Founder's Story - Buying a Business is Better than Starting a Business | Ep. 46 with Entrepreneur and Investor Codie Sanchez

Episode Date: March 12, 2021

Codie Sanchez is a reformed journalist, turned institutional investor to now a Managing Director and Partner at Entourage Effect Capital, a private equity firm focused specifically on investing in the legalized cannabis industry. Since its inception in the summer of 2014, EEC has deployed $100+ million into over 65 companies out of its two dedicated funds and co-investments. We suggest joining Codie’s newsletter Contrarian Thinking and if you are interested in buying a business check out her course How to Buy a Business. Please rate, review, subscribe, and share with a friend who will be inspired. Visit KateHancock.com for insights into guests and future episodes. --- Support this podcast: https://podcasters.spotify.com/pod/show/ibhshow/supportOur Sponsors:* Check out PrizePicks and use my code FOUNDERS for a great deal: www.prizepicks.com* Check out Rosetta Stone and use my code TODAY for a great deal: www.rosettastone.comAdvertising Inquiries: https://redcircle.com/brandsPrivacy & Opt-Out: https://redcircle.com/privacy

Welcome to Inspired by Her, the podcast that will give you the inspiration, motivation, and tips for success from some of the top executives, CEOs, and influencers from around the globe. With your host, serial entrepreneur, and named one of the most influential Filipina in the world, Kate Hancock. And we are live. Hi everyone, this is Kate Hancock for the Inspired by her podcast, and today I have Cody Sanchez. Hi Cody! Hello, how are you? Oh my god, it's been a while. 2016, the last time I saw you in Utah. That sounds right. It has been a hot minute, no doubt about it. We were just catching up on that fact yes so everyone Cody Sanchez is a managing director and partner at InterEdge Effect Capital it's a private equity firm focused specifically on investing in the legalized cannabis industry now she's listed as a 25

most innovative leader in cannabis industry and she's been in today's show, Forbes, Fast Company, Entrepreneur. Cody, welcome. Thank you. I'm thrilled to be here. Yeah. Cody, tell me your story. What was your journey like to get where you are? Well, you know, lots of twists and turns, I think, but, um, I actually started off as a journalist. I think we talked about this maybe the first time I met you, but I was in human trafficking and, um, drugs, drug smuggling. And I covered that on the U S Mexican border for, um, for a few years and wrote my, my thesis on it. And, um, and what was wild is I remember back then just thinking about the state of

journalism that it's in. And now, you know, could this be considered journalism in what we're doing here? The world has totally changed. And so I went from telling these heart-wrenching stories, right? Stories that we as Americans really cannot imagine to realizing that it wasn't enough, perhaps, to raise awareness. then in fact, we also needed to be able to really make change and make a difference. And I believe that the best way to do that is through finance. And people might say, well, that seems weird. But my belief is that unless you have financial freedom, you don't really have freedom. And so, you know, I have this mission that I've had since then of getting more people into financial freedom. And it started with roles at Goldman Sachs and Vanguard

and State Street building businesses where I largely employed minorities and women and people who are different in those industries to then moving into the cannabis industry where I'm a partner at this fund now. And we get to work in an industry that's rapidly evolving and, you know, and hopefully profit from it as we've had thus far, but also make huge change and give people not only freedom from decriminalization, but freedom to utilize the plant and also to profit from it. Wow. Wow. Now, how did you get involved? Like what, what was that day? Like when you decide to be part of the VC world, the PE world, like, tell me like, that's from journalism to a shift. That's a, yeah. I mean, I think it's intimidating for all of us

when we first start thinking about finance, because if you think about finance, we get paid, um, you know, something called two and 20, let's say, which is 2% of the money that you'd give us. That's your management fee. And then 20% of the profits it's called something, uh, it's called a carry. Um, and, um, and in finance, we like to think that, uh, it's more difficult than other people, um, want it to be seen as because that's how we get, we all make money, right? And what I've really realized in this is that all of this is not that difficult. That if you ask a lot of questions, you get super curious, you build a process around it, you stick to that process, you surround yourself with smart people, you listen to shows like yours, you can actually progress through just about any industry and certainly finance. I mean, we're not doing rocket

science. And so I really just thought that I wanted to understand this wild world of money and that, you know, there's private equities, $4 trillion of the world's economy. I mean, just to give you a comparison, the U S is a $20 trillion GDP. So think about how many businesses they play in and they touch everything that we do. And I wanted to understand that landscape. So I just started asking a lot of questions and getting in. And I became obsessed with buying businesses and building businesses and selling businesses. I love it. So can you give me a timeline? How long did it took you to be like, so into that world? Like, you know, all of it, like how many years?

Well, I still don't know all of it. Yeah. There's, there's still much to learn. And, you know, even within the industry, there's all these different sectors of it. Like one of my partners at Entourage Effect Capital, Tiffany is, she's a genius at what we call underwriting and due diligence. So she's really good at when you look to buy a company, you get numbers from them. Like this is how much we do in revenue. This is what our company looks like. But then you have to be like a detective. And you have to go and based on what they send you, you've got to figure out, is this real?

Do we believe these numbers? You know, what are they not showing us? What is not going to happen in the future that they say is going to happen? And so, um, she's really smart at that. Um, and you know, I have another partner, Andy, who's a great, um, structuring guy, because the cool thing about buying and selling businesses is you learn how to put them together and then you learn how to sell them. And it's kind of this game of, you know, business Legos that you can build something bigger than any individual business. And so I would just say, I'm not great at all of it. There are certain segments that I'm

good and bad at. What I'm really good at though, is synthesizing all these big ideas. And because I'm a journalist, simplifying them into process through questions. And so, you know, I've been in finance for a while now, since 2008. And it's definitely an evolving process. So I'm still learning. But what I'd tell you is, you know, private equity is just buying businesses at a really big scale. You know, the businesses we buy need to do $20 million in revenue, and we really like them to do 50 or 100 million.

But you all listening can do private equity by buying smaller businesses. And, you know, a friend and I, we have a whole segment on this called unconventional acquisitions. Which opportunity in front of us today for that. Yeah, I love it. Because like you would think for you to get involved in PE, you can just have analysts in your company and your principal or your partner, right? Like you don't have to know all that things. Exactly. That's exactly right. No, surround yourself with smart people for sure. Yeah. Okay. So what is, uh, what is your favorite investment and how did you get into the cannabis industry? I'd like to tap into that. Yeah. So, um, my favorite

investment, that's hard. It's kind of like, you know, picking your favorite baby. But there's a few I'm excited about. There's one called can, which is a microdose THC beverage company. So imagine like a white claw, you know, how those kind of took over the world or like a Perrier or a Pellegrino, it's a sparkling water. They're now very popular with alcohol. Well, can does one with cannabis in it, very low dose. So it doesn't, you know, overwhelm you. And, um, and it's a great substitute for drinking alcohol. I don't really drink very often anymore. And so, um, I might have a can and, uh, no hangover and one 10th the calories of a white cloth. So that works for me. Um, and, and it tastes good. So that's one of my favorite companies. They're super cool. You can go to drink can.com and check them out or their socials fun.

It's called drink can. It's like these two awesome, like really smart, hard charging, uh, founders and they're, um, and they're just out there crushing it. Um, and then how did I get into cannabis? Well, here's the thing. I'm always looking for the arbitrage opportunity. So I have a blog called Contrarian Thinking. And I write a and we're, we're told that we have to fit these boxes and we have to take these steps. And if we don't do it, you know, then we're not going to progress in the career as we want to. And I've never really believed that. So, um, so you can follow along if you want. It's at CodySanchez.com. You just go and sign up for the newsletter, but it's kind of cool because on there, I basically talk each week about things like this. I got into cannabis because I saw consumers were consuming

cannabis at record highs, right? Cannabis sales are up year over year, 78%. We're talking about a multi-billion dollar industry. And yet there was such a small amount of capital that was put in to fund these businesses. None of the big guys want to give money to cannabis companies because of its federal status. So I was like, wow, so my dollar is worth $10 in any other industry in cannabis because capital is not a commodity. And so I saw that arbitrage opportunity. I started writing and thinking about it. I started investing in a few different companies in that range. And then finally I said, oh, well, let's do this in a fund form because I know how to build asset management companies. And that's how we got to Entourage Effect Capital. So it's really, it's getting this lens of always asking the tough

questions and trying to find the truth of the noise, which is what I talk about sort of weekly. Wow. Amazing. Now, Cody, how much funds do you have in that Entourage Effect Capital? So it's about a $200 million fund, which is small in any other industry. Like my last business was billions of dollars. But in cannabis, it's actually quite large because there aren't that many of them. Yeah. And that's because in cannabis industry, it's so hard to market. Like you're not allowed to do Facebook.

I mean, Facebook ads, like how do you go over that? and it's so hard to market you like you're not allowed to do facebook i mean facebook ads like how do you go over that like like that's very difficult yeah well there's not a direct to consumer business in cannabis right i mean um similar to um alcohol in some aspects you can't ship alcohol direct to a computer to a consumer typically without certain licenses. And then cannabis is that on steroids, right? And so you have to have a license in order to sell it, which means that you have to go into a site to buy it unless you have a delivery service, which exists in some states. So it's a very complex business, no doubt about it. Yeah. So, okay. So Cody, what do you look for a pitch stick?

A lot of people like, what do you look for a pitch stick if they want to get your money? Well, we're a little tough because we do 20 million and plus, so I don't invest in seed stage businesses. And you know, I'm going to tell you something that's a little bit controversial, but like right now what's happening in the world around us, I think you're crazy to go out and start a business. And the reason why I think you're crazy is because there are so many businesses out there to buy. And you know, we're having a small business crisis in 2020, 2008. If you think about it, if I told you, okay, if you go back to 2008 and you can invest in one thing in 2008, 2009, 2010, 2011, what would it be? And I think your answer would be real estate. It was a housing crisis, right? I would

buy as much real estate as I could because that has had the highest return since the 2008 crisis, even more than equity markets, which are up 175% since then. But I would say the interesting part is this crisis that we're in right now is a small business crisis. One out of three people unemployed. Just last month, we saw for the first time ever, more businesses have been permanently closed than temporarily closed. And the opportunity they're in means that today we actually have a chance to go out our generation and, you know, those who have had, you know, employed salaries for all their lives, we have a chance to go out and be business owners. And I talk a lot about how to do this through seller financing and SBA loans, and that you don't actually have to have a lot of money in order to do this. You can use OPM, other people's

money to do it. So to answer your question about pitch deck, I wouldn't have a pitch deck right now. I wouldn't go out and wait for somebody to choose you and give you money. What I would be doing is I am doing, I mean, we buy laundromats, HVAC companies, a lot of these blue collar businesses because I want to buy cashflow. And if I have enough cashflow to have all my finances taken care of then, and I want to start one-off little businesses, then I can start that business, but feel very comfortable and safe, safe in my financial, um, you know, self. And that's what I think you should do currently. And more people should be doing that and they're not. And I think that is a huge opportunity we won't, we won't have again. Absolutely. I love that. Now, what are your other deal stack strategy, aside from getting people's money or SBA? What are some of the deal stack strategy that you love?

Like deal stack, as opposed to like how to find the deals or how to find? Like, how do you structure deals without paying money? Like buying business aside from going in SBA? Because then that's hard, right? What are the deal stack strategies that you this aside from going in SBA, because then that's hard, right? Like what are the deal stack strategies that you have aside from those? Yeah. Well, so first of all, so let's do a, like an example. So there's a couple examples. Again, if you go to, I think it's contrarian thinking, um, slash sub stack is, and you should be able to see my historical blogs on there. And in there, I'll give you a couple of examples of businesses and you can see the business model and how it works, but let's try to visualize it right now for people. So, um, if you want to think about buying a small business

and, uh, you don't happen to have millions of dollars or hundreds of thousands of dollars lying around, here's what I would do first. Um, first I think you should start small. If you've never bought a business before, start with something like a laundromat, a dry cleaners is that there's 2.5 million small businesses for sale in the U S right now. And so it's kind of like Tinder. If one business owner says, I don't want to give you seller financing, you just swipe onto the next one. And so what I would do in that range is I would start with seller financing. I would say I'm looking for a hundred percent seller financing, and I want you to finance my buying the business through your future cashflow. And the reason that the seller might do that is they might be tired.

They don't want to keep running this business. They also might, you might say, I'll pay more than you're asking for it, but I'm going to pay it over a longer period of time. You could also do something like in an SBA loan, just for 50 K, very small SBA loan on the assets, give them 50K for that, and then decrease the price and do the rest through seller financing. So there's about a million ways to get creative on it. You just have to know how to do it. And that's something, you know, I talk a lot about with my partner, Ryan. I love that. I love that first strategy deal stack. That's the DDP deferred payment plan, seller financing, and you can spread it to three years or five years. That's exactly right. I love it. Because you've done some of this, haven't you? Yeah. I'm trying to acquire a home care business and I'm still doing my DD or due diligence. So it's a lot of things. It's such an exciting world because in reality, a lot of those people are,

a lot of those businesses are for sale. 80% of that don't get like, they don't end up selling because their prices are too high. That's exactly right. Yep. Yep. Yep. Well,

and I also think it's that people don't know how to do this. So, you know, yeah. So you can, you can go and sign up on our website. It's called how to buy a small business.com for our email newsletter. And in it, you should join our mastermind too. I can hook you up and get you in there. But in it, we, um, we, we talk about this all day that, um, like if you want to buy real estate, for instance,

there's such a model, right? It's so easy. You go, you get a realtor, you get, you know, tell them your parameters, you find a rental property, they hook you up with a mortgage loan, you buy that property, you kind of model it out a little bit. And then you have, you know, this type of passive income. But the problem with that is the average profit that you make on a rental income property, which I own a few. So like, you know, this is like shame on me too, is, is $200 to $400 a month. And that's just not going to finance the nice things you and I like, right? That's not going to be enough. Okay. So let's talk about real estate. I talked to Dan recently. I said, I just want to do business where it doesn't require me a lot of cash. And I just have extra, let's say 1500 profit, right? So what I did, I bought a piece

of land in Joshua tree. I rented out for campers $50 a night for two. They just bring a tent. I don't have to worry about cleaning everything. So raw land and I make maybe 1500 to 2000 profit a month doing nothing. Dude, I love that business idea. So, so how did you, so this is perfect because lots of people don't think like you do, right? You could have put, you know, supposedly, I don't know, 10 or 20 times into the down payment for a house and then gotten that 200 to $400. But instead you said there seems to be a camping phenomenon happening, right? People are tired of being in their homes, but they don't want to talk to people and they want to be socially distant. And so you bought just a plot of land and had it sort of licensed for camping or was it already licensed? Not even licensed. I just like open

land. Let me just put in an Airbnb and I have three campers every night almost. And like, this is the best business ever. well and then so and was it relatively inexpensive can you it's less than 10 grand I bought it four years ago I have two and a half acres of land brilliant I know so I want to buy more of that because that's the best business like model yeah especially if you don't have to if you don't have to get a big loan on it and and theoretically i mean i guess you have some liability and risk if something goes wrong with the campers we can have them sign off on that um and then besides that you don't have overhead no overhead yeah so you have whatever airbnb charges you which is like what 10 five to ten

five percent like super low okay um and And whatever, you know, your credit card processing does. So super cheap. And so your margins on the business are effectively, you know, with maybe marketing and cleanup, I would guess like you have a 96, 97% margin business, right? Yep. Absolutely. So now I'm going to go for Utah. Yeah. Very interesting. I think that, yeah, it's super interesting. That's my favorite business like that. You don't require any work, higher return. Yeah, well, exactly. And you're not buying a property that like the pipes go wrong and then somebody calls you about it and then, you know, and then they, they want you to come fix the air conditioning. Like, I don't want to, I don't want to deal with that. I don't want to deal with that. Like, yeah,

the simpler, the better, or like buying businesses, have someone run it and you just, you know, profit. It's a hundred percent. Yeah. I bought a, into a podcast production company actually. And yeah, it's an awesome business. I don't want to run it. So I do, I have a 40% ownership stake and you know, my partner runs it. It's called strike fire productions. And, um, and I help him with sourcing some clients for it. And if he has ideas or, you know, questions about the business, I help him operationalize the backend, but you know, it's a nice little business that probably, you know, profits me eight to $10,000 a month. Um, and you know, and the nice part is there's like, we don't own anything. There's no office

space. There's no anything. Now, if we actually wanted to scale the business, we'd have to do some of that. Um, and so that's where you have to decide, but that's his baby. I just have a red share. Love it. And what other industries are you looking at to buy at this time? There's so many, right? Yeah. I think there's a lot. I mean, I'm really interested in blue collar businesses because I'm, I don't know about you, Kay, but I'm like, I'm a little mad about what's happening in the world today. I'm a big advocate for small businesses. And so I just get upset thinking about how many small businesses have gotten shut down and how many people's livelihoods and, and work has been put on the line. And it makes me sad. And so I think if we can continue

having those small businesses, we're going to be better as a society and a community. And I, so I like to buy businesses in our local community. Um, and I like to do it as a win-win so that, you know, the, the seller wants out and the employees largely want to stay. So, um, we've looked at, uh, HVFC, we've looked at a laundromat. I like lawn care businesses and lawn maintenance businesses, both in Arizona and California where my parents are from because they're annual businesses. You can do it all year here since there's no like massive winter. So I like those businesses.

We have a couple of friends that are buying that are in our mastermind that are doing distressed hotels. So this, this one's fascinating. He did an interview for our group that's on the Facebook mastermind and he did, so he was doing one-off Airbnbs, right? And accumulating a bunch of these. And then he was sort of trying to leverage other people's properties and just arbitrage what he could make on them with Airbnb. And he was like, gosh, this is just too hard. It's too many things. They're all too disaggregated. And so they bought a distressed small motel style hotel on the East coast that has, you know, you've seen those hotels that have like the open air

hallways. Yeah. Yeah. Yeah. Yeah. And so he kind of like queued it up a little bit. So it looks funky and trendy and, um, But it's all done through Airbnb. So there is no services on it. You check in through Airbnb, just like you do through anything else. You come and go. And then they have a cleaning lady when you leave. And so he's taken Airbnb and turned it into a distressed hotel situation. And they're profitable within the first month.

And so I thought that was a great little business model. Wow. That's amazing. I'm actually in the industry. I have, I'm trying to acquire distressed hotel in Asia. I think it's easy for me to run. Yeah. So I have two properties that I'm trying to, um, acquire someone who's tired or tired of this coronavirus and they're running out of money. They have to pay their loan. Those are the best businesses to acquire. Totally. Well, plus I think it's kind of fun owning a hotel. I mean, my, yeah, my, um, my husband and I have talked about wanting to do that for a while. Um, we haven't found one in an area that we want to frequent enough that I think we'd want to make a community there, but I do like that you could have an ecosystem play. So

like with this distressed guy, what we're talking to him about doing and helping him figure out with the hotel is he has his, his hotel, right? And now I think he should buy a cleaning service business because he has cleaners coming in and out and that's one of his highest costs, right? So I think he's going to acquire a cleaning service business and we're going to help him sort of use this to create an ecosystem in which he owns a ton of businesses that service his existing business. And that just increases your margins overall. And, uh, and they're cheap to run. And so I think that'll be the next one. And then, you know, the next thing that he did that I thought was smart is he bought the parking lot next to him and the parking lot. Yeah. He's like, it's just a cash cow because people come and stay and they have the boxes where you just put in the money into the boxes. Um, and they just have a tow truck.

They don't even have to pay. And the tow truck, you know, brings, takes people out if they don't pay. And so now he has like a little hotel for cars for the day and his main hotel and this cleaning business. And that's how you start to stack deals yes i love it like one business model but find different source of income around it exactly right exactly right yeah it sounds like you've done that many times now yeah so i like for example our hotel right now is shut down in the philippines is like why can't we just have a membership people come in they pass do it for the six months for the meantime, we're not busy, or do like deliver for food, like we're just, you know, trying to stay afloat at this time.

Yeah, I love that's the tough part, right, is, is how to pivot businesses. I mean, the nice part is, if you're buying one, you already get one at the discount from what the sales that they're doing today and the pandemic, but if you own them, you know, then it's, then it's time to, to leave those passive dreams behind for a few months and figure out how to make it profitable again. Love it. Now, um, tell me about your mastermind, Cody. What was the reason why you're doing this? Tell me. I love it. Yeah. I mean, um, honestly I have learned, I mean, we met at a mastermind, right? Um, Parvins. Um, and I think I used to think that masterminds were a little skeezy or scary. I don't know what I thought about them. I just thought, you know, it's like manufacturing friends or buying friends or something. And, um, but then I realized like how many times have you sat at a

dinner table and you're like, I couldn't care less about your kids in school or the weather or what's happening with Sally or Rosie or Bob. Like, I just, I don't care about small talk and I want to be around other people that want to have these nerdy conversations and figure out how to do interesting things with their lives. And I don't think you can just go out and collect them in your community. At least I haven't had a lot of success doing it. I'm like sitting at a bar like who wants to talk about buying small businesses? Like nobody wants to have a beer with me. So we started it because

what happens and even from this conversation, you're giving me ideas. But if you're with other people like this all the time, some people say, well, you're giving away everything. Like for the course, you know, it's all of my models and all of the templates and all the businesses that have gone bad or not, and all the same for Ryan. And so we'll make whatever money we make off that. We donate 13% for the 13% unemployment high rate in the US to getting veterans and inner city kids back to school and work. But I don't think we'll make that much money on it. I think the part that we'll make money on is the mastermind with everybody coming to us with interesting deals and getting to get into more businesses alongside them.

I want to invest in them. I want to be partners with people on it. And we've already had a few of those happen. And so that to me is the fascinating part. And the only reason why you should do a mastermind is, and we priced it. It's not cheap. It's like 1500 bucks to join. And I think there's some discount for it being early. But I don't want people in there that aren't really thinking about how to do this because I'm essentially self-selecting my own business dealing group. And that's why.

That makes sense. It makes sense. It's fun. Like, Hey Cody, what deals are you doing right now? What are your strategies? You can learn from just listening to those. There's the best conversation. A hundred percent and getting really tactical. Like people get nervous, even on podcasts of telling you like, okay, I bought the hotel for $300,000 and I use a hundred K of my money. And then 200 K from here, it just, it feels weird speaking about money that candidly, most people don't do it, but when you're in sort of a closed ecosystem, they'll say, oh my God, in your partnership contract, make sure you add this and this and this, because my last partner partner fleeced me for this. And so that stuff I think is so valuable

and I want a site where we can all do that all day doing deals every day that's an amazing and this is the perfect time to do it not to be do it ethically yeah a hundred percent yeah and a win win like I mean it's so sad actually um I was going to have to reschedule this because my uncle, just went into hospice today. And now, and he has been such an inspiration to my life. He was a sharecropper. He's, you know, he's well into his nineties and came from nothing. Like, you know, literally was illiterate when he was younger and he started a plumbing business and he became a tradesman and then he built this little plumbing business around it. And then, you know, I didn't know he did this, but like many years ago, let's call it 10 or 15 years ago before I knew anything about anything,

he was tired. You know, he had made money, he had done well for himself and he had worked for a long time since he was like 10. And so instead of selling the business, he just wound it down. He had a business that revved millions of dollars and was profitable to the tune of probably a million plus. And he literally just unwound the business. He just closed it. And that was because he didn't know what you and I know, which is that if you, if you buy a business and it's revving a million dollars and your cash flowing, I don't know, $200,000 in profit, you can sell it for two to three X and he didn't know that. And so that to me is,

is the part that I don't want other people to have to go through. Yeah. It's just a waste of work and effort. I mean, you can snag that business. Like, can you retrieve it? Make it happen. It's yeah. It's many years gone now, but you know, his, you know, and his kids didn't want to take over the business. And we were too young. And so, you know, I think the, that's the interesting part is a lot of people think when you do deals that you're trying to fleece the owner or whatever, and that's not really

the case. You know, what you're trying to do is continue their legacy. And you're able to do it while you make money and you help pay them out so they can you know i don't know what you do now if you're in retirement you can't go on cruises anymore so i gotta find something else i know right i'm just gonna be camping everywhere i'm i'm fine i'm finding another my joshua tree land or something like that i'm actually planning to buy two more because i feel like i get busy every weekend like i have yeah that's a brilliant

idea I haven't because we stayed on one in um we stayed on a piece of land like that in oh my gosh um I'm blanking it's like the place with um where all the rocks are like super colorful and multi-tonal in Utah um anyway it'll come come to me. Okay. Were you in Zion? Yes, there we go. Zion. And yeah, and we, I think they charge us 50 bucks a night to sleep on the ground. And we got to the site and there were like, you know, 20 other people scattered on hills everywhere. So I was doing the math like, huh, this guy isn't a rancher. He doesn't care about cows. He's a camp instructor. Yes.

I don't even have a bathroom on mine. So what I did, I have a shovel. So I'm going to start building a composting toilet. I'm doing it right now. I'm doing research. That's a good idea. Yeah. Now, Cody, tell me something are you proud of about your greatest challenge?

Oh, you know, I've had a few. I think, you know, this one's maybe a little controversial, but I think the hardest thing I've ever gone through is I'm divorced. And I actually find the business failures to be, they're so temporary. You can keep going. You know, it doesn't define you. You don't, you know, you don't fail at a business and then you introduce yourself as I'm like a business failed person. But for some reason, when you get divorced, you say, oh yeah, I'm divorced. Like that's a thing that you are now. And so I think that was probably the hardest thing I've ever been through is making a commitment for life like that and then not being able to continue it.

And so how that's what I'm proud of since then is that I am so much more thoughtful in my partnerships in every aspect of life, you know, with my gentleman now and with the businesses that I get into. And I have to ask the tough questions up front about, do we want the same things out of life? Where are we going to be? What would an exit look like if we need to have one? And so I am proud of making the tough decision and making sure it's not a, if I can have anything to say about it, it's not something that I ever repeat. Okay. Now, Cody, can you name a person who has had a tremendous impact on you and dealing deals and being a leader? Oh, yeah. I mean, I think probably the person the most at the top of my mind is Tiffany Lyft. She's my partner in Entourage Effect Capital. We're one of five partners,

but she's been in private equity and leveraged buyouts. So buying company, you know this, but for everybody else, so buying companies with debt essentially for 20 plus years. She's just about one of the smartest deal analysis people that I've seen and just really understands how to get into the minutia. She's also great because when you do distressed deals and you buy companies that are distressed, it's not a pretty business. Like lots of people are lined up to people, you know, there's, there's some people are going to have a bad outcome. Bad decisions have been made to get you to this position. It's, it's a little bit like being somebody's psychologist to go through distressed deals. And so she's really good at helping bring everybody to the table and she can be really tough

when she has to be, but in also getting everybody to feel like they're getting a fair shake, or if they're not really understanding why you're not like you did this to yourself, you know, you've got to deal with the consequences now and we're going to save your employees. And that's a tough skillset to have. What is the most challenging deal you've ever, uh, get involved with? Like the worst, like a nightmare deal. I'm sure that happens, right? Never, no, never gotten into one. Um, you know, not in, there's a couple, um, the, one of the worst deals for me personally that I got into was a business that I ran and, um, and I didn't set up partnership docs correctly for that business. And that business became really profitable.

And I just assumed that my partner and I were on the same page. And I made a lot of assumptions. And then when I wanted to get out of that business, I really didn't have any rights. I couldn't sell it without him. I couldn't force him into it. You know, I had to end up taking some equity for it because I didn't want to stay in the business. And, you know, he took a end up taking some equity for it because I didn't want to stay in the business. And, um, you know, and he took a lot more and a lot of cash. And so, um, you know, and thankfully we ended up without being able without being litigious. But a lot of times a deal with thinking about the end in sight if you're going to do it with a partner. If you're going to go and buy a deal, then that's okay because you get to set all the terms.

You're an army of one. But if you're going to go into it with a partner, your partnership agreement is so important. And assume that the business is going to be really big when you set it. So hire a really good lawyer and make sure that term deals and everything agreement, right? Yeah. And I, you know, to be fair, I mean, I think a lawyer is really important because you need it to be the right type of doc for your state, but you know, this, like the terms are pretty standard. So like, you know, we have a couple examples of, of, uh, partnership agreements in our, in our deal, um, that people can follow, but it's depending on the type of business, there's just a few things you want to

make sure you have in there. Like for example, example, I had one business where like you and I are both pretty public, right? Kate. So like if somebody wanted to use, imagine you got into business with somebody and you created a bunch of content and then they could use your, like then, and then you blew up, you became Tony Robbins. Right. And then if you don't have written in your contract, they could, they could use your likeness within the business. Cause you, all that, the content that you created is the IP of the business later on. So you could have nothing to do with this business anymore, or it could be like this much of what you do. And then it could be like, this is a, this is a Kate Hancock business, right? And you'd be like, no, it's not. And so putting in there somewhere that we have to agree to all promotions

in your business and that we can't use either's likeness without permission is really an important caveat that I don't see people put in. Yeah, absolutely. We made those, some of those mistakes. Terrible, right? Like I've heard some company like doing different spv and each like assets this customers list is different llc the media business different llc which is so smart you have to do that so when you sell it the the price is like way higher yeah that's a good point and not a lot of people do that and and in fact i haven't always done that in my business too. And I think you don't have to do it right away because usually you'll have a honeymoon period. So in the first year, as it becomes a real business, you actually figure out if it's making money or whatever, then you can start doing these docs. You don't have to wait to do it all before you have them mailed out, at least in my opinion. What do you think? Yeah, absolutely. I think when you see growth and kind of, then that's when you have to start separating all those different LLC. That's exactly right. Now, uh, Cody, what advice would you give to an aspiring entrepreneur? Um, well, one don't buy, don't build right now. If you haven't heard anything else from me, take that at face value, especially because, um, I think, you know, we sort of, and I've done it, we idealize

entrepreneurs, but it's, it's a damn hard game. So I love starting businesses. Just, you know, contemplate for a minute, buying a revenue stream to protect yourself. So you're not, you know, eating ramen noodles all day before you go into your, your entrepreneurial pursuit. And that would be my biggest push for people is really consider, can you buy instead of build? Because the, what you'll find is when you talk to entrepreneurs like you and I that have been doing it for a while, what is our preference? Yeah, we buy. And then we might start things that we're obsessed with anyways, but then we don't obsess about them monetizing. Right.

But the longer you've been in the game, the more you realize that you want to buy somebody else's 10,000 hours instead of do it yourself. Yes, absolutely. Instant customer, instant brand recognition and startup fail 80% anyway. Right. Exactly. Exactly right. I love it. Now, Cody, thank you so much for being here. What's your handle?

Where can I go sign up for your mastermind? Tell me. So I'm at Cody Sanchez, Instagram, LinkedIn. The website is CodySanchez.com. It's C-O-D-I-E-S-A-N-C-H-E-Z. There you can sign up for the newsletter. That's free. That's contrarian thinking.

And then if you want to check into buying businesses or newsletters, the course I think is relevant for anybody that wants to buy a business. Anybody can take that course and that's at howtobuyasmallbusiness.com. But if you want, like if you're positive that you want to buy a business in the next 12 to 18 months, do the mastermind. If you're not positive, don't do the mastermind. Um, because you know, well, one, we want to have people in there who are really going to commit to it, but, but two also it's not cheap. So start with a course, you know, figure out how to actually do it. And then if you're positive, this is the way you want to go. You can go mastermind, but, um, but that's what I would recommend. So, and I'd love to connect. Tell me if you guys are buying businesses, show me deals.

I love all this. I love it. All right. We'll get in touch. Cody, thank you so much for your time. I appreciate it. Thanks for having me. Bye. Bye. Yeah, it's fun. We hope you enjoyed the show. Don't forget to rate, review and subscribe and visit katehancock.com so you don't miss out on the next episode.