How to Build Wealth Buying Boring Businesses | Codie Sanchez

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24:49I always tell people the most important, like having a good idea is like 1 % of the process. And then the rest is how do you de-risk the business? Because you just don't want to lose money. Like you want to make money and it's so easy to lose money. and it's already hard work. Yeah, you have to. So buying a profitable business already is one way to de-risk. And of course, buying multiple businesses, ones that you don't have to spend as much time operating and all sorts of stuff. So do you still own the car washes? Are you still buying car washes? I'm still buying them. I still own a bunch of them.

25:20Most of them are located in Texas or the Southwest now. The other thing that's interesting about these businesses is, you know, when I buy a business, One, you typically buy them and they're already profitable. You want to have like a pretty quick cash repayment period. And so if I'm investing in venture, it's going to take me seven to 10 years to see if I made any awful decisions or not. And in this, I really want a payback period that's like three to five years on my initial money down. And so that's actually doable because there's not that many people who know how to do these types of transactions and that are buying them.

25:54So that's interesting. And I saw a stat the other day, we should verify it, but 39 % of all small businesses that are startups, brand new, they don't fail. I thought they would fail. Most of them would fail because they go out of cash. They run out of cash, but it's actually just product market fit. They spend a bunch of time and money on something that nobody actually wants, which I've certainly done that before and felt that before. And so the biggest reason why startups fail is they never hit product market fit. The second biggest reason is they run out to cash, then if you already find a company that has product market fit, people want it, it's positive cash flowing, you've de-risked your business by like 40 to 50%.

26:32So to me, I could never make the math not work on buying businesses or starting them unless like this business can train thinking the media business. I just like it. It's not where I make all my money, but it's fun. So I don't mind. The good thing with a media business is that like you don't really need any money to start it. You just need to write like an email newsletter. That's the beauty of the internet. It's, there's no, you're not mailing anything. You know, there's no stamps or paper. Yeah, totally. I mean, so Choose Yourself Media, which was how I named it when I started my newsletter business around 2015.

27:11We literally spent$0 starting it up. I already had a free email list from my writing. And now I was just going to start charging for like a higher end version, dealing with just like stocks and finance. And just the first year, it was millions in revenue and not that much in expenses. I totally agree. And the cool part is, it's actually just a funnel for everything else that you want to do. So you're an investor, you've invested in a ton of stuff, me too. And now, you know, if I want to raise capital, which I usually just raise from my own stuff, except we have a small venture fund, but I can do it for my audience, which is really cool.

27:47If I want deals, I get them all for my audience. If I want to sell a company, the last laundromats we sold came from somebody in my audience that ended up wanting to buy them. So it becomes this virtuous circle that just makes a lot of sense to me. Have you considered doing like, like you said, you know, rolling up laundromats is private equity 101. Have you considered doing like a small private equity fund focusing on roll-ups of boring businesses? Yeah. I mean, we have our, it's called Main Street Holding Company. And that's my family office holding company that owns a bunch of these businesses individually.

28:20I just, you know, you remember what it's like to have investors. I played that game for like 13 years. And I ran a business and grew it to a billion dollars in assets under management at First Trust. It's like having a thousand bosses, you know? Yeah, it's unpleasant. And they're all nasty. Oh, and if the market's tough, you don't sleep, you know? um and yeah investors aren't nice by trade because contrary to what people think about people people on the internet you can say whatever you want and make a ton of money and you cannot be right and you can make a ton of money if you're not right in investing you gotta fuck a business like it doesn't you know so you have to be right you have to be mean and at a certain point i was just like oh god i don't want to raise another fund i've had like five different uh fund families that i've either run myself or run with partners.

29:09And so maybe one day, but no. Right now, I just say no to money, which is also somehow painful. But I'd rather do smaller amounts myself, which is also why I like boring businesses. Because we have a SaaS company we're working on. It's going to cost me a lot of money to build. But when I go buy some of these laundromats, I mean, I use a line of credit on the cash we have or the businesses that we run, plus seller financing, plus some amount down and you're like off to the races. So what's another example of like a boring industry that you would like to, that you either played around in or you would like to play around in?

29:45Yeah. Well, now I kind of have two, I have two portfolios that I think are interesting. So I always like to play this game. We should play it with you. One is what I call media accelerated companies. So those are like, hi, I'm James Altucher. I have all these books. I have, you know, my email newsletter, I have this podcast. And so one of the other early acquisitions I did was a podcast production company. At the time, I was running a private equity fund with some partners and a bunch of our companies had podcasts. And so I ended up getting to know this guy who ran this thing called Strike Fire Productions.

30:16I was like, dude, I could 10X your business right now. Why don't you let me invest some de minimis amount in your company and I want to own part of it and you can service all of our vendors. And so I basically removed a liability and turned it into an asset. So I am increasingly doing more of those. Like we own car washes. So I invested in a car wash software business. Same with like auto mechanics and auto mechanic service business. And then in the boring business side, which are the ones that we own like 100 % outright, I really like mobile home parks and RV parks. I'm trying to own more of those.

30:52Oh, you know, it's very funny because I just, I invested in a roll up FG communities, which is rolling up mobile home communities. And it's a great business. You know, the biggest investor in that industry is a young man named Warren Buffett. Yeah, exactly. And he loved, because it's a recession-proof industry because if anything, it benefits from a recession. And a lot of people just in general, after that, you know, baby boomers are getting older, When they retire, they downsize. And so you're getting it from all directions. And it's a very captive industry. Once you move into your mobile home, it's not like you can't drive it away, really.

31:35It's not really mobile. It's true. And it's a great roll-up business. Yeah, I love... I really like mobile home parks for all those reasons. And also because the world is full of a lot of NIMBYs, like not in my backyard. And so it's actually hard to create new mobile home parks. There's a bunch of licenses. they don't want a lot of them to be created. So it's a constrained market. Plus, they're usually not very big. They're not efficient. Like New York City, you can have a high rise that's what, 50, 100 floors, and you can have thousands of units. Having thousands of units in a mobile home park would be giant.

32:10They're just not efficient that way. And so because of that, it's a little bit harder for the really big companies to go and buy the smaller ones and get scale. There's not even a great mobile home park property management company. Because again, you can't have the scale of thousands of units in such density. So I like that business. When I do those deals, I do it with a couple of friends of mine because I'm not a mobile home park expert. But I want to own more of those. And the same thing with RV parks too. I also think RV parks are interesting because they're like a land hold. So in Austin, Texas, for instance, if we want to own land somewhere, but we want it to cashflow in the interim, but we don't want to spend that much money on building something out.

32:53It's not that expensive to build out an RV park infrastructure. And then we might just own that for like five or 10 years. And we know that it's going to appreciate at some point. And the use case will be something better than RV parks. I've looked into the RV park businesses as well. And those are great because there's a lot of, a lot of just homes will say, hey, use my backyard, we'll set up like something for one or two RVs. And those aren't even businesses. And you could buy the small RV parks for like zero, but the multiple expansion goes up very quickly. RV park with like 50, 60, or 100 RVs, the multiple becomes incredible.

33:33And it gets really worth it. You know, one thing, have you ever considered like, not campgrounds, but glamp grounds so that high-end camping in a, in a kind of, uh, you know, near, near a national park, something like that. Those are great businesses because you could buy the land and, or you could, you know, whatever it is, buy the land. And then those go, you could rent those out like$150 a night, a hundred dollars a night for, for a tent that costs you nothing. Like you don't have to build a house. I know I have this friend, Rob built, he's on the interwebs and YouTube. And I keep trying to talk him into.

34:08We own a couple of plots of lands in varying places with RV parks and not. But I'm such a finance nerd at some point that I realized I'm actually not that good at branding and coming up with cool ideas. And somebody else decorated the office all nice. I have an idea in here. It looks awful out here when I do it. And so my RV parks are pretty standard. They're nice. They're upkept well, but they're nothing super fancy. That might be something we do in the future. But Rob, for instance, will build a crazy tree house that charges like$500 a night. Yeah. And you see those, there's like, um, there's like an Airbnb for glam grounds.

34:42I forgot what it's called, but like the tree houses are, are, are people go crazy for, but I like your philosophy too. Like the great thing about an RV park as well is you need an operator, but you don't have, you could maybe pay the operator nothing because if you just let them live there for free, that's the wild part. And I always think it's so interesting because people on the internet always love to tell you the reasons why this stuff won't work. And I'm like, well, fine. You keep telling me why and I'm going to keep profiting off of it. But the thing about mobile home parks and RV parks is you're exactly right.

35:13There's like three reasons why the operators come in. One, they don't pay rent. So you give them free rent. Two, they make a de minimis amount of money depending on size of the location. Typically now as you get bigger, this changes. And then three, they actually want to pick their neighbors. So like one of the big benefits is they screen everybody who comes in. So, you know, they're like, no, you can have this location, you can have that, we're going to do this, you know, and they basically use us to sort of add value adds to their land where all their buddies live. And the other thing is you don't have to, you don't have to build their house for them.

35:45They just pull up in their RV and park and then that's it. Like I compare that to like all the people who go tens of millions of dollars in debt, buy land to do housing development without knowing, they're not going to know for years if there's really a market for these houses. And it just, that seems like you've taken on maximum risk. Now, real estate as an industry has de-risked itself in a variety of ways, but the RV park thing, there's like almost zero risk, particularly if you're buying an existing business that already has RVs on it. Yeah, I think you're right. I mean, you have to, I don't really like debt a ton, which doesn't make sense for a private equity investor.

36:24But like when it's for me, myself, I don't want any investment to be able to take me out at any point that keeps me up at night. And so what I like about these kinds of investments is they're not very CapEx heavy. You're right. Like you don't have to build out hundreds of millions of dollars in order to do this and raise hundreds of millions of dollars in order to do it. And I like your approach of building ancillary, maybe slightly riskier, let's say software businesses around the industries that you're rolling up. So for instance, you could imagine with RV parks, there's a variety of services you could provide to the RVs on your land that could turn into businesses, whether it's laundromats or car washes or whatever.

37:06Then there's software for RV parks in general, like scheduling and booking and so on that you could provide. That's exactly right. Right. Yeah. We bought a company called ApproachNet and the company, all it basically does is have 24-7 available chat with real humans, also augmented by AI, and then like a little bit of a data backend about what's happening with your chats, how the conversion is looking, whatever, because our small businesses, we realized, you know, what's the difference between one handyman and another handyman? It's just whoever responds to you faster that has good reviews, right?

37:38Like that's who you're going to go with. You're not going to do a lot of due diligence on who your handyman is. So the biggest likelihood of you to close business that is a small business owner is just respond faster. It's literally like the number one hack to do more sales in your small business. And so I was like, well, how can we just easily oversee all of our small businesses and how fast they respond and do it with, you know, kind of cheaper labor? And that was this company approachment. And so we bought that company because we want to plug it into all of our underlying companies so that they can respond immediately to leads.

38:10Now, was that a more expensive purchase because they probably viewed themselves as a tech company and they wanted like a tech valuation and so on? Yeah, that one wasn't. But it's such a small business. So we bought that business for$75 ,000. I think it was$60 ,000 down. And then another$15 ,000 after he transitioned some of the software to my operators. But the reason that was so cheap is, one, we kept the operator on. I think he still has 5 % of the company. His name is Mike. We kept him on. He owns a bunch of businesses. So this was just one small one of his. And again, common thread, I suppose, is we were like, we're going to grow this so much bigger.

38:46So originally, if you could imagine, when you got into the back end of Approachment, it's kind of a clusterfuck. There was like, everything was manual. It was a software company, but not really. And, you know, there was a ton of processes that weren't right. And so we have this guy Willard who sort of focuses on tech for us. And so he got in there with Rod, the operator that we inserted, and basically took out 60 % of the manual processes and inserted technology into it. And so because of that, we can now handle a lot of scale. Now, don't get me wrong. I actually don't love... one, I'm not an expert on buying SaaS.

39:21I'm figuring that out now as we go. And two, I don't love buying companies that are that small that need what you and I know is called a turnaround because the problem with that is turnarounds take a lot of work. And so I wouldn't recommend somebody does that for their first deal. But let's say you own a bunch of laundromats, a bunch of car washes, a bunch of RV parks, and now you buy this business, And suddenly all of your businesses pay that business a thousand bucks a month for their services. And so now you have a tech company with all these revenues and now you can go out to Silicon Valley and raise money.

39:57Hey, we have this AI customer service company and it's got 50 clients of small businesses. We want to take it to the next level. And it seems like you can get real multiple expansion there just by throwing in all of your companies as clients to that. A hundred percent plus audience. That's why it's so powerful. I mean, we bought part of another company called Viral Cuts, and that company just does video production. It's a service-based business. And so it's just an agency, right? But we have too many clients for them to be able to take. So we waitlisted it, but our businesses get priority. So I think most small businesses, like, again, we already talked about one thing that they don't have, which is they don't respond fast enough.

40:41The second thing that they don't have is social proof. And so one of the best ways to get social proof is actually video because it's now searchable on Google in a way that it wasn't. And there's ways to go viral with, you know, I have a friend who went viral with just counting the coins out of his laundromat and car wash. And so there's all these ways to go viral and then you can use that to get more reviews. And so we'll see if these are smart strategies. We've only started the Media Accelerated business in like the last year and a half. I really like this idea though, because you have a built in client base with your bread and butter businesses.

41:16So, and it's just moving money from one business to another. It's not like the, you know, you're not really losing the money. So. Yeah. I mean, we stole the strategy from Amazon, right? That's all they do. They just go down their vendor list and they go, they go down their vendor list and their competitor list. And they basically say, which of these should we own or buy. And, uh, and so I said, why don't we do the same thing? Let's just look at our PNL, see what we spend money on and which of these should we buy. And I can't buy Amazon, but maybe I could buy some other smaller ones. So, so that's interesting.

41:48So what does M what does Amazon bought? That was, you know, something they spent money on, I guess like AWS, they spent money on storage. So they built that. Yeah. I mean, we could go look, there's like, they've done like a close to 200 transactions. Oh, diapers.com. They bought way back in the day, like 2008. And then totally. They also bought obviously Whole Foods, which would be a competitor in some way, shape or form. I always thought they bought Whole Foods to turn them into warehouses, but that actually doesn't seem that smart. So they'd probably use it for the grocery. Oh, interesting. Yeah.

42:21I don't know. I mean, look at these, like Egghead Software. I'm assuming they needed some of that for the back of their tech stack. What else did they pick? Custom Flix, smallparts.com. So that was probably a competitor to them. Shopbop, competitor also. Text PayMe, which I would assume, oh yeah, that probably added functionality to their payment system. So, you know, I think it looks like they've done 216 transactions that are public. But I bet if we looked at a diagram of like horizontal transactions, vertical transactions, so competitive transactions or, you know, increase in each client's LTV, it's probably a mixture of both.

43:18where have you found like your biggest risks in buying these businesses like let's say the laundromats or the car washes like when have you been afraid yeah it looks like what have i been afraid in my businesses. One, I don't like one business that I bought. It was one of the ones that I was friends with the guy, you know, I got defrauded on. So like where the risk in the business is. I was going to say, I was going to even prompt you. Was that the time you were? Cause the people is, is the whole risk really. It's, it's always, you're right. It's always people or maybe government regulation. Those are the two.

43:55Like again, if they stopped my ability to run my car washes because of water or because of COVID. Those are the two times where I was like, oh my God, we might go out of business. And same thing in cannabis. I was like, oh my gosh, they're going to outlaw this. So I think I have a lot of government fear. Were you buying cannabis stores or retail outlets? Everything across the sector. So we owned packaging companies, we owned product companies, we owned distribution, we owned software. How'd that go? Well, the first two funds went awesome. And then thankfully the third fund, I was like, I just feel like this market's so frothy.

44:31Remember that? That was like 2019 and cannabis was like, it was huge. But then it kind of fell apart all of a sudden in terms of valuation. Massive fall apart. So thankfully, our very first fund was in like 2014. I think that the guy who started the company started it then and I was an investor. And so the first two funds did great. And then thankfully I didn't participate. In the third, I left the company and started doing my own thing. So I think cannabis is hard right now. I still think the asset class makes sense, but it's hard to make money when the government taxes you to the level that they do.

45:02I think there's just too much government regulation there. Like you're completely reliant on government regulation. Yeah. And you're competing against people who have zero taxation and zero regulation. So that's super hard. Plus, I've changed my stance a little bit on it. I used to think that there was nothing wrong with cannabis, that it was like, why wouldn't we legalize it just like alcohol? Now, I'm a little worried about how high the THC levels are in some of the products. I don't love that. I'm not sure that's good for society. What about service businesses? Again, if the business is the people, let's say you buy a company that does plumbing, is there a risk that the people leave after you buy the company?

45:42For sure. So typically, all the risk comes down to doing the due diligence up front. It's not that dissimilar to real estate in that you make your money on the deal. So like, here's how people screw up in buying businesses. One, they take on too much debt, like a big SBA loan or something like that. And they don't realize things like debt service, like interest rates, what the variability on that could do to the business. And they run out of cash. And that's how things can go really sideways in buying businesses. So I'm super thoughtful on how I finance the deal and making sure, you know, every time you buy a business, you're at an information disadvantage.

46:16The owner of the business has run the damn thing for 10 years plus, process and they've run it largely in here. It's not written down. It's not processized. And so no matter what, they know more than you. And so you have to negotiate to a level where you go. The thing is, you know way more than me. I'd like to believe that everything you say is true, but I don't know. And so because I don't know, I have to do the deal differently. You have to give me more cash in seller financing, or I have to have holdbacks. So you say that you do 300K. I think you only do 100K, but I'll pay you your amount if it shows that we do 300K.

46:48And so debt is really, really risky. And the other thing that's risky in the business is time. It gets straightforward, money and time, just like everything else, right? And so if you take over a business and you don't have in your contract that people need to stay on board, otherwise X happens, or the operator has to save for a certain amount of time, otherwise you pay less money for it, then that can certainly be an issue. And so like, like walk through your process. So where do you, where do you first find the business? Are you like scouring the websites? Like, uh, you know, like I was just looking at one of the websites you recommend biz buy sell.com.

47:28Uh, do you like just scour those for looking for good solid businesses or what, what's the start? I typically don't do on market deals like that. So the way that I like to buy businesses is a couple things that are easy. There's so many ways to do this, but let's just take like a super easy way. One, I think is your personal P &L review. So like, what do you already spend money on where you could get to the owner that you might be interested in buying that business? And can you start a conversation? So that for somebody listening could be as easy as, oh, I pay my cleaning lady by Venmo every week, or I pay my landscaper by Venmo every single week.

48:06I know they're the owner of it. I wonder if I started talking about how much money they make and is it a business or is it just a job? Could I buy something really tiny like that? And then the next level would be, you do the same thing for your credit card. Like what else do I spend on that I don't realize that I could get to the owner? And then the third level from that is usually every time, like if you were with me, it would probably annoy you at some point. Every time I go into a small business, anywhere, it's kind of like, it's just a habit now, but I'm always like, oh, this is so great. Are you the owner?

48:39Who's the owner of this place? Like, tell me your story. me what's going on and so everywhere I am I kind of can't help it and so you should try this sometime if you're ever in a group of owners ask a group of owners raise your hand if you own a business they'll raise their hand and then go okay keep your hand raised if you um would sell your business at the right price in the right terms and what do you think the answer is like everybody's like yeah for sure hand still up um and so business is painful and so a lot of these business owners have been doing it for 10, 15, 20 years, and they're just ready to sell.

49:13So everywhere I go. And really important that most people don't know this statistic, but something like 70 % of businesses don't sell when the owners are done. They just shut down. It's wild. I've really tried hard to find a statistic that I felt super comfortable with, but I think you're right. I think it is something like 50 to 70 % of businesses just shut down. And that's like my little story about one of the reasons I even started doing this is because my Uncle Eb. I mean, you can look it up, Eb Holmes Plumbing, and he had this company for decades. And when he got cancer and he started getting sick, the company did millions of dollars in revenue, five to$6 million in revenue, probably one to$3 million in profit.

49:56And he shut the business down. He had no idea he had a sellable asset. It actually cost him money to shut the business down as opposed to being able to sell for millions, which would have set his wife up for life. And so it happens all the time. Yeah. So it makes it easy to begin the negotiation when their alternative is zero. Yeah, 100%. I mean, let's say you didn't, you know, you said the guy who runs your podcast, is his name Jay? Yeah. Okay. So let's say like how I bought that first podcast production company is I was on a podcast like this with somebody listening to one of our portfolio companies and I knew the guy.

50:32And so I was like, hey man, you run this company? What is this? you have a podcast production company. That's cool. Like how much money does that make? And oddly people answer that question like all the time, especially if you go first, like, oh yeah, like I run a small business, you know, we do less than a million dollars in revenue, but it's really interesting, sometimes hard, sometimes not. And then you ask them, they'll tell you. And he was like, yeah, but I, I hate sales and marketing. I hate, I'm so good at production and running this, but I hate selling it. And I was like, I would hate running it, but I like selling things.

51:01And so that was how I got that first deal. And I think particularly if you have, again, a built-in client base. So you have, you have two built-in client bases. You have the, or three, you have companies that you own, you have companies that you're invested in, and you have your, your newsletter audience. Right. So you're able to, I should probably do this more with my newsletters. Like it is a good idea. Jay, you could probably start your own podcast production company. Yeah. There you go, Jay. And give James half of it. Jay's so greedy. He won't give me even 1 % of it. I will give you 0.5%. Thank you, Jay.

51:37I would appreciate that. You'd have to be meaner, James, and negotiate for more. I'm too nice. I'm like, Jay, do this. Spend less time on my podcast and make a ton of money and don't give me any of it. Yeah, that's not good. I don't like that for you. But I do think that there's so many ways people could do this continuously. And in fact, I hope they do. Because the funny part is all the big boys do it. So they end up buying all the little things and aggregating them. And I don't think the process is that different for those of us that could do it one-on-one. No, I always think the best and safest business model to get wealthy is the roll-up strategy.

52:17The idea of picking an industry that's already profitable and just buying up as many things as possible without screwing it up somehow. And then flipping it, just taking advantage of that bigger multiple as you grow and flipping it. Like there are so many private equity funds that have made billions this way, as opposed to taking like massive risk in VC style investments, which is very, very difficult. And like you say, you don't know for like eight to sometimes 15 years whether it's going to pay off or not. And it's very, it could be a very lucrative way to make money, but it's much more difficult and you have to wait a lot longer to see before you see cashflow.

52:54Yeah. And I was never like an idea machine like you. So I was kind of like, I worked in corporate. I worked in finance for a long time. I never had something that I thought this thing needs to exist in the world. And I was too big of a wuss to do it. I liked my paycheck. I didn't want to sleep on a couch. I wanted a nice house. Like, I just didn't have that risk thing in me. And my parents, you know, immigrants, they're like, who are you talking about? Leave Goldman? You're an idiot. And so I like this. What were you doing for Goldman? Well, when I left Goldman, I was working on PEP. I don't remember if you remember that, the private equity product that they had.

53:31And I was trying to figure out, that was 2009. And I was a little peon. I was an analyst at the time. And I was trying to figure out, what do I want to do? There's no deals happening because Goldman's, we're getting trials every single day. That was when they were going to testify before Congress. and I was trying to figure out, well, what do I want to do? Do I want to go and do I want to build out and go be more of this private equity side? Do I want to stay in investment banking? Do I want to go into the asset management division? Do I want to go into institutional sales? And so eventually I only ended up staying at Goldman for two years, just shy, because one, it's just a hard place to work for sure.

54:14So I was a little bit over that after a while. And two, I was worried the firm, you know, wasn't going to make it. And they were, they're cutting off everybody. I mean, I think they, they fire 20 % every year, but that year they accelerated all. So a bunch of my colleagues got, you know, fired with the boxes and security sort of real time. And, and, you know, all this sort of brings into question, like what should one do with one's life? Like everybody thinks, Oh, I want to, I love baseball. So I should do something with baseball or, you know, and make a living with it. I should pursue my passion and monetize it, but you could be passionate about rolling up boring businesses, making them successful.

54:51You don't have to operate the laundromat. Like you say, you can find operators or people to help you with that. And so you can really kind of focus on the parts of business that are enjoyable. And it doesn't have to, not every, you don't have to check the box on, oh yeah, I love laundromats. I love finding the right detergent for things. And like, it doesn't have to satisfy every, not all that has to be joyful. No, but I mean, I don't know how you feel about this, but I think every business is the same. Every business is a widget business at the end of the day. You have marketing and sales, you have finance, you have operations, you have product, you have customer service.

55:34And so every business has these five components to it. And so a laundromat is actually not that dissimilar from a media business. It's just they have a different widget that they sell. And so if you like the game of business, which is really just problem solving in a way that makes you more money and hopefully gives you a better reputation and helps the people that you serve, then I don't think it actually matters. If you like the game of business, who cares? I have just as much fun running some of our super boring businesses. In fact, I have way more fun running our boring businesses than I do our SaaS companies.

56:04The SaaS companies are like, for me, because you can't really see what's happening because I'm not a backend engineer. until they get there. I'm not smart enough to understand all the intricacies of that business. I can't really get my fingers in it. But I can see what we do with the laundromat. I can see the changes that we make if we buy an RV park. Also, the SaaS business, you're taking a risk on product market fit. So you might buy this thing that people just don't want. And then you're screwed. Now, you might say they want it because your businesses want it. So that's That's a good indicator, but you just don't know if it's like a hundred million dollar business or a nothing business.

56:41Yeah, I agree. Well, plus, you know, I've met so many billionaires by now just from being on the internet. It's like a weird thing that I never would have thought of as a kid. And man, not very many of them are very happy or what I want to change places with them. And a lot of them got there from SaaS companies, the ones that I've met or from doing these giant, huge transactions. I don't know. I like money. I want more of it. I'll play the game of seeing what it feels like to get to a billion dollars. But I think most of us actually just want businesses that we can have some ownership in and that we can actually see and touch and feel in some way and have some measure of success.

57:19So I've always associated with that a little bit more. Well, I think they look at the kind of three components of what makes up well-being. I mean, this is from in the field to positive psychology. And one of those components is freedom. And so if you think about it, money doesn't necessarily get you freedom. Like you could have a billion dollars and still be trapped in a loveless marriage or buy all these big houses and jets. So you're still in debt and your businesses are always on the brink of losing money because of the debt, even though they're worth over a billion. So, or you could have all these cashflow, positive businesses, live in a nice place, go on vacations, not have to operate as much as you thought you were going to have to.

58:03And that's freedom. Yeah. Yeah. I totally agree. Yeah. And then you get to build from a place of simplicity. I also think, you know, in life, everything just becomes more and more and more complex. And one of the joys in life to me has been making things slightly more simple. And so I really, if somebody says like, oh, this is like some patent pending technology, we have intellectual property. I'm like, the thing is I'm not your lady, you know, find somebody else for that. Uh, I want it to be so easy. I can explain it to my grandmother. And if it's not that, then there's already enough risk in business and execution and humans.

58:37And so I'd rather take the risk on that than, um, innovation risk. I'm glad other people take innovation risk though. Although the media business is interesting because it's somewhere in between like a boring business and a too risky like software business. So the media business, you could be profitable right away. It's just every news, you start your newsletter or a course or whatever. And if it sells, you're making money right away. And there's something extra about it, which is that you're building this personal connection with your readership or your listeners. And I find that to be very pleasurable.

59:14Like that, so another component of wellbeing is community. And it builds this community of like-minded people. They subscribe to what you believe in and they're willing to communicate about that and talk about that and you learn from them and they learn from you. And that's a very pleasurable thing as well, I think. Yeah, well, when I was in finance, I looked around at the other MDs and partners and their lives and I could not see myself in any of them. I wanted no part of five to seven divorces, multiple fast cars, nights out at Tao. It just was not interesting to me. And then when I look at the people that I work with now in the media and the people we get to serve in media.

59:54It's just for my ego, at least it's more satisfying. It's really cool. I'm sure it's the same for you. You get these emails from people that tell you how amazing you are that you did this and this and you changed their lives. Let me tell you, your LPs never tell you that you changed their lives. I will tell you one time when I was running a fund of hedge funds for several years. And one time I was up 13 months in a row and I never heard from anybody, which was great. I didn't expect to hear from anybody, but 13 months in a row, I was, I had positive returns. And then one month, the 14th month, I had a negative month.

1:00:31I got a call from every single one of my investors. Like what is going on? You know, is, is this, are you a fraud? Is, uh, is, is the market collapsing? Uh, I could have told you that this was going to be negative this month. Like why you should have like listened to, you should have called me and i was down a half a percent that month so and i got a call from everybody so that's actually the month i decided to unwind things and shut that particular fund down because it was just so obviously like not a friendly business but you're right like i love when something i produce like helps help somebody like people always say to me like well i started writing about stocks in 2002 and people would say well why are you writing about this why don't you just do it.

1:01:14And I was, I was doing it also, but, but I just loved writing about it. And I was making money from the writing and it was a good diversification for me at the time. And I was building that skillset and, and I was meeting people. I built a community around it. Like a lot of my friends now are from that, that period. Yeah. Well, I think you probably know this already, but like for a moment, for a lot of us in finance, um, it was super looked down upon to even ever talk publicly about what you were doing. And I remember when you were writing that stuff originally, I was still in finance at the time.

1:01:46And, you know, like, I think we had to, we had to run our tweets and LinkedIn posts past compliance, you know, like we couldn't post anything anywhere. And this idea that we would share our homework was so frowned upon. And people kind of thought, Oh, God, if you talk about it publicly, you must not be very good at doing it. And so I internalized that. And then at some point, I got over it. But it took a long time for me to think, no, it's okay to tell other people about the secrets that we kind of learned in finance or the practices we have, or however you want to say it. And I need to do a math model on this.

1:02:24But you're smarter than I am at this, so you can do this quickly. I get it. I doubt that. I'm going to stop you right there because you've already used words like de minimis, which I have to look up later. So I don't necessarily think I'm smarter than you. Okay. Well, you'll have to teach me chess later. I'm incompetent. So when I look at the returns that you could make, how much more money would you make if you were taking 2 % and 20 % of the things that you did? Or if I was taking 2 % and 20 % of all of the people that I raised money for to buy the boring businesses, as opposed to if I teach some people or talk to some people about how to buy boring businesses.

1:03:06Well, if I teach some people how to do it, I don't know, max, I could probably get them to pay as like$10 ,000 a year, which maybe is a lot. But if they then go and execute on that business and they make$100 ,000,$1 million,$10 million, I would actually much rather monetarily have the two and 20 on the ROI. And they would much rather learn it and keep all of that, then on the fund model, average return in private equity is 8 % to 10 % per year would be great. And maybe you could have some funds that are averaging 15 % to 20%. That fund model is going to make you, the GP, the fund manager, rich, but it's never going to make the investor rich.

1:03:43You already have to have money and it just grows your pot. And so I never understood that. I think for me, that was the hard part about raising money for funds is because when you're raising money for a company, you can say, look, I'm raising money at a$3 million valuation, but eventually this is going to be worth, this could be worth a billion dollars. So that's an easier sell than, oh, I'm raising money for a hedge fund. I think I'll do better than the average hedge fund. So the average hedge fund does seven or 8 % a year. Maybe I'll do 9 % a year. No one's getting excited about that. I can never really figure out how people raise like billions of dollars in a hedge fund.

1:04:18And then you look at the big hedge funds, what do they own? They own Microsoft, Amazon, Exxon. And then they're charging$2.20 on something that everybody could just do by themselves. I just think it's a whole scam industry. Yeah. Every time I look at the K-1s, I always get a little chuckle. And I also think as investing, so much of the world, pre-COVID, now I'm going to sound like a conspiracy theorist, but pre the pandemic, I sort of believed everything everywhere, I think. And then when that all started going sideways, I started looking at things differently. And that was right about the time that I started talking about stuff online because I thought, well, this is ridiculous.

1:04:57I could make all the money and make generational wealth, or we could talk to other people about it. I could have more fun. They could make the money. And then I don't have to have a bunch of LPs again. That'd be kind of fun. And then I realized, oh, no, of course, Wall Street isn't incentivized to do that because they want you to keep making$2.20. plus they don't want to teach you ways to do seller financing because the bank wants to get the interest rate. They don't want you, the seller, to get the interest rate. And they want to be the middleman. Plus they want to IPO you eventually. And then the same thing, I mean, everywhere you look at institutions, you can just get disenfranchised really easily.

1:05:29Yeah. Look at, look at the typical bank, right? They want to manage all your money and put, there's the whole model like for conservative investing, put 60 % in stocks, 40 % in bonds. That means a hundred, that means they get to manage 100 of your money and take a fee on it as opposed to like a smarter way to invest in stocks is keep 80 in cash and for for stocks that you think could go up 10x 20x put one percent of your portfolio each in that and then you'll you'll probably do much better than putting 60 in stock eight 40 in bonds being subject to the winds of the market every year and paying a huge amount in fees to the bank.

1:06:08But of course, that's what the banks want you to do. They make transaction fees. They make fees on how much money you have with them. It's just insane. You have to basically shut down all the institutions to kind of think independently. You really do. And even then they want to actually go use your money to do the thing that you should be doing, which is let me go lend to small businesses because I'll take a percentage of that revenue. And oh, by the way, I'll also take that capital and I'll invest in pooled securities that'll go and buy the small businesses. And so, yeah, I got really disenfranchised with the whole model.

1:06:39I mean, not to mention when you go deeper, you're like, fuck. So the average employee gets an increase of 3 % to 5 % per year if they're lucky. Let's say you're exceptional. You get 8 % to 10 % per year. Okay. But you have the highest tax bracket with no ability for deductions as a W-2 employee unless you have outside activities. And then you compare that to like, well, maybe I go and I put my money in funds. Okay, you're going to make 8 % to, if we're really being generous, 20 % per year. Or what if instead you just bet on yourself? And your whole book was about that. It's like, why don't you instead invest some money?

1:07:11Maybe you keep 80 % of it in cash. And then 20%, go buy a business, go build a business, and bet on yourself with that cash instead. Exactly. So let's use one of your courses as an example. What's the course called that teaches you how to buy a business? It's called Contrarian Thinking. So, okay. So how much does that course cost? costs, uh,$2 ,000. So you could basically invest$2 ,000 in yourself by taking this course and then try to buy one business for$50 ,000, which has, let's say$40 ,000 in cashflow. You run that for a couple of years. You're going to make much more than the$2 ,000 you invest.

1:07:52You can make hundreds of percent more, you know, in a, in a kind of a worst case scenario, you're gonna make hundreds of percent more than you invested. And why not invest in yourself? So there's a time aspect, but not as much time as you think, once you get used to doing things like that. And once you get used to invest, like if you buy a camera for a thousand dollars and have one friend with a wedding who wants you to shoot the photos, you just made a hundred percent on your money. So again, it's, it's, if you could properly invest in yourself and understand that, you know, how to do it. So it doesn't take as much time as you think it's going to be much more successful.

1:08:26I keep trying to tell my kids this, but they don't understand the concept yet. So they become waitresses and other things that they're just working by the hour and it's brutal. And I keep telling them there's so many other ways to do it. I think they just don't kind of hear it from me yet. And I'm not very pushy about it. Like I say, look, whenever you want to hear about it, now I just direct them to other things. So like I direct them to your newsletter where they can maybe see someone like them who does it and they can learn from that. Yeah. Yeah. I mean, I think especially for kids that age, what they should be doing, they should definitely go and bet on themselves because the worst thing that's going to happen, as long as you make sure that you use debt carefully.

1:09:06Debt is like the only thing that is the asterisk to buy in anything, which is just you have to be careful how you finance it. But as long as you make sure that you're careful with that asterisk, what's the worst that's going to happen? You're going to go, you're going to buy something, you're going to do it intelligently, you're going to learn a shit ton, and it might take up more time and energy and it might not work. But by the end of that transaction, I can pretty much guarantee that you're going to walk away a totally different person. And I certainly did. Those first two businesses that I had that didn't work out, then I knew how to do deals.

1:09:38And that ability to do deals has taxed what I ever would have made if I just kept doing it for other people. It's very valuable. To use the phrase, the art of the deal is very difficult. And it takes a couple to understand the language of doing a deal. And I don't mean like the vocabulary of it, but just kind of like the flow and rhythm of a deal and the psychology of it. Like all these things come into play. You have to be a better version of yourself to get better at deal-making. Yeah. You know, and it's interesting because then, like take your newsletter. So the great thing about, like I said, you have to become a better version of yourself.

1:10:16You're able to then now contribute what that means. Like you have an article about, or a newsletter issue about, you know, 12 steps to a good marriage. Cause obviously when, when two people are living like alternative lifestyle, you're buying businesses, you're, you have to work really hard. You have to, you know, do all these things, you know, just every marriage in general has its complexity, but then a more offbeat kind of lifestyle leads to a more offbeat kind of marriage. You're going to have issues and understand. And, and now you're not just the business person that nobody knows about. you have a newsletter with a community where you're able to express this is what i've learned from the ups and the downs from the failures and and by the way you have a very good way a very good style like in that article you mentioned how first you got a divorce from somebody and broke their heart and it was very difficult for you and your mom's crying and so it's a good way to begin it every you draw everybody in and then you give very good advice on you know your how your current marriage, you know, stays afloat even during tough times.

1:11:19Like I, I really like those ideas. I like the idea of like, if you're watching TV together, sit next to each other and touch each other. Even if you're just watching TV, it's very good advice. Most couples don't do that. And, and, you know, you have your whole team acronym. Um, what's, what's the E again, but what are the, what's, what's the whole acronym? Yeah. So team actually, I stole it from my therapist, so I can't take full credit for it, but by the way, half my newsletters, I steal from therapy. So don't give your therapist credit. Like she's never going to read your newsletter. So you're okay.

1:11:49That's true. And I do pay her, but, um, it is, so it's a touch. So at the end of the day, basically team is this, uh, the idea is I fucked up a marriage before takes two to tango, but it didn't work out. It was super painful. It's really expensive. I don't want to do it again. And I think like people should be more honest about that. I'm not saying I'm some sort of therapy rockstar. I'm not, this just works for us, but, um, which starts with touch. So basically at the end of every day, we get together, my husband and I, for a few minutes. Maybe we have a glass of wine or whatever. We hang out.

1:12:18Maybe we're holding hands or I'm kind of sitting next to him. And that's important because you got to remember you're not roommates. And then second is E for education, which means instead of just going, how's your day, honey? Great. How's yours? Okay, cool. You're like, what's one interesting thing that I learned today? And we actually think about it. So it'd be like, huh, you know, James told me this today. And isn't that interesting? And we would share. And then it's appreciation. So even if I'm super mad at him, I might be like, I really appreciate that you took out the trash today. You can't repeat appreciation because then it becomes meaningless.

1:12:49You have to keep coming up with new ones. But one thing you appreciate about the other person. And then lastly is metrics. So we try, and I'm not saying we do this all the time, but we try to not do those little nags throughout the day. Like, God, your coffee cup, you're this, you're that, you're whatever. If it's not catastrophic, then we write it down or save it for later. And at the end of the day, we go, it really is kind of bothering me that lately you leave your underwear everywhere. And when you're not aggravated and heightened by it and when you're not getting nagged all day, it's just easier.

1:13:22Then at that point, by the end of the day, you're like, you know what? That is kind of annoying. Okay, cool. I'll work on that. And so that's team. And we try to do that at least, I would say we're pretty good at doing it about 60 % of the time. And see, not only is that great advice, but it's great that you have found a vehicle to express it and readers who will listen to it. Like that's really the benefit of the media business. You've built this expertise on business, but now you're able to basically share your life with people who want to hear about it. They don't want to just hear about, okay, I want to buy the, which laundromats today should I buy?

1:13:56They want to hear about Cody Sanchez. And that's the reason to build a newsletter business is to take all of your skills and all the things you're learning. And because it's all linked, you can't, you can't run a successful business unless other areas of your life are performing as best as they can. So, and that's not always true. Like with, with every business, I'm sure there's like billionaires out there who treat everyone like shit and, and somehow succeeded. but in general, like the easiest way to success is if all parts of your life are humming along smoothly. And you're able to express that with the media business.

1:14:29I'm sure you, that's the one thing you'll probably do the longest is my guess, is, you know, your contrarian thinking and the newsletter and the courses and so on. Cause you get real other benefits from that other than just the money. A hundred percent. Well, also I think in this world today, attention is our most precious commodity. And the weird part about attention, I was talking to my hairstylist the other day about this. And I was saying, gosh, it's so bizarre how styles come and go. We're talking about plastic surgeon or whatever. And I thought about it. I don't have a problem with the Kardashians.

1:15:07I actually think that from a business perspective, they're genius. And there's so much I would want to learn from that. From an ethical and moral standpoint, I happen to have a different set of things that are important to me, not better or worse, just my own version. But think about the trickle-down effects of their attention. So their trickle-down effects are so intense that when a member of that family gets a certain type of surgery, or in this specific instance, when they go from being bigger and curvier and Brazilian butt lifts to now super skinny ozempic, what does society do? Well, a bunch of the other people right underneath them go and kind of follow their homework.

1:15:43And so then society actually starts changing the way they look because of one person's ability to capture our attention. And so once I started seeing that, I thought, one, the universe hates a vacuum. So it's good there are people like you in this world that are creating content that, in my opinion, is maybe more morally useful or ethically useful for a cohesive society. And then two, if you are a business person and you see that, you go, wow, you can't even measure actually what the impact you could have from a business perspective of attention in the way that we used to measure PPC with ads.

1:16:18And so I think you're right. That's interesting. You know, I haven't been writing as much lately as I used to. I used to write like every single day and now it's much less frequently, but I've been thinking of scaling that up again. So we'll see. Maybe you just convinced me. You should. Do you still do your 10 daily ideas? I want a James Altucher idea notepad. That I always do. Now you need one on boring businesses. Which ones are you going to buy for your ecosystem? I've done the boring business list before actually several times. Particularly when I was looking into the laundromats and campgrounds and things like that.

1:16:56Would you do a restaurant? I'm a little bit of – the answer is no. I hate restaurants. I don't think that those are good businesses just from a numerical standpoint. They fail a lot. They have spoilage. They're hard to run. They have, in my belief, one of the hardest employee bases to manage. That said, I do own a percentage of a couple restaurants. So I'm a hypocrite. But they're not my favorite business, and I would not do it as a brand new business for sure. I think also probably the multiples are too high because they're a little bit more fashionable than a laundromat. Right. Well, and the build-out costs.

1:17:35Like I invest in this – it's a restaurant here called The Well that I own part of. And the build-out costs for that location, like that's a million-dollar build-out. And then the problem with it is they're kind of like hotels. Like every, what, three to seven years, you've got to redo the whole thing. I don't have to redo my whole car wash in three to seven years. That would be crazy. And so it's just a level to operations that I don't want because I'm not the world's best operator. If I was, who's the guy that owns like Shake Shack and all that? Danny Meyer. If I was Danny, yeah, go into restaurants because he's an animal out of me.

1:18:05So good. But you and I are probably better at investing and media there. I think it's hard to compete with me. I'm pretty good at both of those things, but definitely not operating. Yeah, I am. I have never been able to operate. The first thing I've ever done in any business that I've either bought or started is find someone to run it. Right. Yeah, me too. Because I don't really like returning phone calls. And you need to be able to do that in order to operate a business. It's true. Do you still do that thing where you don't respond to emails? Yeah, I don't. But then you either have to respond to emails right away or you have to respond to emails a really long time in the future.

1:18:44Because then people forget that they were upset at you for not responding. and then it's like such a pleasure then they have to hear from you like, oh my gosh, it's been so long. So that's, so my biggest technique is I respond on average like seven years later. So, cause then, and I'll respond as if they wrote to me yesterday. So I'll like, sure, let's have lunch. And then they usually get a kick out of that and they respond and the relationship starts fresh again. I actually got a look at when we first DMed on Twitter because I feel like that might have, it wasn't seven years because I've been doing this long enough, but I got to go see if I have a famous James seven-year response.

1:19:25But I kind of like it because I don't, honestly, I'm not, it's not that I'm a jerk. If I get distracted enough to respond to all the emails and text messages, I will get nothing done. I'm not capable of responding to everything well. Yeah. And if you feel obligated to respond, you just feel bad about yourself at the end of every day. So I do feel bad that I don't respond to people, but I've kind of just built it into my personal ecosystem that it's going to be fine. I'm going to respond later at some point and it'll be all good. Like I'm going through a situation now where I didn't respond to some guy for a long time and I could tell he got upset and I just, I felt bad about it, but I just didn't want to respond while he was upset at me.

1:20:07So I waited and now it's all good. So now I responded and it's all great. He's like my best friend now. So Cody Sanchez, where can people subscribe to your stuff? This is so great. I hope you come on the podcast again, but where can people find you? Contrarianthinking.co is where all of our free newsletters, we have two, one on boring businesses, one on just money and financial freedom in general. And then any of our courses and stuff is in there. And then I'm Cody Sanchez and all the interwebs. Plenty of free stuff and all of dabble their toes. But this is a blast. Yeah. I love your tweets. People should definitely follow you on Twitter.

1:20:45People should definitely follow your newsletter and on and on. So yeah, thanks again, Cody. I really appreciate it. I've been following your stuff for a long time, and I'm so glad we had a chance to do this. I'm so glad I responded to you. Well, I've been a fan for years. I'm glad you were one of the first people in finance to break out from not just doing, but also teaching. So thank you for that. Thank you.

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