The Pomp Podcast - #922 Codie Sanchez On Building Cashflow Through Boring Businesses

Episode Date: April 19, 2022

Codie Sanchez is an entrepreneur, investor and the founder of the "Contrarian Thinking" Newsletter. She focuses on acquiring small businesses with hopes of turning them into immediate cashflow. In this conversation, we talk about all the "boring" businesses that will give you cashflow and help build an incredible portfolio. We cover everything from ice machines, ATMS, and renting out your pool and car. Codie and I also talk about new sectors in tech that she's excited about and how you can make $1000 a week if you're just starting out. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now, let's kick this thing off. Cody Sanchez is an entrepreneur and investor specifically focused on small businesses where she can acquire a minority stake and or optimize for cash flow. I always enjoy talking to Cody, and in this conversation, we talked about ICE vending machines, optimizing and automating a number of different industries, what she would do to make $1,000 a week if she was just starting out, and also how people are renting out their pools and their homes or cars across a number of different platforms. These brainstorm sessions with Cody are so much fun, and I hope that you're

enjoying them. Before we get into this episode, though, I first want to talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. They leverage LMAX Group's liquidity relationships and ultra low latency technology. LMAX Digital is the market leading solution for institutional crypto trading and custodial services. If you've never heard of LMAX Digital, it's probably because you're not an institution. They have no retail, only institutions. They feature a central limit order book streaming spot Bitcoin, Ether, Litecoin, and Bitcoin Cash, all paired with US dollars,

euro and yen. Elmax Digital, they're secure, they're liquid, and they're trusted. Learn more at elmaxdigital.com slash pomp. Again, elmaxdigital.com slash pomp. This episode is brought to you by Eight Sleep. Eight Sleep is the single best product that I have purchased over the last three years. It completely changed my life. I'm not joking. Pay attention. The Pod Pro Cover, which goes over your mattress by Eight Sleep, is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. You can go to 8sleep.com to check out the Pod Pro cover and you save $150 at checkout. They currently ship within the United States, Canada, and the UK. I told you it changed my life. It helps me sleep

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crypto, you're a seasoned DeFi degen, an NFT enthusiast, or a pro trader, you're all invited to a better future. Go check it out today and let me know what you think. All right, let's get in this episode. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, we've got Cody joining

us now. Cody, how are you? What's going on, guys? All right. So I want to talk to you about a whole bunch of different stuff. First, I've seen you posting all over Instagram, ice vending machines. And when I first saw this, I was like, man, I used to think that the two scams in the world were selling water and then selling air. And those two things would possibly not ever become a real business. And then the big brain somewhere came up with selling frozen water in a bag is in these ice vending machines. So explain what's going on here and how these businesses work. Yeah, it's wild. Well, we're actually doing a deal right now with one of the companies. It's called the ice house of America. And of course you could guess who owns them, which is private

equity firms. Cause they always know where the zeros are. But essentially what this is, is I was driving around Austin, Texas, and we have this one main street and I'm sure you guys have seen it too, but like gas station convenience store or whatever. And right next to it was this little house. And in the house, there was a line this day of people waiting to get a bag of ice that slides out the chute and they put it in their ice chest and off they go. And I was like, wait a second, no employees, nobody around, like no, you know, hard assets besides this tiny little thing. What I imagined was a couple hundred dollar lease. What is this business and is it profitable? And so I went down my little rabbit hole and realized there's this whole industry called

ice vending. And there are thousands of these all over the country. And they're kind of these little passive-ish businesses, similar to a car wash or a laundromat, where essentially you set up the infrastructure and then people pay you for common services. And what's wild is the margins on these things. I mean, a bag of ice in Austin, Texas is pre-inflation. So who knows now Biden numbers are different, but let's call it 75 cents typically. Now the price is closer to $1.50, $1.75. And your bag costs you anywhere from 15 to 25 cents. And so you make the margin or the difference between the two. And I love these little boring business. Nobody thinks about super easy to run high margin, low people businesses. So pretty much all you have to

do is you have to hook up the water and then it's freezing it inside of the machine and making the ice. And really the only other material, uh, is electricity and then the, uh, bags themselves. And like, if you have those three things, then you're in business with one of these machines. That's exactly right. You need the land, you need the machine, you need some bags that are inside of it and you need a water hookup and electricity hookup. And then you want to be like on a street corner that has about 10,000 cars a day. That's pretty easy to check. Any realtor will be able to tell you what the car count is typically. So you need some foot traffic or to be located by like a school or lots of construction sites or a lake, national parks. But that's kind of all you

need for this sort of business. And then it's relatively cheap to start anywhere from let's call it 25 to 150K for the machine. And then like I said, you could lease the land, but the machines, you get equipment loans on. So those start at a couple hundred bucks a month for you to kind of get rolling. And the break-even looks like you start breaking even, well, you start making money month one, if you do your due diligence right, obviously, and pick the right location. And then it looks like the break-even on these things is anywhere from three to six years, which is really low for real estate. So when you think about this, ATMs is a business that we've spent a lot of time looking at. We actually have a Bitcoin ATM sitting in here right now. When we think about those,

they're paying the gas station or location to put it in their store. And that's why the store allows them to put it there. And then they just are taking their fee. Are these ice vending machines, are they paying to place their unit or are they just paying some sort of like lease or like, how does this work exactly to the way that they get it in the location? Usually a lease.

So very cheap because you only need one segment of the parking lot. Let's call it like a parking space and a half so that people can, turn around. So they're leasing and the leases are pretty cheap. Like I said, I mean, it depends on the city. So wide variability, but let's call it 200 bucks to 500 bucks a month. You could have a lease on something like that. I'd probably go on the lower end there, but you're exactly right. Now, the reason I like ice vending, I've done a decent amount of looking at ATM machines. You guys are the crypto king, so I'm not going to mess with you there. But the ATM machine model, I don't love because the margins are actually so tiny and cash is increasingly not as utilized.

so um bitcoin i think is is interesting um but any of the people that have reached out to us we own some laundromats they've reached out to put bitcoin atms in the laundromats um and they pay us a flat fee because my understanding is uh you can't take a cut on bitcoin transactions without some sort of licensing so yeah that's the difference between the two got it that makes sense um there's other vending machines i know that you're very interested in ice is obviously probably of the most basic, just freezing water. But Carvana is like on the other end of this spectrum where they're literally have a car vending machine. And I remember there was some pretty big profiles and articles written on the Carvana founders. It was this really hot company kind of

pre-tech route. But why is that business so interesting to you? Yeah. Have you ever seen one of their vending machines? They're pretty cool. They're wild. So for people who haven't seen it. You should Google it right now. But basically like, let's say like five or six stories glass kind of looks like an elevator, but for cars and inside of it is, you know, you can select on a little app or on your phone or website, the car that you want and literally click purchase. And then the car rolls out of the vending machine. My brother actually bought and sold one through Carvana because they do used and new. The wild part about this company is I went to high school with the founder of it. His name's Ernie Garcia. And back in the day,

What I like about this business, it's kind of techie today, but there's two reasons I like it. One is it started from this other company called Ugly Duckling Cars that got bought and turned into this company called Drive Time by his dad. But basically, he just bought up used car lots, made a ton of money, was one of the richest dudes in Arizona where I'm from. Oh, there we go. That's a picture of it. And through this boring business, his son then did what I think is going to happen across the US, which is taking these old, boring businesses and transitioning them into 21st century, technologically forward businesses in ways that we can't imagine. And that, I think, is Carvana. So Carvana now is like $16 or $18 billion market cap. You guys can check. They're

publicly listed. Ernie is a billionaire a few times over. So is his dad. And they all did it through taking these boring businesses, doing another boring business, which we know all about, which is vending machines, compiling the two with technology and making it easier for the end user. And think about it. There is nothing more miserable than going and buying a car and having to go to the salesperson and there's all the tactics and you sign the thing and they give you a hot dog and so you have reciprocity. The whole thing's a nightmare. And basically, Ernie just said, what if we put this thing in a little tower and we just vend them out? And millennials don't like to talk to people ever, if humanly possible. So we're going to

cut out the middleman. And with that, we're going to actually be able to take a better margin and profit. So they've totally crushed it with the boring business integration. Do you think that more and more vending machine type businesses will pop up where this is vending machine of cars, there's vending machine of ice? Will we see this over and over again? And what I immediately think of is there was a startup, I don't know if it ended up being successful or shut down or if they're still going, but they were basically creating the equivalent of a vending machine mixed with like a bodega. And they were putting it in apartment complex, you know, lobbies where they were saying, Hey, rather than just come and get,

you know, your pack of peanuts or a Gatorade, they had kind of a much larger variety. It was higher quality goods that were inside of this, but it basically was a vending machine that you pay. There was no employee, et cetera. It's like, is this going to happen across the entire economy? Yeah. I mean, I think you're already seeing it. Think about, have you, you know, in Miami, maybe not as much, but definitely in New York and even in Austin, you go to an apartment building, right? And you used to have like boxes piled behind the front reception desk, right? For Amazon and whatever. What do you have today? You have a literal box vending machine, right? And so you like input this code and in the code, it pops open some door that's special size for the type of

box that you can have. So you don't have to talk to a human. And so I think this is going to happen all over the place. And vending won't be the only thing. I'm not like thinking there's going to be a vending revolution, but anywhere you can decrease the amounts human engage because what happened through COVID, we're going to remember that. That's our PTSD of our generation. So anything where you can decrease the interaction between humans, where you can automate processes, and then given the fact that people don't want to work as much anymore, and we're having this great resignation and the great retirement, people can't get this level of labor. And so what's going to happen? Anywhere where something can be automated, it's going to be automated in the

future, I think, uh, except at the highest levels for service and luxury. And so, yeah, that's, that's my bet at least. Yeah. It does feel like this is just all a form of automation. It sounds kind of dumb and elementary when we call it a vending machine. Right. But like to some degree, that's what we're watching happen here. Um, when you start to think about, uh, existing businesses, how much of this is going to be like the Carvana example where, uh, somebody understands enough of the industry, but they're younger. And so they say, Hey, let's go in and, uh, and kind of revolutionize this industry versus it's actually the people who own the business today who are constantly just trying to save costs. And they're going to have the foresight to kind of do some of

this. I think it'll be a mix. You know, I have a friend, Brendan Wallace, who started a fund called Fifth Wall, and it's all built on the built world. So his idea was real estate is the most sort of backwards old school industry out there. There's like paper ledgers. There's nothing online. You blockchain guys hate that. And so most real estate companies, a lot of them still have keys and actual lock boxes, right? It's really archaic. And so he built this fund that's now multi-billion dollars that all it does is look for where can we apply technology to the built world, aka real estate. And they actually have a storage company that two guys who were in storage, so they understood the industry, said, wait a second, why do we have these storage

huge boxes, you know, like you go to a storage center and you have this whole huge box. And like most of the time, those things aren't filled all the way, right? It's not like a capacity utilization in the smart way. So they were like, why can't we instead take your stuff, catalog it actually online. So we know everything that's in your storage unit. You don't have to dig through all of it. And then when you want something, you actually ping us on demand for that item. It's almost like, you know, if you could imagine like a dry cleaning thing where you're like, it's like spinning and then you grab the shirt out of it or whatever. That's their idea for the storage company. So I think it'll be a mix. I think my bet is, we invest in all of these

boring businesses, right? Like mom and pop shops. And I'm seeing those companies be bought or taken over by the younger generation who are saying like, why are we doing it this way? This is crazy. And so applying something to their pain to create a solution that becomes a new company, AKA Carvana or the storage company. And then of course, I think you're going to have people come in. Like, I think we both know Harry Hurst from Pipe, who was like, why are we doing credit this way? Why can't boring businesses or normal businesses get better credit based on their future invoices and payments? And so he created Pipe, fastest, I think, company to a billion dollars valuation. So, and he was an outsider, right? Yeah. It's fascinating to kind of think

through. As we go through this market downturn, I know that you've always been very focused on cash flow, which tends to be a pretty effective way to weather these. How are you seeing people take liabilities and turn them into assets and any examples there? Yeah, a couple. Well, one, I think this is huge. So a lot of people like to talk badly about this. They're like, these businesses are too simplistic. We could be much smarter than this. But in my mind, and we've already seen it, what's happening with inflation? And then if you end up losing your job or we have this recessionary pullback or your assets aren't worth what they used to be worth, I think people have to start thinking a lot more intelligently about the things they already own. And you're

starting to see it. So a couple of things that I'm pushing for even my family to do is things like renting out cars on Turo. We have a couple of places and in every place that we're not in, we rent them out on Turo and we rent them out on Airbnb. And then we own part of the property management company and we own part of the, um, vehicle management company. So like owning the companies that can actually turn the things that cost you money every month into assets is something that people talk about, but very few people do. And now there are all of these companies that do this. I mean, there's a company here in Texas that does it for your pool. So you can actually just like rent out your pool to people. How much does it cost for me to rent out a pool?

I think it varies, but how nice of a pool you want, pump. Um, but I think if you're at home, somebody just like comes over and it's like partying at your pool and you're inside your house. Yeah. It's called swim play, swim play, like swim, simply rent beautiful private pools by the hour. Now I have no idea if this thing's a joke or not. I've never actually used this company, but, um, but they've been around, it looks like for three years. Uh, and so I think you're going to have this stuff pop up everywhere because we've been seeing people buy things at record levels during COVID and they're going to have to figure out how to deal with that. I mean, another great example is like in Miami here with these pools, you see

this 45 bucks and get like a nice, nice pool in Miami, a hundred bucks an hour, a hundred percent. You got to go to someone's house. Yeah. I mean, of course. Yeah. Do you say, can I use your bathroom real quick? I wonder, do you get to actually go into the house? Like what if you have to go to the bathroom? What can you use the grill? Like, I wonder it's probably all within the, there's actually like a lot of pools on here. I wouldn't have expected as much inventory, but there's like a ton of them. You know what else people are probably going to start doing? is uh i bet you you could rent out if you got a really dope basketball uh court either uh if you got like a big house that's on your property or it's in your driveway and uh if the public parks

are always uh backed up then you could basically just rent out the uh basketball goal and say hey you and like all your friends can come play basketball on my driveway i assume they essentially this gets built out for everything right like obviously houses were first with airbnb taro is cars they have boat setter for for boats here in miami now you can do pools like essentially anything that anyone else wants to use or rent that they don't have, you could build that a service. Yeah. Cody, talk to us about the Turo business. How, how, uh, how does that work? Well, that one's interesting. So, um, basically how it works is, uh, you have a car, whatever your, your normal vehicle is, and you list it just like you would an Airbnb on an app. Okay. And

the app essentially allows somebody to rent your car without you have being the middleman there there's insurance through Turo. All the payments are done through Turo. Um, you have reviews just like you do on Airbnb and you can rent out a few of them. And so we actually have, I don't want to manage the individual cars, but what we've done is just reached out to other people when we've rented in locations and said, and if it was a good service, basically just said, Hey, you want to rent out a couple of our cars and just take care of it when we're not there. And then the cool part is when we come into town, we're like, drop the car off the airport. Like we'll see you and meet you there. And then we're going to drop it off at the airport. When we get there, somebody

like we'll pop in our car and take it away. And then, you know, the part that I think is interesting that people haven't thought about yet is just like the luxury level, level of these services. Like I would pay an extra couple hundred bucks for somebody to do that drop off and pick up for me at the airport with my rental car, like every single time, as opposed to having to go to Hertz or do the thing or get like a black car everywhere. Um, so I think that Lux level is going to actually happen a lot more as well. And I haven't seen that happen yet. Do they have any services that will rent private drivers? Uh, so like not Uber where I order a car and then they take me everywhere in their car. But I wonder if there's people who say, you know, I got a balling

car, I'm keeping my car, but I just want somebody to come drive me around in it. Oh yeah. There is a service that does that. I got to imagine somebody, somebody, somebody, yeah, of course it's in Miami. Like somebody somewhere definitely has got to have that one up and running. Right. But like, to your point is, uh, there is this whole kind of, uh, technology slash like economic transition that's occurring where you can pay for things by the hour. You can use the vending machine type model. Like you just see the economy slowly shifting, uh, to something that's more technology enabled, more marketplace enabled than, uh, than maybe we previously saw, you know, 20, 30 years ago. Yeah, I think you're exactly right. And then people always kind of talk about

like, well, I don't have enough money to do that, but it must be nice. Cody, you got a few cars or whatever. And my response is like, there's always like three sides to the marketplace. You know, you can have, of course, you can have the people with all the assets who have the things that they can rent out. But you could also be the guy who does logistics for the people who have the stuff that they want to rent out. Or you could be the guy who says to the people with money, hey, I want to buy a bunch of cars and rent them out on Turo. Why don't you back my venture? We'll be partners in them. So I don't think having money or not having money is an excuse. You could be into any side of the three-sided marketplace and do the same exact thing. And in fact, like you guys

know this, I'm sure it's damn hard to find people who want to operate businesses right now. And so, you know, if a young gun came to me with a business plan flushed out, those are my favorite type of people to get into business with. Do you want to know the business that I absolutely would get in with somebody if we found the right person to do it is Airbnb party houses. So the whole idea of airbnb is people rent out their homes but what does everybody want they want the like family coming on vacation that's going to take good care of it like don't have any parties it's usually written in the airbnb uh you know description like everyone wants the uh really boring use of their property but what is everyone who's renting trying to do right i know a ton of people

who are like damn we're gonna throw uh a party it doesn't have to be like you know kegs and and uh kind of like a frat style party but it could just be a wedding reception it could be some sort of a baby shower or you know whatever but they want to actually have the party at a nice house and so if you could find a bunch of them who said yeah sure like as long as you guys come here and clean up afterwards and there's insurance and you know kind of all the downside risks taken care of like actually i want people to throw parties here i've got a great backyard for barbecues or whatever, to me, that feels like a huge opportunity that, you know, goes directly against what most people on an Airbnb want to do with their home. Yeah, that's such a good point,

actually. I wonder if that exists. Yeah, we one of our Airbnbs, we, it was in Austin, Texas. So this is like on brand. But basically, our Airbnb manager was telling us that he saw like 20 people come into the Airbnb, but they were all bringing yoga mats. But it was like nine o'clock at night. I was like, what are these people doing in the house? Cause we have an outdoor camera there. And it's a, it's a nice house. And, and basically, and then they moved all the furniture around and we have a sound audible, you know, measure in each of the Airbnbs we have to make sure somebody doesn't throw a

giant party. But essentially what I think they were doing is they were totally having like a psychedelic journey or whatever in our house. They like left us this ridiculous crystal at the end of it. It was like so often, but I'm sure there were a lot of flappering hats, you know, and whatever feathers. but um but the moral of the story what we found out later from the guy is like yeah we charge like you know five thousand dollars a person to to throw these so if i was only charging 1500 bucks

a night and i you know had your model i'd be saying yeah i want 5k but have a have a party do whatever you want set up the shaman crystal don't care um so i like that idea oh i think people would pay bonkers numbers in miami one of the big things that actually happened uh is i know a couple of folks who they would come for, you know, whether it's Miami tech week or, uh, the Bitcoin conference or whatever. And they were like, man, it was really hard to actually find, uh, an Airbnb, uh, because I I'm bringing my whole team. And I was like, what, what do you mean? And what they were explaining to me was they were bringing, you know, seven, eight, 10 people from their company that lived all around, uh, kind of the country or the world. And so they wanted to

rent a full house or to see, or, or, you know, to kind of have seven, eight, 10 people live in a house in Miami, you got to get a pretty nice house. Well, it turns out that the people who have those really nice homes on Airbnb, they know that people are looking for these like corporate retreat style destinations. And so a house that is, you know, three, four, $5 million, they were renting them out for anywhere between 50 to $75,000 a month because the corporates were paying. Right. So if you're going to, you know, how much would you pay if you're going to bring 10 people to a city and not only are they going to live there, but that's where you're going to do work or whatever for like a, a two week off site, would you pay, I don't know, $35,000 as a

company? Like maybe that doesn't sound as crazy because if you start to do like 10 hotel rooms every night for two weeks, like it gets up there. And so I was fascinated with this idea of basically luxury homes, but they're not renting them to families or to individuals. They were renting them for this more like a kind of corporate offsite for companies that are distributed in terms of their employee base. I love that. I got to go fire my property manager because we're not getting $35,000 for a weekend. Everybody's fired. But I love that idea. I also think, you know, I'm really into, I think we're going to talk about this too today, but this idea of how can we get people access to these sorts of investments? So like, you know, this Airbnb,

for instance, we own a few, it's kind of a pain. Like the reason I own the property management company too, is did you pay the guy 20 to 25% for them to manage your properties? And that's a lot of the cut after the, you know, whatever, 10% Airbnb takes. And so I wanted to own both, but then it's, you know, it's also expensive. You got to put the money down to the place. It probably I guess it costs you $3,000 to $5,000 to get it set up right for Airbnb with cameras and everything you need. And so I've been sniffing around a lot, and this is more your lane these days too, about how can we get investment access to these types of deals at cheaper levels?

And so I'm messing around. There's this one company called Here.co. I'm early on in due diligence with them, but I like the model. And they basically let you fractionalize Airbnb investments so that somebody can get in with $100 or $1,000 and they've done it in a way where you don't have to be accredited. And so I like, I love the idea. I mean, when I see the returns, we have rental properties, right? Normal ones, somebody rents for a year, whatever versus Airbnb. I mean, the numbers are astronomically different. We keep both because I think it's important for our market, but

Airbnb is so much more profitable if done right. What are some other ideas that you're like super interested in right now that are just weird? Like, I know that you guys are setting up a fund and so you guys have maybe can't share all of the weird, weird ones, but like, what are the things that people wouldn't think are good investment opportunities, but you guys are like, man, we love this idea. Yeah. Well, that's the fun part these days is I think there's a lot more. So the, the, our, I have sort of a thesis. The thesis is this, that we talked about it early on, but that boring businesses are going to transition to more technology and innovation within these businesses that nobody cares about, AKA landscaping, plumbing, you know,

air conditioning companies, et cetera. There's been this whole revolution where more elderly citizens, baby boomers, whatever, are retiring and they're shutting down these businesses or transferring them to the next generation. So there's a wave of a bunch of people like me buying them. That's cool. But the problem with just buying boring businesses is you don't get nonlinear returns, right? Like my plumbing company is not going to be worth $100,000 this year and then 100 million in two years, unless we do some crazy things. But you can have those kind of jumps with technology. So the part that I think is interesting is Silicon Valley is right now a lot focused on the metaverse and a lot of things that I don't fully understand that are super sexy that

I think are interesting, but they're not as much focused on these boring businesses that can have incremental return with technology. So that's the stuff I'm interested in. For example, I don't like to own franchises typically outright because I don't like rules. That's why I'm an entrepreneur and probably unemployable. But there's this company called Franchairs. And this company actually fractionalizes franchise investments in a fund platform, similar to like Fundrise or Wealthfront. And so that's, I think, super interesting. And then another one that I want to do more of, similar to Pipe, is factoring. So we're looking at a few companies. This couldn't be more boring. People are probably falling asleep listening to me. But basically, there's

all this money trapped in small businesses. So if you talk to anybody that runs an e-commerce business, their life is pretty miserable. They could be doing $50 million, but they have like $0 in their bank account because they have to forward buy all the inventory. And now with supply chain issues, they might not be getting the inventory to then sell it, to then get paid like net 30 or net 60 on some of that if they sell to retail. And so there's all this trapped money. And I think there's going to be some really interesting companies that open up that trapped money that allow for these companies to be a lot more profitable because they don't have a 30 to 120 day window where they're floating the revenue of the company. And that's called factoring. So

those are a couple of ones that I think that are interesting today. Got it. And so when you start to think about this. Would you rather own what I would consider like a traditional small business with cashflow, like, um, I don't know, a plumbing company or, you know, those types of businesses versus like an ice vending machine. How do you balance, uh, not just like an economic underwriting of like which one makes more money, but how do you think about the risks and upside of those two different types of businesses? I think buying small businesses is like buying real estate. You got to scale up. And so it's just like a stair step. So you, the reason I talk about things like laundromats or ice vending companies is because they're much cheaper to start with less

risk typically. So, you know, you can buy an ice vending machine for $30,000 on, uh, you know, a line of credit. You have an asset that you could actually sell to somebody else and you don't have that much in reoccurring costs. And so that's a pretty cheap way to get a cashflow day one, theoretically. Um, and so I talk about those, but that's kind of like real estate. Like, you know, you could buy your little apartment and then the next one, you buy a townhouse. And then after the townhouse, you buy the multifamily, then you buy, you know, the industrial land or whatever. And I think the same with buying businesses. So for me today, I need to buy bigger businesses for them to be worthwhile. Because the bigger business you have, the more fat you have in it,

that can absorb some of the pain of running a small business like people quitting and having to deal with labor costs, etc. So when you're just starting out, you want a lean business, probably that you can learn from that's not too much risk, something like, potentially, a laundromat or a car wash or an ice vending machine business or a vending machine business because they start small. And then you realize, oh my gosh, doing a small deal is almost as much work as doing a larger deal. And it's probably more work following because you don't have the employees in the business, the fat in the business that allows you to step out as the person who is the owner of the operator. So when you say plumbing versus ice vending, I think more like

size and scale. So if I have an ice vending business, that's like 150 locations and I have a bunch of guys that run it and they send me checks every month. Great. But if I have a plumbing company that, you know, only does $300,000 in revenue and $50,000 in profit. And so I'm, you know, having to fix toilets, like probably not so great. So I think it's really a size thing as opposed to industry sector. Yeah. It's fascinating to think about that. Uh, talk to us about this fund. I don't, I don't know what you're allowed to say, what you're not allowed to say, but you're starting a fund, what, to help people invest in these opportunities, but you'll be the one selecting or how does it work? Yeah, exactly. Well, the cool part is,

so I haven't raised money for two years because I've just seen valuations look crazy. And so I didn't want to raise money and deploy capital in that type of environment. Now, what I'm starting to see is that on the early side for investments, you're starting to see valuations come down. I mean, everybody's been talking about this. Companies are starting to have down rounds right about now is when I think makes sense to raise a little capital. So what we're going to do, typically I've only raised from institutions because, and you know this, you had a fund for a long time. It's a pain to manage other people's money. If you don't have to, it's actually more fun and easier just to manage your own. But we have this ecosystem at Contrarian Thinking,

which I think will be fun to have people have access to. You have to be accredited. We're going to do it through AngelList. It's going to be very small, like five, 10 million bucks max. And the idea is, you know, invest on these four trends. One, great resignation. Two, great retirement. Three, the fact that increasingly these boring businesses are not selling at all. There's so much supply and not a lot of demand. And then four, ecosystem. So you have this too. I've never seen something more powerful than a media company paired with capital. The fact that we can de-risk investments like Franchairs, for instance, before we were looking at them, we sent them out to our email list and we're like, do people want to invest in this? And then like 20,000 people signed up for the email list. They got a couple million dollars in investors that wanted to come into their next fund. So I was able to actually de-risk our investment slightly through our audience. And so that's the idea is maybe there's this

flywheel these days, and Dreesen Horowitz saw it, between not just having capital, but capital and audience and then capital and then audience and then capital and audience. And I think that'll be one of our differentiators in the boring business space. Yeah, it's fascinating. My last question for you is, as part of going bigger, getting bigger companies, valuations coming down, I know that you've been communicating with the companies you already do own a portion of about just like, hey, prepare, like tighten the belt, I think is the way that you describe it. What is your thought process in terms of why they should be prepared for a potential more pain in the future. Yeah. Do you ever remember the Sequoia? Sequoia or Andreessen Horowitz set the tombstone

PowerPoint out. You remember that? Yes. Yeah. So they sent that out in like 99, right before the tech bubble burst. And like, I'm not that smart, but I was in cannabis before this. That was one of our other funds. And I sent that email out to all of our cannabis companies. Let's see, right before the cannabis downturn, which would have been like 2017, 2018. And I was like, you guys are crazy. Your valuations are not right. You're doing market share land grabs. You aren't profitable. This is going to go sideways. Start socking away cash right now, raise capital right now, and start tightening your belts because it's going to be painful. And again, it doesn't take a rocket scientist to see this. I said this, it's public. You can see it. I said it at the biggest

conference in cannabis. Lo and behold, the cannabis market tanks, it's never really recovered from that point, even though the companies that have stayed solid are now moving towards profitability. And I think the same thing is going to happen for us in the early stage market right now. And it's already happening. I mean, we've seen a ton of these companies. I mean, how many shows on Netflix are about these companies imploding lately? I think we're in that same segment. So I've basically said, hey, listen, all-time high inflation, um you know decreasing gdp we've got the second largest port in china uh looks like it's going through shutdowns i'm getting sent crazy videos from my friends in china i gotta send you this

one pomp it's like they she lowers her dog in a harness with a helmet on outside of her building in shanghai uh it's like she's three floors up on a rope so the dog can pee and then then they rope the dog back up because they're not allowed out of their house um so like we're gonna have these ripples that are wild. And if companies aren't ready for it, and you don't have at least 18 months of runway, I think you're going to think you wish you wish you had. Yeah, I tend to think you want to be prepared in case it goes really bad. And if it doesn't go really bad, then you can accelerate, deploy the money, grow, and everything's fine. And you'll laugh about Oh, man, we were we were over prepared. But it's kind of like a natural disaster. Nobody when the really

bad natural disasters hit is mad that they prepared. 100% of people that over-prepare always are like, man, that was a waste of time, right? But then the question is not like, hey, should we have done it or not? It's like, what do you do the next time? And so that feels a little bit like businesses, right? Of like, look, who knows how bad it could get, but being prepared is going to end up being an incredibly important detail here. Joe, John, what questions do you guys have. Hey, Cody, my question would just be around how people get started and your thoughts around kind of borrowing money or taking on debt to do this. I assume that is not the recommendation in most cases. But in a lot of cases, also, people don't have the capital that maybe requires to

start some of these businesses. Just talk me through your thoughts on how people can start with a little bit of cash if that's all they have. Yeah, well, a couple things. One, you can do an SBA loan with a personal guarantee. I think that's really scary to do if you don't have any money and it's your first time doing a business. So my personal, like if I was in that case, I wouldn't want to do that. I wouldn't want to put everything I own on the line for a business that I've never bought before and run it. That's scary. Kudos to the people that do that. Now, if you've run a bunch of businesses, that's not so scary. You're like, oh, great. This is like basically free money. Here's how it works. No problem. So when you're first starting, what I like to think about

is there's like three legs to the stool. You either have money, you have time, or you have expertise. Most people only think about one leg. I don't have money. I can't buy a business. They forget about the other two. If you have expertise, you can use your expertise to get equity in a business from telling other people how to run it. And you would just negotiate that in your package. AKA, if you're a plumber, get partnered with somebody who has money or who has time and you're the expertise and they're the time and the money. And the same thing with time. If you don't have expertise or money, go to somebody like, you know, I don't know, let's say Joe is really into this idea on Turo. Go to Joe and say, Joe, I don't have any capital to buy a bunch of

these cars, but here's my business plan. I put together this entire thing. Why don't you go in with me from an equity standpoint and we'll do this business together. Then there's also a couple of examples. And I think one's called, I was just looking it up over here. This one's called like this 23 year old bought a 250K business for 1K. And basically it's about a young guy who bought a cleaning business. He started a cleaning business while he was in college. It's at Contrarian Thinking, if you guys want to check it out. Started a cleaning business in college, then bought one of his competitors' business who was retiring through what's called a rep share. So he was like, I'll give you $1,000 down, and then I'll give you

25% of the profits for the next three to five years. I can't remember the deal terms there in the article, but that happens all the time. And so what I get upset about is people say, no way can you do this you can't start a business with any money you can't buy a business with just a thousand dollars and that's just categorically not true is it easy do they just come across your desk do people just wave money in your face no no fucking way but are they an option yes they are you just have to learn about deals and terms yeah what do you got that's that's great i've uh looked at a bunch of them and a lot of seller financing is a big option that people try to do but i'm curious how do you advertise for all these businesses i'm sure it's different from

vending machines to laundromats, but like, how do you think about advertising? Yeah, it totally depends on the business. I mean, most of these businesses, if you have one thing that's crucial to small business, it's reviews. It's, you know, Yelp reviews online. And if you could optimize for reviews, then in service businesses, that's the holy grail. The cool part is there's a lot of technology now that lets you be a lot smarter about reviews. Most small businesses do not optimize for reviews. Think about it. How many times is your cleaning lady, your handyman, your roofer sent you like a follow-up text message, like with a nice little note or maybe a video explaining to you how much a review means to them. How many of them have an

actual process for follow-up in case you don't do a review for them? That is the best form of advertising for small businesses like this is reviews. And there's actually a cool software, I have to think about if I can grab it really quick, that allows you nice job. So it's called nice job and you integrate it with your CRM, your customer relationship management system. And basically, it is a way for you to do a follow-up to get reviews that a lot of small businesses use. It's really good. You could also use Jobber, but NiceJobs is more particular for this one. Gotcha.

Cody, the last thing I want to ask you is if you today, it's Monday, by Sunday night I challenged you to come up with some sort of activity or business where you could make $1,000 per week, what would you do? Without any of our unfair advantages, I'm guessing. it. You just started from scratch. You want to make a thousand dollars per week. What do you do? Gosh, I think probably the easiest thing to do, uh, because it's, it's not that hard is like, go to anybody who's a media persona. I'm sure like, like you or me, um, and start creating content based on their content for them. I think you could not just make a thousand dollars a week. You could make thousands. Like I have people who ping me sometimes sporadically, like memes, let's say for Twitter, or they'll ping me like a little video of just my stuff chopped up.

Like, even if I'm not a good talent, I would just go and watch a bunch of your stuff. And then I would get on Fiverr and get a designer, a video editor based somewhere offshore. And I would send you like three to five videos like, hey, do you like these? It's so awesome. Use them, you know, and if you think they're interesting enough, I'd love to create more content for you. We, everyone I know is so hungry for content and we all make a lot of money on the internet and otherwise, I think it's a no-brainer to become an outsourced content creator. You could

create an agency in like five minutes. I mean, it's wild. Yeah, that's a pretty good answer. I think one time before we thought of, what did we say? You could go, if you want to make a thousand dollars one time for the weekend, you probably, you'd have to hustle, but you could go make a couple hundred bucks as a golf caddy, et cetera. The problem is that a lot of those, they're not very scalable. And also, they're very difficult, because they require some sort of physical labor, etc. And then in some way, like, the payment is kind of a tip, right? So like, you know, maybe you get a good tip, or maybe you don't. With this, it's pretty clear, you're running an actual business, you can scale and also you can set price, which ends up being

a much better business to be in than like, hey, I'm gonna go make some extra cash as a as a caddy. Yeah, I agree. Maybe the other thing, if you want to go more manual than tech, would be like, I might just go buy a power sprayer or something from Home Depot. Actually, you could probably just rent one and run around a nice neighborhood somewhere in your city and ask if you can power wash people's driveways. like, well, this looks kind of dirty. Do you do need some power washing on this? You can't really screw up a driveway. So I don't think you could, you know, I wouldn't power wash a house to start with, but that would probably be a really quick way. If I was a young kid to run around a neighborhood and do something like this services are really hard to get right now for almost everybody. I mean, we got a quote from a pool guy yesterday for $400 a month to clean our pool. So anything where you can make somebody's house nicer and easier and serve them like this,

i think you could probably make some money really quick how big is your pool you got a pool the size of the ocean for a hundred dollars to just come and clean it it's the littlest pool this is like this is not a mansion it's just austin has such an influx of people that we can't get somebody who can put us in the rotation um and they're like well maybe we could do it if we paid four hundred dollars i was like i'm about to learn about pool cleaning it's not happening cody how do you think about like if you went and got a power wash for example how do you think about pricing in that market? Cause I'm sure there's other people that do power washing. So like, do you just undercut them on price and try to get as many customers as possible? Or

let me ask you a question. What does it cost to power wash your driveway? A hundred bucks, $300, somewhere in that range. You have no idea. Right. So I have no idea. So I would basically just go around the neighborhood and I'd start at one price and then I'd keep going up to the number of people that said yes. And then I'd stop once they start saying that's ridiculous. I think like, you know, I would probably say, yeah, it's, Oh, I've got a great offer for you. Usually this costs $300. I do it today for $99. Cause I actually live in the neighborhood. This is my first business. Would you like, you know, do you think you would give me a chance at doing some power washing today? It looks like, you know, there's pollen it's springtime. This is

really good time. You don't want that stuff to set on your driveway because that could totally stain it. I mean, I would like come up with some spiel like that and sort of rock and roll. And then I'd probably be extra lazy and I'd post it somewhere. Like what's that terrible site, like next door or open door next door. Right. Everybody's complaining about their neighbors all the time. Yeah. I'd post it on there. Um, and I'm sure you'd get people without even having to go outside your door. Gotcha. Where can we send people to, uh, one, follow you on the internet, but also to, uh, subscribe to the newsletter and find out more about the fund. Awesome. Um, Cody Sanchez on Twitter, uh, C O D I E underscore Sanchez on Twitter. And then contrarian thinking

dot co is our newsletter. And that'll be where all the fund information is. Once that goes live, Look at that. That's us. I love the Twitter banner image with censored. Yeah, well, I thought that was sassy. Last thing, actually, I lied. I have one more question. Tell me.

Yes or no, Elon ends up owning Twitter when it's all said and done? I'm with David Sachs. If he does not have the right to buy the company at the type of valuations he's putting out, There's something corrupt happening in the free markets. I think it is categorically wrong what the Twitter board is doing, although not surprising. Yeah, I think that the like the variable that no one's accounting for is if all of a sudden Elon, Tomo, Bravo, Peter Thiel, like there's a whole bunch of different people who could come together here and be like, name the price. oh yeah give them a bear hug that's what it's called an offer too good that you can't refuse um you know and if if i think people this is interesting because here's m&a happening live

um but i think people should if you want to learn about this i mean you could read like barbarians at the gate was an old school one you could read about carl icon i think it's called king khan or something like that uh has a good book about him activist takeover we were involved in one relatively big hostile takeover and they're they're gnarly and i've been involved in a few tender offers. But the problem is, you know, it's terrible for Twitter shareholders. It is an expensive proposal to go through a tender offer. It's distracting for the company overall. These guys definitely don't need it. So, yeah, I think you're right, though. Elon's a dog on a bone, unless there's like some other reason that he's doing this that I don't understand,

which could be true, too. I last week put together my what I thought would be the perspective, uh, uh, Twitter executive team. And I said, Elon should be the chairman, Peter Till, the CEO, Jordan Peterson could be president. We could have, uh, Keith Roboy as COO, Donald Trump as CFO, Dana White as a chief marketing officer, Snowden in charge of security, Joe Rogan as the head of HR, and Tim Dillon would take over investor relations. And I think that the company would be worth $20 gazillion. dollars yeah that's the best line i'd invest in that company i'm seeing tim uh yeah i'm seeing dylan tonight he's uh live in austin um he's a national treasure yeah i think you nailed it your

takes on twitter are second numb i can't believe i giggle so much about bitcoin so silly yeah it's uh i mean look anytime that you can put together a whole list of uh white men and then you call it the anti-woke team you can imagine the people who get very upset about uh yeah an obvious joke I think next business needs to be ways we can make sure we scrub all of our addresses off of the internet. Everybody always yells at me for not telling who my businesses are online. They're like, you don't own any. I'm like, have you met you guys? You think I should tell you what businesses I own?

What is it? The adversarial Yelp-like thing to small businesses. That still blows my mind. It's like now Yelp will actually lock reviews if there's an influx of a bunch of negative reviews in a short period of time. because they feel like the mob is trying to destroy a small business. Whether it's warranted, not, whatever. They've put things in place to try to prevent some of that, but still. I think it's smart.

It happened to Nick Huber, a sweaty startup, a mutual friend of mine. He just got his business online. The reviews were just crazy, some death threats and stuff. So yeah, I'm not trying to put my small businesses through that because it's one thing if it's my – fine, go online and yell about Contrary and Thinky and that one's public. But, you know, don't mess with with my guy who's like a first gen immigrant to the U.S. that runs our landscaping business because you don't like something I say and I happen to give him money. That's ridiculous.

Yeah, I completely agree. All right. It's always a pleasure to have you on. We appreciate it very much. We we I'm waiting for somebody to pitch me like a really good one and then I'll make you a promise. I'll call you and we'll we'll do it together. But if anyone in Miami has a $45 million mansion that they want to rent out for parties, call us.

Yeah, bike-a-delic or otherwise. We're mixed Miami and Austin. I'm into it. You guys, thank you so much. This is a blast. Love everything you guys do. All right, bye, Cody. Bye, everybody.

Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com.

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