Brainstorming Ideas with The $200M Man

23:47Like 10, 15 years ago, you could build an innovative 10x better product because you were the one that had the special relationship with the supplier in Yemen for the coffee or something like that. Or you were the one that only could build this particular feature, but now everyone and their mother can spin up a website. Features are no longer really defensible anymore. And unless you have like some sort of patentable or some sort of scientific kind of breakthrough or regulatory kind of protection, your best thing you're going to do is like a two or three X better product. And that's why I think it's just one of those things that, you know, innovation isn't something that you should be targeting unless you're really, really going big is essentially what I'm getting at.

24:25Why do you care about doing the cashflow thing? Because many of our friends, Sean and I friends, I mean, Sean's friends and you, I'm sure your buddies are like this. They're quite wealthy, many tens of millions or hundreds of millions. And they're like, but I would love to have$5 million a year of income? I, for me, and this is like very personal, it's not for everybody, but like I discovered in going through this like wave of like massive wealth really quickly, I discovered that like, like I'll, I'll give you like a little bit of an anecdote. So when the money hit the bank account, I felt nothing.

24:59Like I was like happy. I was like, obviously, you know, happy for the team, but the thing that like went into the back of my head and I didn't know how to express it in this particular way was very much, well, if I did it, it must not have been that hard, which goes into like childhood, it goes into a bunch of different things. And so when I'm thinking about the next business, I look at those two paths, right? Like there's like more cash flowy business, own your own destiny, lifestyle, style points, these types of things. And then I think that there's like spending your time going after something that's harder and harder and trying to go after innovation, right?

25:33Like the perfect like antithesis of how I view the world now is like Nick Huber, right? Nick is like, why would you ever try to like innovate? That's like so much harder, et cetera. And we've had many like long night conversations about that. And for me, it's like, I want to go after that bigger and bigger thing. And it took, it took a long time to like realize that. Cause I went after like, oh, let's do this. Let's do that. Let's do this other thing. Let's go after this quick buck. You bought 19 gas stations. I did buy 19 gas stations, but that's Jenny. That's Jenny. That's the wife. The wife handles the real estate portfolio.

26:02And it doesn't mean I'm not going to like do stuff, but like my primary focus is going to be like one big thing. I don't want to be an investor. I don't want to like come up with a bunch of cash flowing, like studio style businesses. I respect the hell out of all those things. It's just, I just found out it's not for me, or at least that's, that's where I got to. By the way, can you tell us the gas station thing real quick? Did you meet Syed and he told you about his gas station portfolio? So, okay, here's what happened. So I bought 19 gas stations. They're in North and South Carolina. You bought them all at once or like one at a time?

26:30Like you bought a chain? All in one pot. So essentially, there was a kind of a patriarch of a family who had built up a portfolio of about 120. He passed away. And then basically, I think it was the trust or the estate, I don't know, but they were selling them off in blocks, right? And they don't want to sell off like one at a time because it's 120. Because the kids, they had a tax bill coming up because the inheritance, yada, yada, yada. Yeah. So this actually is, this started with Nick Huber and Mitchell Ballbridge of the cost seg world, because they started talking to me about, oh, there's some tax implications where if your partner, your wife or your husband is a real estate professional, your passive losses on like real estate become active losses and they offset active gains.

27:14So I've got a big pile of gains from the sale of the company. And then all of a sudden, I can offset those with depreciation of the gas stations. And I can do that with bonus depreciation in one year. So just to use some round numbers, if I buy$10 million of gas stations, I basically can take$8 million of depreciation, essentially, and that can offset some of those particular gains. And so in October, September, Nick starts telling me about this. I start talking to Mitchell, trying to figure it out. I started talking to tax lawyers. All of a sudden, we got intro to someone who saw this deal of these 120.

27:50Jenny has been in the real estate game for like 10 years. And so it was one of those things we were able to kind of like, you know, we weren't starting from zero, but it was still like a big, big purchase. And we closed, I think, like December 23rd or something like that. So like right, right at the particular edge of the end of the year to, to not only get a good deal, because we had, you know, we looked at the real estate deal independent of the tax implications, but the tax implications kind of put it over the top to be really, really good. And has there been like, is it just like, wow, this was a great asset, great smooth sailing?

28:18Or is it like, oh my God, I have 19 pain in the asses now? Or what's the situation? What's the verdict of guy who didn't own real estate and gas stations, like tech entrepreneur, does this thing that has clear benefits on the tax side, might be a nice diversifying part of my portfolio, might be good cash flow, might also be a headache. What's your answer now that you've come out the other side? So they're triple net leases. So that basically means we don't manage, don't handle any operations, anything like that. They're owned by a big flag, a big company. So they're corporate backed, which may or may not mean anything, depending on who you ask in the real estate world.

28:56So we've had very little headaches. We also have a partner on the deal who's, you know, we were the money they're handling most. They handled all the analysis and all that kind of fun stuff. So it's been pretty smooth sailing. I mean, there hasn't been any issues. That's famous last words. I think there's a way to basically manage these into more investments and things like that. That's where it can get a little tricky. But yeah, we got, at least knock on wood, pretty lucky in terms of what's going on. But can you give any numbers? I mean, how much income is that bringing in? How much did it cost?

29:29Can you give any numbers on that? Do you feel comfortable? I can give you some numbers. So, well, I don't know. My wife runs it. If you don't want to share the specifics on yours, you could just be like, I think about this with like, this business is a box, like a restaurant. A restaurant will typically cost you, let's say, half a million to open, and then your goal is to net 150K a year per location. You want to get to 20, that's how you get scale. It's simpler than that. So it's 30 million in gas stations. I believe, I can't remember the exact cap rate, basically what we're getting out of it, but we're getting, I believe the caps are at like five and a half.

30:06and so we're not getting like an immense amount of income from that, but we are getting income basically from it. And then the leases on this particular deal, what made it so great is all of the like rent increases were based off of CPI and they were written in like the early 2000s. So basically what's happening is, as you've seen all the inflation data, when these rent increases go into effect, the increase in rent is pretty significant. and so that's what made the deal really really good but like yeah we're cash flowing I don't know it's it's it's definitely over a million a year on these I don't know the exact numbers which I feel good about because it's one of those things where I trust my wife to figure it out and you also said that there was like you sell the company and you're like you go through this wandering phase for like a year you said there's five phases what are the five phases I just sold my company for a bunch of money.

31:04Yeah, this is like the champagne problem cycle, I think. And it's just this crazy roller coaster. And I don't know, Sam, Sean, if you guys went through this, but for me, I was pretty even keeled emotionally before the actual sale. What I mean by that is something bad would happen to the business. I'd be like, oh, that sucks. Okay, let's figure it out. Something good. I'd be like, oh, great, but we have all these other problems. When the sale goes through, especially if it's announced, everyone starts treating you like a god for like a hot second. And then that leads you to go like, wait, am I a God?

31:36Right. You have this little bit of this, like almost this like imposter, like, I don't know what reverse imposter syndrome is. And like, I never got like, I have good friends around me who are like, yeah, you still, your, your shit still stinks. But like, it was one of those funny things where you're just like, oh my God, I can do anything. And then like, you go through the second phase, which is like, oh my God, I fear death. I'm going to screw this up. I'm going to like, I don't know how to rich, How does one rich correctly? I'm going to lose it all. And this is when you're like tax lawyers, accountants, other lawyers.

32:05How do I evaluate how they're good or not? Like all these crazy things. What is a wealth manager? Like, oh my God, the wealth managers, every single one of them tells you, just put it in index funds. And then you ask them, well, then what's your job? And then they're like, oh, we just advise you. And you're like, okay, what does that mean? And they can't answer the question. So do you get one? Do you not get one? Right. And then you start to get a handle on things. You start to kind of like get your feet under you. you buy a bunch of gas stations, you do this type of a thing. And then like phase three is like, or like part of phase three is like, I call this the delusional peak of cocaine energy.

32:35And this is like, you have all this energy and you're like, I'm going to do everything, right? This is what I was getting into with Sam before. It's like, I'm going to hire 19 people or not 19, 17 people. It's 19 gas stations, 17 people to do research, to look into things, to go look at this deal, to go look at that deal and just like do all of these things. And I'm going to build this and I'm going to build that because you just have all this energy and this optionality. And that leads to just a full-blown identity crisis. And so I hired a couple of shrinks to basically help because, you know, it was a major change in my life and, you know, just kind of a major thing where like, it's kind of like, you know, figuring out like who you are, what you want, which I kind of talked about a little bit before and starting to realize like, oh, like I don't have to do these things.

33:21I can do these things. What do I want to do? What does that look like? And then, you know, then you kind of even out and you go back to the grind. So that was like my last year of just up, down, down even further, and then kind of back up to figuring out like, hey, this is what I want. And kind of going from there. You even did this cool study or this survey where you talked to, didn't you survey a bunch of people who are wealthy and you asked them about happiness and things like that? Yeah, this is how I cope with things, research, as you clearly can So I spent 50 grand on a study basically running, and this was one of our products at ProfitWell was basically running research studies.

33:57And so I spent 50 grand basically trying to get in front of as many rich folks as humanly possible. And then doing a bunch of qualitative conversations with a number of billionaires, a bunch of centimillionaires, et cetera, and just trying to figure out, okay, what makes them happy? what makes them unhappy so that I can, you know, kind of take some of those lessons for me personally. What were the lessons? One of the biggest lessons that I think is most helpful, and I don't know if everyone's going to be able to like hear it or they'll hear it, but I don't know if they'll actually like internalize it, is when you look at the stack of like how money can actually bring happiness, there are some really, really obvious things like people who spend money on stuff, they are happier than people who don't spend money on stuff, but they're not as happy as the people who spend money on a particular hobby or a particular narrowing of stuff.

34:50So buying a Birkin bag that you guys talked about, I think, last episode, that brings some joy. It actually does. It's not something that's completely joyless. But if you're really into F1 and you buy your own car that you go race in the track, that brings you more happiness, right? And then one layer above that in terms of increasing even more happiness is experiences. So this is something that we've all heard about. like buying experience actually does bring more happiness. And what was really interesting were the top two. One is really, really obvious. So above experiences was like giving money away in like a targeted way, not just like general, like here you go, this organization or this nonprofit, but like actually giving it to a cause that you really cared about.

35:31But the top one was kind of fascinating. Like the things that we coded that built or brought the most happiness were what I kind of labeled freedom-inducing events or freedom-inducing items. So things like a jet, if you can afford a jet and you can fly private, it's not the nature of the jet, it's that it brings you so much freedom. And so we saw this kind of coded in all the responses. And so things like, I know, Sam, you've been a little hesitant to it, things like getting a personal assistant, things like getting someone to take care of stuff at the home, those things actually bring a lot more happiness because unless you really, really like buying the groceries or doing something like that, that brings more freedom.

36:11And that, that actually increases happiness levels even more than all the other things that we talked about. The other big thing that was really interesting is that the happiness scales that you see kind of online in those studies for both income and net worth, like typically they can't - They're bullshit. They're limited. That's what I would say. Like meaning like they basically are like, 75 ,000, your happiness doesn't increase. And then there was another study that found enough people up to about a half million where happiness increased. Well, I took it all the way to, I think it's like three to 4 million a year and the happiness just continues to increase.

36:46It's not at the same rate, but more income and more net worth does bring more happiness. I'm not sure where it's going to level off, but right now in my data on net worth, I have a good enough sample that I can actually map it from zero to about 50 million in net worth. But the one really interesting thing was no matter the net worth, particularly for the folks who have more than five to 10 million in net worth, no matter what it was, if it was higher and some of the billionaires qualitatively, this was also the case, you would see that if the net worth went up, they got happier. If the net worth stayed the same, they were a little bit happier.

37:23If the net worth went down, even just like a minuscule amount, that the reduction in happiness was considerable. And so it's one of those things where it's like when you get wealthy, it's like all about protect, protect, protect. That's, you know, for a lot of obvious mathematical reasons, but also from a happiness perspective, that's where a lot of like the anxiety was coming from, from some of the more wealthier folks. There's a couple other things. Oh, like this was really fascinating because this was like a little more personable. Of wealthy folks, let's just say, I think it was like folks over 5 million in net worth, but it continued the trend even higher.

37:59there were only a couple of like trends that everyone did like almost every single person not 100 % but like you know let's just say 90 ish percent plus lists was a big thing like lists or like a to-do list of some sort wealthy folks almost to a T had some sort of system where every day they were like here's what I'm going to do for some it was like I got one big thing each day for others it was like some hardcore like to-do list app and all this other fun stuff that was organized, but that was a really big thing. Everyone still in the game, meaning still building a business, still trying to build their wealth, worked out or had some sort of fitness regularly.

38:39Folks out of the game, they started to kind of like fall off on that particular fitness. But like 90 % of people, like it wasn't they're all doing CrossFit or all doing anything crazy, but a lot of them were doing at least something consistently every single week. So that was really, really fascinating to see as well. There were a couple other things that were like pretty consistent, but those were the really, really big ones that stood out that would be most helpful, I think, to folks. All right, let's take a quick break because I got to tell you a story. Let me tell you about the first time I tried to run payroll for my team.

39:07I was using a traditional bank and you know the type. It's got a janky interface. It's built like a 2002 tax form and it was open only during business hours. And I hit send and it froze. They flagged the transaction. They locked my account. They put me on hold for 45 minutes. And then they told me I got to visit my local branch. And that was the day I started looking for a new banking solution. After asking a few founders what they were using, I found out about Mercury. And so now my payroll is two clicks. I can wire money. I can pay invoices. I can reimburse the team all from one clean dashboard.

39:36That's why I use it for all of my companies. And so do 200 ,000 other startup founders. And so if you're looking to level up your banking, head to mercury.com and apply in minutes. Mercury is a financial technology company, not a bank. Banking services are provided through Choice Financial Group, Column N8, and Evolve Bank & Trust members FDIC. I have a nerdy question about the happiness thing how do you what is the actual how do you know how happy somebody is how do they know how happy they are so are you just saying how happy are you did you get happier when you got more money it's like a self-reported 1 to 10 thing or is there a better way to have people ask that question yeah totally so my instinct is to teach stats right now so I'm going to try to avoid that as much as humanly possible but you don't when we look at temperature just trust me for a second like we can get very, very accurate readings on like how cold it is in your apartment right now or your house right now, right?

40:28And we can be very, very confident in that particular like measurement, right? Now we can also get the temperature measurement by like maybe measuring the outside temperature and subtracting what we think the insulation is of your house and trying to figure out like in a backwards way. That would be less accurate than like measuring the actual temperature, but still more accurate than if I went and I asked you what you thought the temperature was, right? And there's different ways that I can ask you temperature, right? If I just straight up ask you, what's the temperature? It's actually kind of a difficult question for you to answer.

40:59But if I ask you, do you think it's more than 68 degrees? It's a little bit easier for you to answer. So there's different ways to answer these questions. Now, what that means is, and the reason I gave that little metaphor is like, we're not looking at measuring temperature like the way that we would in a very scientific way. Like, we just can't do that because like happiness, it is relative. There's a bunch of different factors, but that doesn't mean we can't like measure it purely, right? So what I did, and I'll try to like keep this as helpful as possible, is I looked at how the$75 ,000 study does, and there is a happiness kind of research center.

41:33There's a number of different, actually, the first undergrad research I ever did was how do tax rates impact happiness in the economics department in school. And so there's different ways to ask it. So the way that this was asked, there's a number of different ways. There was a scoring system. There was a this happened. How does that affect your happiness? So there's a composite score that we kind of put together based on those different inputs to come up with essentially here's what their happiness level is comparatively. And then you keep that consistent across the board. And there's ways you can adjust the model.

42:03but long story short it's the way I describe temperature it's a little bit closer to like hey what do you think your temperature is I think that's just fascinating I think it's incredibly fascinating and I think it's amazing that you're doing this I like seeing your nerd come out this is very cool I got really excited I felt my heart rate just go up there I think Sam hit the nail on the head where he's like these things you said are interesting but what's more interesting is that you did this and you know you were just describing like people spend on stuff but they're more happy if they spend on a targeted set of stuff yeah that's you spending 50 grand on a study about well right that's you you don't have a model train hobby you have a research hobby and you were like oh how do I use these funds to scratch my itch in a way that I haven't done before and I'm sure that it was like it wasn't the takeaways from the study probably it was doing the study that actually made you happier and felt like a good use of your time um i'll also say like uh you know a lot of people listen to this podcast will probably be probably make this mistake and so i'll say it out loud because i made the mistake which was i thought my goal was i don't want to be rich i want to be free right i think that's a common thing people say makes themselves feel a little bit better than i'm just chasing money say no i'm chasing freedom and it's true like it is better to chase freedom than money.

43:25But I thought, you know, there's a number. And I remember thinking when I was like maybe 26, 27, I was like, oh. You told me it was 6 million, right? Yeah, I was like$6 million. That's my freedom number. And I was focused on 6 as my freedom number. I even had it in my passwords. It would be like a 6 in there because I was like, every time I log in, I want to be thinking about that number. And that's how I was thinking about things. I passed that number and I was like, well, alright, was my math wrong or is this concept of a freedom number wrong. And I had a very simple realization, which was that being financially free doesn't mean you have a certain amount of money in your bank account.

44:00It means you are now free from money owning you. And that is a decision you make. And so for example, the simple test is how much of what you do is because of money. And somebody who's truly, absolutely financially free, they do not make a choice based on money. So that could be they buy something and they're like, oh, why'd you buy it? Why do you shop at this grocery store? It's more expensive. Well, because I'm not making my decision based on money. It could be a job. Why are you working on this? Oh, because I think it's going to have a big payoff or I think the salary is too good to pass up.

44:39Well, you're making a decision based on money. And the true financial freedom isn't on some number. It's when you can get to the point where you stop making choices that are based on money, which is half mindset, at least 50 % mindset. if not 80 % mindset, and maybe the remainder is an actual financial reality of how much money you have in your bank account. I would edit that very slightly, and it's almost semantic. I think it's a function of force rather than choice. So what I mean by that is there are a lot of people, myself included, who are still making decisions with money in mind, right?

45:20because to me there are certain goals that I have that are probably going to change as I get nearer to them not just for a number's sake like I'm not one of those people who which I don't judge but like there are people who just want the number to continue to go up right there's other folks and I count myself as one of them is like I want ever increasing um waves of like freedom the ability to do stuff and money unlocks that ability so I still make decisions based off of it but I don't have to, right? Like I can rationalize as to why I don't want to. So I just found that there's still a lot of people who have, like there's this billionaire who I was talking to about this.

45:57And we were, we were basically having coffee and you know, he's going through, like, he's, he's still in the game. He sounds just like us. He's still like, Oh yeah, I'm going to go do this. I'm going to go do this. Like the stakes are different. The numbers are different. And some of the, the moves are very different. But I asked him, I was like, so why, like, you don't need to do any of this, right? But it seems like you don't want to do this decision, but it's going to net the most money for you in this particular situation. So like, why do you want to do this? And his answer was basically what I was just saying, which is like, well, if I get another billion, I can go do this thing.

46:27And his thing was like this nonprofit thing that he kind of wanted to do. And so does he actually believe that? I have no idea, right? I can't read his mind. But like for me, the idea of like, okay, I can buy 19 gas stations. I'd like to buy a skyscraper next? Do I need a skyscraper? No. Do I want a skyscraper? Not really, but I like the idea that I can't, right? But you realize that sounds totally ridiculous, right? Like if I'm listening - I understand it sounds ridiculous, right? Like one of my goals, something, this is going to sound crazy and this is the perfect audience to say this, but like I get so jacked up about the idea of like toppling a dictatorship one day.

47:04I get so excited by it and I'm like, I'm not even kidding. And I'm like, okay, well, if we go after Cuba, it's going to cost this much because I have this idea and this idea. Have you done research on this? You have spreadsheets on that. Oh, 100%. Yeah. How much does it cost? In which order of countries do you put like, what's like your top three of like. Yeah. I don't want to name countries quite yet because I think that that like could get me in a little bit of trouble. And also like, again, my point is more like, will I ever actually do this? I have no idea, but it gets me so jacked. But maybe.

47:33I think there's, but maybe, I think that there, there are certain countries that I think are in really, really dire straits that I think like three, 400 billion, you could really, really make a dent and it wouldn't involve like doing anything like crazy illegal or anything like that. It would involve basically, uh, um, cause if you think about it, if you really want to nerd out on this, which I don't think you want to, but it's like countries breathe with their GDP, right? The money coming in, the money going out, et cetera. So when you look at that as like an axis that you can attack, there's so much you can do.

48:05And that doesn't even get into like stuff you can do with social media and with the actual like, you know, people. We haven't even mentioned murder yet. No, no, no, no. You're the second successful entrepreneur I've met who has researched this and has seriously, they haven't seriously considered it because they're not there yet, but they're like, you know, I think I could take over Bangladesh. I don't want to take it over. I'm not going to install myself as a leader or anything. I just want to like genuinely help, right? Like, look at Cuba, like Cuba, you know, it's one of those things where it's like, it's been in problematic, you know, a problematic state for a long time.

48:41Part of that's our fault as a United States. Another part of that's just, you know, the people who governed it. But like, I think it'd be really cool to like basically free Cuba. People can't even free the city of San Francisco right now. Like they're trying to get the mayor, you know, to actually like, you know, enforce, punishment on crimes or trying to recall Gavin Newsom. I think it is a lot tougher than you think, but it's surprising how many I guess the game from wealth to status to power, it is interesting to see how many people end up in the power game. It's not a... I want to be clear.

49:18It's not a... It's actually more of a social entrepreneurship thing than it is anything. No, that's not true, dude. No, it is! I've done the work. I've done the introspection. Like the debate you're having in your head. It's basically like if you are Mark Benioff and you create the Benioff Hospital in San Francisco, what ratio is because you want the Mark Benioff Hospital or because you want to cure cancer? And I don't think it's wrong that it's higher on the I want my name on it. It's not wrong. If there was a pie chart, right? There's like the challenge of it, the intellectual stimulation and the challenge.

49:54That's definitely one. there's the impact and the wanting to do good in the world that's two there's the bragging rights slash power game of like yeah I did that shit you know like I helped do that that's what I did with my time my talents my money I think there's some combination whatever the combination is I don't think it's zero on all the other things but there's a really big difference right there's a really big difference right so like I am I'm as close to nihilist as like I think one can get without being a full blown nihilist because I just from a just the way my brain's wired. If I was like a nihilist, I just would be like, well, I'm, I don't know if I'm going to be a net positive.

50:31Therefore, like nothing matters, et cetera. So to me, it's like, you get to design the game, right? You get to design the game that you want. And when I look at like spending money to put your name on something, it does feel kind of like a waste. I don't, I don't like, at least personally, like I haven't had my name on anything. I don't really get excited about that. But what I do get excited about is like the challenge part. And then, yeah, like, oh, I, you know, if I could be the person who did X, like, that is really, really interesting, right? Like, that is interesting. But it's not like a, it's not, it's not this, like, this, this, I want to name a journalist who has a very cynical view of our industry, but it's not like this, like, you know, cynical view or it's not this, like, oh, I need to, you know, have a dick measuring contest or something like that.

51:13Like, that's not how I think about it. And that's why, like, I think that, like, doing stuff in San Francisco, I think some of the worst days in San Francisco are still better than some of the other stuff that's happening in the world, right? And so that's why, like, looking globally, I think are really, really fascinating. I think after this podcast, you're going to be adding a third shrink to the payroll. Yeah, probably. Probably, just based on this. Yeah, yeah, yeah. You have two other really interesting things that you sent over that I want to hit. So one is you had this remix framework that you kind of talked about earlier, but I want to like double down and we should put the slide up on YouTube because it's hard to describe.

51:48It's too much to describe, but the slide makes it really easy. So you basically were like, look, innovation, you know, maybe you're not like all innovation, nor are you Nick Huber, you know, innovation is a waste of time. You're kind of like your goal is to, you know, I don't know, you could say this, but you want to take a product and you want to remix it. That's one way to think about how to come up with a novel business opportunity is to remix an existing one. And you had these remixes. I thought the good example was you took consumer products and you were like, if you take it and you make it cheaper, that's a way to differentiate through better supply chain.

52:22You could take it and you could say, I'm going to align it with a celebrity. That's a differentiator. And you got like, you have the example here of Feastables with Mr. Beast. You have, you can align it with a lifestyle like keto or Christian or hunting. and you have like Yeti coolers here. Science-backed. You have another one that's like, you align it with an identity, like a political party or LGBT, or you have here as the example, Black Rifle Coffee. So does this, first talk about this, and then is this only for consumer products or does this work across the board in your opinion? So here's where this comes from.

52:56So we had 50 ,000 different, there were subscription companies, but 50 ,000 companies using our financial analytics and we were helping them with pricing, their churn and giving them this data. And they were from across the map. B2B SaaS, subscription nonprofits, D2C was one of our big segments. And I started to notice that like for just under 10 ,000 of these D2C brands, the playbook was almost the same over and over and over again, right? Like it wasn't like there was some innovation in creating mattresses. It was literally like, we will be cheaper through better supply chain and we will help the environment and maybe we donate money to people who don't have beds, right?

53:33like it was just over and over and over again so i wanted to create essentially a unified theory of like creating products right and so i i shared the consumer one because that's probably the easiest one to talk about but there's just there's only 10 things that these brands differentiate on and there's a number of the things that you talked about and my point around innovation is that like don't try to necessarily innovate maybe don't even try to like raise money for any of these types of like consumer ideas because all you really need to do is take a particular product and then remix it with some of these differentiators, right?

54:04So for example, like you mentioned Black Rifle Coffee, that's basically aligning with an identity, right? So Black Rifle, you know, it's guns, it's right wing, it's veterans, it's all these other fun things. Well, identity-based products increase willingness to pay by about 20 to 40%. So if I just had regular coffee and then I had regular coffee that was built particularly for this, like, we'll just say like conservative, but I don't think they necessarily claim that party, all of a sudden that coffee's worth 20 to 40 % because you're niching down into that particular group. So I put together these 10 things and also the data around increased willingness to pay.

54:41But for example, if I was a particular entrepreneur who didn't necessarily want to necessarily innovate, which most people shouldn't, I might go and be like, cool, well, I like coffee. I think coffee's great. I think I get really excited about that. What's another lifestyle, right? So creating woke roast, right? Coffee for the left, basically, where all of a sudden you can have coffee, you know, basically for that particular identity and people flock in. Your retention is typically much, much higher when you do this as well. It's something that really works, right? I had a friend, a really good friend who wanted to create a business.

55:13He's involved in the LGBT community. So we talked about kombucha specifically for the gay community, calling it Bubbles for Bottoms, which was kind of a fun name. And so it was just one of those things where it's like creating this like product remix. and you can do this in a bunch of different ways. Like you could be the premium version of whatever you're actually selling. You know, Shinola, right? It's watches, it's notebooks, et cetera, but they're premium versus, you know, some of the other stuff that's out there. You have here, you have health plus lifestyle, athletic greens for dogs, condoms plus organic materials.

55:45That's what Greg said last week. Yeah, organic condoms. They're just going to sell you a package with nothing in it. That's the organic condom. That's basically what it is. Yeah, yeah, yeah. All natural, man. I didn't even think of that. That's good. Made out of air. I like that. Honestly, I bet you could sell that. That's liquid death, right? Liquid death is water in a mean-looking can. I think you could probably sell an all-natural condom that's just nothing. You could literally do it the natural way. Yeah, yeah, yeah. There's a way. Yeah, you got to look at it as sustainable, right? I don't know a lot about the sexual wellness market, but it's like, yeah, long story short, it doesn't have to be complicated.

56:18The effort and the execution is really, really hard, but the ideation doesn't have to be that hard. Did you make this chart? This is really good. This is great. Where did this come from? Yeah, so this is based on probably collecting, I don't know, I don't know the number, but it's hundreds of thousands of willingness to pay data points. Because we did the pricing, I don't know if you guys even know that, we've never talked about pricing. That was my core thing. That's what I was most well-known for in the SaaS community. So we did the pricing for Blue Bottle Coffee. We did Lyft's pricing. We did a bunch of other B2B-style pricing.

56:49So we have a lot of data in the pricing space. And when I say we did it, it's like we might've done it or we might've helped them do it. Depends on the company. If you had to summarize your learnings with pricing, is there like two or three bullet points where you'd be like, just do these three things and you're 90 % there? Sort of. But with like giving you a little bit more bulleting, you should be changing something about your price every three months. That does not mean raise your price every three months. But it means like changing up your packaging, going up market, down market, changing up an add-on, changing up your discounting strategy.

57:19It's this forgotten growth lever in most businesses. You acquire customers, you monetize them, retain them. We focus probably 60 % of most budgets, more so in D2C, less so in B2B on basically acquiring customers. We spend a little bit of time on retention. We spend no time on pricing. So change something every three months. One of the biggest hacks that's easy to talk about on a podcast, add-ons. They're the most underrated, underutilized aspect of all pricing, consumer, B2B, enterprise. They boost lifetime value by about 20 % to 50%. So just to make sure this is clear, like, hey, they bought your core product, which is a fitness shirt.

57:55Well, add a white T-shirt for$10, like stuff like that. Those are like add-ons. Hey, they bought your SaaS app, add priority support for whatever 10 % of your list price is for the software. Most companies, like the most high growth companies, at least in the subscription space, they have 12 or more add-ons typically. Customer never sees them, all 12 of them, but they'll see like one or two of them. And then one other really quick hack is localization. This doesn't work for every company, but like internationalizing your pricing. So the Nordics, you know, when we take into account exchange rates and stuff like that, they're still willing to pay about 30 % higher than the US for the exact same product.

58:34Folks in like Southeast Asia, it's about 40 % less. There's a really large variance on that. But that's a really quick thing where you can boost typically your revenue per customer by about 15, 20%, literally by just like changing what the pricing looks like, depending on where they come in across the world. Dude, you're insightful as shit. That's fascinating. Yeah, that was good. You also said a really good thing in the sheet here that you didn't say, which was, how do you measure if your pricing changes like a good change or a bad change, right? How do you know if you did it right? What's the metric you choose?

59:04Yeah, it's revenue per customer, which is going to be different for every company. So in your business, if you're doing pricing properly, that revenue per customer number should be going up and to the right. So like ARPU, ARPA, ACV, however you're measuring it, that should be going up. And now it's not going up as fast as your sales or as some of your other numbers, but if you're changing something about your pricing every three months, you should basically be seeing that number go up. I don't know, it's hard to give a benchmark because later stage it goes up slower, but it should just be going up every single year, if not every six months.

59:36Is that assuming you have free and paid as a mix? Because, for example, if I'm an e-com store, I could quadruple my prices. I would make more money per customer, but I would just have less customers and less money overall if I did that. Because e-com, for example, what we use is revenue per visitor, which is like if somebody hits the site, how much do we make? $2 off them,$1 off them for every average customer? Because that takes into account conversion rate and how much they spend when they convert. Yeah. So I would say, and you can get into like cart, average cart, those types of things. I think that as you get more sophisticated in how you think, like for example, like for an e-commerce world, I would probably want to look at like maybe lifetime, like dollars in like that average number going up.

1:00:26Because what that means theoretically is assuming revenues going up and all those numbers are great. That means like I'm monetizing better. Right. So it's not necessarily in a vacuum, right? Like if my revenue per customer goes up, you know, a thousand X, but I don't have any other customers, obviously that's not great. But it's one of those things where most people, again, they don't like, like the average, like people don't, it's, it's kind of crazy. Like it takes, when we looked at how often people raise their prices. So you should be raising your price at least once per year. Um, there are some top outs and there's some exceptions to this particular rule, but everything about your price is basically this exchange rate on your value.

1:01:06So like you've created this value and because, you know, we don't trade goat for wheat anymore, you're basically saying this value is worth this much dollars, right? And so it's that exchange rate. And there's a bunch of things that influence that, like your brand, the quality of the product, which customer you're going after, like some customers will value your product higher. And so if your product is improving every single year, your brand's improving, you should be able to demand higher prices. But most people, I think the average amount of time they take between pricing changes, like actual price increases, it's like three years.

1:01:39And I've seen so many companies. Because they're fearful? Because the CEO is fearful? They're scared. Is that like 80 % of the issue? They're just scared? It's just scared. Yeah. And we tried to fill this gap with our pricing product. And we still do because it just gives them confidence because we're like, all right, here's data that says you sat in a room when you founded the company and said, ah, Basecamp does 50 bucks. Let's just do 50 bucks too. And then you never revisited that, like for years. We have this data that says you can actually charge this customer 500, this customer 100, and we're going to like roll it out in like a nice way just for new customers first.

1:02:14And all of a sudden your conversion goes up and your revenue per customer goes up and you're really excited. And then all of a sudden you're like confident enough to basically put that for your existing customers as well. So yeah, I think that's, it's just a lot of fear. You get all these, like I've been in so many, like so many exec teams with this product where it's like the smartest people I've ever met just sitting there and like if I give them any other problem in their business they're like okay I'm not an engineer but like let's figure it out what's a what's a stack what is this like they'll go like attack it you give them pricing and they're all like oh what do you think what do you think because it touches every area of the business and they just lack that that confidence in looking at it and so I think like starting off with like let's introduce an add-on let's introduce some of this stuff.

1:02:57That's typically the gateway to, oh, this pricing stuff works. Let's raise our prices. And I have an email that I've basically cultivated over the past decade for changing prices. I'm happy to share it and we can put it in the show notes or I'll throw it on Twitter, where it's literally like, just steal the template. T-Mobile used it. They stole it from the website and they used it, which was kind of fun to see. But it basically just goes through how to communicate a price increase. The TLDRs don't make it about you, make it about them, because they don't care about your costs or whatever. They care about their costs, and that's the biggest mistake most people make.

1:03:28But yeah, I'll share that. This is very insightful. You're very fascinating. Thanks, man. You have a lot of really interesting insights, and I think you approach things in a really cool way where you have a good amount of self-deprecating humor but also academic rigor. You're a fascinating person. So is that to mean we're going to do this skin-to-skin bonding now or is that later in the podcast? is that bro when i i told sean the same thing pop the top baby come on let's go let's go cheek to i'm losing weight so i don't i don't feel uncomfortable taking my shirt off yeah you've lost 40 pounds right yeah yeah i'm down like probably about 90 total but 40 since i saw you guys um wow and as gucci main once said money makes you handsome so like all cliched post-exit founders i have to get healthier and uh basically take it seriously what's been the number one driver just eating less or what uh i use my body tutor so i know you're a big fan of that i don't know if sean you're still using it um sean you're using it yeah i went back to it and i'm having such a good time the key was doing the uh call the daily call i do the daily call yeah basically we have to tell people it's my body tutor so basically it's like the simplest thing ever we don't get paid for this there's no i don't at least sam maybe you do but i don't get paid for this i talk about i don't get paid they said eventually if i tweeted about it i sent a bunch of people and they're like hey we'll give you a little bit of money but i don't care i don't even mention me when you use them i don't give a shit but basically it's uh it's uh 650 a month and they call you daily and it's like a five minute call and they're like why did you eat this you're too fit let the fat guys talk for a second here all right go ahead yeah thank you thank you here's thank you sean i didn't want to say anything but no one wants to hear the shredded guy talk about this, right?

1:05:10Yeah, yeah, yeah. I'm down to like 2 % body fat. I'm still experimenting with Ozempic. It's not a big deal. If you're in a spot where you feel a little shitty about yourself, you're like, alright, I'm overweight and I know this was completely in my control and you've done all the things. You've listened to the podcast. Andrew Huberman has got you injecting sunlight into your eyes in the morning and you've tried keto. You tried paleo. You did all the shit, right? And none of it's working or it all kind of worked and actually the problem was not in the plans. It was all you to begin with. What my body tutor did was smart, which is they've realized it's not the diet that's the problem.

1:05:43It's you sticking to the diet. That's the problem. As we all actually know deep down inside. And so they help you with that root cause, which is how do they hold you accountable and help you actually stick to the thing you actually want to know. They do give you some strategy along the way. They do give you some helpful ways to think about things. I'll give you a very simple example. Haley was like, hey, when you eat I want you to just take note for a second, like on a scale of one to five, one being like i'm totally satisfied five being i'm like ravenously hungry right now where where are you when you sat down for that meal if you're sitting down at fives the problem was like we spaced out these meals the wrong way or we're not getting the right meals in and you're not expected to have good willpower when you're just like completely ravenously hungry and so like we want to be eating at a three um and we want to leave it at like you know you know we want to leave the meal also not completely stuffed you want to leave it at about a three two two or three like you want to get in and just get your meal that way you're just fueling up versus like you know going into this like feeding frenzy so there's little mindset tips but more than anything it's you get a call in the morning and she's like so what's the plan for today eating wise you're like i don't fucking know i'm just gonna eat everything i see i guess oh wait no that's not the right answer hold on uh i'll eat at these times i'll eat these meals no i i think the only thing i would ask is like or um also add is it health is in your control like if you're listening to this, like, you know, unless you have like an obvious like disability or something like that, like health is very much in your control.

1:07:13And what I love about my body tutor is it kind of cuts through the BS. I asked Haley about all these like esoteric things like, Hey, I read about this, like, you know, the cold plunging movement. And she's just like, fitness, strength training. Which country should I take over Haley?

1:07:34hailey and i don't have that relationship but uh no i think it's um i i just think it's one of those things where we're bombarded with a lot of like either quick fix or very marginal stuff like even the the you know i i'm a big humorman fan uh sam you tweeted recently you would i also would like that's you know he's he's he's a very very uh awesome guy but i think it's one of those things where a lot of that stuff, unless you have the basics in place, it doesn't matter. And so Haley has kept me accountable and like, no, no, no, no. We're going to do Peloton today and we're going to do this and we're going to do that.

1:08:07It's not even anything she says that keeps you accountable. It's just saying the shit out loud and you're like, actually, what the fuck am I talking about? Never mind. Sorry. I apologize. Well, and for me, it's been like a, you know, probably a year-long journey and it started off with like, you know, basically just breaking all of these conventions like Sean, you were saying where it's like, Like, oh, I can't like BS myself out of doing the right thing here because I'm going to have to talk to Haley tomorrow about it. And she's going to not be like sympathetic. She's going to be like, why'd you do that?

1:08:33And she's like, you shouldn't do that. I'm like, yeah, I know. And it's like, cool, let's not do it tomorrow, which is, you know, obviously really helpful. We appreciate you coming on, man. You're super insightful. You're always fun to talk to. I don't remember the last time you came, but I feel like this time definitely probably kicked its ass because this was a tent. Awesome. That's my goal in life. I'm not Jesse. I'm not all these fancy people. I got to bring the noise. That's the goal. All right, go follow him on Twitter. He's at Paticus. Yeah, we appreciate you. That's the pod. I feel like I can rule the world.

1:09:02I know I could be what I want to. I put my all in it like no days off. On the road, let's travel, never looking back.

1:09:16All right, this episode is brought to you by Mercury. They are the finance platform of choice for over 200 ,000 companies. Shouldn't be surprised because I use it myself for not one, not two, but I have eight different Mercury accounts. I have seven for different companies that I'm a part of. And then I have my own personal account because now they have personal banking, which is a really cool feature. I highly, highly recommend it. Like I said, I use it myself. And the reason why is because the way that Mercury works is beautiful. It's very intuitive. And you could tell that it's actually made by a startup founder.

1:09:44It's an entrepreneur. You could tell it's made by somebody who used other banking products in the past and didn't like all the different rough edges and annoyances and decided to actually fix it himself. And really any type of entrepreneur you are, let's say you're an agency. Well, one of the things every agency has to do is be able to send invoices, easily create them, send them to customers and stay current on your balances with all your customers. Well, you can do that inside Mercury. And so I think that Mercury is great. Highly recommend you check it out. And thank you for sponsoring the show.

1:10:09For more information, check out mercury.com. Mercury is a financial technology company, not a bank. Check show notes for details.