Young and Profiting with Hala Taha (Entrepreneurship, Sales, Marketing)
Codie Sanchez: How to Make Extraordinary Wealth Buying Boring Businesses | Finance | E320
Mon, 02 Dec 2024
Codie Sanchez started out on the traditional corporate path, working long hours and steadily rising through the ranks. But she soon noticed a pattern: the wealthiest people weren't just starting flashy tech companies—they were buying "boring businesses." Codie decided to break away from the corporate world to invest in steady, everyday businesses that others ignored, like laundromats and vending machines, building her wealth that way. In today’s episode, Hala and Codie dive into how these unglamorous businesses can be your ticket to financial freedom and why sometimes the smartest move is going against the grain. In this episode, Hala and Codie will discuss: (00:00) Introduction (01:58) Wealth Myths Shattered (05:55) The Power of Ownership (10:59) True Entrepreneurship vs. Just Another Job (15:14) Main Street Businesses: The Hidden Wealth Builders (25:03) How to Prep to Buy a Business (32:49) Creative Financing Secrets (38:20) Where to Hunt for Business Deals (43:00) Go Strategic or Diversify? (47:42) Key Financials Before You Buy (49:56) Scaling Smarter, Not Harder (52:00) Plotting the Perfect Exit Strategy (59:43) AI & The Future of “Boring” Business Codie Sanchez is the founder of Contrarian Thinking and co-founder of Unconventional Acquisitions, focusing on small business acquisitions and roll-ups in the micro-PE space. She runs a holding company of service-based SMBs under $10M EBITDA, emphasizing "boring businesses." She previously led First Trust’s $1B Latin America business and held leadership roles at Goldman Sachs, State Street, and Vanguard. She started her career as an award-winning journalist and has since become a recognized investor and thought leader. She holds an MBA from Georgetown University and serves on boards like Permian Investment and Magma Partners. Resources Mentioned: Codie’s Book, Main Street Millionaire: How to Make Extraordinary Wealth Buying Ordinary Businesses: https://codiesanchez.com/book/ Sponsored By: Airbnb - Find yourself a co-host at airbnb.com/host. Mint Mobile - To get a new 3-month premium wireless plan for just 15 bucks a month, go to mintmobile.com/profiting Found - Try Found for FREE at https://found.com/profiting Working Genius - Get 20% off the $25 Working Genius assessment at www.workinggenius.com/ with code PROFITING at checkout Shopify - Sign up for a one-dollar-per-month trial period at youngandprofiting.co/shopify Indeed - Get a $75 job credit at indeed.com/profiting Active Deals - youngandprofiting.com/deals Key YAP Links Reviews - ratethispodcast.com/yap Youtube - youtube.com/c/YoungandProfiting LinkedIn - linkedin.com/in/htaha/ Instagram - instagram.com/yapwithhala/ Social + Podcast Services: yapmedia.com Transcripts - youngandprofiting.com/episodes-new All Show Keywords: Entrepreneurship, entrepreneurship podcast, Business, Business podcast, Self Improvement, Self-Improvement, Personal development, Starting a business, Strategy, Investing, Sales, Selling, Psychology, Productivity, Entrepreneurs, AI, Artificial Intelligence, Technology, Marketing, Negotiation, Money, Finance, Side hustle, Startup, mental health, Career, Leadership, Mindset, Health, Growth mindset. Career, Success, Entrepreneurship, Productivity, Careers, Startup, Entrepreneurs, Business Ideas, Growth Hacks, Career Development, Money Management, Opportunities, Professionals, Workplace, Career podcast, Entrepreneurship podcast Finance, Financial, Personal Finance, Wealth, Stock Market, Scalability, Investment, Financial Freedom, Risk Management, Financial Planning, Business Coaching, Finance podcast, Investing, Saving,
Chapter 1: What are the common misconceptions about wealth?
Me too. So last time you came on the show, we talked about your background, we talked about your contrarian investment views, and we talked about buying boring businesses, which I absolutely love. And now you have a new book out. It's called Main Street Millionaire. So I can't wait to find out how we can all become Main Street Millionaires.
So my first question to you is trying to really understand some misconceptions that we have about rich people. When I think about rich people, I think about billionaires like Elon Musk and Jeff Bezos and tech entrepreneurs or celebrities like Oprah and Kim Kardashian. But tell me why you are challenging this idea. What stats and facts do you have about rich people?
Let's start with a fun one. Do you want to know who the richest woman in the world is? This is as of the end of last year when the Forbes report came out. If you saw it, maybe it's T Swift. I know she had a big tour. Wrong. She's like 34th on the list. If you thought it was Kim K, you'd also be wrong. She was like 21st on the list.
If you thought that it was somebody like Oprah, also wrong, she doesn't even crack the top 10. Who is it actually? It is a woman who grew a roofing company to more than $15 billion in net worth. And so my point here is I think one of the biggest misconceptions with the really, really rich is that they do things that are really, really sexy.
In fact, most of the richest people on the Forbes 100 list If they didn't inherit it from a boring business, they started a boring business or they bought businesses, aka finance. So I think there's a matrix kind of like this. On the vertical side of the matrix, you basically have the sexiness of a business. from artists to musicians to actors.
And on the right side, you have the income or how much money you can make. And what it turns out is if you correlate the two, the sexier the industry, the fewer the people make an obscene amount of money in it. The more boring the industry, the more people make consistent high dollars in it.
And so there seems to be a correlation between boring traditional everyday businesses that we need nonstop and more of us making money, which I thought was interesting.
That's so interesting. And we're going to find out later why these boring businesses are so overlooked. But before we do that, you open up your book basically saying that we are programmed to be poor. Tell us why America basically teaches us to be poor our whole lives.
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Chapter 2: How can ownership lead to financial freedom?
I heard a quote once that just seared its way into my soul, which was that you are as rich as you programmed yourself to be. And if you think about it that way, there's a good and a bad side to it. The good side is, well, you can reprogram yourself. Just like a computer, you can scrap the software, keep the hardware, and realign what is inside of you.
The bad part is that the foundation on which you and I have learned money is actually one that incentivizes us to stay just sort of tracking to our spend for our entire life, which is why most people will die alone and without much in the way of resources, which is really, really sad. And so when I started thinking about writing this book, I was like, we can't make ourselves smarter very easily.
We can't make ourselves have more money than other people do up front. So what would be a way to level the playing field? And because I was in finance for 12 years, I watched what the really, really rich did. And they did something completely differently, which is they didn't innovate as often as Silicon Valley did. They didn't come up with some crazy startup and sleep on couches.
In fact, they wore Gucci loafers all the way to the private plane they eventually bought. And how did they do this? Because they bought other people's hard work, other people's years of hard work,
And then they did a little bit of what's called financial arbitrage, but basically make expenses a little bit lower, increase profits here, and apply the Wall Street mechanism for growth to most businesses. And I was like, why does Wall Street only do this?
I think that we can reprogram ourselves to be rich by realizing that we just have to copy other people's homework from those who have already achieved the thing we want in life. And that's kind of what I strive to do.
So I'd love to understand the difference between living a life where you have non-ownership versus living a life where you actually have ownership in something. Can you compare and contrast that for us?
I think ownership actually is a synonym for freedom. So the more that you own things, the less other people can tell you what to do. If your listeners are like you and I, you and I, we're probably pretty unemployable, right? We're a pain in the ass, which is why we became entrepreneurs. We are just on the other side of diva, which is like, I think we should do it this way.
How come we can't do this? Let's go faster. What do you mean I can't make more? That's what a good entrepreneur is. And so I think if you are also like that, you are set up to succeed in some ways. which is that you will fail at being an employee for a long time. And the best entrepreneurs are failed employees.
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Chapter 3: What defines a 'boring business'?
And she's really good at managing. So it's a way for her to become an entrepreneur without necessarily inventing anything.
Oh, yeah, I love that. I think you're really smart because a lot of young entrepreneurs don't understand a few words that will change your life when it comes to making money and ownership, which is vesting equity, aka you can give somebody a percentage of your company, but they don't take it right away. They get it over years of work, a little bit at a time each year. which is called a cliff.
So nothing earned in the first year until they make it to the end of the first year. And if they're successful, then they earn a portion. Same thing with year two, year three. We talk about lots of the lingo in the book. Another thing that you mentioned that I think is really important is she was a high performer. She kept growing.
And so you were rewarding what you had already seen as positive behavior. not trying to incentivize future better behavior. So I think a lot of times what people don't realize is they give a carrot to somebody who is underperforming or sort of flat.
And they say, you could earn equity in my business if you do X and Y and Z. What you really should do instead is say, wow, you're the fastest greyhound on the track. You're crushing it right now for me. I want to reward you for what you're already doing now over a multi-year period. The best predictor of future behavior is past behavior.
So your high performers are more likely to continue performing than you changing the mindset of a poor performer.
So true. So entrepreneurship is thrown around all the time. Everybody thinks they're an entrepreneur. Can you talk to us about freelancers, gig workers, solopreneurs? Do you feel that that's the same thing as owning a business? Why or why not?
I think we were sold a great lie. And the great lie was essentially this. First, we owned our businesses back in the day. When we first started in this country, we didn't pay a ton in taxes, and we owned our own businesses. And then we apprenticed to eventually take over those businesses.
Then one day, big corporations came around, and they said, instead of you owning these little things, come work for us. We have this big, huge opportunity. You can come work inside of our sphere. Then we worked in corporations and realized the only place that padded walls should be is insane asylums, and I don't want to work in cubicles anymore under fluorescent lights.
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Chapter 4: Why are Main Street businesses overlooked?
So we said, wait a second, startups, that's what it is. It's Silicon Valley-backed venture rocket ships We'll go to do those." So then we went and did that as a society, and that's what we glamorized.
The problem there is nobody told us nine out of 10 of those startups would fail miserably, and they would leave a bunch of us with a mess on our hands, with companies that were failing, with heartache, right? And the people who would win would be venture capitalists who got to sprinkle tons of dollars across many companies. And also fueled a ton of innovation. But it's not for everybody.
It's a very hard path. And then finally, we were like, no more venture. I don't want to do that. So we were like, YOLO into freelance, and I own my own company, or what I'll call solopreneurship. Solopreneurship is the way. Well, you've done this before, too. I think the road to hell is paved with individual Zoom meetings back and forth between yourself and no help.
And so we didn't realize that all we did actually was now go work at the behest of an Uber or at the behest of a Substack where they still own us. Silicon Valley still owns us. We just make a smaller percentage of our total profits as a solopreneur. And now we're like, man, we're not even making enough money in solopreneurship anymore and we don't really like this.
So I think the solopreneur movement is actually not as glamorous as we thought it was. And so my hope is the next movement is this Main Street movement.
Can we go back to the thing we were originally talked out of, which is let's own a portion of small businesses all around this country that are already profitable, that have existed for a long time, that don't have crazy volatility of online businesses, and that are simple. And that you're going to pay even if it's in a recession because you want your plumbing to work even if it's a downturn.
And that's my belief.
I love that. You have this quote in your book and you say, your salary will never set you free. Your financial freedom can only come through ownership, specifically through equity done the right way. So my question is, what do you mean by equity done the right way?
Everybody wants equity, right? That sounds good. But the problem with equity is you can't eat it. Meaning, what are you gonna do? I can't take my equity and go pay for something or put a down payment on a house. It's sort of like up in this ether, this thing that I can't touch.
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Chapter 5: What are the four levels of business ownership?
They grow faster through acquisitions than they do organically, customer by customer. So if you own a business today, you need to understand how to do deal-making. It's how you will be harder to compete with. You can acquire 100 customers at a time, while most people are acquiring one at a time. Total game changer.
If you don't have a business yet, what I'd like to do is turn on what I call your reticular activating system of business buying. So your reticulator activating system is what gets turned on when your brain tells you that something is important. And so when you go and buy a car, for instance, like a Porsche, let's say, you go and buy a Porsche.
And before you bought the Porsche, you're like, I don't see these things anywhere. After you buy the Porsche, you're like, fuck, everybody has a Porsche in Austin, Texas. What happened? Nothing happened, your brain just started getting a signal to it saying that this is important and so you started noticing it.
Right now we're walking around sort of in the matrix not realizing that all around us are deals, potential deals. And what I wanna do is turn on your brain so you start seeing them.
And what this might mean is if you work for a small business, you might not even realize that the owner is ready to retire and if you positioned yourself correctly, you could take over that business using seller financing.
If you're a solo content creator online, you might not realize that the $1,000 they want to pay you to promote XYZ product, you should actually negotiate a deal instead to get future distributions and a percentage of the company. Deals are all around you. We just want you to turn it on.
I know that it's a lot of hard work to have a boring business, but I think people have the misconception that it's like passive income, like, oh, I'm going to buy a bunch of vending machines, plop them in the stores and passive income. Why is that not really the case?
You know, I was joking with one of my favorite CEOs that I used to work for back in the day. He runs a company that does, I don't know, $300 billion in annual sales. It's a huge company. And when I was talking to him, he was pretty funny. I was like, Jim, I'm curious. He's older, so he's probably in his mid-70s. And I was like, you've been around for a long time.
You've been an investor all your life. You own all these companies. You ever met any passive income? And he was like, sure haven't, but I'm open to it. So that's what I mean that the way you get passive income is years of active work. And I think we need to be honest about that with each other. Now, that said, there's a lot of people that want to tell you two things. Either one, you can't.
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Chapter 6: How to identify a smart business acquisition?
Well, my very first one was a website called Selling South back in the day. And I tried a game that I was really bad at, which is I think we made money on ads and affiliates back then. It was really hard. It was hard. And I didn't make very much money at all, but it was a good entry drug business. And then I had a laundromat business, which I would put in this category too in the beginning.
And then I also had a consulting business, which was right on the edge of a level one, level two. Okay, moving on to level two, hands-on CEO. This business is one where you're going to potentially have an operator right along with you. You might have somebody who's actually in the business. My first business, I had a GM in the laundromat.
So he's the one actually running some of the laundromat specifics. I invest in it. I track things overall. I'm still involved in the business, but I have a little help. These businesses are slightly bigger in size. There's also a slight bigger complexity here. This could be things like multiple laundromats, let's say, for instance.
This could be things like having a media company, what we have now. I would say most media companies fall into this category. They never get to like a huge daily wire allowance. These businesses also, on average, still have most of your time dedicated to this business and are going to have some employees, but not a ton.
Okay, level three, and this is like, it gets harder and harder, right? Or like less likely that you fit in the level as we go along. So level three is on-deck operator.
This means you got an operator that's rocking and rolling in this business. You are in oversight mode. You basically get to do what I do, which is financial Fridays. You're reviewing what's going on. You have an operator who probably knows more than you do about the business. You've got employees underneath that operator. This business is doing millions of dollars in revenue.
And that means, alternatively, you could be doing a million plus in profit. And this is a business where you could have almost any type of business imaginable could be in this amount. So you could have a small furniture store. You could also have a roofing or an HVAC company in this amount. You start to get to the level where you're starting to do roll-ups in your business.
And so the idea is that you're actually not the operator of this business. You've just invested in this business. That's right.
Okay. And the way that we think about these levels is mainly, does the revenue support the employees and infrastructure that allow you to work on the business as opposed to in the business? So the first two, not as much. The third one, you start to get into it. I'm going to dig deeper on that in a second. Level four, market leader. So this means we're a big business now.
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Chapter 7: Why is passive income a myth in business?
Chapter 8: What is the Lindy effect and how does it apply to business?
So you wanna introduce a third party saying, sorry, we're not gonna pay you for that. So we say, okay, the bank says that it's worth a million instead of two. That means that I could give you a million dollars plus I got to pay like 8% to the bank because there's an interest rate associated with it. Plus I probably got to wait like 120 days for the loan to fully go through, maybe 90 at best.
plus you're gonna have a higher tax burden because they're gonna lump sum pay you out right now, as opposed to over time. We can't get very creative with your taxes. You're gonna pay more in taxes. Also, because we're gonna go with this loan over time, I can't pay you any of the interest. I have to pay the interest to the bank.
Now, that means that I can give you a million dollars plus these other negatives, or there's another way that we could do this through seller financing. Would you wanna talk about how we could structure it that way? And they'll probably go, okay, yeah, what do you mean? And you say, okay, other option.
I pay you 1.5 instead of one, so you get another $500,000, plus I will pay you the interest on the loan instead of the bank, except I'll pay you 4% instead of 8%, which increases the likelihood the business succeeds, because it's not as high, plus you make another 4% every single month or year, depending on how you structure the deal.
Plus, we could get this deal done in probably 30 days because we don't have to go through a traditional bank process instead of 120 days. And we will structure the payouts over time, which means you pay less because you're getting long-term capital gains and distributions as opposed to short-term capital gains and distributions.
So you're getting $500K more, plus you're getting 4% a year, plus you're getting better tax savings. Would you be interested in at least us discussing what that would look like? At which point, the owner is going to say probably yes. And so that's how you nail seller financing.
Oh my gosh, that was a masterclass right there. Anybody wanting to buy a boring business, you could literally just... transcribe that script and get your deal. So is it realistic to think that there's actually a lot of opportunity out there for these boring businesses? When I think about this, I don't know, like I just feel like how many people are really willing and ready to sell their business?
Let me tell you some data. So how many people actually will sell you a business today and use some version of seller financing? Well, one, I bought a boring business that was a business marketplace called BizScout and then plowed a couple million dollars into it. BizScout is now a marketplace where people buy and sell businesses.
When we first launched, which was maybe four weeks ago, six weeks ago, we had 30,000 listings on the platform. Today, we have 45,000 listings on the platform at BizScout. There are 45,000 people publicly listed that want to sell their business. Plus, the other interesting part about BizScout is we have this backend scraper where we scrape all the small businesses.
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