps to get folks in the saddle as soon as possible? Right now, we have a lot of occupational licensing that stands in the way of hardworking Americans being able to work in these industries in a short timeframe.

18:59We definitely have to fix licensing. Arizona did a great job where they take any other license at all. There's other things trying to lower barriers. If someone is a young person, maybe they're in high school, maybe someone listening has someone they know in high school doesn't know what path they should be taking. Like, how would you direct them? Did you go to a vocational school first? What do you do to kind of build skills and come work in this area? Yes. I would say start by just starting to intern at small businesses in your community. There's a lot of doom and gloom on the internet, on some of the legacy media outlets as well, that there's no jobs.

19:29AI is taking all the jobs. That may be true in corporate America. It's completely false on Main Street. 32 % of current owners have openings today. That's up two points from last month. And so there's a lot of optimism on Main Street. We need smart people there. The number one problem is not actually the cost of labor, it's the quality of labor. And so to the degree that we can get smart people interning and doing apprenticeships, I would say that's thing one. Once you've identified the type of industry or job that you're interested in, then I would think long and hard over whether a four-year degree is the best way to get there, or if you'd save yourself a lot of money and go into some of these really great trade schools that we have in our country.

20:07And I really like what you said there, because I think it's a point that's true that everyone ignores. It's not about that there's not jobs, that there's not actually enough quality people willing to work with the right culture or the right diligence at these jobs. 32 % of these businesses you're seeing, 32 % of millions of businesses have a job opening, but they can't find someone who's willing to come and just work hard and show up on time. And I think we need cultures that are functional or people are willing to work. Yes. Yes. And we need incentives to drive that from the educational system.