Codie Sanchez: The Business Model Quietly Creating Millionaires | Entrepreneurship | YAPClassic

21:22And that is how you are able to pass off your work over time.

21:26Hala Taha:Talk to us about how these businesses are overlooked and why they're such steady, reliable businesses. Yeah. I think a lot of reasons why these businesses are overlooked is really three things. Main Street businesses have a societal belief that they are less than. We call them blue collar, not white collar, right? They're not shiny. They are something that is done by people who don't have university degrees and somehow that's a bad thing. So we have a societal sheen on them. The second reason people don't love these businesses is because we've been told, well, these people don't make very much money and these businesses don't make very much money.

22:03If I'm going to be a banker or an accountant or an attorney, I'm going to make more. Well, that turns out not to be true over time. And then the third reason is because these businesses don't have what's called a moat. So there's probably, I don't know, a couple thousand handyman companies, maybe 10 ,000 handyman companies in Texas. There's like one Facebook, right? And so we thought you had to have this new, sexy, innovative business in order to make money. You don't. In fact, it'd be much easier to compete with your local handyman company than Mark Zuckerberg, who's an animal. And so those three reasons kept us away from Main Street businesses.

22:40The other thing that's interesting about Main Street businesses is most of them are recession resistant. So you're going to use a landscaping company if you need to have your driveway shoveled during the winter no matter what. Most of these small businesses have some version of subscription revenue, the thing that SaaS companies, tech companies love. And most of these businesses are pretty simple to understand. Now, I don't want to idealize this. I'm not saying this is like a fast, easy, 30-day-to-million type thing. It's not. But these businesses have been overlooked, and anytime that happens, there's money to be made.

23:17Hala Taha:Can you talk to us about the Lindy effect and why it matters? I love it. You have read the book. You're going to own a bunch of these things by the end of it. So the Lindy effect is really important. So it's very simple, and I think the best ways to make money are super simple. If you want to make more money, you should look at how long a business has existed. The Lindy effect says the longer a business has been in existence, the higher likelihood it will have to continue to be in business. So essentially, the opposite of what I thought was true. It was like, this thing's been around for 30 years.

23:51Oh, it must be old, outdated, not work. But in fact, it has a higher likelihood of continuing to succeed as opposed to a brand new startup, much riskier, much higher likelihood to fail. And so if you look at businesses that have survived for over five to seven years, you have taken away anywhere from 50 to 60 percent failure rate. That means you're left with only 44 percent. What if I could tell you today you could start a startup and I could decrease your risk of failure by 50 percent? You'd be like, that's cool. Yeah, let's do that. Well, that's what you can do with these boring businesses that have existed for a long time.

24:25Yeah.

24:26Hala Taha:Is there a certain like personality type or level in which we should be before we should actually go and try to seek out a boring business? That's a great question. So the question usually comes to me like, when am I ready to buy a business? How would I know? And my question back to you would be one, one skill set that I have never regretted that I wish I had learned earlier was deal making because it will forever change how you make money. Even if you never buy a business outright, if you understand terms, structuring, deal-making, and how the world of money works, you will have a hard time being poor.

25:02And so because of that, I like to teach people business buying before they even think they're ready for it. So for instance, I gave my cousin this book, who's 16, and he's reading through it and he's figuring out ways to do deals right now. And the way that I think you know you're ready is basically this. If you are in business right now, is a no-brainer. If you look at the biggest companies in the world, they grow through acquisitions. Amazon, Facebook, they've done, both of them have done over 200 transactions. They grow faster through acquisitions than they do organically, customer by customer.

25:36So if you own a business today, you need to understand how to do dealmaking. It's how you will be harder to compete with. You can acquire 100 customers at a time, while most people are acquiring one at a time. Total game changer. If you don't have a business yet, what I'd like to do is turn on what I call your reticular activating system of business buying. So your reticular activating system is what gets turned on when your brain tells you that something is important. And so when you go and buy a car, for instance, like a Porsche, let's say, you go and buy a Porsche and before you bought the Porsche, you're like, I don't see these things anywhere.

26:14After what you buy the Porsche? You're like, fuck, everybody has a Porsche. In Austin, Texas, what happened? Nothing happened. Your brain just started getting a signal to it saying that this is important, and so you started noticing it. Right now, we're walking around sort of in the matrix, not realizing that all around us are deals, potential deals. And what I want to do is turn on your brain so you start seeing them. And what this might mean is, if you work for a small business, you might not even realize that the owner is ready to retire, and if you positioned yourself correctly, you could take over that business using seller financing.

26:46Hala Taha:If you're a solo content creator online, you might not realize that the thousand dollars they want to pay you to promote XYZ product, you should actually negotiate a deal instead to get future distributions and a percentage of the company. Deals are all around you. We just want you to turn it on. I love that. So I know that it's a lot of hard work to have a boring business, But I think people have the misconception that it's like passive income, like, oh, I'm going to buy a bunch of vending machines, plop them in stores, and passive income. Why is that not really the case? Yeah. I was joking with one of my favorite CEOs that I used to work for back in the day.

27:28He runs a company that does, I don't know,$300 billion in annual sales. It's a huge company. And when I was talking to him, he was pretty funny. I was like, Jim, I'm curious. he's older so he's probably in his mid-70s and I was like you've been around for a long time you've been an investor all your life you own all these companies you ever met any passive income and he was like sure haven't but I'm open to it that the way you get passive income is years of active work and I think we need to be honest about that with each other now that said there's a lot of people that want to tell you two things.

28:07Either one, you can't, it's not possible for you, stay in your lane. It's much easier to be a hater than a hope giver. And then the second group wants to tell you, hey, it's super easy. Anybody can do it. Look at my Lambo, look at my private plane, look at my Gucci. And because of that, I'm really successful. You can be too, and they want to sell you something. I think the truth is somewhere in the middle. And in fact, with small businesses, I think you should expect for the first year, you got a lot to learn, man. It's a hard, it is not complicated, but it is hard. It's not easy, but it is simple.

28:46And I think when you realize, oh, running a laundromat is not complicated, but it's hard work. Running a vending machine business is actually harder than a laundromat business because you have these tiny little stores, right, machines that have very limited cap on how much they could make per month. Let's call it max. I mean, if you had a$5 ,000 a month producing a vending machine, that'd be incredible. So you have maxed this little$5 ,000 machine, and then you got to figure out the logistics to go back and forth to all of them to accumulate eventually to a business that does, let's say, a million dollars a year.

29:20It's actually pretty, it's a lot of work. And so I don't like to talk about passive income. I like to talk about horizontal income, which basically means where can you layer your income like a cake so that in any given time, your day is split between a few activities, mostly oversight as opposed to execution. So in my businesses, I run a big portfolio at Main Street Holding Company. You can see a bunch of the businesses we own there. And part of my day is spent with like this company up here, which is Pink's. So I'm talking to the CEO, Steven, and I'm saying, hey, you know, how is the cash flow looking?

29:59What's going on? I'm actually doing nothing in the business, but I'm at least thinking about it. So I like to be honest about that.

30:05Hala Taha:Yeah. It's not going to be easy, guys, but it could be very lucrative. Okay. So let's talk about prep before we buy these businesses. We talked about what do we need to get started. In your book, you have four levels. So I thought we could do something fun, quick fire style. Well, I will list the level. I'll say level one, level two. And then you tell us like, what is this level about? Who's it for? What are some examples of the businesses that we should be looking for? What should we expect at this level? And this is an entrepreneurship show. So we really have people who are want to be entrepreneurs.

30:36Hala Taha:We've got people who have $50 million businesses listening in. So we've got lots of different people on the show. So I thought this would be fun. Level one, solo venture. So a good level one business might be something like a vending machine. These are what I call people light businesses. So it might be something where you could be the owner operator of the business. The business is probably not making eight figures. You're talking about businesses that are, you know, one to three million and less. These businesses on average are what I call gateway drug style businesses. So like you can dip your toes into your first small car wash deal, your first small laundromat, your first vending machine, your first podcast production company.

31:19But you're probably not going to get independently wealthy working on these businesses. You are in it. It will require some work, but it doesn't require as much cash. What was your first level one business? Well, my very first one was a website called Selling South back in the day. And I tried a game that I was really bad at, which is I think we made money on ads and affiliates back then. It was really hard. And I didn't make very much money at all, but it was a good entry drug business. And then I had a vending machine, or I'm sorry, a laundromat business, which I would put in this category too in the beginning.

31:55And then I also had a consulting business, which was right on the edge of a level one, level two. Okay. Moving on to level two, hands-on CEO. Oh. So this business is one where you're going to potentially have an operator right along with you. You might have somebody who's actually in the business. My first business, I had a GM in the laundromat. So he's the one actually running some of the laundromat specifics. I invest in it. I track things overall. I'm still involved in the business, but I have a little help. These businesses are slightly bigger in size. There's also a slight bigger complexity here.

32:31This could be things like multiple laundromats, let's say, for instance. This could be things like having a media company. Well, we have now. I would say most media companies fall into this category. They never get to like a huge daily wire allowance. These businesses also, on average, still have most of your time dedicated to this business and are going to have some employees but not a ton.

32:55Hala Taha:Okay. Level three, and this is like, it gets harder and harder, right? Or like less likely that you fit in the level as we go along. So level three is on-deck operator. So this means you got an operator that's rocking and rolling in this business. You are in oversight mode. You basically get to do what I do, which is Financial Fridays. You're reviewing what's going on. You have an operator who probably knows more than you do about the business. You've got employees underneath that operator. This business is doing millions of dollars in revenue. And that means, alternatively, you could be doing a million plus in profit.

33:28And this is a business where you could have almost any type of business. Imaginal could be in this amount. So you could have a small furniture store. You could also have a roofing or an HVAC company in this amount. These start to get to the level where you're starting to do roll-ups in your business.

33:45Hala Taha:And so the idea is that you're actually not the operator of this business. You just invested in this business. That's right. Okay. And the way that we think about these levels is mainly, does the revenue support the employees and infrastructure that allow you to work on the business as opposed to in the business? So the first two, not as much. The third one, you start to get into it. And I'm going to dig deeper on that in a second. Level four, market leader. So this means we're a big business now. Not only do you have a CEO, but you probably have a C-suite staff. You've probably got a few other real pros in there running the business.

34:23Now we're talking about tens of employees plus. We're making real revenue and real profit in this business. And you're in a stage where you're either already at or getting to a spot where private equity might buy you, might compete with you. And these all are still in what I consider small and medium business. So this is still sort of micro PE below the level at which you're going to compete with what's called middle market in private equity.

34:52Hala Taha:So you have this framework. Now we know the levels. We know where we got to start. We're about to go look for our boring business. We need to have some sort of criteria to pick a smart move, right? We can't just go after any business that we find. You've got this acronym, S-O-W-S, SOWS. Is that how you say it, SOWS? Yeah, I'd say SOWS. Yep. SOWS. So stale, old, weak, simple. Can you explain and break that down? Yeah. So when we think about the, like, what is the right type of boring business to buy? Really depends on who you are. But if I was to give you a framework, it would be sales, which is when I look for businesses, I look for a business that is stale.

35:32That means that it's been around for a long time. That means that the business probably hasn't done much in the way of innovation. Might have something called the fax machine test, which is they have a fax machine still. That's crazy. Do they actually use that thing? They might take invoices on a piece of paper as opposed to putting it into QuickBooks. Then we get to the O, which is old. Has the business been around at least five to seven years? Is the Lindy effect in effect? Can this business be one that we think has a lower risk? Because the likelihood of future success is probably based on historical success.

36:08Then we have weak. This one I really like if there are competitors that are weak in this space, and also the business itself might be semi-weak. So can I compete with a bunch of handymen in Austin, Texas? Maybe, because I don't know the name of any of them. Can I compete with Dell Computers? Hard, right? Like, that is an entrenched business overall. I want to see sort of weak competition and weak execution by the company. And finally, I want a business that is simple. So I want a business overall that is not difficult to understand, that is straightforward, so easy your grandma could do it.

36:42Hala Taha:So this is so counterintuitive. You wouldn't think like, oh, I want a weak, stale business. I want it to be so simple. This seems so counterintuitive. So is the idea that you could come in and make small improvements and then make more money? Like, why do you want those things? Yeah, the fastest way to lose money in buying a business is to think that you know more than the owner of the business and to take on more complexity than you actually should. So I think about buying a business kind of like I think about maybe buying your first house to fix up and flip. Like you don't really want to buy a complete disaster on a street.

37:16Why? Well, you've never done a construction project before. And so I don't know about you, but I've never heard of a construction project that comes in under budget and faster than you think. And so what I really want for your first acquisition is the first acquisition to go so well that you go, oh, God, that business was like a little too small, a little too easy. We're going to build it up, then we're going to sell it, then we're going to do our next one because your first deal turned out so well. And so that's why I like really simple businesses for the first one. Business is complex enough, and we can layer on top of it great marketing.

37:49We can layer great advertising. We can layer a great team and culture. But we wanna make sure we don't bite off more than we can chew with our first acquisition. Unless you're a pro, in which case we teach some different things.

38:00Hala Taha:Yeah, I love that you made this analogy to buying a house. But actually buying a business can be a little bit cheaper upfront than buying a house because you don't have to lay out all this cash necessarily. You talk a lot about creative financing. Can you tell us more about some of the creative ways that we can actually buy a business? Yes. So one of the most beautiful parts about buying a business as opposed to buying a house is when you go and buy a house, they want to know how much money you make. And they want to know how much money you make so that they can determine how big of a house you can buy.

38:32When you go to buy a business, they, meaning the lenders or the bank, they want to know how much money the business makes. And if the business makes enough for you to be able to use the revenue and profits of the business to pay the loan back. Now, there's going to be some degree of them vetting you and making sure that you seem trustworthy. And you've got to put together a little pitch to show that you are capable of buying a business and getting a loan. But the fascinating part is it's not on your salary, it's on the business's income. And because of that, we have a unique opportunity to outkick our coverage by buying a business that would be more than we could actually afford if we were only to look at the amount of money we have or our salary.

39:11So that's one huge differential. The other is that we teach 21 ways in the book in order for you to buy a business using creative financing. But one of my favorites is seller financing. So you mentioned that, you know, 60 % of all businesses bought are bought with some aspect of seller financing. And if you understand seller financing, I don't think you'll ever buy anything the same way again, because what it basically teaches you is that you want to invest in businesses and buy them using some portion of the future revenue and earnings of a business. Now, this isn't to say you can run around saying, I'd like to buy your$5 million business owner for$0 down.

39:51How does that sound? You have to, just like anything in life, you have to treat a business transaction kind of like treating a dating transaction with a woman. You got to get her to trust you. You got to get her to believe that she's going to be better in your hands than anybody else. You got to get her to see that you actually care about this business and you are going to make sure it succeeds. And if you do that, then you can get really creative, unfair deals that somebody running around throwing out offers left and right isn't going to get.

40:19Hala Taha:And let's talk about the people that we're buying these businesses from. They are often, you know, about to enter retirement. They might be working in their old age. Why is it in their incentive to maybe take a seller financing opportunity? Yes. So we have this whole section where we show three different graphs on seller financing. And once I understood how to pitch seller financing properly so that it was a win-win, our ratio of people taking seller financing went up about 100%. And here's how I think about it. If I was going to a small business owner, here's the conversation that I would say.

40:56I would say, all right, small business owner, this is after you've gotten to know them, after they like you, after you really understand the business. You've done all of the, you know, the early stage of dating. You're not asking to take the girl home on like your first coffee date, right? So after you do that, you're going to have a conversation that sounds like this. Okay, Mr. Owner, you want$2 million for your business. You think that's what it's valued at, right? And you go, right. Okay, let me show you. When I took your business to the bank, based on what you showed me, the bank said they would give you about a mil, whatever the dollar amount is.

41:28Usually businesses are not worth what the owner thinks it is. So you want to introduce a third party saying, sorry, we're not going to pay you for that. So we say, okay, the bank says that it's worth a million instead of two. Well, that means that I could give you a million dollars, plus I got to pay like 8 % to the bank because there's an interest rate associated with it. Plus, I probably got to wait like 120 days for the loan to fully go through, maybe 90 at best. Plus, you're going to have a higher tax burden because they're going to lump sum pay you out right now, as opposed to over time. We can't get very creative with your taxes.

42:06You're going to pay more in taxes. Also, because we're going to go with this loan over time, I can't pay you any of the interest. I have to pay the interest to the bank. Now, that means that I can give you a million dollars plus these other negatives, or there's another way that we could do this through seller financing. Would you want to talk about how we could structure it that way?

42:27Hala Taha:And they'll probably go, okay, yeah, what do you mean? And you say, okay, other option. I pay you 1.5 instead of one. So you get another$500 ,000. Plus, I will pay you the interest on the loan instead of the bank, except I'll pay you 4 % instead of 8%, which increases the likelihood the business succeeds because it's not as high. Plus, you make another 4 % every single month or year depending on how you structure the deal. Plus, we could get this deal done in probably 30 days because we don't have to go through a traditional bank process instead of 120 days. And we will structure the payouts over time, which means you pay less because you're getting long-term capital gains and distributions as opposed to short-term capital gains and distributions.

43:13So you're getting $500K more, plus you're getting 4 % a year, plus you're getting better tax savings. Would you be interested in at least us discussing what that would look like? At which point, the owner is going to say probably yes. And so that's how you nail seller financing.

43:28Hala Taha:Oh my gosh, that was like a masterclass right there. Anybody wanting to buy a boring business, you could literally just transcribe that script and get your deal.

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44:54Hala Taha:Yep, gang, here's a reality about scaling a business that nobody's talking about. More vendors, more invoices, more payments flying around. And if you don't have a clean system for managing bills, things can get messy really quickly. And that's where Intuit QuickBooks Bill Pay comes in. It helps you manage and pay your business bills directly inside QuickBooks so everything stays organized in one place. You can see what's due, control approvals, and understand how payments affect your cashflow. Vendors can also add their payment details, which saves you from having to chase them down for info.

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45:51Hala Taha:Yep, gang, one of the biggest challenges of building a business is staying responsive because the best opportunities don't always show up during perfect working hours. A lead calls at night. A customer texts while you're in a meeting. And if nobody responds, that opportunity can disappear. That's why I trust Quo, spelled Q-U-O. Quo is a business phone system that lets your team handle calls, texts, and customer conversations from one shared number on any device. Everything lives in one clean view. Voicemails, contact details, full history. Your team always has the context that they need to get the job done.

46:25Hala Taha:And I just love how Quo's AI logs the calls and then summarizes conversations automatically so that nothing falls through the cracks. That means your business stays responsive even when you're offline. And now we use Quo very creatively at Yap Media on the social and production side of our agency. We have really busy, super high-profile clients that don't wanna log into Slack. Their team communicates with my team in Slack, but if a high-profile client wants to message our team directly, they can use Quo and my team can monitor that inbox together. So they can text at any time. It's basically like a high-profile client hotline.

47:00Hala Taha:And that's just one idea. You can use Quo in really creative ways to level up your business, no matter what type of business you have. Make the season where no opportunity and no customer slips away. Try Quo for free, plus get 20 % off your first six months when you go to Quo.com slash profiting. That's Q-U-O dot com slash profiting. Quo. No missed calls, no missed customers. So is it realistic to think that there's actually a lot of opportunity out there for these boring businesses? Like when I think about this, I don't know. I just feel like how many people are really willing and ready to sell their business?

47:35Yes. Let me tell you some data. So how many people actually will sell you a business today and use some version of seller financing? Well, one, I bought a boring business that was a business marketplace called BizScout and then plowed a couple million dollars into it. BizScout is now a marketplace where people buy and sell businesses. When we first launched, which was maybe four weeks ago, six weeks ago, we had 30 ,000 listings on the platform. Today, we have 45 ,000 listings on the platform at BizScout. There are 45 ,000 people publicly listed that want to sell their business. Plus, the other interesting part about BizScout is we have this back-end scraper where we scrape all the small businesses.

48:14So you could say, I want to buy a, I don't know, sales company in Atlanta, Georgia. I want to buy a car wash in Piedmont, North Dakota. and you could go and see all of the listings of those there and reach out to the owners individually. So that would mean millions and millions and millions of businesses. So I know firsthand, there are tens of thousands of businesses ready to sell right now today. The number is growing every single day. And then there are millions where the owners don't even realize they could sell. So this is happening all over the place. Now, here's what you're gonna hear from people that is great for you and me, and I love every moment of it.

48:51You're gonna hear people go, there's no businesses for sale. It's all trash on those sites. Nobody good would sell a business like that. And I go, perfect. Just stay in your lane. You know, just stay in your lane. This is always finance bros who do this, by the way. And they'll be like, no way would this business sell for that. And then I just go scoreboard, like bought and sold this newsletter business, bought and sold Pink's, bought and sold That One Painter, bought and sold Garage Up, bought and sold a brand new roofing company we're going to launch. You know, there are businesses all around.

49:22We're doing it every single day. In our community called Contrarian Community, people have done $260 million of deals that we've tracked. Hundreds of small businesses transacted. So while other people always tell you no, you can be the person that makes the money while they sit on the sidelines. Again, always harder than it looks and is going to take work. These businesses are all around you guys. And anybody that's telling you they aren't either wants to buy them for themselves or wants to sound sophisticated because the sophisticated sound, the negative sound smart and the positive make all the money.

50:01Hala Taha:So when people are thinking about boring businesses, because you've been talking about boring businesses for a few years. Now I feel like it's sort of synonymous with vending machines and laundromats. But you actually say some of your favorite boring businesses are digital businesses and professional services. So talk to us about some of the little known boring businesses out there and why they're so lucrative. Yes. Yeah. If you go to MSM book where the book's going to be located, we'll be giving away a bunch of things with the book. And one of them is a list of 130 of my favorite businesses that I love to buy.

50:33So let's rattle off some of those 130. One, I use laundromats as an example because they're easy to understand. And people, it kind of like opens people's eyes. They go, oh, I've seen those before. Oh yeah, there aren't a ton of employees in there. That could make sense for me. So that was rule one. I wanted to open people's eyes. But really what we teach is what's called deal clarity. So how do you figure out the right business for you specifically? What's the right business for you or your audience? And so those might be things like, for instance, I bought a podcast production company back in the day.

51:07I bought like 49 % of one called Strike Fire productions. That was a great business. I think I bought 49 % for 10K and, you know, we profited five or eight or 10K a month off of it for about a year before I sold it back to the owner of the business because it wasn't a big enough business for us anymore. So podcast production. I've bought a video production before, production company before that's called Viral Cuts. That's another online business. We've invested in a tax and LLC business. So it's kind of cool. They take like accounting, old school accounting practices, kind of sex them up, make it really easy for people to access them.

51:46That's called Doula. We invested in a company that's called Sense. So it's software for the laundromat industry. So, you know, everywhere you have a boring business, you have digital businesses that support them. You have advertising businesses, marketing vendors, software providers, sales systems. And those are businesses you can buy just as simply as you can buy a brick and mortar Main Street business. So should we diversify our businesses?

52:16Hala Taha:For example, like I own several businesses now. I have my podcast itself, which is a business. I have my social media agency, number one LinkedIn marketing agency. And I have the number one business self-improvement podcast network. So I have three businesses. Should I like stay in my lane and go buy podcasts and social media businesses? Or is it better to actually diversify and think about other lanes? It's a good question. So if you already own businesses today, there's two ways to think about acquisition. Strategic acquisitions or diversified acquisitions. So strategic acquisitions I think are the easiest for business owners to buy.

52:52That would be like, can you buy another agency that has talent that you're having a hard time hiring? And can you insert that talent inside of your agency so you can increase your capacity? And so you can sell more. Amazon is notorious for this. And I would say the great thing about strategic acquisitions is you understand the business better. You're going to know if this is a shitty agency or not because you already run it. You probably already know them and have target acquisitions because you know your competitors. You also have a much higher ability to increase the revenue of that company because you're already doing the thing.

53:30And so I think strategic acquisitions are the best for current business owners to think about. If you want to create a portfolio in a holding company like I have, because my skill set is finance, right? Like I knew how to create a portfolio in a holding company because I ran a private equity firm. But if I was a great business operator, I would do more strategic acquisitions than I would diversified acquisitions. And the reason is because you're going to have such a higher likelihood of success and you're going to be able to increase the value of those businesses so materially. So if I was you, I'd be saying right now, and you probably have some in your head, even as we're talking about it.

54:07You're like, oh, these competitors. Oh, I hear she's kind of unhappy. I think they might shut down their business. They're growing really fast, but man, they don't have X that we have. And those are your target acquisitions where you can even overpay a little bit or use potential future revenue that you drive them to pay for those companies and close a deal faster than you ever could due diligence in a laundromat, for instance.

54:34Hala Taha:Yeah. You've really opened my eyes. I never really had thought so much about acquiring companies, but now I'm thinking, I'm like, oh, we could acquire this X team. So that makes sense. It's kind of what I did actually with my business partner, Jason. He had a production company originally. And then I actually brought him on as my business partner and kind of absorbed him. So I guess I did do that in a roundabout way. Yeah. It's called an acquihire. Yeah. And the cool part is, if you start using the terminology, that's why I like people to learn deal making. I didn't even know that. Yeah, you can sweeten the deal.

55:06So let's say, you know, in this case, you might have been saying, God, I need better production. And I want somebody who really cares about it. So I want a partner. I want them to be invested in it. I want them to be a pro. I don't want to have to pay pro salary right now because maybe my business isn't big enough. I want them to share my vision long term so they take some risk with me. Okay, that means you want an acquihire. So you're like, huh, I'm going to buy acquihire Jason's company and I'm really just going to use Jason's salary, which I pay over the course of the year just like anybody else's salary to acquire his company.

55:39Jason, congratulations. You got an exit from your business. I am going to acquire and integrate you. You also get to say, I've already done one acquisition because we did it this way. You did an asset sale, potentially, if you bought any of his assets, and you did an acquihire because you bought him. And so a lot of the people in Silicon Valley use this term all the time. They'll be like, I sold my startup to so-and-so. They got acquihired. And we, like normal people, don't use that same terminology. And so we don't sound as sophisticated, but we're doing the exact same thing. So I would keep your eyes open.

56:14I think, you know, one of the things I've been obsessing on lately is that rich people do not think the same as poor people when they think about problem solving. Poor people, when they have a problem, they say, how do I fix this problem? How, how, how, how? Relatively wealthy people think, I have a problem. who could fix this problem for me, who not how? Rich people think, I have a problem. How could I buy an almost guaranteed solution to this problem? Buy, who, how? And you can start when you have a problem in your business going, all right, pause, don't go to how, pause, don't go to who, pause, how could I buy the solution?

56:55I need more revenue in my business. I need to come up with a brand new product that I could sell. Do you? Or is there something else out there in the market that you know your audience would love and you could acquire part of that company, do no fulfillment, not guess what a great product is, but no because people are already buying it and you already use it and just integrate that into your revenue line. And the truth of the matter is I forget my own homework all the time. I revert back to the how constantly. And I should obsess on the buy more often too.

57:25Hala Taha:Oh my gosh, that is so smart. I love that advice so much. Okay, so buying a business, we're of course going to be looking at the financials to some degree, right? So what are you looking at personally when you are trying to buy a business? And then also, if we need to hire people, hire an operator, what do we need to consider in terms of the financials? Yeah, a couple things. We have a framework that we look at for every time you buy a business, what does it need to have? I think about it as two words, an income stream. You're buying a business because you want to make money, not because you're doing charity.

58:00And so when it comes to an income stream, an income stream has to cover a few things. It has to cover the interest expense on your loan, so whatever that costs for how you bought the business. It has to cover your income, so how much money you want to make from the business. It also has to cover some version of an operator's salary, so you don't go crazy, you have a manager, you don't buy a job, you buy a business. And then it has to cover working capital. And that means a little bit extra money in case anything goes sideways or to grow the business. Those four things, if you remember that, will help you buy a profitable business.

58:35And we have a structure that breaks that down a little bit more in the book, but at a high level, that's it. The second thing that I really want you to think about if you're thinking about buying a business overall is very, very high level. You don't want to make acquisitions too complex. You want to see what do the financials tell you? Is the business profitable or not? We don't buy unprofitable businesses to start. That is asking for pain. So we want a profitable business according to its financials. That means it's P &Ls. We want the financials and P &L to somehow match the tax return or decrease the price so that the tax return is your de-risked price.

59:15And then we also want a breakdown of our due diligence file, kind of looking at where's the risk in the business? How many employees are there? What kind of assets do we have? So we have a full due diligence list that we use for this, which is important. But you want to start high level with the financials and the tax returns.

59:33Hala Taha:It's really about like tweaks to grow the business. Like what do you usually see of like the small tweaks that you can do to like really just grow the business when you're looking at these boring businesses? Yeah, we got to come, I'll come back on a different time and talk to you about the next book I'm writing, which we're creating some portions of it. It's about an operating system. How do good companies scale from six to seven to eight to nine figures? I love that. Yeah. And I came up with something with one of my friends whose name is Eamon called nine steps to nine figures. And don't take the nine figures literally.

1:00:05You don't have to create a nine figure business. But the idea is a business so big that it makes profitable money for you, is fun to run, and is trusted in that it will continue to make more money. So trust, fund, profitable. And there's really a few steps. First, if you want to have a profitable, fun-to-run business, you've got to know who you're selling to. This is what we call persona. So you need to be able to name and label your target market. Then you've got to think about what problem are you solving for that person? Where is the pain or the nail in the foot, we call it, that is the problem you're solving?

1:00:42Then you've got to obsess on product. So what product are you selling this person in order to fix their pain that this person in particular really, really wants? Then I like to talk about performance. So where in your business are you tracking if you are winning or losing and what does winning look like? Then you want to have a scoreboard or operational system. How can I consistently run a business without a bunch of question marks and games because I have an operating system I run on? And then we want to have people. So finally, and maybe most importantly in many ways, who are the people inside the business that I am hiring, firing, and what does our culture look like?

1:01:22We have nine steps, but those are like the first seven that are so important because if you have the persona, the problem, the product, if you have the performance, the operating system, and the people, then you can run a sustainable business over time. And sometimes you don't even have to have the people if you have a solo business as well. So those things are necessary for scaling a sustainable business.

1:01:46Hala Taha:Okay. So let's say we've got our boring business in place. Things are rocking. We're making a profit. Is there any point where we should think about exiting this business? Like, what are the criterias to, like, think about exiting a business? Yes. So the end of the book starts talking about the exit. And the reason why is because the first business that you buy probably isn't gonna be the business that you have forever. You should do your first deal just kind of thinking like you did your first job. You know, you didn't plan on staying your first job forever. You're like, I wanna be here for two to five years, something like that.

1:02:18I want it to make me money. I want to learn from it. And I either wanna scale up or I wanna scale out, right? I wanna move up to the C-suite position or I wanna go on to my next job. And it's the same with the business. So the first deal that you do should not be your last deal, in my opinion. It wasn't for me. So since we know that, we want to start planning for the exit and the ability for us to eventually sell our business to make more money. The cool part is most of the money in buying businesses and building businesses is made on the sale. So if you have a business that does$100 ,000 in profit in small business land, you can sell that business for 3 to 5x on average of the profit.

1:03:02So$100 ,000 business sells for$300 ,000 to$500 ,000 to overly simplify. That means that if I buy a business for$300 ,000 that makes$100 ,000 in profit, but I am able to increase the profit to$200 ,000, well, now I'm selling this business for somewhere between$600 ,000 and maybe$800 ,000. So I have taken multiple years of potential future revenue and fast-tracked them. And I moved them up. And so when it comes to thinking about exiting your business, there are really only three levelers that matter. And the three levers are, can I increase the profits? Can I increase the revenue of the business?

1:03:47Can I decrease the risk in the business? And can I increase the systems, processes, and people in the business? And if you can do those four things, then your business can be worth more when you sell it than when you bought it. Mm-hmm.

1:04:02Hala Taha:So, you know, as a founder, I feel like very emotionally attached to Yap Media, right? Like, I really couldn't imagine selling it, at least for a really long time, right? I really couldn't. But with these boring businesses, I feel I could, like, buy one, fix it up, and then have no emotional attachment to just sell it. So do you feel like there's something there? Like, it's just, like, easier to kind of just buy and sell these boring businesses because there's less emotional attachment? For sure. I mean, your YAP for you and any content creators listening, that's your distribution mechanism. You know, YAP is your ability for the rest of your life to sell varying things to your audience without using a ton of capital.

1:04:42So you might want to keep YAP forever and layer on top of it different products to sell, layer on top of it different services to sell, layer on top of it owning part of another content creator who maybe you helped distribute, but you take a percentage of future revenue from that content creator. So this is how we build big conglomerates, right? You could do what most media companies did, which is they acquire assets. Back in the day, Ted Turner was famous at Turner News Network for acquiring assets, and he did it the old-fashioned way, which is acquire radio stations here, acquire television rights here, acquire distribution rights here.

1:05:18And he used to be talent, and he worked his way all the way up to complete ownership and chairman. And so the way to do that in the 21st century version is what like Alex Cooper's doing right now with Call Her Daddy and Unwell. She acquired part of Alex, what's the other Alex's name? Do you remember? I have no idea.

1:05:37Hala Taha:I don't want, I only pay attention to the business self-improvement world. I'm so like, Call Her Daddy Who. I know, I know. I mean, not typically when I talk about her topic, but brilliant business mind. She looked at Dave Courtenoy at Barstool Sports and said, why doesn't this exist for women? I'm going to build it. Dave sold his company for what,$600 million or something like that? She was like, yeah, I'm going to do the same thing. And so she started acquiring up other talent. She also acquired and built part of a pop-up and a tour company. You see her doing tours right now all over the place.

1:06:13You see Alex Earl, that's the other one's name, doing the same thing. Those are smart businesswomen. Like, don't let the sex talk fool you. They are sharks. And I'm here for it. And that could be the way that you do it. And then at some point, you might do what Barstool does or some of these big media companies do, which is you might say, all right, talent. You want to buy back your rights? No problem. You buy back your rights. That doesn't mean you sell, yeah, but you sold one of your assets. And that's how you kind of de-link your personal brand to your business. I love that advice. Okay, so people are afraid of failing, right?

1:06:53Hala Taha:A lot of people don't actually take the leap into entrepreneurship because they're afraid of failing. I'm sure I have plenty of listeners right now who wanna be entrepreneurs, who listen to an entrepreneurship podcast, who haven't become an entrepreneur because they're scared of failing. They've got golden handcuffs. They probably work a nice corporate job. I've got smart listeners. How can Main Street Millionaire help them overcome their fears into becoming an entrepreneur? Well, first of all, Main Street Millionaire is peppered with stories of people just like me and just like you who worked in corporate for a long time and leveraged the best form of money there is, which is a salary somebody else pays into the future ownership of your business.

1:07:34So one, you're exactly where you're supposed to be. If you're already making revenue, buy a salary. That's incredible. You can use that to acquire your company. In our community and in Main Street Millionaire, I would say 40 % of the people in our community where we teach business buying are W-2 employees, well-paid W-2 employees that are buying their first or their second business. What Main Street Millionaire will teach you how to do is two things that I think are invaluable. One, negotiate with the company that you work for or with vendors that you work for for part of businesses you already fully understand.

1:08:05Partial equity. That could be your first tiptoe into ownership. Number two, it will teach you how do you layer on acquisitions using operators, family, for instance, like my husband runs one of our companies. My mom ran another one of our companies. My brother and I co-own another one of our companies. So how can you use the people around you who maybe don't have your same salary for ownership? I think it's beautiful to do for husbands and wives. The last thing that a book like Main Street Millionaire will teach you is when it comes to seeing a deal in front of you that feels so unfair, it is an absolute fuck yes, you will be able to jump on it.

1:08:47You know, Baron Rothschild said, buy when there's blood in the streets, especially and even when the blood is your own. He was one of the titans of American history, one of the richest men ever to live. And what's interesting, I think, is if you at all are scared about the economy, the recession, your job, your future, there is nothing better than a little shake up in the market to get better deals. And so what I want you guys to be prepared for is that when that comes, you will already know and have turned on your reticular activating system in order to see these businesses all around you and do a smart deal.

1:09:24Hala Taha:So my last question to you before we close out the show is really about like future predictions. I just interviewed the CEO of Microsoft AI, Mustafa Suleiman. He was the founder of DeepMind. And he told me something like mind-blowing. He's like, listen, like AI, everyone's going to have their own personal AI. People are going to be going to job interviews with their AI and having to develop their AI. People are going to co-found businesses with their AI. And that just like sort of blew my mind. And so I'm curious to understand, like, how do you see like these mom and pop boring businesses really evolving in the next five, 10 years because of AI?

1:10:03Such a good question. Let me tell you what I think about AI and Main Street businesses, which is the first jobs that AI took were graphic designers, artists, copywriters, maybe even singers in some way. They were online jobs. Why? Because AI lives online. Because it's very easy for, quote, unquote, online digital robots to take over jobs that are mainly online. So if right now you have a job that you can do completely from Zoom that has a lot of automated processes in it, where sometimes you feel like you do a lot of automated tasks, be wary of AI. Because that will come for you first, as it already has for many people in the digital world.

1:10:46You know where AI is going to take longer? Painting companies, roofing companies, plumbing companies. The hardware is going to take longer to catch up than the software will. And so I feel very strongly that the trades are going to flip as one of the more powerful industries in the world, just in the same way that people are no longer paying graphic designers the same amount because we have AI tools that we can use to augment their work. And so think long and hard about AI in the fact of where can I have a moat built around me where it is not as easy for a digital component to take over? And that's what I think about it.

1:11:26And the only other thing I'll say there is I'm a techno-optimist. I think, by and large, our world is better mathematically because we have more technology today, not with technology hurting us. It has helped increase longevity. It has helped decrease poverty levels. And I think you can make a very hard argument, except perhaps in the U.S. with anxiety and depression rates, that technology is largely good. So I think AI will continue to be really useful for us. And with the businesses out there, man, think about how much we're going to be able to increase our profit margin by using AI right alongside us.

1:12:03Hala Taha:Yeah, totally. And Mustafa actually told me something about that loneliness factor. A lot of the AI that's being developed is actually developing as emotional support. And so this AI will help you do your work, but also like be your therapist. And something that he said was like really interesting, I just thought you might think it's interesting, is that he felt like it's going to really help underprivileged kids. because he said that it's almost like every underprivileged kid would have like a mother or a father who was guiding them. So I just think it's going to be really powerful. Interesting.

1:12:34That's horrifying to me.

1:12:35Hala Taha:It's horrifying, but it's also like, who knows? Hopefully we can steer it in the right direction. Yeah. Hopefully we don't have ads just straight mainlining into our brain. Most likely that will happen. Okay. So I end my show with two questions that I ask all of my I guess you can ignore everything that we just talked about. Just answer it from the heart, wherever it comes from. You don't have to worry about the topic that we just spoke about. So what is one actionable thing our young and profiters can do today to become more profitable tomorrow? One of my favorite mentors, Bill Perkins, told me why he thought he was so successful.

1:13:13Where did his billions come from? And he said that he does one thing differently than everybody else. He moves fast. By the time that other people have thought about an idea, brought it up to their friends, considered it, Bill has already taken action, made three mistakes, and found a better way. I think the faster you move, the more money that you make. The faster you move, the larger your bank account. So whatever you're going to do, take action more often than you think and quicker than you think.

1:13:43Hala Taha:Very good. And what is your secret to profiting in life? And this can go beyond business and money. I mean the best deal I've ever done was the one I did with my husband it sounds cheesy except it's true and so I think you know you are going to spend the rest of your life with one human and I wish I would have known earlier how important it is to choose somebody who had a growth mindset wanted to continue to progress and that profits come from profitable relationships done well And so especially if you have young women listeners, I think, you know, obsess about becoming a better human so you attract better humans.

1:14:25And two people is so much more powerful than one.

1:14:29Hala Taha:Cody, this is such a great interview. I love learning from you. Where can everybody learn more about you and everything that you do? I think most important is Main Street Millionaire. That's the name of the book. You can find it at msmbook.com. The idea is we're going to put tons of resources and tools for anybody who picks up the book so that we can all become a little bit more unemployable and have control of our life. That's the idea anyway. I love it. Guys, I read the book. I got an advanced copy. I absolutely devoured it. So I highly recommend it. We'll stick the links in the show notes. Cody, thank you so much.

1:15:01Thank you. You'll have to tell me if you buy a business. I'll help you any way you need. Thank you.