WEBVTT 1 00:00:00.000 --> 00:00:03.720 Chick-fil-A makes more money than McDonald's, Starbucks, 2 00:00:03.720 --> 00:00:06.240 and Subway combined. 3 00:00:06.240 --> 00:00:09.760 And their first day in business, they make $50. 4 00:00:09.760 --> 00:00:12.800 And today, they make over $5 billion. 5 00:00:14.080 --> 00:00:16.160 Welcome to the game where we talk about how to sell more stuff 6 00:00:16.160 --> 00:00:19.120 to more people in more ways and build businesses worth owning. 7 00:00:19.120 --> 00:00:20.560 I'm trying to build a billion dollar thing 8 00:00:20.560 --> 00:00:21.760 with acquisition.com. 9 00:00:21.760 --> 00:00:23.480 I always wished pesos, musk and buffet 10 00:00:23.480 --> 00:00:24.680 had documented their journey. 11 00:00:24.680 --> 00:00:25.960 So I'm doing it for the rest of us. 12 00:00:25.960 --> 00:00:27.000 Please share and enjoy. 13 00:00:28.000 --> 00:00:30.000 I love Chick-fil-A. 14 00:00:30.000 --> 00:00:32.000 I love their sandwiches, I love their desserts, 15 00:00:32.000 --> 00:00:34.000 I love their milkshakes, I love their waffle fries, 16 00:00:34.000 --> 00:00:36.000 I love their sauces, I love their tenders. 17 00:00:36.000 --> 00:00:39.000 But what I love even more than that is their business. 18 00:00:39.000 --> 00:00:42.000 And what you can learn from Ezra Cathy, the founder, 19 00:00:42.000 --> 00:00:45.000 who started it 76 years ago as of today 20 00:00:45.000 --> 00:00:48.000 when he was 25 years old in Georgia. 21 00:00:48.000 --> 00:00:51.000 And so one of the things that I love the most about this business 22 00:00:51.000 --> 00:00:53.000 is the perspective that he took. 23 00:00:53.000 --> 00:00:55.000 So think about how many people you see on Instagram. 24 00:00:55.000 --> 00:00:57.000 They talk about their side hustles in there. 25 00:00:57.000 --> 00:00:59.000 And they're like six businesses they got open. 26 00:00:59.000 --> 00:01:03.000 This man sold chicken sandwiches for 76. 27 00:01:03.000 --> 00:01:05.000 Well, he died eight years ago. 28 00:01:05.000 --> 00:01:09.000 So he sold them for 68 straight years of his life. 29 00:01:09.000 --> 00:01:11.000 You won't even more important fact. 30 00:01:11.000 --> 00:01:14.000 The sales of the company have never gone down year to year. 31 00:01:14.000 --> 00:01:17.000 They have literally only gone up into the right. 32 00:01:17.000 --> 00:01:21.000 For 76 straight years, eight of those years after he died 33 00:01:21.000 --> 00:01:24.000 showing how much he built an enterprise 34 00:01:24.000 --> 00:01:26.000 to stay and live on past him. 35 00:01:26.000 --> 00:01:28.000 Because I talk a lot about the difference between mercenaries 36 00:01:28.000 --> 00:01:29.000 and missionaries. 37 00:01:29.000 --> 00:01:31.000 Mercenaries are people who are in it for the money. 38 00:01:31.000 --> 00:01:34.000 And most people who sell on social media, I would argue, 39 00:01:34.000 --> 00:01:35.000 are in it for the money. 40 00:01:35.000 --> 00:01:37.000 And I don't cast any judgment on either direction. 41 00:01:37.000 --> 00:01:39.000 But I will say that the people who are the missionaries 42 00:01:39.000 --> 00:01:41.000 who are doing it because it's a cause, 43 00:01:41.000 --> 00:01:43.000 they build it different. 44 00:01:43.000 --> 00:01:45.000 There is no rush because they see it as a mission 45 00:01:45.000 --> 00:01:48.000 that they have a problem they want to solve in the world. 46 00:01:48.000 --> 00:01:50.000 And they created a business and a monetization system 47 00:01:50.000 --> 00:01:52.000 around it to solve it profitably. 48 00:01:52.000 --> 00:01:54.000 That's the difference between the mercenaries and the missionaries. 49 00:01:54.000 --> 00:01:55.000 The mercenaries enter for themselves. 50 00:01:55.000 --> 00:01:57.000 The missionaries enter for the cause. 51 00:01:57.000 --> 00:01:59.000 And so, Astro Kathy is one of those pure examples. 52 00:01:59.000 --> 00:02:02.000 Now, he's a Southern Baptist, hardcore Christian. 53 00:02:02.000 --> 00:02:04.000 And so obviously his mission is aligned with his faith. 54 00:02:04.000 --> 00:02:06.000 But even the way that he built his business, 55 00:02:06.000 --> 00:02:07.000 we can take a lot from it. 56 00:02:07.000 --> 00:02:10.000 And I, the reason I idolize guys like Warren Buffett 57 00:02:10.000 --> 00:02:12.000 and Astro Kathy are because of their perspective. 58 00:02:12.000 --> 00:02:13.000 And so I always try to think like, 59 00:02:13.000 --> 00:02:15.000 what do they see about the world that I don't? 60 00:02:15.000 --> 00:02:19.000 Or what do I believe to be true that isn't as far as they see it? 61 00:02:19.000 --> 00:02:21.000 And so just to give you a couple stats about why Chick-fil-A 62 00:02:21.000 --> 00:02:23.000 is so badass as a business. 63 00:02:23.000 --> 00:02:26.000 Number one, they decided to grow slower. 64 00:02:26.000 --> 00:02:27.000 And that's crazy. 65 00:02:27.000 --> 00:02:29.000 And now in today's world of everything has to be fast. 66 00:02:29.000 --> 00:02:30.000 Everything has to be immediate payoff. 67 00:02:30.000 --> 00:02:32.000 And they had different competitors that came in 68 00:02:32.000 --> 00:02:34.000 during their period of growth that people thought 69 00:02:34.000 --> 00:02:36.000 were way hotter, way sexier. 70 00:02:36.000 --> 00:02:39.000 Some of you may remember Boston Market and remember Boston Market 71 00:02:39.000 --> 00:02:42.000 when they had their rotisserie chicken and the mac and cheese 72 00:02:42.000 --> 00:02:43.000 and all that stuff. 73 00:02:43.000 --> 00:02:46.000 They took on a ton of debt, grew super, super fast, and then imploded. 74 00:02:47.000 --> 00:02:49.000 And the whole time, people were like, 75 00:02:49.000 --> 00:02:50.000 oh, they're going to put Chick-fil-A out of business. 76 00:02:50.000 --> 00:02:52.000 They're going to, like, the family value chicken place. 77 00:02:52.000 --> 00:02:56.000 But slow and steady, every year, they just keep making more. 78 00:02:56.000 --> 00:02:59.000 And then eventually, Boston Market shut up and then shut down 79 00:02:59.000 --> 00:03:01.000 because he wasn't thinking on a five or a 10-year time horizon. 80 00:03:01.000 --> 00:03:03.000 He literally sold chicken sandwiches 81 00:03:03.000 --> 00:03:06.000 from the time he was 25 until the day he died. 82 00:03:06.000 --> 00:03:08.000 Think about like that kind of focus. 83 00:03:08.000 --> 00:03:10.000 And I love games where if you wait you in, 84 00:03:10.000 --> 00:03:13.000 where if you just think about how can I do more tomorrow 85 00:03:13.000 --> 00:03:15.000 than I did today and you do that for a long enough period of time, 86 00:03:15.000 --> 00:03:17.000 the numbers become crazy. 87 00:03:17.000 --> 00:03:18.000 So here's some numbers for you. 88 00:03:18.000 --> 00:03:21.000 Chick-fil-A makes more per restaurant 89 00:03:21.000 --> 00:03:26.000 than McDonald's Starbucks and Subway combined. 90 00:03:26.000 --> 00:03:28.000 Depending on the source and what you're looking at, 91 00:03:28.000 --> 00:03:32.000 they make about $5.2 million per restaurant toplight. 92 00:03:32.000 --> 00:03:36.000 That's $100,000 a week on average. 93 00:03:36.000 --> 00:03:38.000 And here's what's crazier. 94 00:03:38.000 --> 00:03:43.000 For context, McDonald's averages $2.6 million per location. 95 00:03:44.000 --> 00:03:48.000 So they do more than twice the sales that a McDonald's does. 96 00:03:48.000 --> 00:03:50.000 But what's even crazier is their profit margins. 97 00:03:50.000 --> 00:03:52.000 And not only do they have insane margins, 98 00:03:52.000 --> 00:03:56.000 they do it selling a quarter the amount of products. 99 00:03:56.000 --> 00:03:58.000 So McDonald's has 49 products on the menu. 100 00:03:58.000 --> 00:04:00.000 They have 12. 101 00:04:00.000 --> 00:04:02.000 And they don't iterate that menu. 102 00:04:02.000 --> 00:04:05.000 The reason I love this so much is because it's so aligned 103 00:04:05.000 --> 00:04:07.000 with everything that I believe to be true. 104 00:04:07.000 --> 00:04:09.000 And so I love, and there's probably confirmation bias, 105 00:04:10.000 --> 00:04:12.000 but I love having the things that I believe 106 00:04:12.000 --> 00:04:14.000 build great businesses, build great businesses. 107 00:04:14.000 --> 00:04:17.000 And so they have such a refined menu 108 00:04:17.000 --> 00:04:20.000 because it makes the order process have fewer mistakes in it. 109 00:04:20.000 --> 00:04:23.000 It makes the drive-through process happen faster. 110 00:04:23.000 --> 00:04:25.000 They're able to have less food go bad 111 00:04:25.000 --> 00:04:27.000 because they don't have to have all these extraneous options. 112 00:04:27.000 --> 00:04:29.000 They follow Prado's principle of 80-20. 113 00:04:29.000 --> 00:04:32.000 They know that 20% of their stuff creates 80% of their sales. 114 00:04:32.000 --> 00:04:35.000 And so they have all of these efficiencies in there 115 00:04:35.000 --> 00:04:37.000 because they're not trying to be cute. 116 00:04:37.000 --> 00:04:39.000 They're trying to be the best at a handful of things. 117 00:04:39.000 --> 00:04:41.000 And by doing that, they've been able to sell way more 118 00:04:41.000 --> 00:04:44.000 than anyone else does with a way more constrained menu 119 00:04:44.000 --> 00:04:47.000 and do it so much more profitably. 120 00:04:47.000 --> 00:04:49.000 And so to give you context here, 121 00:04:49.000 --> 00:04:52.000 I'm almost certain they don't have any debt on the company today. 122 00:04:52.000 --> 00:04:54.000 Now, during the period of time, 123 00:04:54.000 --> 00:04:56.000 there's a short period of time where he took out loans 124 00:04:56.000 --> 00:04:57.000 to open a couple of stores himself. 125 00:04:57.000 --> 00:04:59.000 I know that because I read his autobiography. 126 00:04:59.000 --> 00:05:02.000 But his goal was always to keep debt within reason. 127 00:05:02.000 --> 00:05:05.000 And then eventually, at least when I was reading his autobiography, 128 00:05:05.000 --> 00:05:07.000 we were debt free today. 129 00:05:07.000 --> 00:05:09.000 But that was obviously a year ago as he's debt now. 130 00:05:09.000 --> 00:05:10.000 But that was at least the founders. 131 00:05:10.000 --> 00:05:12.000 And what's important for everyone listening 132 00:05:12.000 --> 00:05:13.000 is I think it's the founders perspective. 133 00:05:13.000 --> 00:05:15.000 Because sometimes corporate comes in, they change things around. 134 00:05:15.000 --> 00:05:17.000 But I think it's important to understand the heart of the founder 135 00:05:17.000 --> 00:05:19.000 that built this amazing enterprise. 136 00:05:19.000 --> 00:05:23.000 So he didn't take the debt because he didn't want to go grow fast. 137 00:05:23.000 --> 00:05:25.000 He wanted to grow long. 138 00:05:25.000 --> 00:05:26.000 He wanted to grow deep. 139 00:05:26.000 --> 00:05:27.000 He wanted to have deep roots. 140 00:05:27.000 --> 00:05:30.000 He wanted to do everything right the first time all the way through 141 00:05:30.000 --> 00:05:31.000 because he wasn't in it for the money. 142 00:05:31.000 --> 00:05:33.000 He was in it for the mission. 143 00:05:33.000 --> 00:05:35.000 Because if you open 10 more stores and the stores are shit, 144 00:05:35.000 --> 00:05:37.000 you detract from the mission. 145 00:05:37.000 --> 00:05:40.000 You might boost top line or boost bottom line in the short term 146 00:05:40.000 --> 00:05:42.000 to hit a quarterly earnings call, right? 147 00:05:42.000 --> 00:05:44.000 But not for the long term mission because the quarterly earnings 148 00:05:44.000 --> 00:05:46.000 calls don't matter to somebody who's trying to do this 149 00:05:46.000 --> 00:05:48.000 in such a good sandwich as for the rest of their life, right? 150 00:05:48.000 --> 00:05:51.000 So some of the things they did. 151 00:05:51.000 --> 00:05:53.000 One is he owns every single location. 152 00:05:53.000 --> 00:05:55.000 All right, corporate owns all the locations. 153 00:05:55.000 --> 00:06:01.000 Second, they get 60,000 applications a year to open a Chick-fil-A. 154 00:06:01.000 --> 00:06:03.000 And you have to have worked while he was alive. 155 00:06:03.000 --> 00:06:04.000 You have to have worked at a Chick-fil-A. 156 00:06:04.000 --> 00:06:05.000 I think they loosened that up. 157 00:06:05.000 --> 00:06:07.000 You cannot have necessarily worked. 158 00:06:07.000 --> 00:06:10.000 But if they're only picking point less than 1% of the people 159 00:06:10.000 --> 00:06:13.000 which right now is 80 people to 100 people a year get awarded 160 00:06:13.000 --> 00:06:15.000 a franchise out of 60,000. 161 00:06:15.000 --> 00:06:17.000 Who do you think is going to have an advantage? 162 00:06:17.000 --> 00:06:18.000 Somebody already worked at your place. 163 00:06:18.000 --> 00:06:19.000 Somebody didn't, right? 164 00:06:19.000 --> 00:06:21.000 So you don't have to, but majority have. 165 00:06:21.000 --> 00:06:25.000 Now, they pay $10,000 if they get accepted to get a word 166 00:06:25.000 --> 00:06:26.000 of location. 167 00:06:26.000 --> 00:06:27.000 They have some skin in the game. 168 00:06:27.000 --> 00:06:29.000 But to open up a Chick-fil-A, it costs millions of dollars. 169 00:06:29.000 --> 00:06:33.000 So the $10,000 is more like a symbolic gesture from the franchisees. 170 00:06:33.000 --> 00:06:36.000 And they wanted to have a career path for the super exceptional employees 171 00:06:36.000 --> 00:06:38.000 because he wanted to create a way for people to come in, 172 00:06:38.000 --> 00:06:40.000 mopping floors, flipping burgers going all the way up, 173 00:06:40.000 --> 00:06:42.000 and then eventually own their own franchise. 174 00:06:42.000 --> 00:06:44.000 Here's the catch, though. 175 00:06:44.000 --> 00:06:45.000 You own the franchise. 176 00:06:45.000 --> 00:06:48.000 You are an operator except you can get fired. 177 00:06:48.000 --> 00:06:50.000 And you can't sell it. 178 00:06:50.000 --> 00:06:52.000 And you don't get the profit. 179 00:06:52.000 --> 00:06:54.000 So here's how it actually works. 180 00:06:54.000 --> 00:06:55.000 So $5.2 million. 181 00:06:55.000 --> 00:06:56.000 Let's just use that for round numbers. 182 00:06:56.000 --> 00:06:57.000 That's $100,000 a week. 183 00:06:57.000 --> 00:06:59.000 $5.2 million, $100,000 a week. 184 00:06:59.000 --> 00:07:02.000 Now, Chick-fil-A corporate gets 15% of top line. 185 00:07:02.000 --> 00:07:06.000 So $15,000 every week gets clipped straight to corporate. 186 00:07:06.000 --> 00:07:07.000 That's what they get off top line. 187 00:07:07.000 --> 00:07:09.000 15% in the food business. 188 00:07:09.000 --> 00:07:13.000 I got to look at subways numbers, but I'm pretty sure they run like 12% net margins. 189 00:07:13.000 --> 00:07:17.000 So the royalty, if they were in an inferior franchise or inferior business, 190 00:07:17.000 --> 00:07:19.000 would be the entirety of the profit. 191 00:07:19.000 --> 00:07:22.000 But because their stores are so darn profitable, they can do it this way. 192 00:07:22.000 --> 00:07:24.000 So 15% of top line goes to corporate. 193 00:07:25.000 --> 00:07:32.000 Then they have the mortgage that gets paid off through lease from the store to corporate 194 00:07:32.000 --> 00:07:35.000 because the corporate owns the building and the dirt that it's on. 195 00:07:35.000 --> 00:07:38.000 So they also have the real estate play that's built into the business. 196 00:07:38.000 --> 00:07:42.000 And then after doing all that stuff, because that's also making corporate money, 197 00:07:42.000 --> 00:07:43.000 there's profit left over. 198 00:07:43.000 --> 00:07:46.000 Now, you're like, OK, so that goes to the franchise. 199 00:07:46.000 --> 00:07:49.000 A half of that profit still goes to corporate. 200 00:07:49.000 --> 00:07:52.000 But what ends up happening is that the actual franchisees make 201 00:07:52.000 --> 00:07:56.000 somewhere in the neighborhood of 200 to 250,000 a year. 202 00:07:56.000 --> 00:07:59.000 It changes every year and inflation, et cetera, but somewhere in that neighborhood. 203 00:07:59.000 --> 00:08:03.000 And so if you're somebody who comes in, mopping floors, you have the potential. 204 00:08:03.000 --> 00:08:07.000 If you're exceptional to someday be able to make 200 to 250,000 year, 205 00:08:07.000 --> 00:08:11.000 operating your own Chick-fil-A location, which I think is awesome. 206 00:08:11.000 --> 00:08:15.000 Super cool, American Dream Story, anybody can come and do it just if you work hard, et cetera. 207 00:08:15.000 --> 00:08:19.000 So to put this in context, they're 15% royalty. 208 00:08:19.000 --> 00:08:23.000 Subway's net earnings is 7.5%. 209 00:08:23.000 --> 00:08:26.000 So they're royalty on top line. 210 00:08:26.000 --> 00:08:29.000 If you're not familiar with the food business or brick and mortar chains, 211 00:08:29.000 --> 00:08:34.000 anything like that, 15% of top line in the food business is twice of the entire 212 00:08:34.000 --> 00:08:36.000 thing of Subway's profit. 213 00:08:36.000 --> 00:08:38.000 That's how profitable these stores are. 214 00:08:38.000 --> 00:08:40.000 That's why this is so crazy. 215 00:08:40.000 --> 00:08:42.000 So they could take 15%. 216 00:08:42.000 --> 00:08:45.000 Then they have the mortgage in the lease that's getting paid off by the store. 217 00:08:45.000 --> 00:08:49.000 Then they split the remaining profit 50-50 with the store operator. 218 00:08:49.000 --> 00:08:51.000 They print money. 219 00:08:51.000 --> 00:08:55.000 And the beautiful thing is that they actually have a compounding vehicle of wealth 220 00:08:55.000 --> 00:08:58.000 within their business, which, by the way, one of the things that you probably 221 00:08:58.000 --> 00:09:03.000 don't know about me is that we open four brick and mortar locations per month 222 00:09:03.000 --> 00:09:05.000 at acquisition.com between our portfolio company. 223 00:09:05.000 --> 00:09:08.000 So a lot of people don't know that, but that's like a big part of what we do. 224 00:09:08.000 --> 00:09:12.000 And so one of the things that I like with the business is that you have a 225 00:09:12.000 --> 00:09:15.000 cashiering machine, but you also want a cash reinvestment machine. 226 00:09:15.000 --> 00:09:17.000 So it's two sides of this. 227 00:09:17.000 --> 00:09:20.000 And so one of the cool things about brick and mortar that a lot of people don't 228 00:09:20.000 --> 00:09:26.000 appreciate is that you have a high return on capital if you have a good business model. 229 00:09:26.000 --> 00:09:30.000 And so like there's a big business that I'm looking at investing in right now 230 00:09:30.000 --> 00:09:32.000 for another deal that's like this. 231 00:09:32.000 --> 00:09:37.000 But if I can find a business that gets 50, 100, 150% returns on capital, 232 00:09:37.000 --> 00:09:39.000 and you're like, that's crazy. 233 00:09:39.000 --> 00:09:43.000 It happens every day if you have a business model that works. 234 00:09:43.000 --> 00:09:48.000 Point is, let's say that you've got a store that generates 200,000 dollars a year 235 00:09:48.000 --> 00:09:49.000 in profit. 236 00:09:49.000 --> 00:09:52.000 And let's say it costs you 200,000 dollars a year to open the store. 237 00:09:52.000 --> 00:09:54.000 Okay, let's just keep math simple. 238 00:09:54.000 --> 00:09:57.000 Every year, you can double. 239 00:09:57.000 --> 00:10:00.000 Now, the first year, you open one new location. 240 00:10:00.000 --> 00:10:01.000 Doesn't sound good. 241 00:10:01.000 --> 00:10:02.000 Now you have two. 242 00:10:02.000 --> 00:10:03.000 Hooray. 243 00:10:03.000 --> 00:10:05.000 Next year, you can open four locations. 244 00:10:05.000 --> 00:10:06.000 Hooray. 245 00:10:06.000 --> 00:10:07.000 Next year, eight. 246 00:10:07.000 --> 00:10:10.000 You know how this doubling happens after you do it 10 times, you have 1,000. 247 00:10:10.000 --> 00:10:11.000 Right? 248 00:10:11.000 --> 00:10:12.000 It's a lot. 249 00:10:12.000 --> 00:10:14.000 That's 1,000 new openings. 250 00:10:14.000 --> 00:10:15.000 Okay, it's a lot. 251 00:10:15.000 --> 00:10:18.000 And the thing is, is that that takes time to do. 252 00:10:18.000 --> 00:10:22.000 Now, if you're falling along, what will happen quickly is that the operational 253 00:10:22.000 --> 00:10:24.000 constraint of opening locations will become the constraint of the business, 254 00:10:24.000 --> 00:10:26.000 not the return on capital itself. 255 00:10:26.000 --> 00:10:28.000 All right, because just because you can open 1,000 locations, 256 00:10:28.000 --> 00:10:32.000 doesn't mean that you can open 1,000 locations, right, in terms of the money. 257 00:10:32.000 --> 00:10:35.000 And so one of the beautiful things though is that when you have a business like that, 258 00:10:35.000 --> 00:10:38.000 it's actually very tax efficient because you can keep the money at the C-Corp, 259 00:10:38.000 --> 00:10:42.000 redeploy within the business in a way that is reliable and gets you that 100% return. 260 00:10:42.000 --> 00:10:44.000 And so then you have a compounding vehicle of money. 261 00:10:44.000 --> 00:10:48.000 We talk about leverage, labor, money is the second level there. 262 00:10:48.000 --> 00:10:53.000 So if your business from labor creates cash that you can redeploy into the business, 263 00:10:53.000 --> 00:10:54.000 it compounds. 264 00:10:54.000 --> 00:10:57.000 So when I'm looking at businesses that don't want to earn for a really long time, 265 00:10:57.000 --> 00:10:59.000 I want things that compound in and of themselves. 266 00:10:59.000 --> 00:11:01.000 Some businesses don't have that. 267 00:11:01.000 --> 00:11:02.000 Many businesses don't have that. 268 00:11:02.000 --> 00:11:05.000 Especially like service-based businesses, it's very uncommon for them to do that. 269 00:11:05.000 --> 00:11:07.000 But brick and mortar chains do have that advantage, 270 00:11:07.000 --> 00:11:11.000 which is also one of the reasons that they become hugely valuable for private equity and things like that 271 00:11:11.000 --> 00:11:15.000 for buyers in the future because they love seeing a business where they can inject cash 272 00:11:15.000 --> 00:11:17.000 and just get huge returns on it compared to the stock market. 273 00:11:17.000 --> 00:11:20.000 There's a wonderful book called The Little Book that beats the market by, 274 00:11:20.000 --> 00:11:23.000 I think Joel Rosenblatt, I think is his name. 275 00:11:23.000 --> 00:11:25.000 And he simplified everything down to two metrics. 276 00:11:25.000 --> 00:11:28.000 He said price to earnings ratio, which is basically you want to buy a company 277 00:11:28.000 --> 00:11:31.000 for a very cheap amount of money relative to how much it makes price to earnings ratio. 278 00:11:31.000 --> 00:11:33.000 And the second one is you want a wonderful company. 279 00:11:33.000 --> 00:11:36.000 So he defined a wonderful company with a single metric was what is their return on capital. 280 00:11:36.000 --> 00:11:39.000 So if they put capital into their business, what's their return on it? 281 00:11:39.000 --> 00:11:42.000 And so he ran an algorithm and he still has it. 282 00:11:42.000 --> 00:11:46.000 You can go check it out where he just has the top 20 companies where they have the lowest price to earnings ratio 283 00:11:46.000 --> 00:11:48.000 and the highest returns on capital. 284 00:11:48.000 --> 00:11:53.000 And he buys that stock every year, those those 20 every year and he gets 20% a year. 285 00:11:53.000 --> 00:11:57.000 The problem is he gets 20% a year when measured over five plus years. 286 00:11:57.000 --> 00:11:59.000 But in the short term, people can't handle the volatility. 287 00:12:00.000 --> 00:12:02.000 So they buy it for a year, the stock goes down and they freak out. 288 00:12:02.000 --> 00:12:07.000 Part of the reason stocks will have a very low price earnings ratio is because there's some sort of strife. 289 00:12:07.000 --> 00:12:09.000 There's drama, there's negative news about it. 290 00:12:09.000 --> 00:12:11.000 And so people see that and they're like, oh, I don't want to buy to that. 291 00:12:11.000 --> 00:12:12.000 And that's what makes good deals. 292 00:12:12.000 --> 00:12:17.000 So as an aside, that's one of the reasons that I also like to play in general is that it has both both aspects. 293 00:12:17.000 --> 00:12:19.000 Now they're 100% privately owned, they can do whatever they want. 294 00:12:19.000 --> 00:12:26.000 But one of the more amazing things that I haven't even mentioned yet is that they achieve these numbers twice almost what McDonald's makes. 295 00:12:27.000 --> 00:12:31.000 And they make more than Starbucks subway and McDonald's combined as single store. 296 00:12:31.000 --> 00:12:33.000 And they're closed 52 days a year. 297 00:12:33.000 --> 00:12:37.000 So that may not sound like much, but think about this more percentage standpoint. 298 00:12:37.000 --> 00:12:41.000 If you had one out of seven days, and I would probably argue that if they were open on Sundays, 299 00:12:41.000 --> 00:12:47.000 they would get so much Sunday church crowd, it would probably be a higher sales day than their normal sales days. 300 00:12:47.000 --> 00:12:50.000 But let's just assume it was one seventh of their sales, which I don't think it would be. 301 00:12:50.000 --> 00:12:52.000 But let's assume it was one seventh of their sales. 302 00:12:52.000 --> 00:12:55.000 They could bump their sales by 13%. 303 00:12:55.000 --> 00:12:59.000 And here's the thing with these types of businesses, their costs are fixed. 304 00:12:59.000 --> 00:13:07.000 They have variable costs to with food, but like their incurring cost of rent, et cetera, insurance on the property that whole day. 305 00:13:07.000 --> 00:13:10.000 And they just take the day as a loss. 306 00:13:10.000 --> 00:13:12.000 So that additional 13%. 307 00:13:12.000 --> 00:13:16.000 A lot of that would be contribution march, means going to the bottom line. 308 00:13:16.000 --> 00:13:19.000 So they would even further make their business more profitable. 309 00:13:19.000 --> 00:13:22.000 But they've been pushed many, many times on this, why they don't do it. 310 00:13:22.000 --> 00:13:24.000 And you can summarize in too many things. 311 00:13:24.000 --> 00:13:28.000 One is that desire is created through lack. 312 00:13:28.000 --> 00:13:30.000 You only want something you do not have. 313 00:13:30.000 --> 00:13:34.000 So by definition, you can't always have something in order to have desire. 314 00:13:34.000 --> 00:13:40.000 And so they believe that keeping it for one day gives people this craving that they would want it more the other six days. 315 00:13:40.000 --> 00:13:41.000 Number one. 316 00:13:41.000 --> 00:13:43.000 Number two is that it's the culture. 317 00:13:43.000 --> 00:13:46.000 Values matter more than just about anything in my opinion. 318 00:13:46.000 --> 00:13:50.000 If they are true to the founder, true to the business, and they operate in that way. 319 00:13:50.000 --> 00:13:54.000 And I would say that Chick-fil-A is a great example of a type of company that believes in its values through and through. 320 00:13:54.000 --> 00:13:58.000 And they practice what they preach, pun intended, with all of their workforce. 321 00:13:58.000 --> 00:14:01.000 And if they were to say we believe in these values, we have this Christian backing. 322 00:14:01.000 --> 00:14:04.000 And then they were open on Sundays after they were to reverse it. 323 00:14:04.000 --> 00:14:07.000 It would seem like they were swapping their values for a little bit more money. 324 00:14:07.000 --> 00:14:15.000 And so you could make the argument that the strength of their values makes up on the other six days for what they would have made on the seventh. 325 00:14:15.000 --> 00:14:20.000 Real quick guys, you guys already know that I don't run any ads on this and I don't sell anything. 326 00:14:20.000 --> 00:14:30.000 And so the only ask that I can ever have are you guys that you help me spread the word so we can have more entrepreneurs, make more money, feed their families, make better products, and have better experiences for their employees and customers. 327 00:14:30.000 --> 00:14:35.000 And the only way we do that is if you can rate and review and share this podcast. 328 00:14:35.000 --> 00:14:39.000 So the single thing that I have to do is you can just leave a review, but take 10 seconds or one type of the thumb. 329 00:14:39.000 --> 00:14:45.000 It would mean the absolute world to me and more importantly, it may change the world for someone else. 330 00:14:45.000 --> 00:14:49.000 The last piece that makes them exceptional, I think is their VP of growth who was talking about this. 331 00:14:49.000 --> 00:14:54.000 He said 80% of what fast food restaurants do between each other is the same. 332 00:14:54.000 --> 00:14:59.000 He said, but I wasn't hired here to do the same thing for the other 80% are doing. 333 00:14:59.000 --> 00:15:05.000 I'm hired to do what the 20% are not doing not to just compete but to create a competitive advantage. 334 00:15:05.000 --> 00:15:11.000 And so one of the things that permeates any Chick-fil-A if you've ever been there is that they have a culture of service. 335 00:15:11.000 --> 00:15:20.000 And so what they did was they actually studied the hospitality industry and even hired people from Ritz Carlton to help them create an exquisite experience at Chick-fil-A. 336 00:15:20.000 --> 00:15:24.000 And so they say things like my pleasure when they do something for you. 337 00:15:24.000 --> 00:15:29.000 And here's what's crazy. They implemented this top-down company wide had a lot of pushback from it. 338 00:15:29.000 --> 00:15:34.000 People didn't want to say my pleasure when someone says thanks for my order, thanks for checking so much they say my pleasure, right? 339 00:15:34.000 --> 00:15:43.000 It wasn't until the CEO himself changed his own language patterns that it then permeated through and it took years for him to realize that and he talks about it. 340 00:15:43.000 --> 00:15:48.000 When he started saying my pleasure, I think it was 03, it started to trickle its way down. 341 00:15:48.000 --> 00:15:54.000 And so this is, remember, 03, so we're talking 56 years or whatever it is from the time they opened. 342 00:15:54.000 --> 00:15:58.000 That much more efficiency has been driven into how can we improve this business? 343 00:15:58.000 --> 00:16:05.000 Because if we change nothing about this business, we sell the same 12 items, you just get better and better and better at the same thing. 344 00:16:05.000 --> 00:16:13.000 They even do practice runs in an indoor arena for the drive-through to test and rural world scenarios to see how they can make the drive through more efficient and increase the accuracy. 345 00:16:13.000 --> 00:16:19.000 That's the level of detail that the kingpins can do because they've been doing it for 70 plus years. 346 00:16:19.000 --> 00:16:26.000 And so the biggest takeaways I see from the big companies that I try to apply to my own businesses, what is a business that I could be in for 100 years? 347 00:16:26.000 --> 00:16:33.000 And I believe that if you only try and solve the same problem for 100 years, you get pretty darn good at solving it. 348 00:16:33.000 --> 00:16:40.000 And so what happens is, especially with the younger generation in my opinion, and when I say younger, I don't mean actual age, I mean years of entrepreneurship, 349 00:16:40.000 --> 00:16:43.000 is it's all about the fast buck, it's all about the quick thing. 350 00:16:43.000 --> 00:16:51.000 But when I talk to the most successful people that I know, they all talk so long because it's almost laughable to them. 351 00:16:51.000 --> 00:16:55.000 They're like, a decade is like their first measuring chunk of like, okay, 10 years, cool. 352 00:16:55.000 --> 00:16:58.000 But they're talking 20, 30, they're talking the lifetimes. 353 00:16:58.000 --> 00:17:04.000 And after Kathy lived that, and then he, I mean, technically even died that, right? 354 00:17:04.000 --> 00:17:10.000 And he took one concept, a chicken sandwich, which is completely commoditized, it's a chicken sandwich. 355 00:17:10.000 --> 00:17:15.000 And thought, how can I just do this one thing that everyone understands better than anyone else? 356 00:17:15.000 --> 00:17:26.000 And he built an empire and he built a mission behind it that I think millions of people are happy and frequent every day compared to their alternatives that were just mercenaries that were just for the money. 357 00:17:26.000 --> 00:17:33.000 And not only do they beat them at the game of customer satisfaction, but at the end of the day, they also beat them in top line and bottom line. 358 00:17:33.000 --> 00:17:40.000 And he has edged his way to now being number three and likely will become the second biggest food chain in the entire United States. 359 00:17:40.000 --> 00:17:49.000 So here are the lessons that I take away from Chick-fil-A that I've tried to apply it as many different places in the portfolio companies that we own and even just ad acquisition, not come at the holding company. 360 00:17:49.000 --> 00:17:54.000 Number one is that they sold chicken sandwiches for 76 straight years and I don't think they're going to stop. 361 00:17:54.000 --> 00:18:09.000 And so having singular focus on the core products and not getting cute and not getting fancy and not having 49 menu items, but just saying what are the things that the most people want and how do I get better and better and better at doing those things because better gives you leverage. 362 00:18:09.000 --> 00:18:11.000 It means the same input gets you more output. 363 00:18:11.000 --> 00:18:17.000 And so rather than having lots of different things you have to put input in, you just put more and more and more because you only have so much juju. 364 00:18:17.000 --> 00:18:20.000 If you had two items, you can only split test them half as much as you could one. 365 00:18:20.000 --> 00:18:25.000 And so the incremental returns you get on getting this much better is where the outsize returns come. 366 00:18:25.000 --> 00:18:32.000 For example, if you think about this like an Olympic runner, the difference between first place and fourth place in the Olympics is a tenth of a second. 367 00:18:32.000 --> 00:18:37.000 But the difference between first and fourth for a person's life, massively different. 368 00:18:37.000 --> 00:18:48.000 And so we get these outsize returns by making these marginal improvements of being better rather than being new despite our entrepreneurial desire to have not a chicken sandwich, we're like, what about tacos? 369 00:18:48.000 --> 00:18:50.000 What about burgers? 370 00:18:50.000 --> 00:18:57.000 Like how many times could they have done something like that, but they did it because they knew that they wanted to stick to the essential few and they knew that focus is what was going to compound over the long term. 371 00:18:57.000 --> 00:18:58.000 Number one. 372 00:18:58.000 --> 00:19:11.000 Number two, he always cast out despite being publicly criticized for not taking on debt and not trying to grow faster and had people in the short term talking years short term, just for everybody who's new in the entrepreneur space. 373 00:19:11.000 --> 00:19:20.000 For talking five, six, seven, eight years, having somebody beat him publicly, Boston market, and he still knew that he was a missionary, not a mercenary. 374 00:19:20.000 --> 00:19:26.000 He wasn't doing it to brag about his ego, he was doing it because he believed that this way of doing business was what he wanted to represent. 375 00:19:26.000 --> 00:19:34.000 And so I think we have these values that we haven't saying, I know that the likelihood that my competitors are going to be here in 70 years is almost zero. 376 00:19:34.000 --> 00:19:40.000 And so if I build in a way that I'm going to be here in 70 years, I will win by default. 377 00:19:40.000 --> 00:19:44.000 And I think that's powerful because so many people want to say their number one. 378 00:19:44.000 --> 00:19:48.000 The question is when you look at the richest man in the world, I want to be the richest man in the world. 379 00:19:48.000 --> 00:19:51.000 You got to respond to somebody's answer with for how long? 380 00:19:51.000 --> 00:19:52.000 Because eventually you die. 381 00:19:52.000 --> 00:19:55.000 And if you look historically, the number one guy doesn't sit there very long. 382 00:19:55.000 --> 00:19:57.000 Somebody else comes up, right? 383 00:19:57.000 --> 00:19:59.000 And so it's, what are we aiming towards? 384 00:19:59.000 --> 00:20:02.000 For him, he wanted to build an amazing chicken franchise. 385 00:20:02.000 --> 00:20:05.000 And for him, his legacy outlasted his life. 386 00:20:05.000 --> 00:20:07.000 And for me, that's, I mean, honestly, that's my dream. 387 00:20:07.000 --> 00:20:13.000 My hope is that whatever we build can continue and not only just stay alive but grow beyond us. 388 00:20:13.000 --> 00:20:17.000 And that you can only do through a mission, not through a mercenary cause. 389 00:20:17.000 --> 00:20:24.000 Because if you're just chasing the money, people get diluted out because there's always a shiny, easy win that distracts from the core items. 390 00:20:24.000 --> 00:20:28.000 Number three, the fact that they don't let anyone have more than one store. 391 00:20:28.000 --> 00:20:31.000 I think there's a lot of wisdom to this. 392 00:20:31.000 --> 00:20:34.000 So there are lots of people like, oh, let me, let me open a hundred. 393 00:20:34.000 --> 00:20:37.000 And they're like, no, cause you're not going to be able to focus. 394 00:20:37.000 --> 00:20:42.000 We want someone to put their heart and their soul into their location and treat it like it's their own. 395 00:20:42.000 --> 00:20:49.000 And so I think that if you think about each store as a business line or a product line within a larger corporation, right? 396 00:20:49.000 --> 00:20:52.000 Then having people take ownership, right? And he has profit share. 397 00:20:52.000 --> 00:20:54.000 Now, mind you, he doesn't share the whole profit. 398 00:20:54.000 --> 00:20:58.000 But after he takes his pieces off, they have an ability to make more money. 399 00:20:58.000 --> 00:21:06.000 And having that kind of, I'll say uncapped, earning potential for somebody is very inspiring, but he keeps it constrained to a singular focus. 400 00:21:06.000 --> 00:21:09.000 Because they know that somebody can give it their all at one location. 401 00:21:09.000 --> 00:21:12.000 They've already tested that. Believe me, I'm sure they've tried to open more. 402 00:21:12.000 --> 00:21:13.000 They've learned over the years. 403 00:21:13.000 --> 00:21:16.000 And I think there's a lot of wisdom in that that we can take for our own businesses. 404 00:21:16.000 --> 00:21:25.000 Number four, saying no on Sundays means that you have to say no to things that are obviously going to make you money, but will detract from your values. 405 00:21:26.000 --> 00:21:28.000 And so there are lots of opportunities on entrepreneurship. 406 00:21:28.000 --> 00:21:31.000 And you probably have someone your docket right now that you're like, I don't know. 407 00:21:31.000 --> 00:21:34.000 This is a little left of center, but like it's such an easy win. 408 00:21:34.000 --> 00:21:37.000 Like, imagine the new CEO comes in to Chick-fil-A tomorrow and says, you know what? 409 00:21:37.000 --> 00:21:41.000 I found a way to make us 13% more sales and have most of that dropped bottom line. 410 00:21:41.000 --> 00:21:45.000 They're like, what's your amazing idea? And he's like, we're going to be open also on Sunday. 411 00:21:45.000 --> 00:21:48.000 It would be such an easy play and imagine how hard it is to say no. 412 00:21:48.000 --> 00:21:52.000 Because in the beginning, he had to say no to an extra 13% on a million dollars. 413 00:21:52.000 --> 00:21:55.000 It makes another hundred and thirty thousand. 414 00:21:55.000 --> 00:22:01.000 But when 13% is six hundred and fifty million dollars and you still say no, 415 00:22:01.000 --> 00:22:05.000 it means that you're appealing to a higher power, something above the money. 416 00:22:05.000 --> 00:22:10.000 Now, I also believe that appealing to something above the money long, long, makes you more money. 417 00:22:10.000 --> 00:22:14.000 But you have to say no in the short to get the long yes. 418 00:22:14.000 --> 00:22:18.000 Extra Kathy noted that when he wanted everybody in his team and his company start saying my pleasure, 419 00:22:18.000 --> 00:22:25.000 when someone said thank you to them for doing something, that it didn't change until he changed how he spoke. 420 00:22:25.000 --> 00:22:29.000 And so it's so much of the same thing people, parents see with their kids, 421 00:22:29.000 --> 00:22:33.000 teachers see with their students, is that like, people will learn ten times more 422 00:22:33.000 --> 00:22:36.000 from watching what you do than listening to what you say. 423 00:22:36.000 --> 00:22:39.000 And like, that's how humans learn when we're kids we observe, right? 424 00:22:39.000 --> 00:22:43.000 And so if you say, hey, we're all about being on time here, but you, the CEO, are late, 425 00:22:43.000 --> 00:22:45.000 it will never work. 426 00:22:45.000 --> 00:22:49.000 And so we have to pick the very few values that we know that we will never break, 427 00:22:49.000 --> 00:22:54.000 that we will always stick with, which is why values have to be true to you not nice words on the wall 428 00:22:54.000 --> 00:22:57.000 because they have to be things that you would actually live otherwise they are meaningless. 429 00:22:57.000 --> 00:23:01.000 And so seeing that it had to come to the top down is just a continuous reminder for me that like, 430 00:23:01.000 --> 00:23:04.000 I have to be better in order for my team to be better. 431 00:23:04.000 --> 00:23:08.000 Because if my team doesn't get better, this business doesn't grow because it will only grow to my capacity. 432 00:23:08.000 --> 00:23:11.000 The only way for me to get better team is to become better. 433 00:23:12.000 --> 00:23:19.000 And number six, if you want to have a business that grows even longer and bigger, 434 00:23:19.000 --> 00:23:22.000 you want to have a compounding vehicle built within the business. 435 00:23:22.000 --> 00:23:26.000 And so Chick-fil-A has a compounding vehicle of capital within their business. 436 00:23:26.000 --> 00:23:31.000 Whenever a store creates money, they have the cash and they can pick the next location. 437 00:23:31.000 --> 00:23:35.000 And not only they spend a money open the store, they buy the land and they buy everything itself too. 438 00:23:35.000 --> 00:23:38.000 So they get the highest return and they get some tax benefits. 439 00:23:39.000 --> 00:23:43.000 And so if there's ever areas in the business that we can get some kind of compounding effect 440 00:23:43.000 --> 00:23:47.000 where money compounds on itself, that is something that I always try and build in every business that I have. 441 00:23:47.000 --> 00:23:53.000 It's how can I get this money that I'm getting today to make me even more tomorrow within the structure of the business. 442 00:23:53.000 --> 00:23:59.000 Not taking the money out and putting it in stocks or putting it into just like a random fund or whatever it is. 443 00:23:59.000 --> 00:24:04.000 But actually saying within my business where I have active control where I get the highest returns based on my skill 444 00:24:05.000 --> 00:24:11.000 and my competitive advantage is I get higher returns and that's how these guys build crazy wealth that beats the market. 445 00:24:11.000 --> 00:24:16.000 Number seven, ruthless prioritization on the essential few items that they need to sell. 446 00:24:16.000 --> 00:24:24.000 The fact that they haven't changed their menu in decades should be a testament to the fact that we as entrepreneurs want to change it all the time. 447 00:24:24.000 --> 00:24:27.000 And there's a Henry Ford story that I think drives this home. 448 00:24:27.000 --> 00:24:33.000 So he was looking at a marketing campaign and he had been working on it with his executives etc for months and months and months. 449 00:24:33.000 --> 00:24:40.000 And three or four months in, he walked past his marketing CMO's office and was like, hey, he's like, when are we going to stop running that out of you? 450 00:24:40.000 --> 00:24:45.000 I'm so tired of it. And the marketing is after looked up to him and he was like, we haven't even ran it yet. 451 00:24:45.000 --> 00:24:50.000 And so the thing is is that we have all these things that happen in our mind because we're always iterating like we assume everyone knows everything about our products. 452 00:24:50.000 --> 00:24:54.000 We assume everyone's already bored of it because they're talking about chicken sandwiches 24 hours a day. 453 00:24:54.000 --> 00:24:58.000 But reality is that most people might get Chick-fil-A once a month as a treat. 454 00:24:58.000 --> 00:25:07.000 The customer's perception, when we change something slowly in our mind every six months as a small business, to a customer it just feels like it's constantly changing. 455 00:25:07.000 --> 00:25:14.000 There's no consistency. And so one of the things that McDonald's proved, which I think Chick-fil-A learned from the lesson, was that people value consistency. 456 00:25:14.000 --> 00:25:18.000 People want to know that when they exchange money they're going to get the thing that they liked last time. 457 00:25:18.000 --> 00:25:24.000 And if you make the same thing the same way over and over again, it also gives you the opportunity to improve it. 458 00:25:24.000 --> 00:25:29.000 If you have to improve 100 things, it's a hell of a lot harder than improving two or improving one. 459 00:25:29.000 --> 00:25:33.000 And so you've heard me say one product, one avatar, one channel for anybody who's trying to make their first million. 460 00:25:33.000 --> 00:25:37.000 And like each one of these stores, if you think about them as a single business, that's how they're thinking. 461 00:25:37.000 --> 00:25:47.000 Now, do they have drinks, yes, etc. But the principle behind it compared to everyone else in the marketplace, they have a quarter of the amount of things on their menu compared to McDonald's and they make twice the money. 462 00:25:47.000 --> 00:25:53.000 One fourth the options, two times the money, and probably four times the profit, five times the profit. 463 00:25:53.000 --> 00:25:59.000 There's wisdom there. And so I try to think about that as like, okay, even though I could do those things, should I? 464 00:25:59.000 --> 00:26:09.000 And most times the answers no. I should just get better at the thing that's in front of me and confront the problem that I have, which is how can I sell more chicken sandwiches, whatever your chicken sandwich is. 465 00:26:10.000 --> 00:26:17.000 And to drive even further on the focus they had, even at a micro level within their core product, the chicken sandwich. 466 00:26:17.000 --> 00:26:24.000 If you compare that to McDonald's Big Mac or Burger King's Whopper, McDonald's Big Mac has six ingredients. 467 00:26:24.000 --> 00:26:33.000 The Whopper has seven, not including the bun. Chick-fil-A's chicken sandwich, chicken, bread, butter, two pickles. 468 00:26:33.000 --> 00:26:40.000 That's it. Now compare that to Chick-fil-A's sandwich, which just has butter, pickles, and chicken. That's it. 469 00:26:40.000 --> 00:26:48.000 So they even have half the ingredients on their one quarter sized menu because even then they get more efficiencies at the ingredient level. 470 00:26:48.000 --> 00:26:53.000 They make it faster and easier to prepare so it's more consistent and they're able to do that with greater economies of scale. 471 00:26:53.000 --> 00:26:59.000 And they can make the process itself leaner and faster and leaner and faster and then you do that for 76 years and become unbeatable. 472 00:27:00.000 --> 00:27:05.000 So one of the things that when they were asked why are you so limited in your selection, besides all the reasons I already gave, 473 00:27:05.000 --> 00:27:10.000 their response was that every time they added another item, they just saw their sales of their main thing declined. 474 00:27:10.000 --> 00:27:14.000 So they're just splitting some sales off the thing, their core products. 475 00:27:14.000 --> 00:27:19.000 And so how many of us have opened a new thing, God people have switched from the old thing to the new thing, 476 00:27:19.000 --> 00:27:24.000 and now you're doing two different things for the same amount of money. Sound familiar? Happens all the time. 477 00:27:24.000 --> 00:27:29.000 And so it takes the discipline to say no and say we're just going to get better.