The Startup Ideas Podcast - How to start a Holding Company

Starting point is 00:00:00 I describe hold co-ing as you own multiple businesses and you don't run any of them is the way I think about it and the way most people practice kind of this idea of being in a whole co entrepreneur. And you have to understand if you're going to get into hold coing or entrepreneurship or anything, like, you know, what drives you in terms of your passion, right? And then how do you craft the business around making sure that why and that mission that you've been put on this earth to kind of create? that portfolio of assets or that job for you, like, reflects that and makes it so you can live your best life, which, like, I'm super stoked to hear you saying you're living your best life. So kudos to you.

Starting point is 00:00:57 Michael Gurdley, one of my favorite people, and I run a Holtko, but I'm actually new to this. I've only been doing this for four and a half years. I feel like when I need some banger advice on what to do with Holtko's, Gertley's my number one call. What are people going to learn today by the end of this episode? Yeah, yeah. Well, I think number one, I think we'll go through and kind of expose people to the hold co strategy. It's a different strategy from the way most people think about entrepreneurship. Talk about, I think the different types of holdcos. We'll be able to talk about how to put your own hold code together if you decide you want to do this. We'll talk about some of the mistakes I see people make. And like you, I feel like I'm still learning a lot. This year has been, you know, let's say a humbling year in terms of dealing with a lot of stuff going on. And I've learned a lot about hold co-ing this year so we can talk about that stuff and then um we're talking about some of the just tactics that i've seen people do uh in terms of you know who do you need to have around

Starting point is 00:01:55 the table who are the right advisors all that kind of stuff so that's a lot to try to cream into 45 minutes but we'll see how far we get if at very least if i can just expose more people to understanding that this is an option uh and if it's right for you it's right for you that's great um then i'll consider this a win and hopefully we'll have fun too that's also goal number one of course All right. Well, let's get our hands dirty. By the way, this is the first time I've ever prepared slides for a podcast. So great job picking like a good topic and giving me homework.

Starting point is 00:02:24 I think it's really good. So called this Holdco one-on-one, 101. So let's move on to the next slide here. So, you know, the way I talk to people about what Holdcoes are is it's a unique entrepreneurial strategy. And it's something that I think a lot of us have been exposed to by seeing some big corporations. like Berkshire Hathaway and stuff like that. But I started to get into it when I started to see people doing this kind of unique entrepreneurial strategy that's different.

Starting point is 00:02:53 And the way I kind of describe it to people is that the classic way people have gotten into entrepreneurship is you own one business and you run that business, right? And that's the way most of my friends are, right? They own a business, 98% of their net worth is tied up in that business. They're the CEO of that business and they wake up in every day they work on that. I describe hold co-ing as kind of the opposite of that, right? You own multiple businesses and you don't run any of them is the way I think about it and the way most people practice kind of this idea of being a whole co-entrepreneur.

Starting point is 00:03:27 So yeah, so you have like, I think the spectrum. So most of us are familiar with Warren Buffett. You know, he's somebody that everybody espouses to kind of be like. You know, I have some thoughts about the mystique of Warren Buffett. I think a lot of it is really crafted. I think there's a lot of BS there that people buy into that he has this holding company and he doesn't really have to work very hard. That's great.

Starting point is 00:03:49 But for the rest of us, we have to work hard, especially those of us that don't have the benefit of being in business for 90 years like he has. But the other end of the spectrum and like where I play is this kind of idea of a personal holding company. And I think you have the same kind of idea, Greg, as you think about your universe of stuff. Yeah, absolutely. Yeah, I mean, the way I see it is I set up my holding company with the thesis that, that community-based products outperform non-community-based products.

Starting point is 00:04:16 So when you start with an audience and you build a community, that's just a great way to create a moat, have customers lined up. And all of our businesses are based on that. Yeah, super genius. My stuff, I will talk about it because I think I have a different kind of thesis around stuff is just a hodgepodge of things that I like working on. That's the core thesis. So whether it works or not, we'll see.

Starting point is 00:04:42 Well, I mean, what's the scale of your holding company if you're able to talk about it? I tend to talk about these days in terms of employees. So across all the businesses are about 600 people working there. Right. Yeah. So it's working. It's working. Something's working.

Starting point is 00:05:00 Something's working. There's still 600 people with jobs that are good jobs. So I'm excited about that. Cool. So, yeah. I've gotten out of, like, a lot of people, and maybe you have an opinion on this, a lot of people on social media, like, talk about, like, revenue numbers and stuff as a way to measure scale and impact. And, like, I've really gotten away from it just because I find it so disingenuous. And also, people are kind of numb to it.

Starting point is 00:05:23 So anyway, that's why I don't talk about it that way anymore. So this, I pull up this slide here, and it's cutting it off. So let me see if I can fix that. But basically the idea here is the difference between, like, like, being. a VC where you like are an angel investor where you invest in a lot of things and being in a hold code to me is hold code like has a significant ownership stake in all these businesses and you as a whole co owner and a whole co operator like you might own 30% or 60% or 80% of individual businesses and you have either a controlling interest or you have a significant amount of influence on that business so kind of

Starting point is 00:06:04 the difference for me from somebody that's like an angel investor or a VC versus like like an actual Hodeco operator is like you are in these businesses. Like you're a real owner of these businesses or at least either majority or a big significant stake. And like if it's not like you're not a whole co owner if you're like a 0.5% owner of 42 different startups, which I know a lot of people are. There's nothing wrong with that. But that's totally different from from this. Don't tell anyone.

Starting point is 00:06:33 But I've got 30 plus startup ideas that could make you millions. and I'm giving them away for free. These aren't just random guesses. They're validated concepts from entrepreneurs who've built $100 million plus businesses. I've compiled them into a one simple database. Compiled from hundreds of conversations I've had on my podcast.

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Starting point is 00:07:29 startups. We do do some agency stuff, but it's mostly tech startup stuff. I think a lot of the stuff that you do, you have a mix of non-tech and tech, right? So my question to you is holding companies, what type of businesses can be in them? Yeah. So it's a pretty blank canvas in terms of how people want to approach it, and it's a big label. When I talk about holding companies, I think you can have all kinds of different businesses in there. You can have different asset classes as well.

Starting point is 00:08:05 So in my world, like I own not only like big chunks of real businesses and I'm on the boards of those and I'm in there with the management, you know, supporting them and that sort of stuff. There's also like real estate assets. So like I have a big portfolio of real estate that I control. And that's not being an investor in somebody else's fund that's like literally stuff like you go look at the deed and like my name's on it. So, you know, when when I look at the definition of a holding company and we'll talk about the different types here in the next couple of slides, you really have a lot of freedom to define what sort of assets you want to have in there and you're holding basically equity, right, ownership of those things. So those could be a portfolio of high-growth startups. If you figure out a way to own big chunks of those things, you know, where you're not a passive investor in them. Like, you could totally do that. If you want it to be agency and services businesses, you can totally do that. If you want it to be a mix of different stuff, whether it's tech and non-tech like I do, you can totally do that as well. It all kind of ties back to the world. want to create for yourself, which is kind of the fundamental theme of hold coing for me.

Starting point is 00:09:10 Like, like, ultimately, I think a lot of people create a situation where they let their business dictate the lifestyle they're going to have and what they're going to be doing every day and all that kind of stuff. And like you, for example, Greg, are like super passionate about community. You talk about all the time, like, the amount you write about it on Twitter, like, clearly you're super passion about community. So, like, you've created a world in which your hold code, like, ties into your passions. And the same thing. for me, like, I'm passionate about a bunch of different spaces, and I've created a world for myself as a whole co-owner where, like, I get to work on all those types of businesses all the

Starting point is 00:09:42 time. Which, honestly, people ask me, like, you know, how are you enjoying doing a holding company? And the truth is, I've never had more fun in my entire professional career. And it's because it's the most creative I feel like you can get because you've, you design a world for yourself where it's just, oh, I'm really interested in all these businesses. and I just get to come in, be creative, and then almost be like a fun uncle instead of a parent, which is a good place to be.

Starting point is 00:10:13 Yeah. Let me jump ahead because I think this really, I mean, this is a really good topic. Like, for me, for me, I think that when you do hold co-ing, you really craft a world for your business where it serves you in terms of how you want to be living here every day. So like, I think you just described, like, you love like advising the GMs and CEOs that run the businesses.

Starting point is 00:10:36 You love, you know, working on something that's very passionate for you in terms of community and then tying that back into supporting those folks. But I don't think either you or I is really passionate about being in there like making the trains run on time and optimizing those things. And, you know, I think that's one of the key things I talk to people about is like you have to understand if you're going to get into whole co-ing or entrepreneurship or anything. like is that really, you know, what drives you in terms of your passion, right? And then how do you craft the business around making sure that why and that mission that you've been put on this

Starting point is 00:11:08 earth to kind of create? Like that, that portfolio of assets or that job for you, like, reflects that and makes it so you can live your best life, which like I'm super stoked to hear you saying you're living your best life. So kudos to you. Thank you. I only say it, and I say it only because I want more people to do this. You know, I think there's probably a bunch of people who are in jobs or starting companies that are a bit bored or whatever. And I didn't know this was a viable option until I just stumbled into it. And that's why you're here. The, I mean, the funny thing for me is, like, I stumbled into it as well, right? And the reason, the reason I got there was I was owning and operating a single business that was doing really,

Starting point is 00:11:52 doing really well. And, like, I wasn't fulfilled, right? At a certain point, like, more money doesn't make you happier and all that kind of stuff. And like I realized I wanted to be living in a creative space. I wanted to be teaching. I wanted to be helping other folks. And I got more joy out of helping people like, say, for example, like finding a CEO role in one of my companies and like being very excited for that role and growing and being their best self, right? And then being there for them to help them grow, help them when they had really hard problems and then support them kind of in their personal vision for their life. And like that is what makes me super. happy. Believe it or not, Greg, there are people who find a lot of joy out of like grinding it out

Starting point is 00:12:33 and one business and being in the details and like making the trains run on time. I am the opposite of that person. And like, so for me, my journey to get into Holkoing, I didn't even know the term. It was just like I was bored A.F in one business and I needed to go be creative and start, you know, doing other stuff where I felt like I could be my best person, my best self. All right. So anyway, I, I jumped all over the place. So, yeah, so there are different types of holdco. So we talked about what, what you're doing, like thematically tech businesses around a specific platform. That's where I would kind of describe your business. So the slide I have here talks about the four different types of holdcoes. So a roll-up, most people are pretty pretty much understand that. I think our, my Twitter buddy,

Starting point is 00:13:19 I don't know if you're connected to him, Reg Zeller is one of these folks. He has a portfolio of non-farious foundries that he's bought over time. He's a former investment banker, got out of that whole thing, lives up in Minneapolis, great guy, and he owns just a portfolio of these businesses that are regional non-farist foundries. So they, like, produce, like, the types of metal, like, fabrication for a local area. And, like, there's, like, it's five to ten guys in a, like, a, like, basically like a warehouse, like taking orders and producing parts for manufacturers or different businesses and stuff like that. So I would describe him as a roll-up, which is something where they have just basically a commoditized business or type of service where each entity

Starting point is 00:14:01 in the business of the Holdco is the exact same thing. And then I would describe your business as this platform type, which is like you have a, you have multiple categories, but they all kind of group around this single idea, right? So your single idea is this idea of community. and how do you like drive your knowledge there and your experience there as something that can create a platform where all the entities like win together and I think that's really strong. There's a couple other types here.

Starting point is 00:14:32 I live in this kind of pure Holdco thing, which is basically like your Berkshire Hathaway idea, which is like you own two, three, five, ten businesses and like you supervise those and coordinate amongst them. But there's no theme. They're just kind of like a set of, holdings and you know i'm in everything from kind of fireworks to software to media now so but the good news i'm passionate about all of those things so that's where it is um cool a holdco

Starting point is 00:14:59 i mean obviously a situation where it's advantageous for a hold co owner um you know you can do some certain stuff that's that's typical in terms of good business hygiene providing a corporate shield making management easier you can maintain ownership and things so just talking about kind of the structure of how people typically do this, you know, you create an entity and then that owns portions of other entities, whether those are, you know, limited partnerships or corporations or any of that kind of stuff. Cool. So then this is where I think I start selling people on why it's cool to do a whole code, but has there anything like that comes to mind for you that we should talk about before I cannot go into that? How do you think of, you know, and I'm talking to mostly

Starting point is 00:15:39 the American founders here, but how do you think about LLCS-Corp? C-Corps. I know you're not a lawyer or anything like that, but do you have any any framework for thinking about how to set up some of these businesses? Yeah. Yeah, so definitely I have a framework for thinking about number one, talk to a lawyer. That's my number one framework all the time. So, but, but in terms of how to do those, the way I'm actually personally set up is everything rolls up to me personally. Like I don't actually have a Berkshire Hathaway style, um, Berkshire Hathaway style hold code because like there's no reason to. Like it's just another tax return I would have to fill out and it's just

Starting point is 00:16:21 annoying. So, um, but there are other situations where say you're like, you know, C-Ava and Xavier from Enduring Ventures where you would want to have a C-Corp at the top tier. And in their case, like they have outside investors, you know, at the very top of the hold co. And then there are individual entities that are either pass-through entities or C-corp's that live down there. So, you know, at a high level for North American folks, um, You have to make a decision based on the outcomes you want to have for your holdco as to how you structure things and allow cash to move between different entities. And there are certain types of situations in which you would want to have a pass-through entity, which is a subchapter S entity under the U.S. rules. And there are times in which you would want to have a C-C, which is a subchapter C corporation.

Starting point is 00:17:11 So most of the big corporations are subchapter C corporations. And then the way, I feel like I'm getting ready to give a legal lecture on this stuff. So this is why you should call a lawyer. I'll listen to Soka out of podcast. But there are times in which you want to have pastur entities and there are times in which you want to have C-Corps. And it all ties back to what the cash flows are going to look like, what the owner strip structure is going to look like. And then what the eventual exit for that individual holding or the hold co in general is going to look like. So I think maybe I'm explaining it in a way that my knowledge.

Starting point is 00:17:46 number one message is talk to a lawyer and talk to your tax, talk to your tax advisor. And actually, most people, Greg, that are doing hold cos, they end up like, you don't go alone. Like one of the things I talked about when I put together a course on all this stuff, but talked about like this all-star team of people that are folks that are there to help you make these decisions because there's a complex set of Legos that get put together to establish how your holdco should work. And that's like a CPA and account and a tax advisor, structuring attorney, transaction attorney, if you're going to be buying and selling things and so on. So, you know, there's no like black or white do it. The one thing I would tell that is that most people tend to

Starting point is 00:18:32 to weigh over complicated. Like, you can keep it as simple as I have in terms of kind of how you structure stuff or things just flip to you individually rather than having like a bunch of LLCs and stuff like that. But anyway, I don't know if that's, the most direct answer other than it's complicated. Well, no, I think it's helpful. I think that's kind of like the world of options for you. But the bottom line is, yeah, speak to a lawyer, figure it out, have a team around you that's advising you. Obviously, you're not going to have this all-star team of advisors on day one or day zero.

Starting point is 00:19:04 But this is something that you like build towards for sure. Yeah. And we kind of put them in order of where they tend to show up. Yeah. And go from there. So, cool. So, all right. So let's talk about how most people put together a whole co and get into it. You know, it's interesting, and I don't know if you've seen this, Greg, but like things tend to go in waves of kind of excitement and social media and the population and stuff. I mean, I think there was a time where everybody wanted to be a VC and then, you know, that was kind of like the mid-2010s.

Starting point is 00:19:41 Do you remember that? Dude, I was like in there, you know. I was fighting every ounce of my body was fighting not to be a VC. I was actually a venture partner at a fund, two funds actually, because I was like, oh, maybe I would like the VC thing. But realize it was just kind of like a bit of pure pressure. And so, yes, I remember that very vividly. And then, yeah, so I believe it or not, you are stronger than me.

Starting point is 00:20:10 I raised a couple of VC funds. Here's the thing people need to know about getting into VC, especially if you're a good person. Like the life cycle of those funds, especially with how elongated it is to exit these days, even your good investments where you're returning your fund and stuff like that, as a VC, you're going to be working on those deals 10 or 12 years,

Starting point is 00:20:36 sometimes 15 years after you make them and before they exit, right? And so like I'm still working on a fund on a regular basis for deals that we did back in 2014. So like 10 years on and some of them have no time to exit any type Zude, but they're like return the fund type deals because that's the other thing about PC. Like your your bad deals tend to fail quickly. The deals that are going to hit like they take a long time and they keep compounding and then eventually they hit. So anyway, that's something people need to understand about BC. It's not like you could just quit.

Starting point is 00:21:08 Like you raise money from people. You have to keep working on things for a decade plus. So anyway, but you're stronger than me. I ended up doing it. And then I decided I didn't want to be a VC anymore, which is totally fine. Okay, so people ask about, like, how do they go from like zero to hold co? And like, this is the seven-step process that, you know, I highlight for people. There's a way to get there, which is kind of the way I got there, which was like I had one business

Starting point is 00:21:36 and I started to just like get into a second business. I got in a third business and a fourth business and I looked up and said I'm in a Holco. You know, I encourage people to actually step back and try to have a plan of how they're going to work their way into hold coing over a number of years. It's a long-term wealth building strategy. It doesn't just, you know, it's not just like start a company, sell that company. Like that's, you know, you're building up a portfolio of things over time and letting them

Starting point is 00:21:59 compound. So these are the seven steps I tend to run people through, like have a plan, figure out what you want out of the whole plan in terms of owning multiple businesses, start to put together what your organizational design is going to be, run it by your attorney, run it by your tax advisor, run it by other folks, and then ask yourself, like, is this really going to be making me happy? Because I think ultimately, a mistake I see a lot of hold co folks make and entrepreneurs in general is designing to have a successful business, not to have a successful life. And I think hold coing done right needs to be like, Greg, you're passionate about community. Reg, who I talked

Starting point is 00:22:33 about before with the non-fares foundries, is like passion about that blue collar kind of backbone of America. Me, I'm passionate about a bunch of different stuff because I have whatever ADD or whatever it might be. You don't want to be in a situation in which your business is creating a life that you hate. And I think by planning it out this way, I encourage people to really be, you know, thoughtful about that. So you end up in a good place. Quick ad break. Let me tell you about a business I invested in. It's called boringmarketing.com. So a few years ago, I met this group of people that were some of the best SEO experts in the world. They were behind. getting some of the biggest companies found on Google.

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Starting point is 00:23:36 They're so confident in their approach that they offer a 30-day sprint with 100% money-back guarantee. Who does that nowadays? So check it out. Highly recommend boringmarketing.com. Let's see. Okay. So let's talk about some of the fun things to do with why a hold co is awesome. So number one, I think it's pretty clear.

Starting point is 00:23:56 Like you and I have a ton of fun doing it. Like I really enjoy it. Like I tap dance to work feeling like I'm working on really important stuff. I'm doing high leverage things to create. great opportunities for other people and getting to work with CEOs who are inspiring, right? And this idea of leverage for me is super fun. And it's the reason I like it is with a hold code, you get to often do what I call these asymmetric bets.

Starting point is 00:24:24 Other people call it too. I didn't make up the term. But basically, like, the idea is you can invest in something like you've invested in creating several businesses, Greg. So I consider these asymmetric bets. Like, you can invest $100,000 to get a bit. business off the ground, and that may turn into a business that could generate you a million dollars a year in net profits, right? That's an asymmetric bet. And the worst thing that can happen is

Starting point is 00:24:45 you lose your $100,000 and some time. And so as a hold co-operator, you don't just necessarily buy things and bring them into your portfolio. You can also create things. And given what's happened with the prices of assets over the past decade, I have spent a bunch more time incubating and creating new businesses than I have trying to go buy them just because I can get so much more leverage by making these asymmetric bets where, you know, I invest a few hundred thousand dollars or whatever to get something going and then hopefully that multiplies and become something really big over time. And I've had a number of these kind of go that direction where like my annual return on that initial investment is 100 or 200 percent per year, right? And that's like the

Starting point is 00:25:26 fun of asymmetric bets. Yeah, I think the other thing to note here is the cost of starting a technology enabled business, and that could be a service business, that could be a marketplace, could be a consumer social mobile app, could be a D to C company. You're standing on the shoulders of giants, and you're able to just to use things like Shopify and use things like V0 and Replit. So the cost has gone down dramatically, so it is my opinion, a really, I mean, you agree with me, but it's probably more cost effective to incubate, right now, especially if you're doing tech-enabled stuff.

Starting point is 00:26:12 A million percent. Well, this is where, you know, I'm 49 years old. So, like, I came of age in tech, like, in 1999, so 25 years ago. And my wife had moved out to the Bay Area to work on, like, an early version of, like, hotels.com, like a booking engine for stuff. and she took me into their office at one point, and they had like this massive office. They'd raised tens of millions of dollars,

Starting point is 00:26:41 and before they even had satisfied their own, like, first customer, they had built out an entire, like, mini data center in this San Mateo office building, like in California. And it was just like two or three of the millions of dollars went to servers and building out of tech stack and, you know, different middleware and all this kind of stuff. And today, like, man, It's like Shopify and all this kind of stuff.

Starting point is 00:27:05 It just makes the startup costs. And doing some of these businesses that are really low capex, like you can do that same business. You can get that same business they built off the ground for a few thousand dollars, right? Between AWS and the stuff you can just turn on and stuff that's already built. It's just a different planet. Sorry, I'm almost 50, so I kind of start having Greg the like back of my day talks. So it's can't help it.

Starting point is 00:27:31 So, but this is true. Yeah. When did you start your career? I mean, I've always, like as a teenager, been doing, you know, tech stuff. But, like, I moved out to SF in, like, Silicon Valley in, you know, the early 2010s. So that era was the era of the app store coming out. And there's an app for everything.

Starting point is 00:28:00 and in that era it was, it cost you like a million dollars to get a mobile app out the door, minimum. Minimum. So, you know, I just spoke to someone like a 21-year-old kid actually, basically who built a mobile app using AI. You hear these stories and then it goes viral

Starting point is 00:28:22 on TikTok and it's like it, you know, he's making 100K a month, MRI, and then he incubated another one. now he's incubated another one. All of a sudden, he has a hold co. So I think you're going to start hearing more and more of these stories. And I know a lot of people hate those stories because they're like, you know, he got lucky or whatever it is. But it's the big reason, the two big reasons why you're going to hear more and more of those stories is one, it's cheaper than ever to incubate.

Starting point is 00:28:49 Two, the distribution is on the phone, right? Like you just have to tap into it. I mean, easy for me to say, just tap into it. that's very hard to figure out how to create distribution. But if you can, it could go gangbusters. And what does this mean in the context of what you're talking about? It means that your ROI could be quite good. Yeah.

Starting point is 00:29:13 A million percent. Yeah. And so I do think, so we've talked a bit about the people like doing low-cap-X or low-cap-pro requirement kind of businesses. As a whole code strategy, right, you build a portfolio of, things that don't take much capital or you can bootstrap your way off the ground. So like a, there's a portfolio, um, like Jesse Tensley who you may, you may have seen him on Twitter. He's a friend of mine. He has a whole portfolio of low cap X recruiting and kind of

Starting point is 00:29:44 recruiting process optimization businesses. So like he started to acquire a bunch of stuff. I think he has recruiter.com is the domain name. So don't quote me on that. But he's built, he's built quite the thing there. But he's been able to do it all from his personal capital just because it, the businesses season don't require a bunch of capital to get off the ground or to even acquire. But there's this other end of the spectrum where people need greater access to capital to buy some of this stuff or to build a portfolio around some of these things. And so some people as a path to kind of build their hold co will go and get outside capital. So the enduring ventures guys, Cieva and Xavier have done this, right? They raised money to go get their, you know, to get things started.

Starting point is 00:30:25 And then you actually see also folks who will access capital to leverage their personal holdings. And so what that means is, so for example, like Tiny, so Andrew Wilkinson's business, like they have their businesses that are owned as a Holdco, but then they also have a fund management business that they run where they raise money from outsiders to go buy businesses that they then oversee as part of their Holdco operation. So there's this idea when you do a hold co, it can provide great, there's potentially greater access to capital. People can potentially buy equity in the holdco itself. They can buy equity in the deals. They can be partners in those deals and those sort of things. And then the other thing is, that's pretty cool is if you look at some people with holdcos, you can start to basically become a better or a more attractive borrower to lenders and other folks like that. So, for example, let's say that you, you know, are a roll up of a bunch of foundries like Red Zeller is.

Starting point is 00:31:27 If you wanted to go buy an additional foundry and bring that in, you could maybe finance 100% of that because you have the equity in your existing business and the track record there to where a bank might give you enough capital to go and buy one of those new businesses without having to inject any capital into your business at all. So basically, you get some of these economies of scale, you get these ideas where you can be more attractive to the different types of funding sources. that are out there. Yeah, we have a line of credit that we can draw down on if we want. And I think, yeah, a big reason why a bank feels comfortable doing something like that is, yeah, they look at it and they're like, this isn't just a tech startup, you know, that Google changes their algorithm and it's done for them, right? They see a diversified holdings of businesses.

Starting point is 00:32:17 And because of that, you're right. they do feel a bit more comfortable and the rates aren't crazy. And now, to be honest, I don't like drawing down on that line of credit for a lot of reasons. But the basic reason is I just don't like dead in general. But sometimes you look at something and you have an unfair advantage to incubate something. And it just requires capital. And you might not want to just go, you know, not many people talk about this, but like pitching investors, equity partners takes a lot of time and energy. So you might just want to draw down a little bit, invest, and then pay it over time.

Starting point is 00:32:55 Yeah. You know, I think you're right. I mean, people really discount, it's, oh, it's easy to raise money and put these things together. People really discount how much time you have to spend, like, managing those investors and relationships and dealing with conflicts that arise. You know, why aren't you doing things the way I wanted to them? Or if a deal goes south, right? like managing investor relationships and some of that stuff.

Starting point is 00:33:22 Like I'm with you. A lot of times just like, oh, this would be so much better if I just was doing it up by myself because that fewer folk calls. Super cool. So the other thing, just it's one of these economies of scale. I talk to people about it.

Starting point is 00:33:37 Like a hold code can provide you ways of having tax savings. There's, you know, there's in the U.S. There's typically active earnings and passive earnings. those are different those you know if you if you have passive losses you can use us to access offset passive gains if you have active losses you can use those to access active gains and that sort of thing the nice thing about it is say you have a portfolio of businesses and one of them

Starting point is 00:34:03 loses money in a year and then another one earns money like you could potentially use that to offset those things and have some tax savings and tax efficiency around the whole thing so again contact your tax advisor and if it's not in the U.S., there's different rules. I know Canada has stuff that involves maple syrup rules around this stuff and Molson Beer, but anyway, that's just a Canada insult, sorry. I was waiting for it. I was waiting for it, to be honest.

Starting point is 00:34:31 And it exceeded my expectations, honestly. So, oh, hilariously, you know, I don't know, you mentioned that you had interacted with one of my teammates, Greg, and you liked the person. Well, I didn't mention to you. he's a Canadian. So that's why. Of course you guys got logged.

Starting point is 00:34:50 Perfect. Totally. His breath smelled like maple syrup, so I knew I liked him. He's a great guy. He's a great guy. That's one of the secrets I think people are sleeping on, especially if you're hiring remotely. And I've been doing a lot of global hiring over the past few years as I know you are.

Starting point is 00:35:08 Like, I think people are sleeping on Canadian talent. And especially if you need to have people that understand North American culture, whether it's through writing or, you know, being able to really connect with people in that way, like Canadians, especially, you know, greater Toronto area folks, like amazing, like opportunity for American companies to hire. Yeah, we have tons of teammates in Toronto and Montreal. And, first of all, it's literally $1.US. As we're recording this, it's $1.1.3 is $1.39 Canadian. So you get a 39% on the financial side, you're getting a 39% discount basically right there. So there's an opportunity also to arbitrage a little bit.

Starting point is 00:35:54 And then, yeah, I mean, for example, Toronto, if you need them to come into New York or L.A. or San Francisco for a meeting, there's probably like 10 flights a day a day daily, right? So it's different than, you know, getting someone from a far country. or something like that. 100%. 100%. Okay, so we had talked about trying to do 45 minutes. So let me cover one more thing,

Starting point is 00:36:19 which I think is really interesting about Holdco's, and then we can close however it makes sense. And then I'm happy to make this deck available to folks. And then my team also told me we have to promote our conference. So we have 30 seconds to do that. That would be great. They yell at me because I forget to self-promote. So anyway, that's why we do it.

Starting point is 00:36:38 So last thing I want to talk about that's cool about, Holdco's, like, I think it's actually a good strategy to make yourself more resilient in terms of having risk avoidance, right? So, like, if you own one business and something bad happens, somebody steals from you or, you know, something happens that can cause that to all fall apart, well, if 99% of your net worth, which a lot of people who are entrepreneurs, that's the way they're set up, 90% of their net worth is in that one business. By having a portfolio of businesses and having a diversified set of things that you built through Holtco, you can avoid some of the risk that normal entrepreneurs have. And that's where one of the strategies and one of the things

Starting point is 00:37:21 I like about Hoccoing is you can try to have things that potentially like, you know, avoid cyclicality. Like they can be in a situation where if one is very weather dependent, like another business can be not weather dependent, or if you're dealing with something where there's kind of one business in decline, you can try to balance that with having businesses that are growing. So I think it's a really good way to build a more resilient life cycle or a lifestyle for yourself, though there are ways to still get yourself in trouble, just like in business, like leverage, leverage, theft, all those things are over leveraging theft. All those things are still challenges that a Holdco has, just like a normal business has. But the cool thing is when you have a portfolio

Starting point is 00:38:02 of things potentially you can de-risk your lifestyle and de-risk your future by having a more kind of differentiated set of stuff that isn't necessarily going to be, you know, all come down at once through regulatory changes, tax law changes, societal changes, technology distribution, changes, like all those things like, I think it's a cool thing when you have a whole portfolio to be able to kind of de-risk yourself and have a more stable kind of income base and asset base over time. It's interesting that you have integration between port codes because, you know, from my understanding on the Warren Buffett, Andrew Wilkinson type model,

Starting point is 00:38:45 they don't do much of that. They keep it very separate. You know, what's your thinking on that? And are they, you know, why are they so anti-coordination between, and collaboration between companies. Yeah. So I think a couple things. One is I think that the level of centralization you should have totally depends upon your asset type.

Starting point is 00:39:17 So let's say you build a HOTCO where you have 14 restaurant franchises, right? And like, let's say seven of them are Burger King and seven of them are Wendy's. Like this is a very common American Holtko style where there's families that, are multi-unit operators of franchises, they have built great businesses this way, and they're making millions of dollars a year. It would be stupid for you to have an HR person and a marketing person in every single one of those like stores, right? Like you should centralize that kind of stuff. You should centralize your bookkeeping. You should centralize your ordering. And so to me, the level of centralization that makes sense where you have like interaction between the individual

Starting point is 00:39:59 portcos where you're centralizing stuff at headquarters. that totally depends upon the types of assets you have and what you need from those assets, right? And so the more homogeneous those assets tend to be, the more you can centralize stuff. And so the other end of the spectrum is you decentralize those things. You push things out to the edge into the individual portfolio companies and you let them do that stuff. And you don't centralize things like purchasing, ordering, best practices, HR, finance, all that kind of stuff. And so, you know, I think what you're seeing with Andrew or what you're seeing with, you know, with Berkshire Hathaway or any of, you know, Roper or any of the kind of big Danaher big holding companies is they have built a level of centralization that ties to the asset type that they have. And it makes sense for them to not centralize so much. And, you know, I think there are tons of big case studies where like I talked about with the franchise thing, where people have centralized things to great. effect. Our buddy Red Zeller has a lot of stuff centralized around how he's doing, you know, HR, finance,

Starting point is 00:41:07 marketing, all that kind of stuff with all these different assets that he's acquired. So it really just ties back to the type of asset you have. And for those guys, it makes a ton of sense. And for the other folks, you know, being centralized makes a ton of sense. But it all just, it depends on the type of asset you have. And just curious, you know, in your, in your empire, how centralized or decentralized are you? Radically decentralized. Yeah. So, yeah, and I think there's another thing about it. Like, I'm actually a pretty crappy operator. And by operator, I mean somebody that's, like, good at not chasing shiny objects,

Starting point is 00:41:45 staying, you know, making the boring stuff happen that is essential to every business running well. I am incredibly good when there's, you know, the creative juices get flowing. I get excited about it. And by the third time, I have to do something that feels rote or uninteresting. Like, I kind of phone it in or sometimes I'll just forget about it. And so because of that, like, I don't have, like, the personal confidence to be like, I'm going to create this centralized, like, finance thing and the centralized, like, sales thing and, you know, all these kind of things where I have to operate something in order,

Starting point is 00:42:21 weld in order to succeed. Like, I'm trying to build a universe that, like, plays to my strengths or weaknesses. And I'm very aware of, like, hey, like, don't, don't try to do things that I know I suck at. That's fair. And I guess, you know, the way to think about this, it sounds like is it's a spectrum. So, you know, you could be mostly decentralized with a couple things that are centralized. Or you can be mostly centralized with a few things that are decentralized. Yeah, I think it's exactly right. Cool.

Starting point is 00:42:57 Let's see. Okay. So we're running out of time. So, you know, I'd love to share these slides. If anybody wants some, there's a bunch of stuff here about how to operate a hold code. I have some really strong views about all that kind of stuff. And if anybody wants to get into all this type of stuff, you know, I'd love to share it with them. Look, and I think there's two types of people out there. There's people out there that go and they're like, hey, I think there's this one way to live and I think you should do it.

Starting point is 00:43:24 I don't think hold goings for everybody. I think it requires a certain set of skills. I think you and I are somewhat unicorny and not feeling like we need to have our hands to control every single thing. and like not everybody's like that. And I think if this is the type of lifestyle somebody wants to have, like I'm a huge fan of it. And it's the best thing for me and I tap dance to work every day,

Starting point is 00:43:44 even when things are sucky. And I double tap dance when things are great. But I think I would say, hey, this is a possibility for the type of career somebody can create and the type of wealth building strategy somebody can have. And if it's right for you, great. And if it's not right for somebody, like no problem. But, you know, just know it's out there

Starting point is 00:44:01 and do what's best for you. most of my friends, as I told you before, they own and operate one business. And they're very happy doing it. And universally, they all take me to lunch once a quarter and they're like, how do you do what you do? Why do you do it? Because it's not right for them and they want to understand why it's right for me. But if it's right for somebody, like, great, know about it.

Starting point is 00:44:19 And if it's not, well, people should just do what's going to make them happy. I don't really care. Totally. I also think that if this excites you, this idea of becoming, you know, I call it a multi-printer or hold co-priner. The first step is just building one idea, building one project that turns into a product that turns into a company that's profitable. And then once you get to that point, then like some of your buddies could be like,

Starting point is 00:44:49 you know what, I'm actually going to go acquire another business and then kind of build my own ecosystem. Or you know what, I'm going to take some of our profits and reinvest it in this opportunity. So don't think that you need to start a hold-co from day one. Yeah, the key to doing is you need to have at least one successful business before you have two successful businesses. That's fair. It's crazy how math works that way.

Starting point is 00:45:17 Okay, so my team told me I have to do this if I can have 15 seconds. We're doing a whole conference on this wealth-building strategy. You know, hold-coing as a lifestyle. We have a bunch of speakers signed up. And because I love skiing, we're doing it in Utah next spring. Some folks had been doing this Holdco conference in Cleveland. And we're working with them to take it over and we're moving to Utah. And it's John Wilson and a number of other folks have been involved in this.

Starting point is 00:45:45 And so if anybody's interested, please come. We're about half full with the conference. It's going to be pretty intimate, 125 people or so. And they'll be skiing Holdco talks and a bunch of stuff to, you know, leave with understanding how to do this whole thing. even better. So if people are interested, we'd love to have you. It's not cheap, but it's going to be awesome. Honestly, I'm interested. This is, this sounds fun, you know, so I'm interested. Let's talk about it offline. I think I'd get you a discount, man. Yeah, special Greg deal. Cool. Awesome. Dude, thank you so much for taking us through this. I know I asked you to prepare slides,

Starting point is 00:46:25 but that's only because I wanted it to be focused and I wanted people to be able to see this and be able to take notes. And I really appreciate it. Gurdley, where could people find you online? I am on gurdley.com and there's links to everything. So last name, G-I-R-D-L-E-Y.com. So I do a twice-weekly newsletter.

Starting point is 00:46:49 I do Twitter posts like crazy. I'm a LinkedIn guy now and video, but links to everything is a Gurdley. So I can go to my website and sign up there. So I appreciate it. And we'll put it in the description for people who want to start a hold code, but don't know how to spell girdly. Maybe that's the reality. Okay, that was Holds Code 101, Michael Gerdley.

Starting point is 00:47:16 That's the pod. Thank you for joining us.

The Startup Ideas Podcast - How to start a Holding Company

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