The Prof G Pod with Scott Galloway - How to Build Wealth — with Codie Sanchez

Episode Date: December 5, 2024

Codie Sanchez, a former Wall Street investor and the founder and CEO of Contrarian Thinking, joins Scott to discuss her new book, MAIN STREET MILLIONAIRE: How to Make Extraordinary Wealth Buying Ordinary Businesses. They get into how to build wealth by buying small businesses, including what to look for when buying, ways to finance a purchase, and which sectors have the most potential right now. Follow Codie, @codiesanchez. Scott opens with his thoughts on Jaguar’s rebrand.  Algebra of happiness: the only thing that works consistently is time.  Subscribe to No Mercy / No Malice Buy "The Algebra of Wealth," out now. Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Learn what Amazon Q Business can do for you at aws.com slash learn more. That's aws.com slash learn more. Episode 327, 327 is the area code serving Arkansas. 1927, the first solo nonstop transatlantic flight was completed from New York to Paris. I love the new British Airways tagline, breakfast in London, dinner in New York, luggage in Tokyo. Go, go, go! Welcome to the 327th episode of The Prop Gpod. In today's episode, we speak with Cody Sanchez,

a former Wall Street investor and the founder and CEO of Conchurian Thinking, a digital education company with over 7 million followers. We discussed with Cody her new book, Main Street Millionaire, How to Make Extraordinary Wealth Buying Ordinary Businesses. We get into how to build wealth by buying small businesses, including what to look at when buying, ways to finance a purchase, and which sectors have the most potential right now. I really enjoy this conversation. She's a unique woman and I love this financial literacy or investing approach and that is instead of talking about

Nvidia or AI all the time, what happens when you buy a dry cleaner or a carpet cleaning company? And I think there's a ton of potential and if you think about, we'll talk more about this, but in some, there's this tidal wave of retirements from the boomers who have small businesses and their kids all want to be baristas or go to work for Google. And so there's going to be a lot of small businesses up for sale.

It's just, it's an interesting overlooked part of the economy, a great way to build wealth and kind of the millionaire next door probably owns car washes and doesn't work, you know and doesn't work. You know, it doesn't work at Salesforce or maybe she does. Maybe she does anyways, but I really enjoyed this conversation. It's an impressive woman. All right, what's happening? Some news about the luxury auto space Jaguar unveiled it's all electric type zero zero. Concept in Miami art week, marking the official start of the brand's new era. Miami art week. Does that mean Basel? I used to go to Basel. I have no interest in art.

By the way, I think people who order expensive wine or expensive art are basically insecure people trying to flaunt their wealth. I have done neither. I've got a great, the only piece of art I own is a Grayson Perry. I think he's, I love that guy. I think he's super interesting.

He talks, makes political art, lives half his year as a woman, half as a man. Did that before it was cool. And I just think he's such an interesting cat. And I love he does cover these politically charged pieces of art. That's the only piece of art I own. Someone who means a great deal to me,

took me to the exhibition of his in Istanbul, found something I liked and then bought it for me. And it hangs in my living room. I just absolutely love it. Back to Jaguar, they released their Type 00. The reveal follows week of controversy after Jaguar's rebrand campaign went viral. Critics including Elon Musk,

oh fuck, I agree with Elon Musk. That sucks. Anyways, we're clicked to kind of slam the Avant Garde 30 second ad, which featured models in a futuristic landscape but failed to show a single car. Remember this happened before, Infinity did this.

This was the era of brand in the 80s. Let me get like kind of a brief history of economic history and brands. Brands didn't mean a whole hell of a lot. The strongest brand up until World War II was the Catholic Church. Name anything that engages in corruption, leveraging or exploiting the masses

and just institutionalized pedophilia and manages to be the most powerful institution in the world, the other most powerful brand in the world. And they are in fact the best brand builders. They understand distribution and place-based marketing. Let's build the most beautiful venues in the world, bringing the most talented artisans in the world because we want to fool people into believing that, yeah, there's a decent job that God hangs out here.

And then we'll have robes and clothes and candles and music and it's highly orchestrated and rule. I mean, these folks understood the Apple Store before Apple understood the Apple Store. Best branders in the world. World War II comes along. And then you have American caterpillars left overseas rebuilding America. So yellow started to mean capitalism and rebuilding. The US dollar, the strongest currency in history, that green hope, optimism, capitalism, winners, losers,

all of a sudden America caught on to the ability to take a shitty product, inject it with emotion, and get unnatural margins. So the primary algorithm for building shareholder value in 1945 to 1995 was a mediocre shoe, salty snack, or car, and then wrap these amazing brand codes around it. Individualism, toughness, tough like a rock, European elegance, 30 cents of peanut butter paste

gets turned into $3 of peanut butter, why? Because choosy moms choose chif, maternal love, right? So, and in addition, we could, after developing these brand codes to inject into peanut butter paste, we could hammer these codes into people's brains using the most unbelievably inexpensive, cheap,

didn't realize what a great bargain it was called broadcast advertising where 60, 80% of America every night tuned into one of three channels and you could raise awareness around a brand in a week. And if you wanna talk about efficiency, the Academy Awards, a 30 second spot costs five times as much as it did 40 years ago and reaches one-third of the audience. So in sum, the ROI has gone down by 15-fold.

You're literally getting 6% of the ROI you used to get 30 or 40 years ago on advertising. So that was the way to make money. That was the way to print money. And then came along, the end of the brand era in the 80s and 90s, was the introduction of Google. And that is weapons of mass diligence said, well, you don't know, you don't need to buy a Norelco or a Gillette hair clipper

to shave your head because we now have blogs that if you typed in best hair clipper in the world or best beard trimmer, they'll take you to this blog on shaving your head. And there's some former factory in East Germany, out of East Germany that makes the best clipper in the world. There's just, oh, okay, Four Seasons of Mandarin Oriental.

Daddy used to always defer to those brands and say that, why, one, because someone else was paying, did a lot of consulting around the world, a lot of speaking. And two, they were always a seven or an eight. And then I realized, oh, what do you know? What do you know? The Hotel du Cap is the best hotel in France and Greeks have old European elegance.

Oh, what do you know? The Soho House in Berlin has an incredibleance. Oh, what do you know? The Soho house in Berlin has an incredible gym. Oh, what do you know? Daddy likes to roll at the polo limbs. That's where all the celebs are. Daddy likes to hang out with younger, cool people, maybe have some people over for a $54 Cobb salad at the veranda, the patio, whatever it's called next.

I no longer need to defer to the brand. A brand is shorthand or due diligence when you don't have time, but now it's very easy to do your own diligence. And the shorthand or the automatic deferential nod to a brand is no longer as obvious, meaning that brand equity on top of a shitty product is no longer the algorithm to build shareholder value.

It's brands that are built based on superior innovation, operations, distribution. Amazon is one of the strongest brands in the world. Google is one of the strongest brands in the world. What do these things have in common? What does any company have in common that has added over a hundred billion dollars in value in any single year? They spend almost no money on traditional branding. They spend it all on supply chain and innovation and actual 10X better product. Instagram is a 10X better product as is or was Google. I'm not sure it's a 10X better product and it hasn't changed in 10 years. But the stuff that breaks through is in fact

either delivered differently through distribution, has better customer support, has more interesting people talking about the product, is scrappier around building awareness and first and foremost uses digital technologies to unlock some type of innovation. What are some of the assets you want in a brand though? What are some of the things

that really provide sustainable advantage? One of those things is visual metaphors. We have been learning from images or interpreting images for thousands of years. Thousands of years ago, as people decided to educate their kids by painting stories on cave walls, like don't go over here, they will kill you or plant the crops at this time of the year, such that as a species, we could leverage our core

confidence as a species or our advantage and that is communication and cooperation and tell the next generation, help them learn such that communication and storytelling is basically takes instinct. So if you are blessed with a visual metaphor, oh my God, oh my God. I mean, literally Darth Vader or Goofy or the Matterhorn or Snow White or the seven dwarves. I mean, that shit, those are really, really powerful metaphors.

Visual metaphors, objects, symbols. The color brown, if I'm driving and I see a big brown thing next to me, I'm like, oh, it's UPS. Oh, they're nice people. They make good money. They work really hard. They're handsome, dreamy men. Sometimes they wear shorts, but they always wear brown, and their trucks are always really, really clean. Boom. I like that, right?

I see a swoosh. I see a swoosh. I think you didn't win silver. You lost gold. I think of competitiveness. I think you didn't win silver, you lost gold. I think of competitiveness. I think of Michael Jordan. You know, these things are just so powerful when you own one. I'm wondering what is probably the greatest visual metaphor in the history of automobiles,

at least until a few years ago, was the Jaguar. I mean, look at this bitch of a, I mean, he's out. He's hunting. He's graceful. He's out there. He's got his partner, his spouse and his cubs at home. They're safe for a time being, but it's up to him to go out into the wilderness.

And he's so strong. He's so sleek. He's so agile. He kills, he hunts, he brings back the meat. Why? He's a jungle cat. That thing is so fucking beautiful. So beautiful on the front of a hood. I mean, it also helped that they built some of the most beautiful cars in the world. But that logo, elegance,

sleekness, strength, yet a certain feminine agility and gracefulness to it. Jesus Christ, and what do they do? What do they do? They went to fucking mid journey or some generative AI bullshit and said, give us a logo that feels like an AI software company. Oh my God. I can't imagine anyone more deserving of being fired right now than whoever's in charge

of design or marketing at Jaguar or Tata Motors. Oh my God, come on. What the fuck are you thinking? And it feels as if every CEO or CMO should do something or take something that doctors have to take. And that is a Hippocratic oath. And the first thing they say, and it's actually, it sounds simple, but it's really strong.

Do no harm. And that is if you go in, if you change your doctors, if you're having cancer treatment, it's sight-attempting for the new oncologists to say, well, thank God I'm here, you should be starting this chemo, but their commitment is do no harm. And so if you're on a current chemo and it seems to be working, they resist the temptation to pretend that they're here to save everything. And they say, okay, what is the easiest way to do no harm? What do I do here first off to make sure that I'm not harming the patient? I think every CEO and CMO should take that oath

because what I have found in my experience, consulting to probably 34 of the 100 biggest companies in the world over the last 20 years, the CEO or the CMO, is that there's such a huge temptation when you're the new guy or gal to change everything. Thank God I'm here and fire the ad agency or change the strategy or whatever to put your mark on something and take credit for it.

But oftentimes, the guy or gal before you was doing a pretty admirable job and there's a lot of good that you should hold onto. So why are they doing this? The type 00 of man in Jaguar's nine year history, Jaguar's chief creative officer said in a statement, you will feel uncomfortable and that's okay. I'll smell you, you will feel uncomfortable

and that's okay. Why the pivot Jaguar is betting on a complete rebrand to survive in the luxury EV market. Beyond that, Jaguar wants a new identity. According to the company's managing director, the target market isn't a traditional middle-aged banker anymore. It's a younger, more affluent, urban, and independently minded demographic.

Yeah, that's your target from an aspirational standpoint, but boss, the majority of people still buying luxury cars are primarily old white people. The Type 00 is just a design vision for Jaguar's upcoming electric lineup. Does that mean it's not actually a car? The first production model will be a four-door Grand Tour with a 470-mile range and $127,000 price tag.

It's supposed to hit the market in 2026. I'm looking at some pictures. I think it looks pretty cool, but I still like to see a big fucking jungle cat on the front of the hood. Anyways, the big question is, will Jaguar succeed in building a luxury EV brand? Oh God, this is a tough one. This is such a crowded market. And quite frankly, I think the best run company in the world right now,

automobile company is Toyota who bet big on hybrids. It appears that the charging infrastructure isn't where it needs to be. People are still insecure about range, the cost. There's a bunch of things that have appeared to be greater headwinds. Growth in the EV market has dramatically slowed. And what has worked? Hybrids, which give you a little bit of this,

a little bit of some chip and some salsa, right? Some peanut butter and some chocolate. There you go, one plus one equals three. Some nitro and some glycerin. And Toyota's sales have bumped up pretty well. Tesla's seem to be kind of flatlining, is that fair? I don't know, it's probably still up. But it appears that a lot of people

have over-invested in the EV market and that the more measured Toyota was smart to bet on hybrid and hybrid sales are booming. So I need to see this car. I'm looking at it. It looks pretty cool, but I don't know. How do we turn lemons and turn them into lemonade? How do we chicken salad this chicken shit?

Basically they should come out and say the overwhelming affection and pushback we receive from customers, design experts, and academics and podcasters around the value of the logo has told us that we should not, we were abrupt in our change and while we have a fantastic new car, we're gonna maintain this unbelievable metaphor

that you've all expressed such incredible affection for and here it is and you plant it on the fucking hood, right? They could turn a loss into a win here, but be clear, thus far this is snatching defeat from the jaws of the jungle cat. We'll be right back for our conversation with Cody Sanchez. Support for PropG comes from Mint Mobile. Missing out on something big can really hurt.

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Amazon Q Business is the new generative AI assistant from AWS because many tasks can make business slow, like wading through the mud. Help! Luckily, there's a faster, easier, less messy choice. Amazon Q can securely understand your business data and use that knowledge to streamline tasks. Now you can summarize quarterly results

or do complex analyses in no time. Q got this. Learn what Amazon Q Business can do for you at aws.com slash learn more. That's aws.com slash learn more. Support for the show comes from Alex partners. In business disruption brings not only challenges, but opportunities.

As artificial intelligence powers pivotal moments of change, Alex partners is the consulting firm chief executives can rely on. Alex partners is dedicated to making sure your company knows what really matters when it comes to AI. As part of their 2024 tech sector report, Alex Partners spoke with nearly 350 tech executives from across North America and Europe to dig deeper into how tech companies are responding to these changing headwinds. And in their 2024 Digital Disruption Report, Alex Partners found that 88% of executives report seeing potential for growth from digital disruption,

with 37% seeing significant or even extremely high positive impact on revenue growth. You can read both reports and learn how to convert digital disruption into revenue growth at www.alexpartners.com. That's www.alixpartners.com slash vox. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters. Welcome back. Here's our conversation with Cody Sanchez, a former Wall Street investor and the founder and CEO of Contrarian Thinking. Cody, where does this podcast find you? Austin, Texas, actually. Nice. Let's bust right into it. You have a book coming out in early December titled,

Main Street Millionaire, How to Make Extraordinary Wealth Buying Ordinary Businesses. In your book, you share your journey to building a nine-figure portfolio. So first, what is your definition of rich? Well, I think mostly rich, I think of it as freedom. So it's, can you push back on the world and live the life you want to live?

You know this all too well, but as you start making money, there's always a bigger number that sounds more interesting. But I think the biggest thing is that you kind of get to do what you want to do to some degree and life still sucks and it's hard in many ways, but it sucks a lot less when you have a bank account that allows you to kind of work where you want, live where you want to and build what you want to. And so I kind of have the words rich and more free as synonymous.

Yeah, you introduced this something called the rich method. Can you break it down for us? Yeah, well, the idea is basically four segments of the book. So first thing is research. So a lot of people, when they think about buying a business, they hear the idea, then they go think, well, I'll go buy a business. And I'm like, you could actually really lose money buying a business or doing deals or investing if you do it wrong.

And so the first part is, can you spend a little bit of time actually breaking down what it takes to buy a business? We think there are like 10 steps to buying a business. So that first rich is a big component of doing your due diligence and understanding what that even means to figuring out what a deal might be good for you, not just a good deal overall. And then next, we like to break into the I, which is invest. So now that you kind of understand what you're doing, how can you start allocating a little bit of either risk, so like your time, maybe your expertise, or capital, money, in order

to do a deal? So I also don't think you can spell rich without risk in some way, shape, or form, whether it's your time or somebody else's. And then C is for command. So the idea is that your first deal probably will not be your best deal in the same way that your first job

is hopefully not your last job. You're gonna get better at it. You're gonna do bigger ones. You're gonna understand what investing is good for you one way or the other. And then finally, we wanna take it to the next level, which is how can you actually scale in a significant way? Maybe that looks like a holding company.

Maybe that looks like you doing additional deals inside of your main business. I saw when I was on Wall Street, most of the money made by financial professionals is not actually coming up with brilliant startup ideas. You know this all too well. You know, 90% of them fail, but I think the other part we don't talk about is that the average income of an entrepreneur that did a startup is like $47,000 to $67,000 a year,

three to four years in. So it's like you lose money, you pay for the right to lose money multiple years in a startup. And then most people don't really make more than you would if you were in a corporate job. And the very, very few make an absurd amount of money. But it's actually quite hard. And so I kind of obsess on this idea of what if we just focused on profitable businesses

instead? And what if when we had our brilliant business idea, instead of just going out and starting it unless we want to start the next, you know, Facebook, we can't sleep for the want of the company being in the world, then I think instead, we should probably start with a nice little profitable business and then maybe acquire a few others on top of it. And so we can actually buy other people's 10,000 hours

as opposed to having to slave away for them for decades ourselves. Just a lot of it, so I'm that person that started a bunch of businesses, because I didn't know how to buy a business, so I started a bunch, and you're right, it's just riskier. The upside, I think the few times, the couple times I got it right, I probably made more

than someone who bought a similar business. But I also just took more risk and I had some zeros, and it's unlikely I would have had zeros if I'd just come into companies that I had some zeros and it's unlikely I would have gotten, you know, had zeros if I just come into companies that were already working and bought them. Doesn't it come down to similar to the housing market? It's all about the price you buy at and that is buying a good business

at a decent price to make money. But if you add some price, if the market gets crazy and everyone reads your book and starts crawling all over the country for small businesses, as some private equity firms are doing, that it becomes too expensive. Don't you really need to kind of figure out, and this is, I guess, part of your RR research, what you should be paying for this type of business? Yeah.

I mean, I had a mentor of mine that told me a line I really liked that I've remembered for years, which is, you can have my price in your terms or your terms in my price, but you can't have both. And that pros want to actually control the terms, want the price. And so I think you're right at the base level, which is it's really hard to work your way out of a bad deal done up front. But more than obsessing on price, I would obsess on the terms. Like I could give you a million bucks for a business that only does $10,000 in annual revenue if I got to pay it over the next 40 years out of future profits, as long as I got to keep, I don't know, $5,000 a month. So one of the things I'm hoping that we can teach people is like, real estate's funny because it's been so commoditized now, you can't do a lot of

term changes to it, right? You're not like, seller finance me that house, that's pretty hard to talk somebody into. You know, you're not going to ask them to change the mortgage terms to go out, you know, a crazy different amount. You're not going to say, well, if I find X, can I have a little bit capital I can hold back in case we did the valuation wrong upfront? You can't really do any of that real estate anymore. I'm sure eventually businesses will be able to do less of it, but businesses just have so many levers that I think the real goal here is can you control the terms so that what you think you're buying, like base level, yes, you need to know what a business valuation

should be. But I think the real problem is you get into a business, you're like, hey, this guy's been running it for 30 years, I'm gonna buy it for a million bucks. And I think the business makes enough money in order for it to be worth a million bucks. And you quickly realize you've never run a business before. And so you're probably not gonna do as well as the guy

immediately out the gate, and then you run out of cash. And so my biggest protection is always, how can we even pay a little bit more for something? I'm okay with the gate, and then you run out of cash. And so my biggest protection is always, how can we even pay a little bit more for something? I'm okay with the premium, as long as it's over time and we decrease our risk by how we structure the deal. One of the things we really enjoyed about your book is your focus on investing in what you call mainstream businesses,

industries including plumbing, construction, cleaning, and electrical services. This is something we talk about a lot on the pod, how the skilled trades are often overlooked. What makes these unsexy businesses so reliable for wealth building? Yeah, well, that's when I really, like, wanted to reach out to you originally,

was because you have seen all sides of the trade. You've been a public market guy forever. You've also been inside the university system. You know, you've also seen inside of even private entities or some companies maybe you want to take private from public. You've kind of seen the full gamut of what a company can do. And I've been sort of yelling at the internet for the past four years about the fact that during the 1800s, American ownership was 80%. Most Americans owned their own business. This time around, we're happy if 10 percent of Americans own their own business. In fact, it's about 6 percent of Americans own their

own business. And you know how you know we're losing is that the Canadians have more ownership than we do. They have like 7.8 percent ownership. And so my theory here is that ownership leads to wealth most often if that ownership is sustainable. And I think we have this crisis where we have a bunch of young people today having 452 LLCs that make no money. And so we have a lot of like, quote unquote, company creation, especially since 2020, but they don't make any money.

You know, 60% of all small businesses listed are single proprietorships with no employees. And so why I like Main Street businesses are if you've been a landscaping company for 10 years, you've been in existence, you never got funding from somebody to run your business. You never got VC capital. That thing had to make money by itself year after year in order for you to fund your salary. And so these Main Street businesses never benefited from this huge glut of capital that came from venture capital and even private equity firms, they take the company entirely. So if they value a company incorrectly, it doesn't hurt the individual, it hurts their investors.

And I think they've gotten a bad rap, but they also are the thing that builds local communities. And I'd way rather some corner coffee shops and local landscaping than a Starbucks or a P.E. owned roll-up. On the diary of a CEO, you listed three businesses that you really like right now. Senior care centers, businesses that are services-based that don't require a lot of up-front capital, including window cleaning, pressure washing, and painting businesses. And the third being what you call gateway drug businesses. What did you mean by that? Yeah, so gateway drug businesses

are the business that allows you to get a little taste of what the addictive game of business is, which is running a P&L, making money, being your own boss. It's awful, but it's also amazing once you've done it. And so gateway drug business would be a thing like what is typically called like a self-serve car wash. So they're not super expensive. You don't have a ton of employees.

It's not a complex business to understand. And thus you might be able to start with something like that. Mine famously was a laundromat. That was my idea when I first started buying businesses. I was like, man, I've been a corporate junkie for so long. I don't know if I could run a business by myself. This one's pretty simple.

I could probably run this one. It's like dirty clothes, go into a machine, get clean. I take a quarter, I make money on it. That makes sense to me. There's not that many levers to the business. And so a lot of these are called people light or capital light businesses. So not that many employees, not that much operating expense. These are the type of businesses that I think are interesting

for people to get their hands a little bit dirty on the game of business to start. And the only caveat there is we've seen a huge increase in the multiple cost of these business since we've started talking about that, both laundromats and car washes. So keep your eye on the prize that you do pay the right price and terms.

Yeah, that makes sense. And then also, you talk about, or I think it's in your book, but we talk a lot about here about this silver tsunami, and that is with so many baby boomers retiring, there's a huge opportunity for younger generations to acquire these businesses. What are some signs that a small business is ideal for acquisition? How can, what are some rules of the road for what feels like a good business in your view? I have two methodologies.

If you're gonna buy a business, first thing is we buy realities and profits. We don't buy hopes and dreams. So I think where you can go really wrong in buying a small business is that you go and buy a business that's losing money today and you go, the thing is I can fix it. And I always compare this to real estate. Like, how many times have you redone a house and it's under budget and done quicker than you thought

it was? The answer is like, never. It's just physics or something. And so just make sure that you don't buy turnaround businesses. I think that's for pros. If you're a pro, you could do a turnaround, but you've done some of those publicly. Man, they're brutal and litigious, and so stay away from that. The second thing that makes a business really interesting to me, I think, is that you have an owner of the business who's been around for a long time. It has a managerial layer, so it's not just a job, it's a business. There are other people running varying divisions of the business. It's profitable. The business is usually in a recession-resistant sector. Like, for instance, it doesn profitable. The business is usually in a recession resistant sector. For instance, it doesn't mean that it can't go down, but you might have a plumbing business,

you might have a roofing business, you might have a landscaping business. These aren't so luxurious of items that you're going to die during a recession as opposed to a custom framing business, which maybe is not the best business to get into with volatility. And then the last thing that I think is interesting for these small businesses is like, you really got to make sure that you don't get in over your head. I say so simple, grandma could do it. And if grandma doesn't understand your business model, then maybe that's not the right business for you.

People have been talking about this for a while that there are a lot of mainstream businesses coming up for sale. And there's a lot of mainstream businesses coming up for sale, and there's a bit of an asymmetric or dislocation. What do I mean by that? That young people find these businesses not sexy, and there's a lot of baby boomers whose kids don't want to inherit the business. They have a dad who has a carpet cleaning business and makes good money. He wants to retire, and he can't find anyone. And there's not a real liquid market here. Is this market getting more liquid? Have you seen your reference evaluations have gone up, but you still feel there's a lot of opportunity?

Yeah, well now we have some unique data on this market. So we bought a website called Biz Scout, which is a marketplace for buying and selling small businesses. Now we have 68,000 listings on that website. We've connected about 3000 buyers and sellers over the past four weeks. And we're starting to get sort of our first realm of proprietary data, which is it's a real bitch to get data in the small business space. You can go to the SBA, they won't really release any information from you.

There's a couple behemoths in the industry. They don't really share third party data. And so what we found from the 58,000 businesses listed is most of them are highly incomplete. So we have this marketplace where it's the opposite of Zillow and Redfin. There's no public list, there's no historical listings of pricing. There's no uploaded QuickBooks or tax documentation to confirm what the listings have located there, very little usage of data realm. They say that less than 10% of all small businesses that are listed for sale run through a broker.

So most of the businesses are kind of a carefully concealed series of disasters and they don't have a roadmap for you to actually see what you're buying. And so because of that, I could scream about this from the rooftops, but if people don't actually know how to get inside of a business, hold the hand of a business owner that's done paper invoices for seven years and move them into 21st century tech, they're probably not going to close that sale.

And so I think we still have a lot of runway to go there. Plus this is such a, it's the perfect fragmented market. I mean, most of these small businesses are probably jobs. But guess who wants a job? Your 30-year-olds who are making less than their parents were at 30, as you've talked about before, they'd be thrilled with a business where they could raise their prices more than inflation each year, where they could be their own boss and where they might actually be able to grow the business overall. And so, you know, businesses that are sub $10 million in revenue are numerous. I mean, that would be businesses sub $10 million, but above $5 million are about 20% of the

marketplace, and the rest is below $5 million in annual revenue, which is a very, very small business. Dave Korsunsky Talk a little bit about financing. There's different ways to finance a small business. What I would think a lot of people don't consider us because I think I've got 20, 30, $50,000 to my name or no capital. How, what are different means of

financing the acquisition of a small business? Yeah. Without trying to sound like a used car salesman saying that you could buy a car with zero dollars down and no credit. The interesting part about the business landscape is the credit is not your own. I think a lot of people don't realize this. When you go to buy a house, you go, okay,

I got $200,000 in earned income. They'll loan me whatever based on my earned income. And I can't buy a house that's more than that. It's all based on how much I earn. You go to buy a small business, the small business is what the loan is on. Now they also wanna make sure that you are not going to fail and you're not going to sit as like a liability on their balance sheet because you can't run the business, but they're

really analyzing the business. So your earned income is whatever the earned income of the business makes, which is like a huge mindset for people to have to think about. Now we know the SBA will do loans up to 90% of the purchase price of a small business. So that means you're on the hook for probably 10% to 20% down for a small business. And then, you know, you want to have float, right? You want to have enough cash on hand to make sure you can handle operating costs for the

business overall. But, you know, there's three ways that we buy businesses that people don't think about. One, Uncle Sam, SBA gives you money to buy the business. This is just getting expanded. For the first time ever, they're allowing diversified investors. So you don't have to be the only one. You don't even have to put up the 10 or 20% now.

You can have other people invest alongside you, put up the capital and be on the loan with you. That's just enacted this year. The second way is seller financing or creative financing. I don't really like to say seller financing because it kind of sounds weird if you go to the owner of business and say like, you sell me your business using your future profits, which is what it is. I might say instead creative financing. In the book, we have like a couple of graphs that I think help make this

more reasonable as to why a seller would do this. but 60% of all small businesses are sold with some component of seller financing, which is a wild number. Now, not 80%, but 30% at least. And then the third way that we see small businesses getting sold, and we're seeing it like crazy in Japan, I think it's going to start happening more here in the US, is basically we're seeing apprenticeship begin again. A small business owner knows that they wanna retire in the next five years,

and because they wanna retire in the next five years, they are starting to look for somebody to take over for their small business for them. And so it just happened with Jade, a member of our community. She went to her boss, this is a military contracting company, and said, I wanna eventually take over your business.

Would you be open to selling to me? And instead he said, why don't we start transitioning from the business from me to you, and I'll continue to take up glorified salary, really like a royalty payment on what you make over the next five, 10 or 15 years, but I don't even need you to actually buy the business from me.

And so if we don't do this, my thought is that a bunch of these businesses go away and they die. And we've seen that happen. And so that is why I'm pushing people to say, yes, be careful of risk, but these businesses are available all around you to purchase and baby boomers simply will not live forever. And if we don't buy them, then those businesses will go away entirely. So say you're sold on this, what's the best way those businesses will go away entirely. So say you're sold on this, what's the best way to try and cast a wide net and identify these businesses?

I wouldn't even know where to start to try and find these businesses. Well, I think the first thing you got to do is we call it deal clarity. So you got to really make sure you know what you want in a business. I think a lot of reasons why people get overwhelmed in searching is because they're like, okay, I'm going to buy a business. I guess Cody talked about laundromat, so I'm going to buy a laundromat. And that's not actually right. We call it a perfect fit business.

So imagine kind of like, you know, three circles of Venn diagram in the middle is the business that's perfect for you. What I usually tell people today is like, everybody listening has some sort of skill set that is unique to them. If you're an accountant, yes, you could go buy a landscaping company and accountants actually are great for buying businesses because you know how to analyze the P&L, but you might be better off buying accounting from. You might be better off actually looking at your competitors

and some of the others in your same or similar industry. So that's more strategic. I always think first, what is your satellite acquisition strategy where either you already have a skill, you're an employee in that business, you just go buy a business that is similar? Number two would be, what if you are an accountant, but you don't want to stay in accounting?

You want to do something else? Well, then you might want to run around and look for a business that necessitates somebody who has a strong financial acumen. And then third, we kind of go through this. It's called the deal box. you know, this from investing, but it's, we have our investment thesis categorized by 15 different components that says,

how much money do you want to make? Where does the business located? Do you want to run the business or do you want to be an investor in the business? Do you want the business in which sectors? And once you fill out this deal box, I think, you know, bumper lanes actually make it easier to hit the pins. And so then you can start narrowing down your deal search. And we talk about

the 100 to 50 to 10 to 1 rule, which is basically you're going to look at 100 different companies, just like you'd look at 100 different houses, high level on business sites, high level publicly. And then you're probably going to, you know, after you're perusing your Zillow of business, you're going to narrow down to like 50 that you might reach out. Most of them are never going to get back to you. Then you're going to go down to 10 that you get kind of serious with. And you might go visit them. You might get to know the owner. Maybe it's people you already know. You're going to get into their financials. And then you get

down to one business that you actually buy. And I'm not saying that's the right way to do it always, but it's a good rule of thumb. We'll be right back. Support for Prop G comes from Aura. Sharing pictures is a great way to keep up with family, whether you're sending photos of that remote camping trip or just a series of deranged selfies. There's nothing like offering a glimpse of your world to the people you love. And that's never been easier thanks to Aura's

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Join 70,000 team members and 30 million people who trust Grammarly to work faster everywhere they communicate. Go to grammarly.com slash enterprise to learn more. Grammarly, enterprise ready AI. Support for property comes from the Life360 tile tracker. Grammarly. Enterprise-ready AI. Support for ProfitD comes from the Life360 Tile Tracker. Okay, take a deep breath because I'm going to talk to you about the holidays. Now, maybe you still have some fond memories from when you were younger, but these days the holidays usually mean travel, running around, grabbing gifts,

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and college degrees right now. I'm not the biggest proponent. I mean, here's what I can say. I have an MBA from Georgetown. I went all credentials down the way. I started off at ASU Harvard of the West and you know didn't apply anywhere else It was just where I got in for free But then I was you know at Goldman and State Street and Vanguard and First Trust and so I thought that in order to progress you had to get an MBA

That was my idea And so I went and I spent whatever $100,000 plus getting the Georgetown MBA and added on a PhD to it. If I could go back right now and instead take those two years back from my MBA and that $100,000 and instead buy a couple of these businesses, I would. And to be perfectly frank, I learned nothing related to running a business at my Georgetown MBA. I learned a lot about international business, which is interesting at the time.

And I learned a lot about how to make sure the government doesn't fuck with your business too much, because I ran a pretty big international finance business at the time. I also am not in touch with anybody that I went to Georgetown with. They say, well, if you don't go for the knowledge, you go for the network.

I don't know. I have a better network from YPO and EO, which cost me like 4K a year and maybe like 10K a year for YPO. So I have a little bit of a jaded view about MBAs in particular. I think it's awesome when you're like me, you wanna climb a corporate ladder

and you want a virtue signal, or if you don't really know what you want out of life yet. And so you just wanna see the full spectrum of jobs or opportunities available then I like it but if you want to if you want to be a business owner the best business school is business and it pays you. You said you'd wish you had that hundred thousand bucks back to buy one or two businesses what kind of business give us an example of a business that you or someone you know has been able to buy for a hundred grand the type of business the cash flows where it ultimately ends up in give us an example of a business that you or someone you know has been able to buy for 100 grand,

the type of business, the cash flows, where it ultimately ends up in three or five years. Well, one of the first businesses I bought was a laundromat for 100k. And it did about $67,000 a year in quote unquote profit, but that was also the operator's payment. And that business was perfect, kind of, because I had a guy who knew how to run a laundromat. He was a real estate guy. Real estate guys are interesting to partner on some of these businesses because they have to fix a lot of stuff. They have handyman.

They usually know like local geography. And so he knew that this area was pretty good. We also ended up buying the property that it was in. So that business didn't make me much money. Like I was in finance, $67,000 a year, plus split with the guy, plus whatever extra expenses we have was basically not very much.

But what we realized from doing that first deal is we could add three or four more to those. And that business ended up getting pretty healthy, 300, $400,000 a year in both of our pockets, split between the two of us, but in our pockets. And that's when I realized, oh, there's not that much difference between a smaller deal and a bigger deal,

just confidence at some degree. And then also, once we did a couple of those, then we were like, huh, we would need to add wash and fold to this. So then one of our laundromats, actually one located here in Texas, ended up doing $3 million a year in total revenue, and then more like a 25% margin on just that one laundromat from a wash and fold add-on.

And so even a laundromat can scale up to a business that does a couple million dollars a year if you have a few of them, one individually. And a laundromat is probably the worst business from a total return standpoint out there because you cannot scale it very high. And all of these VC companies have died at the altar of trying to spend a bunch of money on laundromats and scale them up. But for a new person who didn't understand much, you know, that's how I made my first couple hundred K outside of my nine to five.

There's a lot of research showing restaurants where the owner is there just do tangibly better. I mean, isn't this about being really on top of your business and if you want to scale, it's about finding and retaining really talented managers? What kind of people do you look for in your business to bring on to manage these different businesses? Well, the one good thing about a lot of these businesses is the word talent is so different here than it is for a media company.

Like the talent at my media company, they're expensive. They leave all the time. They don't want to do all of the work. They have a lot of optionality. And you know, I'm lucky in that we screen for kind of the right culture fit for us. But that talent is really hard to manage. VC talent, really hard to manage, really hard to keep, really expensive. When I run these small businesses, I mean, God, Laura, one of my operators has been with me for years and is incredible. Like never asked for anything,

can run a business that does, let's call it almost just seven figures a year, and probably will do it for decades for me, and doesn't require this really sophisticated product knowledge or sophisticated talent set. I think we owned a mobile home park, for instance. And do you know what the operator of a mobile home park makes a year?

It's funny, my father actually, his fourth wife, owned mobile home parks. So I know a little bit about this. This is 20 years ago. But they made $28,000 plus they had their rent paid for it. But that was 10 or 20 years ago. Well, that's, yeah.

So when I first learned this, I was shocked. I was like, wait a second. We paid in my Mobile Home Park, we paid like 300 or maybe 400 bucks a month to the operator of the Mobile Home Park. Plus they got their rent for free. Plus they got to screen everybody that came in. So they ended up picking their friends

and family members in order for them to come in as well. And that was the entire pay. And I remember when I asked originally to the guy at Bothell Mobile Home Park, I'm like, why would somebody do this job for so little? And he said a couple different reasons. He said, one, give them the friends and family perk. the guy at Bothell Mobile Home Park, I'm like, why would somebody do this job for so little? And he said a couple different reasons. He said, one, give them the friends and family perk.

They really like, they like self-select their own community. You know, two, upgrade them, do whatever they want to their actual mobile home, like take care of everything for them. And then three, like, that's it. Just make sure that they're sort of taken care of from that perspective. And so, you know, she's like in her 60s, loved the job and ran a mobile home park that did, you know, God, I mean, one and a half,

$1.7 million a year. I think we underestimate how much we have to pay people when we've been in these fancy industries. And then, you know, we ended up selling the mobile home park and then she got a little piece of it, which was kind of cool at the end. The thing that always pops out to me about something like this is that return on investment

is inversely correlated to how sexy a business is. These are not sexy businesses. But what is sexy as you get older is being able to take care of your kids and your parents. And like you said, be rich, do whatever you want want is there any one sector right now that's propping up that you think represents more opportunity than others I think rehab individual rehab homes right now we're analyzing a bunch of them I mean we have an addiction crisis here in the US the likes of which really no country has ever seen before

and that's not to get better in the near future. And we do not have enough beds. We do not have enough resources for these individuals. And originally, when I looked at the sector, I thought, well, who has the money to like spin up a $10 million, a $50 million rehab center? That must be very aggressive. But actually, there are all these grants for you to do it with single-family homes. And so there are these small little rehab, I don't even know if you would call it centers, houses all around the country that are popping up.

But you get subsidized by the federal government. You also get a bunch of tax breaks on top of it. You get to do something good for individuals. You also get some unique tax consequences, because it's largely real estate driven. You get a land hold on the real estate overall, and they're not cheap to stay in. And so, this one is, there's not very many home services businesses that I think can have like a real

positive impact too, besides the clean communities I think are good for society. But this is one where I think you could make a real impact, you can make some money, and it's probably going to expand crazily. And then we're gonna eventually see a bunch of P.E. guys buying it out. Cody Sanchez is a former Wall Street investor and the founder and CEO of Contrarian Thinking,

a digital education company with over 7 million followers. She's also the founder of Main Street Holdco, a small business holding company focused on bringing Main Street businesses back to the limelight and contrarian thinking capital, a firm that invests money back into the companies that support small business growth. I think what you're doing is really important, not only because it's growing the economy and you're creating jobs, but I think there's an unfortunate zeitgeist that if a kid doesn't go to Dartmouth and end up at Google, that he or she has failed. And there's other pathways into the middle class and maybe even to an

upper income home. And I think you're sort of destigmatizing it. I think you're actually playing a not only an economically important role, but kind of an emotionally and psychologically important role. Really, really appreciate your good work and, you know, right on, sister. Well done. Thank you so much I appreciate it it's it's fun I wish more people realized garbage men have good times. There you go sanitation engineers thanks Cody. As a result of happiness, my friend Adam gave me a piece of advice that always sort of resonated with me. He has two boys, you know, both doing well, both wonderful boys, but they've had like

every other boy, they've had their issues at different times. And he said that the only thing that worked consistently was time. And that is eventually things worked out or got better. And it struck me, and even though I don't act this way, I know it's right, but I don't always act on it. My son is doing really well at school. Kind of, I don't wanna say all of a sudden, he's always done okay, even good,

but all of a sudden he's just doing incredibly well. And when I try to reverse engineer it to our environment or what we've done for him, here's the answer. Here's what we did. Absolutely nothing. There's nothing we did. As a matter of fact, he wanted to take sports science and our friends who are all, you know,

Ivy League or die in America said, no, don't do that. In each state, economics or businesses, colleges don't take sports science seriously. And so we had this big intervention, tried to talk him out of it. And he pushed back on us, which I'm really proud of him for. And he kept sports science and he's getting commendations or whatever they call is the one of the top in his class in it. And it just struck me that so much of our stress around our kids is such unproductive stress.

You know what you need to do. You need to love them unconditionally. You need to spend a lot of time with them. You need to try and instill a set of values in them. You need to model, right? You give your kids the basics and then you realize that the only thing that's works over the longterm or doesn't is time. And you forgive yourself, you do your best,

you work out, you learn about baseball, but once you've thrown the pitch, it's up to the batter, your kid and God, and the humidity in the air and the environment. So yeah, do you wanna be a little bit stressed out? Sure, but at the end of the day, when you look back, you're not going to be angry or upset about the bad things that happen to you or your kids. You're going to be angry and upset and how much pressure you placed on yourself and

then inject it into the relationship with your kid. The only thing that reliably works out over time, built on a base of love and support and time is time. This episode was produced by Jennifer Sanchez and Caroline Chagrin. Drew Burrows is our technical director. Thank you for listening to the Proppchie Pod from the Box Media Podcast Network. We will catch you on Saturday for No Mercy No Malice, as read by George Hahn. And please follow our Proppchie Markets Pod wherever you get your pods for new episodes every Monday and Thursday. Oh, we're sad again. We're sad, we're not sad. Oh, sad, not so sad.

Oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh, oh.