Your Website Has to Sell Before the Sales Call

0:00Eric Siu:Your website needs to become a revenue agent, right? It's no longer just a brochure. Even if you look at it like a year or two ago, your website is like a brochure. But now there's, because it can become like a revenue agent, you can, whatever leads it has or whatever visitors are coming in, maybe you can spawn lookalikes off of it. Whoever's visiting, maybe you can figure out how to create, you know, customize outbound campaigns for these people, right? Or you can like create these landing pages that are customized too. so i'm just like why why we're gonna see a lot more of it um like literally i have a loop running right now for the single brain website it's running cro tests every week and um basically i said hey raise the conversion rate by 30 so i'll let you know in four weeks what happens but it's actually doing it autonomously right now i'm yeah i'm curious to see the results of that and going

0:45Neil Patel:back to crosshair quickly quickly i couldn't resist but i had to do the math on how much they're worth based on that ebita standpoint i took their last quarter because it's one of their better quarters and I times it by four. So assume they'll at least maintain that. They're worth 1 ,541 times profit. That's crazy. Now I myself wouldn't buy this stock. And again, this is not financial advice, but then again, I lost out on 54 % gains over the last year. So I'd rather have the 54 % gains than my logic.

1:15Eric Siu:Yeah. Well, like I think in this case, you just have to think about what your edge is and do you even have an edge or not right not at a thousand five hundred and forty one times profit and i'm looking at some stocks right now on my my robin hoods trying to pull up i'm going to show you like well i think one of them is like three thousand uh pe or

1:31Neil Patel:something like that so anyway dude and if i take their uh last month's you know revenue and times it by four so you know their run rate and you know take their market cap and divided by the run rate They're worth roughly 36.8 times profit. Hey, SpaceX is up 1.62 % year to date.

1:55Eric Siu:Here, let me show you this. AXTI, and then we can move on.

1:59Neil Patel:Wait, before I had a really interesting investing strategy. Again, I do not recommend this. This is not financial advice. So check this out. So I told you we're a C-corp now, right? Did I ever tell you that I changed from an S to a C-corp? I think you did, yeah. Okay, so for anyone listening, the difference between an S and a C Corp is S Corp, the taxes flow through on your individual returns. Because I know many of you guys do not live in the United States. So if I make$100 in profit, as an S Corp, call it, I have to pay roughly 40, 50 cents on the dollar to the government, right? As a C Corp, the tax rate is roughly 21%, if I'm not mistaken, plus you have to pay state.

2:39Neil Patel:state taxes are actually lower in most cases that I've looked up in research I haven't done state by state but I looked up the states we operate businesses in because you pay taxes based on where you generate the revenue and it's usually lower so let's say my average tax rate is 25 % so I asked the bank because we use debt to grow faster so I asked the bank hey we have cash on our balance sheet we're not doing tons of M &A right now can I just take the cash on the balance sheet and buy whatever stocks I want? Because, you know, when you have that treasury strategy, the treasury strategy. Yeah.

3:16Neil Patel:They're like, yeah, you know, you may be able to do this. And then we found out that in our terms, we can't do it. But we're going and asking for exception because I was talking to a few of my executives. I was like, you know what? We do M &A and M &A is not a bad strategy. We split off cash flow. I'm like, I think I would make more money just taking our profits and putting it into SpaceX for the next five years than buying any more company. I'm not saying I have a bad company. I'm not saying I have bad employees or leadership. I actually think we have a great company, great leadership, great team.

3:48Neil Patel:But there's no way we're going to beat the returns of SpaceX over the next 20 years as a marketing agency. This is just my take. I could be wrong. I think you're right. And I was like, hey, can I just take the profits and buy a lot of SpaceX stock?

4:01Eric Siu:Yeah.

4:01Neil Patel:I think, would you buy it? Now I'm like, no, I want more of the pool to unlock. Yeah. Cause a lot of the employees can't sell their shares yet. So I'm waiting for a lot of the investors and employees to be able to sell their shares. Again, this is not financial advice, but in theory, usually when that happens, that puts pressure on a stock, which can create downward pressure. and then does that mean if i dollar cost average and i buy spacex every quarter i'm gonna buy it um and it keeps going up no i bet you there's going to be times right overpaid for it but again not financial advice but over the next 20 30 years i believe i'd make a killing over it and probably more than just buying more agencies i've i've tried to get i've tried to get very cute with

4:44Eric Siu:my excuse me my treasury strategies before but it was a little too aggressive so what was your treasury strategy versus crypto it's too aggressive yeah but i do i do agree like a spacex like that's a that's like um that's almost like a for sure bet for the next 15 20 years again not financial his for sure is not a guarantee it's a guarantee for me not for you yes um but you know what's interesting neil we should talk about this because you just talked about raising some some debt right and you had talked about raising some money so i'm going to new york next week and i am going to a couple of VC offices to look at raising some money for what we're doing right now.

5:19Eric Siu:And I was workshopping this with my Fable 5 yesterday. I was sitting on my couch. I was like trying to watch X-Men. There's a new X-Men on Disney. It's really good. But anyway, I was workshopping this. I was like, wait a minute. It's like, I'm like, wait, I should raise right now because I have all the talent that's on the bench right now that's ready to go. And if capital is the constraint for us to move even faster than we want to, why would I not raise money right now? And I'm like, oh, I'm being a dummy and then you know you want to talk about treasury strategies things like that like that's a whole other thing right but um I think what we should talk to the audience about when you should raise debt and what you should maybe even consider VC true we should and one

5:59Neil Patel:really quick thing too is you know now I'm like huh can I add more debt because I my cost of borrowing money is pretty cheap it's in the low twos plus sulfur so call it like uh four six percent what's sulfur right now? Sulfur's probably sulfur rate is like 3.46 no 3.58 now so 3.58 my cost of borrowing is roughly 6 % based on today's rate 6.08 % and I was like huh can you outgrow that? I think I can outgrow that if you look at the SAS valuations in the stock market if I hold it for 2-3 years I personally believe and I wouldn't recommend this to anyone else I personally believe and I'm willing to take the risk with my own money.

6:44Neil Patel:If I put it in that, I would clip more than 6%. And on some of the stocks, I believe I can more than double up my money and that would pay for the debt that I borrowed.

6:53Eric Siu:And I'm like, cool, I got some free cash. Now that's assuming, but if Neil finds a better engine in his company that's growing a lot faster, of course he's going to put all his money into that. So it just depends on how fast things are growing.

7:02Neil Patel:Dude, I told you I took a loan out of my home, right? This home? Yeah, the home that I just mentioned. No.

7:08Eric Siu:I took a massive loan out on my home. And this is going at this?

7:13Neil Patel:like a solid eight figures nice massive alone right yeah and i just put it all into the same ones i put one stock is it a sas stock uh yes okay we'll leave it at that yeah neil neil has

7:29Eric Siu:neil is in this for this just so everyone knows neil's in for this sas trade for the next couple years or so because he believes the sas apocalypse is overblown which i can see why so i think i'll

7:38Neil Patel:triple my i'll double up my money on profit so i think the stock will go up three times i won't name the stock um so whatever i put in yeah and you guys can guess how much i have it because i just told you i just pulled out money from my home i pulled out eight figures i put it into one stock i think i'll triple up my money yeah i'll have to pay taxes on it california tax rates kind of suck uh but even then the long-term gains are call it 40-ish percent uh 39 or 38 including the niat tax the net investment income tax, plus I have some NOLs, which will help reduce the tax rate. And then boom, use the profits from that, have the mortgage paid off.

8:17Neil Patel:Although I probably wouldn't pay it off because my rate on the mortgage, it's like 4.5%.

8:22Eric Siu:So two things, Neil, when he says NOL is net operating losses, the second thing is to do all this, you need to make sure you have a good business first, and then you have the optionality to make these moves, right? So that's, I just not to say go do this immediately or just go it's not that easy you just can't go raise a bunch of money right um but if you do have a good machine a good engine then you should consider taking on some more debt or maybe even raising some money so yeah thankfully for me i don't know 100 so

8:47Neil Patel:yeah yeah that's true yeah i was just like i'm like going to my life i'm like you know if we didn't have a home you know how much more money we would make in our lives without the home real

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9:13Neil Patel:and uh you know the feedback i always get back is you already have enough yeah you already have what what okay if you double the money in the stock how would our life change i'm like well uh i can't answer that with a really good answer why can't you just say a private job

9:31Eric Siu:the missus doesn't care for a private jet but that's how it'd change

9:35Neil Patel:that's true but in theory i can just use company profits we have enough to just go buy a private jet exactly your life wouldn't change you have everything you need this is the dream well my dream went from wanting to own a private jet and i almost bought a private jet two times and when i say i almost bought a private jet i've probably spent 300 hours did you know how How many of those pictures you sent me? Yeah, looking, going to the shows, negotiating deals on them, flying to see ones that I almost wanted to buy. And then my life changed. It was because of something Eric sent me years ago. And I was like, dude, I'm really getting exhausted of traveling.

10:20Neil Patel:It may be better to just not travel as much and not own a jet and spend more time at home. And you did that for a year. yeah and I'm still traveling really heavily but the other angle that I'm thinking about is and I know I won't stop traveling so it won't work but other than the financial side I was like instead of traveling to all these events maybe I should just go buy businesses that are fixer uppers not the ones that are growing fast because then I can get them on a good financial deal which makes the arbitrage easier right so because I'll break down the economics for anyone who's listening if you want to end up buying a company.

10:55Neil Patel:All right? Because you have to equate it with organic growth when you're spending money on marketing. But let's use a company that's doing a million in profit because it's the easiest number for me to end up breaking down. If I buy a company that's doing a million in profit, you may end up giving them like three and a half times up front. So you're getting them 3.5 million up front. and you're giving them the optionality to earn another$3.5 million, if not$4 million. So call it you pay seven, seven and a half times that company. Assuming you know that company's growing at 20 % a year or 10 % a year, you could make it grow faster.

11:36Neil Patel:Maybe after two years, it costs you five times what you paid because of the growth. And you're giving them the earn out based on their original profit, the growth reduces how much your multiple for that business cost. So let's say you pay five times for a business. It can still keep growing 20%, but law of large numbers, things usually slow down. You're not going to always keep getting the 20 % growth per year, just being realistic. So when you look at it from that perspective, if you just borrow money to keep this really simple and you borrowed five times, it takes you forever to pay back five times.

12:15Neil Patel:Depreciation takes a long time depending on which country you're buying it in. Then you got to pay taxes on that money. And then you got to pay it back. And then you got to pay interest on that money. You're lucky if you pay it back in like seven years, you know. And that means you don't see any cash flow from that business for seven years. So then we, Eric and I live by this company called Platinum Equity. and they're known for being buying not necessarily bottom feeder companies but they're buying more distressed companies companies that have issue or hair on it and then they go fix it clean it up tear it apart whatever they need to do and i look at some of the businesses out there that are for sale i'm like man i can buy some of these businesses for like two and a half times up front and pay no more than another two times max upfront, but realistically not more than call it 3X, 3.5X.

13:20Neil Patel:And that's of the upfront. Forget the earn out. I'm just talking about what, let's say I pay 4X upfront. That's actually a better way to put it. Not upfront, sorry, 4X of the total deal. So if the company is doing a million in profit, it, it cost me over two years,$4 million. And then I would be able to ink out instead of a 4X, call it a 3X or a two and a half because of the growth that I can get on it. At that point, even though it's not sexy, the cashflow is just really well and it doesn't take long to just pay back. So you just cashflow really well. And you could take on more debt. You could take on more debt, do more of that.

13:54Neil Patel:And then I wouldn't have to travel as much because I thought about just doing that in all the countries that I traveled to. And I'm like, huh, I probably wouldn't need to travel as much but knowing me i would do both and try to get even more well you know syed was

14:04Eric Siu:very our friend syed was very wise about this when we did that event a couple years ago at the beverly welshire um he's like why why why do all this content when i could just buy other businesses and that was very good and then when i did an interview with somebody else and and you know they said they got all their deals from content turns out you know that wasn't uh you know what was this person live in las vegas uh well i'm now making it obvious but it's it's you know i don't believe that you can get a lot, most of your deals from content. I think you want to do well, you want to just keep growing, you buy companies.

14:36Eric Siu:And then you can figure out how you want to financially arbitrage this. Yeah, but I met up with that person. The problem with their deal, they're going to get all the deals from content. They're just like, yeah, I'm

14:45Neil Patel:going to get people to just give me equity. I'm like, no one's going to give you free equity of a really good business. I'm like, I don't care how big your brand is. It's very rare.

14:52Eric Siu:Yeah, well, the thing is,

14:57Eric Siu:there's not a lot I'll just leave it. I'm going to leave it alone.

15:01Neil Patel:Yeah. Continue. They switched the business model from going and buying to doing other stuff. I don't think there's much buying anymore at all.