MI285: The Art of Tax Optimization w/ Mitchell Baldridge

28:37He's liked the product and then he's seen me espouse the benefits he has as well. And then he's started referring a lot of people to a cost-seg company. Well, one day we woke up and said, hey, let's start our own. And so we immediately started, we hired an engineer and a salesperson and we developed a process. My wife, Melanie is the CEO of the business and she runs the day-to-day and she takes care of all the big stuff. But I think that it's somewhat of a commoditized product, but our kind of key advantages are one, we have a platform to educate the end user, of which 95 % are either uneducated or have become educated and decided not to do it.

29:21And then two, we have this access to the kind of talent and labor and systems that build off of Nick's business and off of my business. And we've come together to really build this awesome flywheel of how to get these things done really, really well. And you guys have grown really quickly, right? You've got 26 employees, something like that, maybe more by now. And revenue has kind of gone off the chart. Yeah. I mean, we got yesterday the notification of like, hey, it's your one year Twitter anniversary. And I sent it to our group chat and was just like, holy smokes, we've done a lot in a year.

29:58And so, yeah, it's been a up and to the right curve and we've hired and hired. And yeah, we've built a whole team and we've built a whole system. We've iterated probably four times in the last year of just kind of V1, V2, V3, V4. So it's been wild. So I wanted to hear about that. Just some of the challenges of, cause I've heard Nick talk about like starting the company. And at one point, you know, it was like mostly virtual. I don't think, you know, he's met you, but I think in general, like you hadn't met a lot of the guys that are working, people that are working for you. Talk about some of the challenges of running a company like that, whether you want to call it virtually or from afar.

30:39What's that been like? I'm curious to hear. Yeah. So it's been entirely kind of distributed and man, the challenges are you have to have leaders in the right seats who have the genuine interest of the company. So we've been lucky to have kind of our lead engineer, who's just the first guy we hired. We got really lucky and he's stepped up and we had the lead sales guy and he's stepped up. The real challenge in building that quickly is like, I don't know if you've ever read that book, The Goal, that talks kind of about business. It's that. It's just like you're chasing bottlenecks everywhere. Sales immediately started coming in.

31:20And then we had a production bottleneck. And then we've finally built production into this perpetual system where I feel like we could scale up to anything at this point in that we have great people, we have great systems, we have great processes. And so then now sales becomes the bottleneck of like, oh, well, we now have this huge team. We now have this huge machine that just churns out work. We got to sell into it. So I feel like you're always chasing something of either more sales or more systems and labor to get the thing going. And it's just happened so quickly. It's this ping pong ball, you know?

31:58Yeah, that's interesting because I would have thought the opposite. I would have thought the sales would have been like you have more sales and clients that you know what to do with. And the hard part is like producing the actual study itself. That's initially how it was? It was until it wasn't, until we were like, oh, now we have this method of how we do this. And we have this system of how we get on the calls and the system of quality control. And now, yeah, I mean, we have this kind of amazing cost-tech vending machine where you input your information and you get on this virtual site visit or we fly out to your building and walk around and like we get it done and we get it done on time and we get it done really, really well, which is awesome.

32:42But yeah. And so now our ambition just never seems to end. So, you know, now we go, well, we need to grow. We need to go more. I heard Nick's interview with Pomp, Anthony Pomp, I forget how you pronounce his last name, but you know, he threw out some numbers that were like, wow, pretty sizable what the company, you know, his long range view, probably yours as well of what the company could do. So it's pretty cool. Like pretty exciting. Uh, it's just been a blessing for, uh, I mean, it's just like, I've never started something that just worked immediately. Just like that. Yeah. I think my first business, like when I became an accountant, you know, I sent an email to 200 friends and family and I got to work and kind of never turned back.

33:22And this is the same way. It just was like, there was no fighting it. It just worked. Well, I mean, like I said, it seems to me like an easy sale once you explain it and you educate people and people realize the numbers, it doesn't seem like a no-brainer to me. Yeah. The proposal is literally like, hey, pay us$5 ,000 and we're going to save you$500 ,000, 100 to one. Do you want that or no? And it goes back to what we started the episode off with starting a business, buy real estate, employ tax strategies, enjoy the cashflow, and then pay little to no tax. It seems like that's how you're doing it in your own life.

34:03You've got the CostZ company, you've got Tax Credit Hunter, I believe it's called, and then you've also got Better Bookkeeping. So I wanted to hear a little bit about those other businesses too, maybe Better Bookkeeping if you want to talk about that or I'll leave it up to you. Yeah. So Better Bookkeeping is something that I've been working on for about two years, which is we rebuilt a tax software from nothing. So here's the principal story. A client came to me. He was a real estate private equity guy. He kept all of his books on a spreadsheet and it was really well done. It just was laborious.

34:39He didn't like to do it and it was a pain in the butt. He's typing in receipts every day. And I just say, okay, listen, we're going to take this off your hands. We're going to get you into the big Intuit QuickBooks product out there that everyone uses. And we got them all the way into the product and was trying to show them how to use it and all that. And it was legitimately a worse product than the system he had already built because it just was oversized for his needs. And so I started to think, well, how do I get bank feed at the front end and effectively a spreadsheet at the back end? And how do I offer my own tax insights because I get everyone on this really, really uniform system?

35:19And so that's how Better Bookkeeping was born. And it's turned into this productized service. It's done for you, bookkeeping, tax preparation, and tax consulting for the Justin Welch, solopreneur type people, or the small business owner, or venture-backed early stage founders. And we've scaled that in a whole separate venue, but using a lot of the same tactics that we use to scale Ari Kasek. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle.

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39:10All right, back to the show. So you've got a ton going on. You've got, I mean, a ton. So I kind of wanted to just hear about an average day, how you're spending your time. What are you focusing on? I also wanted to hear what you're most excited about in terms of the different projects you've got going, which one do you feel like has the most potential? I think ultimately this distribution engine at the front is the biggest thing that I like. The most valuable thing I can spend my time on is writing threads that clearly explain tax ideas to people or writing a newsletter that clearly explains tax ideas to people.

39:48That seems to be what people connect with or financial ideas as they were. So, I mean, I've seen people who I admire a lot ahead of me, like Peter Malouk in Creative Planning or Andrew Wilkinson with Tiny. And you ask what I'm most excited about. I'm going to just give you this cop-out answer of I'm excited about everything because I believe all these are puzzle pieces that fit together with distribution at the front to when all of these pieces come together and they're all doing$75 million a year in revenue, they all become big enough, you know, together, they all become big enough to be merged into some huge vehicle to come together to be this awesome thing.

40:34So that's how I've looked at it. And people say, focus on one thing. And it seems like I'm focused on a lot of things, but actually I feel like I'm focused on one thing, if that makes sense, which is building the best kind of accounting firm that has ever existed for business owners and entrepreneurs. That makes sense. I forget how David Senra phrased it, but like... Maniac on a mission. Maniac on a mission, which I really liked. But then I started thinking about, same with myself, I've got a lot of different things going on. And I thought like, well, maybe I should just be a maniac on a mission on just one thing.

41:09So... Yeah, it is hard to say like, what is focus? You know, you read a book like The Power Broker with Robert Moses. I talked about this in the last pod, maybe with David and Eric, but like that guy cornered New York. Like you don't do that by working on one thing. You have to work on a lot of things all at once. So, but you also have to be tremendously focused. So it's hard to say. I wanted to talk, you mentioned the most important thing you can spend your time on is distribution and creating content. So I wanted to get into a little bit about Twitter. You did a great episode with Chris Powers, you and Nick did three or four months back, I would say.

41:45But you had said that Twitter has accelerated your careers by 20 or 30 years, something like that. And Nick, I heard him say something about how without Twitter, he'd still own a moving company and a handful of self-storage facilities. So I just wanted you to talk a little bit about your experience with Twitter, just how it's benefited you, how you think about it. And then a little bit about how other people who don't have 60 ,000 followers or whatever your number is at this point, how they can create content that's useful that you have done. I mean, that's been the key, I would say, to you and Nick's success is you're putting out content that people want and are learning from.

42:27Yeah. So, I mean, I was lucky to start in a time that I started this three years ago and the space might be more crowded today, but a lot of the reasons why you couldn't do this are just stories because we also just see really quickly, there's a new guy or gal who just comes in and immediately starts hammering tons of value and then builds a following. And you don't have to have a 65 ,000 follower or a 300 ,000 follower or even 25 ,000 followers to gain tremendous value from Twitter. As soon as I started writing my ideas, just this inflow of people immediately started coming in. Kevin Kelly wrote about this a thousand years ago with a thousand true fans.

43:14It's like, yeah, you literally just need your people. You don't need all the people. And frankly, all the people, I think Nick Huber would tell you Twitter was more fun at 30 ,000 followers than it is at 300 ,000 followers, but 300 ,000 followers gets you something that 30 doesn't. So if you have no ideas, then it's a problem. And, but I don't think, and maybe I think a little bit differently than other CPAs, but also I just came in with every idea I ever had and just gave it away for free. And we did that the same way with CostSeg. We go, here's exactly how CostSeg works. Take it and try to do it yourself.

43:55But we have 25 people working pretty hard at it. So you may want to use us. So I wanted to hear about your, like the creative process, writing in general. You went to this, went to Capital Camp recently. We're going to get into Capital Camp a bit, but talk about like, was writing something that came naturally to you? It seems like for Nick, Like it's really like a strength. I wanted to hear about like how it's been for you. Just like writing is like a real skill. It's a, it's almost like a superpower. If you're great at it, I would definitely say it's a superpower. If you're great at it, I wanted to hear how it's been for you.

44:27Like just crafting a thread is an art form, I think. Yeah. And I mean, I wouldn't say I'm a 10 out of 10 thread writer or hook writer and I've gotten help. Sometimes if I'm about to write something that I really want to go bananas, I will send it to other people and say, hey, help me clarify this. So yeah, I mean, writing takes practice. I don't love writing. I wrote out a lot of my ideas and then canonized them in this big thread of threads and then just kind of left it there. And lately I've been working on rewriting a lot of my ideas and relaunching a newsletter, big sequence that's 40 week sequence of kind of a lot of my threads and a lot of other ideas.

45:09Cause I think that's a powerful kind of new frontier. year. What's the name of the newsletter? I'll put a link in the show notes. What's the newsletter? It's called the General Ledger. So, you know, and yeah, I think it just that idea of that evergreen drip, it's going to kind of replace a blog in some sense of just now I can send new people who enter my orbit, all of my best ideas and I can front load my best ideas to these people. So, So yeah, I think that's pretty powerful, but I've never just loved writing. Writing is kind of a means to an end to get my ideas out there. Nick becomes like possessed.

45:50He has this idea and he drops everything and just hammers out a 300 thread or 300 tweet thread. I'm just curious because we've got a newsletter also called We Study Markets, the Investors Podcast puts out. And one of the things I've been in charge of is doing the threads on Twitter to get subscribers and get people to sign up. So Nick talks about the top of the funnel, kind of casting a wide net. And it narrows down and narrows down and narrows down to the point where you've got your clients. That's really ultimately where things are headed towards. I don't know. It's just interesting. The whole strategy is interesting for me to think about.

46:29Yeah, that's a big way I thought about it. Cause I got 65 ,000 people up here and I ultimately have 150 clients at the bottom. Like I run a small accounting firm with 15 people in it. So that's why I even started to build Cossack in the middle or a newsletter in the middle or this better bookkeeping product. I think I can have a lot more clients who fit a very narrow specific subset of type of customer. I wanted to jump into a new topic here. We had mentioned the Smart Friends podcast, which I really, I just found out about it. Really love it. It's David Senra, who's the Founders podcast guy, and Eric Jorgensen, who wrote The Almanac of Naval Ravikant, which is a great book.

47:12The three of you kind of just rap and talk, and it's really great stuff. I think you've done three or four episodes, but one that you just recently did was Lessons from Sam Zell. And I wanted to hear you guys talk through that, some of the biggest lessons that you learned from the life of Sam Zell, who unfortunately just passed away a month or so ago. So yeah, Smart Friends is Eric's podcast and he does a ton of interviews with a bunch of great people. And yeah, we've created this recurring segment. He has another one with his, he has a rolling fund called Rolling Fun with Aldone and Bo Fishback.

47:48He has these groups of people who jam them out. And yeah, me, David and Eric have ran a few of them and it's a lot of fun. And so yeah, David had gone to lunch with Sam Zell and was planning to go to dinner with Sam Zell in the weeks before he passed and Sam got sick. And so David, a lot of what I know has kind of come through David, but I think what struck me the most is like, God was in his eighties. He was living, living life to the fullest. David said he had talked to Sam and Sam was most excited that he had just bought 70 % of a family business, like a legacy business that I think was making, I'll just make up a bunch of numbers, but it was making$30 million a year of EBITDA.

48:32And I mean, Sam was in his eighties and out there just like playing the game and he didn't have to. And he also, I'd never met the guy. He seemed to be doing what he wanted to do. He seemed to be allocating. He had optimized for freedom. He was flying anywhere in the country he wanted to go. he was working on deals he wanted to work on. He was working with people he wanted to work on. So his unfortunate passing, I think, just shows you that life can go any minute and you better be doing what you want to do and not optimizing for something way down the road because we're all getting old. Yeah. I saw you tweet about that a day or two ago, something about a question that you've been asking yourself lately is like, do I want to be doing this in 10 years?

49:17Yeah, I posted that. I sort of reposted that even like an hour ago before I walked up to interview with you. Two questions I asked myself before pursuing a big opportunity. Could this have a meaningful, positive impact on my net worth or my happiness or my relationships? And yeah, in 10 years, will I be happy that I chose to do this? So going to Capital Camp, going to Berkshire Conference, talking with people, talking with maniacs on a mission like David Sinra or one person who we always talk about on that podcast is Sam Hinckley, who we all three know. Talking with people who have really, really, really long-term thinking helps me because sometimes I can get a little impulsive.

49:59I've found that as I optimize, as I let go and understand that we have a long road ahead of us, hopefully, and the world's not going to end in two years. And like, I'm playing a long-term game with long-term people and I should be optimizing for long-term decisions. And the more I do that, just it's better. It's objectively better because all the compounding happens at the third Sigma. So like I was listening to another podcast and they were talking about that. Like, why are we talking about arbitrage when we could just be talking about playing long-term games? So you mentioned going to Omaha for Berkshire Hathaway.

50:39is that an event that you've gone to previously or was this a new experience for you and just kind of wanted to hear your take on the whole event? I mean, it's like a, it's what they call it, the Woodstock for capitalists or something like that. Yeah. Have you ever been? Never been. No, I had the opportunity to go this year and I just had too much family stuff going on. Yeah, no, I hear you. Yeah. I mean, Charlie's 99 and Warren is in his nineties too. And it seemed like if I ever wanted to go, now's the time to go. I'm not the biggest like monger or Buffett aficionado or nerd, but I got to go with a few major monger nerds.

51:17And I got to go with Eric and a couple of other friends and it was a good time and it was a good weekend and Omaha's a good place. And again, it just stretches out my timeline of thinking to fill my thoughts, To go enter a world that a couple of billionaires in their 90s are the center of and to see all the people that surround that is really, really interesting. So I enjoyed it. I would go back for sure. I'll probably go next year. I think I read the first event that Buffett had. I think there were like 13 people there. Like the very first one was 13 people. And now it's like, I don't know how many, 50 ,000 or maybe more.

51:56It seems like a football stadium of people. So pretty cool stuff. I wanted to see if you had a little time for a fire round. You got five or so minutes for a quick fire round? Yeah, yeah. I'm good. All right. You seem like a big reader. I wanted to hear about a book that you think I should be reading. This is a question that actually Chris Powers' mentor, John Marsh, asks people. What's one book that you think I should be reading? Man, so hard to put that into... I never directly answer questions. Sorry. Did you, I want to real quick, did you read Unreasonable Hospitality? I think it's called.

52:33I think I know what you're talking about, but no, I didn't read that. Just going back to books. So like David Sinner runs this podcast called Founders, where he's read hundreds of biographies of founders. Books are going to show you mindset and strategy, or they're going to show you tactics, right? And all of these biographies tend to show you both. they show you a little bit of this glimpse of the background and the rise and the tactic. Lately, I've been rereading Shoe Dog by Phil Knight. That's an amazing book. Did you see Air? Yeah. Yeah, that was good. Kind of good little deal. But yeah, I mean, so I read books all the time for all different reasons and I have a thousand books.

53:14One book I just was recommended to me is Scaling Up Compensation, which is just literally a manual for how to build incentives and compensate people because this is the year of incentives for me. The year of kind of trying to, I have these three companies and I have these people in my world and how do I build incentive structures to grow the whole thing forward, minimize conflict? Well, how do you? I was curious to, I wanted to ask that, like the top couple of people that you hired for like the companies, how do you incentivize them? Is it, do you give them equity? Do you give them, What's the book recommend?

53:50It's kind of always different. Yeah, and the book recommends a thousand different ways depending on the structure. And so we have kind of different incentive structures in all three businesses, but that's one big thing I'm working on is how do I build this in the long term for all these businesses to converge into one plan, into one massive idea. So I try to build the systems to connect and the structures to connect and the people to hopefully connect one day. So that's a 10-year idea, and it's something I don't have figured out at all, but something that I was working on. Well, I would think also part of it would have to do with figuring out the motivation of the individual too.

54:35To figure out what incentive is going to motivate them, you got to figure out what is it that drives them. Because it's not the same for everyone. entrepreneurs are i'm coin operated you give me money and i'm happy uh yeah some people you give them money and they're offended or they're like i i didn't want money or they're looking for a recognition or appreciation or something more intangible yeah where i would just go here's money and they go thank you for the money but yeah i want you to just not be a jerk yeah i wanted to hear about who's the smartest guy that's made the biggest impact on your life your career I'm sure there's a lot.

55:12Oh, man. Going back to books, two books that I've read probably three times is Who is Michael Ovitz and Powerhouse, the book about CAA, Creative Artists Agency, and how they built that and how it worked and how it ultimately didn't work. Although the principles of that turned out to be fine. But Michael Ovitz became this self-anointed kind of center of the world and used relationships and used big ideas to ultimately tip an industry from Hollywood, which favored the production studios to taking the talent and packaging the talent and auctioning the talent and making the production studios, which used to run the world, now have to bid on these talent packages and drove up prices and just changed the market.

55:59So David Ogilvie would be another example of just the best writer. I mean, you want to talk about writing and you can read the confessions of an ad man and Ogilvy on advertising. And just like I own an accounting firm, which is ultimately a service firm, an agency, CAA is a service firm. Ogilvy's firm is a service firm. I just get to learn so much from these like masters of their craft who are fantastic writers and geniuses who teach me something. And then they teach you also what not to do. Last one real quick here. You've got a thousand, a couple thousand bucks to your name. You're just getting started.

56:37You're listening to this episode. You want to start a business. What business do you start? man, I did this. I mean, I created an agency. I created a CPA firm. For CostSeg, I think we put $40 ,000 in to start it and it just grew and grew and we'd return the money back within five or six months. But the best thing you can do is take something that's valuable and go trade on that. And if you don't know anything that's valuable, you can spend time trying to learn something that's valuable or you can trade organized labor. I mean, you can go start knocking on people's doors and power washing their driveways.

57:15But yeah, I would start an agency and really the whole thousand dollars would be spent on learning something and packaging something together and trying to acquire my first few customers and easier said than done. But I've just seen thousands of people do it right in front of my eyes. Nick Huber has that 100 businesses he loves, the sweaty startups, and he's moved a lot more into agencies. So I'd go look at something like that. Yeah. I've got a nephew who's like 17 right now, and he's got a power washing. That's what he's doing this summer and killing it. He's got a trucking and power washing, hired a couple of buddies to help him out.

57:55He's doing great. So there's just so many opportunities. And Nick's, to your point, Nick's PDF that you can get of his top 100 business ideas. None of them are sexy, but all of them are going to cash flow. It's a great resource. Again, I'll put links in the show notes for that. So this has been a lot of fun, Mitchell. I really appreciate it. Love talking with you here today. For our listeners that want to learn more about you, cost segregation, the different businesses, better bookkeeping, what's the best way for them to find out about you and learn more? Yeah. To find more about me, you can follow me on Twitter at Baldridge CPA.

58:28You can check out betterbookkeeping.com and subscribe to my newsletter. You can check out the Twitter account at Ari Kaseg. There's a lot of ways to find me. Thanks so much, Patrick, for having me. This was awesome. Yeah, I really appreciate it. Thanks so much. Okay, folks, that's all I had for today's episode. I hope you enjoyed the show and I'll see you back here real soon. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor's Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday we study billionaires and the financial markets.

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