WEBVTT 1 00:00:00.000 --> 00:00:04.280 I think that's why in a lot of ways general entrepreneurship is about being a jack of all trades master of none. 2 00:00:04.280 --> 00:00:10.960 Which is that you have to know enough to be dangerous, you have to know enough to recognize what the true constraint is at a macro level 3 00:00:10.960 --> 00:00:14.320 and recognize what has to happen to de-constraining it. 4 00:00:17.320 --> 00:00:22.320 Welcome to the game where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. 5 00:00:22.320 --> 00:00:25.040 I'm trying to build a billion dollar thing with acquisition.com. 6 00:00:25.040 --> 00:00:29.200 I always wish Basos, Musk and Buffett had documented their journey, so I'm doing it for the rest of us. 7 00:00:29.200 --> 00:00:30.400 Please share and enjoy. 8 00:00:32.640 --> 00:00:39.600 Over the last three years, I've invested in 22 companies, either as a majority owner where I took over control of the business 9 00:00:39.600 --> 00:00:42.400 or a minority owner where I just assisted in the growth of the business. 10 00:00:42.400 --> 00:00:47.520 And each of these businesses were doing over a million dollars a year in profit, so not top line but bottom line. 11 00:00:47.520 --> 00:00:52.800 And I want to share with you the lessons that I've learned in investing and growing those companies 12 00:00:52.800 --> 00:00:56.800 and some of the mistakes I've made so that you can make better decisions in investing and growing 13 00:00:56.800 --> 00:00:59.600 in your business or investing and growing in other people's. 14 00:00:59.600 --> 00:01:03.840 And if you have any interest in becoming a portfolio company, I'm going to give you a checklist in the next part 15 00:01:03.840 --> 00:01:07.520 that will help you make your application as good as possible, 16 00:01:07.520 --> 00:01:09.680 so that you have the highest likelihood of actually making that happen. 17 00:01:09.680 --> 00:01:12.320 And at the very least, you'll probably learn a lot from the checklist itself 18 00:01:12.320 --> 00:01:14.720 that you can apply to your own business even if you weren't interested in that. 19 00:01:14.720 --> 00:01:17.120 And so either way, which the end and I'll walk you through. 20 00:01:17.120 --> 00:01:21.760 So the entire theory behind acquisition.com was that we take something old and something new 21 00:01:21.760 --> 00:01:24.480 and there's a lot of magic between the two of those things. 22 00:01:24.480 --> 00:01:28.960 And so for us, something old is investing and something new is social media. 23 00:01:28.960 --> 00:01:32.480 And so it was my theory, and it continues to be my thesis that I'm proving out, 24 00:01:32.480 --> 00:01:38.320 is that you can generate high quality deal flow, proprietary deal flow meaning just for us 25 00:01:38.320 --> 00:01:43.520 from social media. And so a lot of people have built businesses around building an audience 26 00:01:43.520 --> 00:01:48.000 and then they sell stuff to that audience. I had a theory that I could build a very large audience 27 00:01:48.000 --> 00:01:53.120 of specifically business owners and actually only work with a tiny, tiny percentage 28 00:01:53.120 --> 00:01:56.800 and still have it make economic sense to the whole. 29 00:01:56.800 --> 00:02:01.520 And the benefit of that is it allowed me to build a brand based on a lot more goodwill 30 00:02:01.520 --> 00:02:05.520 than anyone else could because I would be giving to 99.99% 31 00:02:05.520 --> 00:02:07.680 but still able to make it make economic sense. 32 00:02:07.680 --> 00:02:10.560 And so one of the big misnomers out there is that like, 33 00:02:10.560 --> 00:02:13.200 Alex is some sort of like giving saint. It's not that at all. 34 00:02:13.200 --> 00:02:15.280 Like this is just a business strategy that's different. 35 00:02:15.280 --> 00:02:17.760 And so rather than trying to sell to everyone, 36 00:02:17.760 --> 00:02:21.200 it's really just, can I make deals with a couple of really good companies 37 00:02:21.200 --> 00:02:23.760 that they find out about me through my content? 38 00:02:24.400 --> 00:02:28.560 And so just to give you a bit of context, right now we get about 2000 companies per month 39 00:02:28.560 --> 00:02:34.000 that inbound apply to work with us. And some people might find that as just heartening if you 40 00:02:34.000 --> 00:02:37.120 want to do a partnership, but I'll walk you through a kind of like through the funnel. 41 00:02:37.120 --> 00:02:42.800 So basically right off the bat, half of the people don't qualify because as of current, 42 00:02:42.800 --> 00:02:47.920 we only work with US and Canada. We also work with international companies who are willing to convert 43 00:02:48.000 --> 00:02:52.480 to the US. So if you're willing to have a US corp kind of be the hold co for your foreign corp, 44 00:02:52.480 --> 00:02:56.560 that works too. But half the businesses are not in that, in that bucket. 45 00:02:56.560 --> 00:03:00.560 The next is qualifier is just size. A lot, you know, a lot of the companies that apply are, 46 00:03:00.560 --> 00:03:05.840 you know, zero to a million dollars a year in top line. And that doesn't really work for us. 47 00:03:05.840 --> 00:03:10.800 And so our minimum minimum is one million. And so someone's like, I'm at 900,000. 48 00:03:10.800 --> 00:03:14.160 Do I qualify? The answer is no, because that's the minimum. Like it's already low, 49 00:03:14.720 --> 00:03:18.240 but we're willing to look at it because sometimes there's some really promising entrepreneurs 50 00:03:18.240 --> 00:03:22.960 and founders that have companies that's million dollars in profit. But right now I can probably look 51 00:03:22.960 --> 00:03:28.320 with the median profits probably about four-ish of the companies in our portfolio. Just to give you a 52 00:03:28.320 --> 00:03:32.320 little bit of reference to size, the largest company is about 20 million dollars in profit. 53 00:03:32.320 --> 00:03:36.240 And the smallest one is probably like one and a half. And so that just gives you a range of the 54 00:03:36.240 --> 00:03:40.480 size companies. And the biggest companies we have in the portfolio didn't start that way. And so 55 00:03:40.480 --> 00:03:44.160 that's why we're okay taking on a company that's doing three million, five million, eight million 56 00:03:44.160 --> 00:03:48.880 because we feel confident we can help them get to a lot bigger than that. Now, the thing about 57 00:03:48.880 --> 00:03:53.760 investing in general is that it's not a game of quantity. And so that might seem counter to like my 58 00:03:53.760 --> 00:03:59.280 my advertising strategy of of making content because we get so much inbound deal flow. But 59 00:03:59.280 --> 00:04:03.040 if you think about it, like if you invest in one Facebook, you only need one Facebook. I don't 60 00:04:03.040 --> 00:04:07.040 need 11 other side hustles. Like it would be better for me to just invest in fewer high quality 61 00:04:07.040 --> 00:04:11.840 companies, which is why for us, it's a definite quality over quantity game. And so you might hear 62 00:04:11.840 --> 00:04:17.120 22 companies over three years and be like, oh, that's a lot. But as we've gotten better and better, 63 00:04:17.120 --> 00:04:21.600 we actually have done, we've been doing fewer and fewer deals despite having more and more 64 00:04:21.600 --> 00:04:26.880 deal flow. And so just to give you a little bit of context over the last, I think since November, 65 00:04:26.880 --> 00:04:32.240 I think we've done three deals. And so our rate of deal doing has gone down. Our quality of business 66 00:04:32.240 --> 00:04:36.720 has gone up. And it's not that the businesses earlier weren't as good. It's more that the ones we do 67 00:04:36.720 --> 00:04:41.120 now are better fits. And so we've just learned more about how to identify those, which is the point 68 00:04:41.120 --> 00:04:46.960 of this. Now, how acquisition.com deals work is that it really depends on the founder. And so for us, 69 00:04:47.920 --> 00:04:52.240 at a baseline economics level, like it has to make economics sense. Like we have to buy into a 70 00:04:52.240 --> 00:04:57.200 business for a certain established price that we feel is reasonable. And we see that there's 71 00:04:57.200 --> 00:05:01.120 significant amount of upside for us in the founder. And the founder feels like that we can add 72 00:05:01.120 --> 00:05:05.200 significantly more value than they could accomplish on their own. Like that's the basics, right? 73 00:05:05.200 --> 00:05:09.760 In terms of deal structures for us, I have kind of two buckets. I've got active and I've 74 00:05:09.760 --> 00:05:14.560 got passive investments. I don't consider anything that's passive in the acquisition.com portfolio. 75 00:05:14.560 --> 00:05:18.160 And so like there's a variety of like tech companies and kind of like angel checks, 76 00:05:18.160 --> 00:05:22.080 which is very small checks. You do for lots of companies that I have invested in. But I don't 77 00:05:22.080 --> 00:05:26.240 consider those part of my main game. Those are just some like businesses that I thought were 78 00:05:26.240 --> 00:05:31.200 really interesting. And I was willing to take a small bet on them. But the my bread and butter, 79 00:05:31.200 --> 00:05:36.240 where I make the vast majority of my wealth is in me writing checks that I actively work in. 80 00:05:36.880 --> 00:05:40.800 And that is what acquisition.com is about. So this is an active portfolio. And so there's 81 00:05:40.800 --> 00:05:46.560 really kind of two types of investors. Again, this is a continuum. It's not binary. But on one 82 00:05:46.560 --> 00:05:52.160 extreme, you've got pure bettors, which is you could have one guy looking at a zillion screens, 83 00:05:52.160 --> 00:05:56.080 making bets, right? And you can make bets in the micro, which is like the whole day trading 84 00:05:56.080 --> 00:06:00.320 thing, which I think is more of a job than actually investing. But we'll get in that today. Or on 85 00:06:00.400 --> 00:06:04.880 the other extreme, you've got Warren Buffett, who is just making one, you know, or two concerted 86 00:06:04.880 --> 00:06:10.640 bets over a year. And that's his bet betting that this value is underpriced. And it will go up over 87 00:06:10.640 --> 00:06:16.000 the long call. On the other extreme, you've got like turnaround specialists. So people who buy 88 00:06:16.000 --> 00:06:20.160 like distressed assets or people who do roll ups. That's a private equity play for familiar with 89 00:06:20.160 --> 00:06:23.840 that, which is like I go by 20 different dental offices that are all doing a million dollars in 90 00:06:23.840 --> 00:06:29.120 profit. I roll them together under one flag. And I sell a 20 million dollar EBITDA. So profit per 91 00:06:29.120 --> 00:06:34.560 year business, which gives you multiple kind of step ups in the multiple that you can achieve 92 00:06:34.560 --> 00:06:39.920 and how much when you make, right? And so that's like super, super active. And so we are, if we're 93 00:06:39.920 --> 00:06:44.880 looking at this continuum way more on this side, we are active investors. We have a huge team at 94 00:06:44.880 --> 00:06:49.520 HoldCo. We have more people at HoldCo than we have actual companies in the portfolio for context. 95 00:06:49.520 --> 00:06:55.360 And so we are very much directly guiding the strategy and the implementation and even recruiting 96 00:06:55.360 --> 00:07:01.440 for key roles to grow the companies. And this is more or less why I think our our rate of investing 97 00:07:01.440 --> 00:07:06.720 has has gotten to a nice steady cadence. Because obviously in the beginning, you have more people 98 00:07:06.720 --> 00:07:11.280 than you have companies. So then your rate goes up. But then as we feel like we're we get into a nice 99 00:07:11.280 --> 00:07:16.640 rhythm of how we can onboard a company over, you know, a half a year to a year and get key players 100 00:07:16.640 --> 00:07:19.440 in place, identify the constraints, figure out the plans that we're going to do, implement those 101 00:07:19.440 --> 00:07:24.320 people, et cetera, et cetera. Now we've got kind of like a nice rhythm. And so for us, the deals 102 00:07:24.320 --> 00:07:29.360 obviously depend on how much we're investing in the business. So I currently don't do any deals 103 00:07:29.360 --> 00:07:33.920 for less than a third of a company that we're actively invested in. And so the majority of them 104 00:07:33.920 --> 00:07:38.480 are greater than that. So I would say of the last four deals we did, three of them were 49 percent 105 00:07:38.480 --> 00:07:44.320 one was 40. And so that's just give you a little bit of context on how we structure the deals. We 106 00:07:44.320 --> 00:07:49.200 actually asked Hunter one of them was 51. And so just to give you a range, now we obviously have 107 00:07:49.200 --> 00:07:53.840 more investments that we're very actively involved in them. And it's because I couldn't take a 108 00:07:53.840 --> 00:07:58.640 minority position of like 10 percent into business and make it make economic sense for the amount 109 00:07:58.640 --> 00:08:04.320 of actual resources I'm pouring into the business. So let's say, for example, that I invest a million 110 00:08:04.320 --> 00:08:12.480 dollars a year in, in basically payroll of work of consultants and, you know, recruiting and things 111 00:08:12.480 --> 00:08:16.720 like that that will install into a business, you know, like doing a full CRM implementation, et cetera. 112 00:08:16.720 --> 00:08:20.400 Over the next five years, it's five million dollars I'm investing to a business. If I'm, 113 00:08:21.200 --> 00:08:26.880 if I then also have to buy into the business, right, then that business would have to be really, 114 00:08:26.880 --> 00:08:31.680 really big in order for it to make financial sense. And that's not really the target of what we have. 115 00:08:31.680 --> 00:08:36.640 And so for us to invest those kind of resources, we tend to get a disproportionate or a proportional 116 00:08:36.640 --> 00:08:42.800 share of the companies that we're investing in. Now, the good news is though that I think 117 00:08:43.680 --> 00:08:49.040 every company we have is over what I would consider the free line, meaning not only do they get 118 00:08:49.040 --> 00:08:55.520 compensated for the equity that we bought into, but their remaining share is already worth more 119 00:08:56.000 --> 00:09:00.480 than the whole was prior. And so for me, that's always the big, you know, the big objective is like, 120 00:09:00.480 --> 00:09:05.760 okay, how do I grow the pie so that everybody wins? And, you know, I made a quote about this, 121 00:09:05.760 --> 00:09:09.920 but I think it's really true is that like my goal with every company, because my reputation matters 122 00:09:09.920 --> 00:09:14.320 to me, I mean, my reputation is why everything is happening in my life, is that every deal that 123 00:09:14.320 --> 00:09:18.000 someone does with me is the best deal they've ever done in their life. And so part of that is leaving 124 00:09:18.000 --> 00:09:22.400 some meat on the bone, if you will. I mean, if you think about the amount, you know, if I were like 125 00:09:22.400 --> 00:09:26.560 sell something to my audience, like, there's a lot of meat on the bone there, but I'd always rather be, 126 00:09:26.560 --> 00:09:32.560 you know, 49 on the table and give 75 so that everyone wins. And that's, that's just kind of like 127 00:09:32.560 --> 00:09:38.320 more of a life motto. And I'm going to walk you through a bunch of the lessons I have from the 128 00:09:38.320 --> 00:09:42.320 22 companies that we've invested in, but before I do, I want to give you a little bit of context, 129 00:09:42.320 --> 00:09:46.160 because otherwise you'll be going in blind and not understanding like how the whole thing works. 130 00:09:46.160 --> 00:09:50.480 And we've done deals across e-commerce, brick and mortar chains, consumer services, business 131 00:09:50.480 --> 00:09:57.280 services, SaaS, so software companies, sales organizations, and anything else you can really think of. 132 00:09:57.280 --> 00:10:01.840 So we're more generalists when it comes to business, because what we have realized is that our 133 00:10:01.840 --> 00:10:08.240 specific niche is more size of company. And so companies that are going through, going from 500-ish, 134 00:10:08.240 --> 00:10:13.200 a million a month, ish two, multiple millions a month, they all encounter the same problems. 135 00:10:13.200 --> 00:10:17.360 And so that's where our playbooks are really effective to just quickly debotonic them. And, 136 00:10:18.080 --> 00:10:22.960 you know, and I'm transparently, this is why I do this. And by percentage, the greatest amount 137 00:10:22.960 --> 00:10:30.240 of enterprise values unlocked in that jump. And so for me, that's where I get my huge return, 138 00:10:30.240 --> 00:10:37.440 is because most businesses that are at two, three, four million dollars in profit. As much as headlines, 139 00:10:37.440 --> 00:10:42.720 we'll tell you that companies sell for 20 times earnings. That's publicly traded companies. And 140 00:10:42.720 --> 00:10:47.520 there's a number of things that those companies have that companies below $5 million don't have. 141 00:10:47.520 --> 00:10:52.720 Because if you look at biz by sell, they publish their stats publicly, which the actual median 142 00:10:52.720 --> 00:11:00.480 transaction for small businesses is 2.28 to 2.53 times. And with 80 to 90% of those having 143 00:11:00.480 --> 00:11:06.800 seller finance notes. So how is that? How do you have two-ish X and 20-ish X on polar extremes? And 144 00:11:06.800 --> 00:11:11.200 it's like, well, that's where the enterprise value gets built up. And the nice news is that 145 00:11:11.840 --> 00:11:19.360 getting a company from three-ish to, let's say, $8 million in profit can sometimes take a company 146 00:11:19.360 --> 00:11:27.120 from almost an uninvestable, like it's not really sellable in a clean transaction to a 50, 80 147 00:11:27.120 --> 00:11:31.360 million dollar exit. And so that little step up is where we focus all of our attention because 148 00:11:31.360 --> 00:11:35.440 that's where the by percentage, the greatest amount of enterprise values created. And I'm not going 149 00:11:35.440 --> 00:11:40.000 to publicly tell you the names of the companies. And the reason for that is actually to protect 150 00:11:40.000 --> 00:11:46.320 the businesses. And let me explain. So if I pump a company, right, what would happen is that, 151 00:11:46.320 --> 00:11:49.840 well, some of the companies literally couldn't handle all of y'all and I appreciate you. But 152 00:11:49.840 --> 00:11:54.000 if I were to pump the company, what happens is that I now become tied to that company's success. 153 00:11:54.000 --> 00:11:58.400 And so a future requires, when he wants to buy that company, would then mean that Uncle Alex has 154 00:11:58.400 --> 00:12:03.280 to go with the deal. And that's not why I invest is to get myself another job. That's not the point. 155 00:12:03.280 --> 00:12:08.960 And so the idea is that I need to grow the independent of my influence so that they can on their 156 00:12:08.960 --> 00:12:12.640 own grow their own enterprise value, which is ultimately the goal of most entrepreneurs not to be 157 00:12:12.640 --> 00:12:17.120 relying on me. And so you're a couple quick hitting facts. Number one is on average, we increased 158 00:12:17.120 --> 00:12:23.120 top line by 80 percent within the first 12 months. We increased profit by 3.01 x within the first 12 159 00:12:23.120 --> 00:12:29.120 months. We increased top line revenue by 1.8 x within the first 24 months. And then within the 160 00:12:29.120 --> 00:12:36.000 same first 24 months, we increased profit by on average 4.7 x. So we're pretty good at this. 161 00:12:36.080 --> 00:12:39.200 So many happy to identify the types of businesses I look for so that you can look for those types 162 00:12:39.200 --> 00:12:44.240 of businesses too. All right. So number one is I look for at least for me a minimum of a million 163 00:12:44.240 --> 00:12:50.400 dollars in EBITDA, if the company has what we call transferable value, meaning if you own, let's say, 164 00:12:51.040 --> 00:12:56.960 you know, five candy stores and all five candy stores do $200,000 a year in profit, 165 00:12:57.600 --> 00:13:01.040 then that would be something that I might be interested in as long as it's not your face that's 166 00:13:01.040 --> 00:13:04.560 the reason that they're doing, which most local businesses is not the case, right? Or if you own 167 00:13:04.560 --> 00:13:09.200 an accounting firm that was doing a million dollars a year in profit and it's not based again 168 00:13:09.200 --> 00:13:13.600 on your face, then it would be something that I would be okay with. If it is a personality brand 169 00:13:13.600 --> 00:13:18.240 or based on a creator or a rounder creator, which I get probably disproportionate amount of because 170 00:13:18.240 --> 00:13:23.520 I am this way, then the minimum mind is $2 million a year in profit. And again, the reason 171 00:13:23.520 --> 00:13:27.360 there is that there is actually less transferable value in that business and there's actually more work 172 00:13:27.360 --> 00:13:31.280 that has to get done to remove the face of the founders so that there is enterprise value. So like, 173 00:13:31.360 --> 00:13:36.160 for example, Jim Lodge, I know this story because I lived that story. So I built Jim Lodge 174 00:13:36.160 --> 00:13:42.480 around my face and then it took me 24 months to transition from Alex's, you know, Jim licensing 175 00:13:42.480 --> 00:13:48.560 business to Jim Lodge, a suite of consultants who understand how to implement a very specific set 176 00:13:48.560 --> 00:13:54.640 of playbooks into this type of Jim, which is micro Jim, and get this very reliable outcome, right? 177 00:13:54.640 --> 00:13:58.720 So it took 24 months for me to do that. And then, and here's the crazy part, is that the company 178 00:13:58.720 --> 00:14:03.440 went from, again, almost uninvestable or valueless despite the fact that it made a lot of money 179 00:14:03.440 --> 00:14:06.560 into something that had transferable value that someone could compensate me for, which is all 180 00:14:06.560 --> 00:14:12.240 too well, we're able to sell it for just under $50 million. And so that's the quantitative side of it. 181 00:14:12.240 --> 00:14:17.120 The qualitative side of it is two pieces. One is that you want to have product market fit. And so 182 00:14:17.120 --> 00:14:19.760 that means that the person is still not trying to figure out what they want to sell, right? The 183 00:14:19.760 --> 00:14:22.480 reason I published my first book, Hunter Really All Offers is because I want to make sure people 184 00:14:22.480 --> 00:14:26.240 knew what to sell, right? And make really good offers. Because once you get that right, 185 00:14:26.240 --> 00:14:30.800 then you can usually quickly skyrocket above $1, $2, $3 million in profit per year. And then 186 00:14:30.800 --> 00:14:36.720 it's much more interesting for us. We don't want to incur that cost of trial and error in iteration 187 00:14:36.720 --> 00:14:40.880 because it's just, it's not that we don't think we could figure it out. It's just not worth the 188 00:14:40.880 --> 00:14:45.920 time. I'd rather work with companies that already have that and then scale it. On the soft side, 189 00:14:45.920 --> 00:14:50.720 then the other piece I don't want to say was the other piece is growth and cash flow, right? Which 190 00:14:50.720 --> 00:14:53.600 is we want to make sure the company is growing like we don't want to catch a falling knife, 191 00:14:53.600 --> 00:14:57.520 which is a saying in the investment world, unless it's very specific set of circumstances. 192 00:14:57.520 --> 00:15:03.360 One of the, ironically, the biggest company we have actually had cut. It was like down 70% 193 00:15:03.360 --> 00:15:08.560 when we started arguing with them and then it doubled from their all-time top, which is a massive 194 00:15:08.560 --> 00:15:14.720 job, which is awesome, right? But that was a curculean amount of effort over 12 months to really 195 00:15:14.720 --> 00:15:20.080 reverse the nose dive into something awesome. Next one is just return a capital or cash flow. 196 00:15:20.080 --> 00:15:23.280 What that means is like there are some companies that don't have a lot of capital expenses, 197 00:15:23.280 --> 00:15:26.640 right? So like if you're an accounting firm and you generate profits, there's not a lot. You don't 198 00:15:26.640 --> 00:15:30.480 have to buy heavy equipment to increase your capacity, right? Whereas there are some companies, 199 00:15:30.480 --> 00:15:35.120 some businesses like a brick and mortar chain, for example, that once you max out your 20 locations 200 00:15:35.120 --> 00:15:40.880 to get to 30, you need to buy or lease or build out 10 more locations. Like there's capital expenses 201 00:15:40.880 --> 00:15:45.680 that has to go out. Not to say that's bad. We have two very, very large brick and mortar chains 202 00:15:45.680 --> 00:15:50.560 that are awesome. But we like to trade off how many of those we're going to do because 203 00:15:50.560 --> 00:15:54.800 these ones don't spit off cash flow because we actively reinvest the money into growing it 204 00:15:54.800 --> 00:15:58.480 because we get higher returns on it. And then there are some companies that we actively bring 205 00:15:58.480 --> 00:16:02.160 the money back into whole coast so we can redeploy it into another asset that's going to increase 206 00:16:02.160 --> 00:16:06.640 in value. So I just went over some of the specific criteria that we look at to pick companies. 207 00:16:06.640 --> 00:16:10.080 And now I want to talk about the specific process that we go about picking them in general. 208 00:16:10.640 --> 00:16:16.240 Okay. So we just talked about the criteria that we look for in order to provide value. And now let's 209 00:16:16.240 --> 00:16:21.840 talk about the actual process of providing value. So with broad brushstrokes, we follow a what, 210 00:16:21.840 --> 00:16:27.200 who, how, framework, which basically is what is the biggest what that we need to do to grow this 211 00:16:27.200 --> 00:16:31.840 business? Is it do we need to 5x the sales team? Is it we need to 5x the ad spend? Is it do we need 212 00:16:31.840 --> 00:16:38.720 to make five times the content? Is that we need to cut churn by 5x? Or do we need to completely 213 00:16:38.720 --> 00:16:43.360 reconfigure the pricing mix or the product suite? Like there's a number of different things that we 214 00:16:43.360 --> 00:16:48.720 might identify as the biggest issue that will grow the business or the biggest lever. Once we 215 00:16:48.720 --> 00:16:52.960 have identified that what then comes down to the who, right, which is who's actually going to do 216 00:16:52.960 --> 00:16:56.400 this implementation? One of the biggest things, especially at companies of the size is that you 217 00:16:56.400 --> 00:17:01.520 typically have a founder who sometimes has one or two helping hands, but they don't actually have 218 00:17:01.520 --> 00:17:05.920 a full leadership team or a full leadership suite. And so this is usually a very painful time 219 00:17:05.920 --> 00:17:12.240 for most businesses when they're at 300, 500 million dollars a month because they are still, 220 00:17:12.880 --> 00:17:17.280 they're in this in-between place of like they're still having to do some of the things they're 221 00:17:17.280 --> 00:17:22.000 good at. They've given away stuff that they suck at, but then they're still trying to keep strategy, 222 00:17:22.000 --> 00:17:25.120 but then there's problems so they have to jump back in. And they can never really feel like they're 223 00:17:25.120 --> 00:17:28.080 getting their head above water because like right as they fix one thing, something else breaks, 224 00:17:28.080 --> 00:17:34.320 it's kind of this like continuous cycle. And that is the symptom. The core issue is personnel, 225 00:17:34.320 --> 00:17:37.600 is that they don't have enough talent. And so the easiest way to envision this if this is you 226 00:17:37.600 --> 00:17:43.840 or if somebody you know is think about your best employee. All right, imagine if you had six of 227 00:17:43.840 --> 00:17:49.680 them. How much more money would you make? Probably a lot more money. Well, that's kind of the idea. 228 00:17:50.240 --> 00:17:55.040 So for example, I was talking to a really cool like tech enabled service yesterday, we're moving 229 00:17:55.040 --> 00:18:01.680 forward to invest in. And this founder has tons of hustle, great guy, and he has homegrown all 230 00:18:01.680 --> 00:18:06.080 of his talent, meaning he has actively recruited people into base roles. And as the company has grown, 231 00:18:06.080 --> 00:18:11.520 he's promoted people from within, which is not a bad ideology overall, but here's the catch. 232 00:18:12.160 --> 00:18:17.040 If everybody that you brought into your company has been at base level or maybe one level above 233 00:18:17.040 --> 00:18:22.960 that and you have taught them what you did to build that function or build that role, it means that 234 00:18:22.960 --> 00:18:28.640 the entirety of the knowledge and the entire company is from one person's brain. And so if you think 235 00:18:28.640 --> 00:18:32.960 about this here, I'll give you my little triangle. So if you think about how a company grows, 236 00:18:32.960 --> 00:18:38.480 I'll tell you one of the big beliefs that I've learned is that the peak of the company is based 237 00:18:38.480 --> 00:18:43.600 on how much, how many brains there are at the top that know different knowledge. So if you've 238 00:18:43.600 --> 00:18:47.360 got a company that has one brain, it's like that's how big the company is. Now if you have four 239 00:18:47.360 --> 00:18:52.320 brains at the top, the company is way, way, way bigger. And so it's almost like a Christmas tree 240 00:18:52.320 --> 00:19:00.160 of dissemination of knowledge at scale. And so like if you don't, like, and this should make sense 241 00:19:00.160 --> 00:19:04.560 because if you want to get to a hundred million dollars a year, for example, well, you're not going 242 00:19:04.560 --> 00:19:10.240 to die and then be reborn and then live the next 20 years as a CFO in order to know how to run 243 00:19:10.240 --> 00:19:15.440 the finances of that company. And you're not going to die and then be reborn and then do 10 years 244 00:19:15.440 --> 00:19:19.120 of product so that you know how to build something that's sticky and that people want to keep buying 245 00:19:19.120 --> 00:19:22.960 and renew on. And you're not going to die and be reborn and learn how to market and sell, etc. 246 00:19:22.960 --> 00:19:28.000 And so most of the times the founder has a strength or two that has gotten them to this point. And 247 00:19:28.000 --> 00:19:31.600 then there's huge deficiencies in the business. And so one of the big misnomers about growing 248 00:19:31.600 --> 00:19:36.160 a business is that people say, double down in your strengths with is absolutely true for the individual. 249 00:19:36.160 --> 00:19:40.880 But the business needs to be balanced. And so that's the push and pull that people that people 250 00:19:40.880 --> 00:19:46.720 missing context is that even though you may be really good at sales and marketing, for example, 251 00:19:46.720 --> 00:19:51.200 your business in order to get to the next level still needs to have an exceptional product, 252 00:19:51.200 --> 00:19:56.480 still needs to have a financial function and HR function, an IT function so you can track data. 253 00:19:56.480 --> 00:20:00.560 And so we talk about the what and then we've got the who and now we've got the how, 254 00:20:00.560 --> 00:20:06.240 which is like the actual rubber meets the road, hands meeting the machine, getting the stuff done. 255 00:20:06.240 --> 00:20:10.880 And so we have all the playbooks that we've used to grow, each of the companies that I founded 256 00:20:10.880 --> 00:20:15.280 myself to multiple millions of dollars a month each that we implement within each of these companies. 257 00:20:15.280 --> 00:20:19.520 So whether that's how to onboard somebody properly as an employee or how to onboard somebody 258 00:20:19.520 --> 00:20:24.640 properly as a customer as a customer or at what points do we make ascension offers in order to 259 00:20:24.640 --> 00:20:29.280 upgrade people and how should we structure those offers and how do we monetize them. And if 260 00:20:29.280 --> 00:20:33.520 we're making content like what is the ratio between how many times we give versus how many times we 261 00:20:33.520 --> 00:20:37.920 ask, that times a million across all the different functions. And so to give you a little bit of 262 00:20:37.920 --> 00:20:43.040 context, we at HoldCo for us have what we call SMEs or subject matter experts. So we've got 263 00:20:43.600 --> 00:20:48.960 directors of marketing and then we've directors of sales who can build up sales teams and 264 00:20:48.960 --> 00:20:52.800 stand up sales departments. And then we've got directors of customer success who can lead the results 265 00:20:52.800 --> 00:20:58.480 in the experience for every client, whether it's physical products, software or services. And then 266 00:20:58.480 --> 00:21:04.160 down the line, IT, finance, legal, etc. so that we can ultimately build the whole business because 267 00:21:04.160 --> 00:21:11.280 the big problem with what I would consider single solution thinkers is that if all you know, for 268 00:21:11.280 --> 00:21:15.040 example, how to do is build sales teams, then you think that the problem of every business is that 269 00:21:15.040 --> 00:21:18.720 they need to build a better sales team. If you really know content, then you think that the only 270 00:21:18.880 --> 00:21:24.240 thing to do for the business is to make more content. And if you really know finance, you think 271 00:21:24.240 --> 00:21:27.920 you need to restructure finance and do some sort of financial engineering in order to 272 00:21:27.920 --> 00:21:32.400 grow the business. And in my experience, it's been wrong. And I think that's why in a lot of ways, 273 00:21:32.400 --> 00:21:36.880 general entrepreneurship is about being a jack of all trades master of none, which is that you have 274 00:21:36.880 --> 00:21:41.440 to know enough to be dangerous. You have to know enough to recognize what the true constraint is 275 00:21:41.440 --> 00:21:47.920 at a macro level and recognize what has to happen to deconstrain it. But you specifically, I don't, 276 00:21:47.920 --> 00:21:52.240 like, I'm not the best copyrighted in the world, but I'm decent enough that it was no longer the 277 00:21:52.240 --> 00:21:58.160 constraint of my paid ads. Or like, I get a lot of credit for being good at sales, but I'm not the 278 00:21:58.160 --> 00:22:02.720 best salesman in the world. I'm the best sales trainer in the world. I know enough about sales to 279 00:22:02.720 --> 00:22:07.600 make sure that the fundamentals are done at scale. And so one of the interesting things is, I mean, 280 00:22:07.600 --> 00:22:13.360 I talked to all of our directors within Holko. And it's cool that they have learned a really cool 281 00:22:13.360 --> 00:22:18.960 lesson I'm going to share with you, which is you would be amazed at how much growth can happen 282 00:22:18.960 --> 00:22:24.960 when all you do is the fundamentals in every single department, like really taking this in. 283 00:22:26.160 --> 00:22:32.160 A lot of people want to make things fancy. And I have this little saying, fancy fails, simple scales. 284 00:22:32.960 --> 00:22:39.520 And the whole idea there is that like, you don't need a 17 pixel retargeting ultra campaign. 285 00:22:39.520 --> 00:22:45.040 Like, if you nail the hook, you have a good offer and a clear call to action for the vast majority 286 00:22:45.040 --> 00:22:48.480 of businesses, that's all you need to do to run ads. And it's also the same thing that you need to 287 00:22:48.480 --> 00:22:51.440 do if you're going to run a cold call campaign. And it's the same thing you need to do if you're 288 00:22:51.440 --> 00:22:55.680 going to run a right hook into your audience from content, right? Like, as long as you have those 289 00:22:55.680 --> 00:22:59.200 fundamentals in place, you'll get 80% of the gains. 290 00:23:01.600 --> 00:23:06.560 Big guys, love that you're listening to the podcast. If you ever want to have the video version of 291 00:23:06.560 --> 00:23:10.720 this, which usually has more effects, more visuals, more graphs, you know, drawn out stuff, 292 00:23:10.720 --> 00:23:14.960 sometimes it can help hit the brain centers in different ways. You can check my YouTube channel. 293 00:23:14.960 --> 00:23:19.360 It's absolutely free to check that out if that's what you are into. And if not, keep enjoying the show. 294 00:23:21.600 --> 00:23:26.560 And so understanding what those core pieces are at scale across the departments is the 295 00:23:26.560 --> 00:23:30.160 responsibility of the entrepreneur. And then going deep into the implementation is the 296 00:23:30.160 --> 00:23:34.080 responsive of the experts. And so that's why we have experts. We bring in the person who's going 297 00:23:34.080 --> 00:23:39.840 to be underneath of that CS person, for example, to cut sure and fix pricing drive profit in the 298 00:23:39.840 --> 00:23:43.920 business. And then we copy and paste that knowledge into the new person. And then that's how we can 299 00:23:43.920 --> 00:23:50.800 scale the value of the enterprise itself without needing acquisition.com. And so like top to bottom, 300 00:23:50.800 --> 00:23:54.560 if you think about a customer journey, right? So we're going to start with how do we generate 301 00:23:54.560 --> 00:23:59.680 demand, right? And whether that's cold calls, cold emails, making content, running ads, 302 00:23:59.680 --> 00:24:02.960 having affiliate network, having a really strong referral program, having agencies that we partner 303 00:24:02.960 --> 00:24:07.120 with across different platforms, or simply like scaling the employees to do more of the stuff we're 304 00:24:07.120 --> 00:24:10.800 already doing, all of those are things that we will do to generate more demand. Once we have 305 00:24:10.800 --> 00:24:14.800 demand, it's about converting that demand. And so then all of that comes into the sales function. 306 00:24:14.800 --> 00:24:19.120 Now that could be sales scripts. It could be video sales letters. It could be written sales letters. 307 00:24:19.120 --> 00:24:22.480 It could be webinars that we do on a weekly basis. It could be live events that we do conversions 308 00:24:22.480 --> 00:24:26.000 from like all of these are different selling mechanisms. And we have companies that literally do all 309 00:24:26.000 --> 00:24:31.440 of them, right? And so again, I am not a master at any of them. I'm pretty good at it. I know when 310 00:24:31.440 --> 00:24:35.520 it's right. And then I can move on from that. And then from that point, the next thing you move on 311 00:24:35.520 --> 00:24:40.400 to is customer success or product, right? Which is somebody to make sure that all the eyes are being 312 00:24:40.400 --> 00:24:44.320 dotted, the teas are being crossed, and the people have an exceptional experience, and making sure 313 00:24:44.320 --> 00:24:48.000 that we maximize revenue in the back end. It's a lot of people think it's like customer service, 314 00:24:48.000 --> 00:24:52.960 which is not the right perspective in my opinion. And the whole customer success industry really only 315 00:24:52.960 --> 00:24:57.760 started 20 years ago. Like it's actually still a relatively new function. And the reason that the 316 00:24:57.760 --> 00:25:03.520 salaries in that department or skyrocketing is because they are unlocking so much value for businesses 317 00:25:03.520 --> 00:25:08.080 if you know what you're doing. And so for example, if you have a company or you have a product that 318 00:25:08.080 --> 00:25:12.320 has a hundred dollar price point and it goes from 10% share in monthly to 3% share in monthly, 319 00:25:12.320 --> 00:25:17.920 you tripled the value of the customer. And there's very few other things that you can do to triple 320 00:25:17.920 --> 00:25:23.680 the value of the customer. And so that is why mastering the CS function is so valuable. From there, 321 00:25:24.480 --> 00:25:29.360 we have the data function, which is really what IT is. And that sounds really lame. But 322 00:25:29.360 --> 00:25:33.200 if you want to get to a really big company, you have to be able to make smart decisions. And if you 323 00:25:33.200 --> 00:25:37.520 don't have data, it's really hard to make smart decisions. On the flip side, if you have really 324 00:25:37.520 --> 00:25:42.800 amazing data, it's really easy to look smart because you just make comments as decisions based 325 00:25:42.800 --> 00:25:46.560 on the data you're presented. And so getting that implementation in place is one of the key things 326 00:25:46.560 --> 00:25:50.480 that we help with for companies to go from like in between different Google sheets and like 327 00:25:50.480 --> 00:25:54.800 Hodgepodging on one CRM and two other tools to having it all centralized so that we can track 328 00:25:54.800 --> 00:25:58.800 everything in real time from click to close. Beyond that, you didn't have to walk your backside, 329 00:25:58.800 --> 00:26:05.920 which for me is a function of legal finance HR. And so you've got the legal, which we still, 330 00:26:05.920 --> 00:26:10.400 like we don't get in-house legal for the portfolio companies, we have that so that we can help them. 331 00:26:10.400 --> 00:26:14.560 And then it saves them money, provides more value, the finance function so that they can actually do 332 00:26:14.560 --> 00:26:18.800 a big transaction later on. So like if you a big part of the reason that small companies can't get 333 00:26:18.800 --> 00:26:22.240 big multiples is that they don't have clean financials, right? They're still doing cash accounting, 334 00:26:22.240 --> 00:26:24.960 they don't have their data accounting based on a cruel and they don't have someone you could 335 00:26:24.960 --> 00:26:28.320 actually give them cash forecast. I'll give you an example of this. So one of our portfolio 336 00:26:28.320 --> 00:26:34.160 companies was growing like a rocket and all of a sudden they basically plateaued at around 337 00:26:34.160 --> 00:26:40.720 two million bucks a month for like six months. And the problem that the founder was vocalizing 338 00:26:40.720 --> 00:26:45.840 was that he was like, I just don't know how many more, how much more I should be investing in 339 00:26:45.920 --> 00:26:50.800 these new things based on our cash flow. And so he kept going, he's like, am I doing too much? Am I 340 00:26:50.800 --> 00:26:54.880 doing too little? I feel like the cash is so lumpy and volatile because I was the nature of the 341 00:26:54.880 --> 00:26:59.280 business had extended payment terms. And so I remember pulling aside and saying, I want you to remember 342 00:26:59.280 --> 00:27:04.560 this feeling because the feeling that you have is that you don't have a finance function. And so he 343 00:27:04.560 --> 00:27:08.880 knew sales, he knew marketing, he knew customer success, but the feeling he had was a lack of data 344 00:27:08.880 --> 00:27:13.520 around money. And so he kept, he didn't know how to put his finger on it, but I have been there 345 00:27:13.600 --> 00:27:19.920 because I had an impromptu, $9.2 million tax bill that came up when you're, why? Because I, 346 00:27:19.920 --> 00:27:24.160 and I'll tell you, I like, I live these mistakes. I hired somebody frontline, promoted, promoted, 347 00:27:24.160 --> 00:27:28.080 promoted until they were director of finance without ever having that experience. We sent them to 348 00:27:28.080 --> 00:27:34.080 a conference that I paid for. And then at the conference, Friday afternoon, she emails Layla and 349 00:27:34.080 --> 00:27:40.240 says, by the way, I just learned that after your certain, after over a certain size, you can't pay 350 00:27:40.400 --> 00:27:45.360 your taxes the end of the year. You need to pay them quarterly. And we had been not paying taxes 351 00:27:45.360 --> 00:27:48.160 for that year because that was what we had done the year before, but we had grown a lot. 352 00:27:48.880 --> 00:27:54.080 And so if you've heard me say that I had that $17 million by second year at gym lunch with $17 million 353 00:27:54.080 --> 00:28:01.680 profit, well, I had $9 million in taxes that was due at the end of Q1 of that next year. And so I 354 00:28:01.680 --> 00:28:06.640 actually had Q1 because I had to pay quarterly plus the five quarters, or the four quarters before 355 00:28:06.640 --> 00:28:11.920 that all do. And when she emailed me, she said, it's due Monday. And so she's like, you might have 356 00:28:11.920 --> 00:28:14.880 to move some stuff around. And so, you know, we called her up and she's like, hey, I'm busy 357 00:28:14.880 --> 00:28:18.080 with the conference. I was like, this is one where you can step out of the conference that I paid for. 358 00:28:18.080 --> 00:28:23.360 And so obviously stepped out. We talked about it. And I wrote a $9.2 million check that next Monday. 359 00:28:23.360 --> 00:28:29.920 And so again, I know what that failure feels like. And then finally, from the HR perspective, 360 00:28:29.920 --> 00:28:33.600 there's two kind of sides to HR, right? You've got like the benefits payroll compensation, 361 00:28:34.400 --> 00:28:39.760 you know, incentives-ish side of HR. And then what I would consider the most value added, 362 00:28:39.760 --> 00:28:44.800 if not that incentives and comp aren't valuable, they are. But in terms of driving enterprise value, 363 00:28:44.800 --> 00:28:49.760 it's actually the recruiting and head hunting side. Because what we have also learned in this 364 00:28:49.760 --> 00:28:55.680 process is that you don't actually grow companies. You build people who build companies. And that is a 365 00:28:55.680 --> 00:29:00.640 key piece that took me way too long to understand. Like the reason that gym lunch became a very 366 00:29:00.640 --> 00:29:06.080 valuable thing was because I found valuable people to then run and grow the company on my behalf. 367 00:29:06.080 --> 00:29:10.960 And until you get to that point, you don't own enterprise. The enterprise owns you. And so for us, 368 00:29:10.960 --> 00:29:14.720 we take a lot of entrepreneurs from that level to being owned by their enterprise, the genius with 369 00:29:14.720 --> 00:29:18.240 a thousand hands. Just one person who's got all their brain plugged into everybody, still like 370 00:29:18.240 --> 00:29:23.600 managing chaos, even if it's super profitable to transferring that into an asset that they own that 371 00:29:23.600 --> 00:29:27.600 sits on their balance sheet that grows tax-free. In the last discipline, I'll consider, and this is 372 00:29:27.600 --> 00:29:32.240 probably the one where Laila and I contribute the most to is, and I feel even we're throwing myself 373 00:29:32.240 --> 00:29:36.880 in this is probably more Laila is leadership. Because if you think about this from a meta-skill 374 00:29:36.880 --> 00:29:41.120 perspective, like leadership sits on top of all of these things, both on the org chart and also 375 00:29:41.120 --> 00:29:47.760 in terms of priority, because from a first principle thinking perspective, if anyone in the world 376 00:29:47.760 --> 00:29:53.520 would work for you, then all you have to do is master that skill. And then you can get every other 377 00:29:53.520 --> 00:29:59.360 skill. So that skill of leading people, of attracting people, of influencing people to do things on 378 00:29:59.360 --> 00:30:05.280 your behalf. Once you have that skill, you can get everyone to do everything else for you without 379 00:30:05.280 --> 00:30:09.360 even needing to know anything besides that, which is why sometimes you see some of these really old 380 00:30:09.360 --> 00:30:13.760 guys running really cutting-edge technology companies, even though they have no idea how the 381 00:30:13.760 --> 00:30:18.880 technology works, but they know how people work. And if you're thinking about value, it is one of 382 00:30:18.880 --> 00:30:23.120 the most valuable skills. Because, and they found this, there was a big McKinsey study that looked at 383 00:30:24.080 --> 00:30:31.760 this. But the contribution to growth for coaches on teams is the same as the contribution of 384 00:30:31.760 --> 00:30:36.640 CEOs to businesses, which to me, it just means that people work the same way, right? And that was 385 00:30:36.640 --> 00:30:42.960 the median, was 30%, which means that if you're in the top 10% of leaders, that's how you come in 386 00:30:42.960 --> 00:30:50.320 and 10x, 100x a company, because of the culture, the norms and new rules of behavior that you install 387 00:30:50.320 --> 00:30:56.240 within a business that then unlocks discretionary effort from the entire employee base. So if you could 388 00:30:56.240 --> 00:31:01.440 imagine what the difference is between everyone in a company working at just the level to not get fired, 389 00:31:02.240 --> 00:31:08.240 versus everybody working at the level of trying to impact and accomplish a mission together in alignment. 390 00:31:08.240 --> 00:31:14.240 I mean, the difference isn't double. The difference is 10x. And that skill is the meta skill that 391 00:31:14.240 --> 00:31:19.040 unlocks the most enterprise value. And that's the one that Layla and I probably work the most with 392 00:31:19.040 --> 00:31:24.080 on the individual founders. And sometimes real talk, some founders recognize intelligently that 393 00:31:24.080 --> 00:31:28.720 they're like, I feel like I'm too far off from this. And so I recognize my own deficiencies. 394 00:31:28.720 --> 00:31:34.800 I actually like product better, or I just really love being CMO, or CRO, meaning Chief Revenue Officer, 395 00:31:34.800 --> 00:31:38.960 or Chief Marketing Officer, or I just want to be just in charge of the sales team, or I just 396 00:31:38.960 --> 00:31:42.720 want to be in charge of success. And we have founders that have earned each of those positions, 397 00:31:42.720 --> 00:31:47.040 because over the time they increase their own self-knowledge and they don't see it as a deficiency, 398 00:31:47.040 --> 00:31:51.200 they see it as a plus that they're more self-aware. And in so doing, 399 00:31:51.200 --> 00:31:56.720 same thing as Larry Page and Sir Jay Brinn, they brought in Eric Schmidt, because he was going to 400 00:31:56.720 --> 00:32:00.000 be the leader that was going to help grow Google. Now they were amazing product people, 401 00:32:00.000 --> 00:32:04.320 incredibly good technologists, but he knew how to build the actual, build and operate the actual 402 00:32:04.320 --> 00:32:09.600 company. And so was it a bad move for them to do that? Absolutely not. It was obviously worked 403 00:32:09.600 --> 00:32:14.080 out for them. And so having that level of self-awareness and humility to be able to quote hand over 404 00:32:14.160 --> 00:32:17.920 the reins, to an operator can sometimes be the most valuable thing that you do the business, 405 00:32:17.920 --> 00:32:21.440 especially from an enterprise value perspective, if you want to own something that can ultimately 406 00:32:21.440 --> 00:32:27.520 work without you in the future. So there's six key areas that hold code will basically dump value 407 00:32:27.520 --> 00:32:32.160 into, or invest resources into growing, where we feel like the highest leverage points are. 408 00:32:32.160 --> 00:32:36.320 So you've got marketing on the front to generate demand. You've got sales in order to convert the 409 00:32:36.320 --> 00:32:40.880 man. You've got customer's access to deliver on the promises that sales and marketing made. 410 00:32:40.880 --> 00:32:45.600 You've got IT and technology that allows all of those things to work together and have data to 411 00:32:45.600 --> 00:32:50.320 collect off that platform. You have operations, which underneath of that I'll put legal 412 00:32:50.320 --> 00:32:55.600 finance and HR together in terms of actually getting people to do the things, not going to jail, 413 00:32:55.600 --> 00:32:59.680 paying your taxes and all that stuff. And then on top of that, so like five plus one, 414 00:32:59.680 --> 00:33:04.480 is just leadership overall so that you can unlock the most discretionary effort across the entire 415 00:33:04.480 --> 00:33:07.920 team so that the organization grows together in alignment. So now that you have a little bit of 416 00:33:07.920 --> 00:33:12.320 an idea of kind of the context on how we work with businesses, how we provide value, how the deals 417 00:33:12.320 --> 00:33:16.160 usually work, what we target in terms of the companies, their growth rates, some of the quantitative 418 00:33:16.160 --> 00:33:20.640 data. Now I want to shift to some of the stories and lessons that I've learned in investing in 419 00:33:20.640 --> 00:33:26.880 22 companies and some of the failures that I've been fortunate enough to learn my experiences from. 420 00:33:26.880 --> 00:33:31.200 And so I want to break this into kind of three sections. So one is beliefs that I've helped from 421 00:33:31.200 --> 00:33:35.760 the beginning that remained unchanged. The second bucket is beliefs that I believed in the 422 00:33:35.760 --> 00:33:40.480 beginning, but now I believe through and through and have doubled down on. And the third bucket is 423 00:33:40.480 --> 00:33:45.280 beliefs that I once thought were true and have been completely disproven and have completely 424 00:33:45.280 --> 00:33:51.120 new beliefs around the same subjects. So within the belief bucket of things that I thought coming 425 00:33:51.120 --> 00:33:57.520 into this investing world and things that I continue to believe, I have three beliefs. So belief 426 00:33:57.520 --> 00:34:04.800 number one is that cash is still king, meaning companies that have low cap ex as in capital expenses 427 00:34:04.800 --> 00:34:10.720 and spit off lots of cash flow are in general healthy businesses that we like to invest in. 428 00:34:10.720 --> 00:34:17.280 And the reason for that is that one, it's you can weather storms when you have cash flow. 429 00:34:17.280 --> 00:34:22.240 Cash flow is like oxygen to the business. If as long as you've got it, you can still pretty much 430 00:34:22.240 --> 00:34:26.880 spend your way out of problems, sell your way out of problems over and over again. If you don't 431 00:34:26.880 --> 00:34:31.840 have cash flow, you're ticking time up until something happens. And the unfortunate part about 432 00:34:31.840 --> 00:34:37.440 businesses that something always happens. And so I see cash flow in some ways as insurance 433 00:34:37.440 --> 00:34:43.760 on whatever purchase or investment I'm making. And it also opens up the bucket for belief number two, 434 00:34:43.760 --> 00:34:48.960 which is that I have cash flow to reinvest in growth. And so the growth can happen organically, 435 00:34:48.960 --> 00:34:53.520 meaning, you know, if I have an accounting firm that I'm looking at, they can continue to grow 436 00:34:53.520 --> 00:34:58.080 without actually having to redeploy capital. But if they do have capital, then there are other 437 00:34:58.160 --> 00:35:01.760 things that we could potentially acquire. We might acquire a bookkeeping business or we could 438 00:35:01.760 --> 00:35:06.960 acquire a piece of software that works out well, or we could acquire a media property that would feed 439 00:35:06.960 --> 00:35:12.880 deals into that company. Or we could invest in, you know, writing a book that would then position 440 00:35:12.880 --> 00:35:18.080 the firm as thought leaders to then get more business, et cetera. And so the idea is that 441 00:35:18.720 --> 00:35:23.520 one, I want to have lots of cash flow from the business. Two, I want to have clear ways that I 442 00:35:23.520 --> 00:35:29.360 feel that we can grow the business that don't take huge leaps of faith. And so for us, we have to see, 443 00:35:30.080 --> 00:35:37.360 what we call two triples. Now, a different way of saying that would be to see a 10X. But in my 444 00:35:37.360 --> 00:35:44.000 experience, I can see triples a lot easier. And if you see two triples, you get your 9X 10X. And 445 00:35:44.000 --> 00:35:48.160 that's not to say that thinking in order of a magnitude is not a good idea. I absolutely think 446 00:35:48.160 --> 00:35:54.960 it is. But when I make bets, I like to choose really high probability bets that I think I can 10X. 447 00:35:55.520 --> 00:36:02.480 And that is, again, my investment style. Venture Capital, for example, will take 50 bets that are 448 00:36:02.480 --> 00:36:07.200 very small, hoping for 100X. That pays for the whole portfolio where everyone else pretty much 449 00:36:07.200 --> 00:36:12.560 loses money, right? And so I have a different style. Our style is we want to win on everyone. And I'm 450 00:36:12.560 --> 00:36:18.960 OK, just hitting 10Xs across the board and having and ideally not having any zero Xs, whereas venture, 451 00:36:18.960 --> 00:36:24.400 and it's just a different investment thesis. But again, our risk is our time invested in the 452 00:36:24.400 --> 00:36:30.320 capital we put in. And so I don't like taking losses. And so that is why we're really selective about 453 00:36:30.320 --> 00:36:34.640 companies. Because if we do move forward with it, then you can be pretty sure that we feel confident 454 00:36:34.640 --> 00:36:39.760 that we already see the tabbed. And so growth is a big amorphous topic. But let's just break it 455 00:36:39.760 --> 00:36:44.640 into the three buckets that growth happens from an enterprise value perspective, all right? So 456 00:36:44.640 --> 00:36:48.320 number one is you can get more customers, right? If everything else stays the same and you double 457 00:36:48.320 --> 00:36:53.440 the customers, you double the business. The second bucket is making customers worth more. And there's 458 00:36:53.440 --> 00:36:57.680 eight ways you can do that. But I'm not going to do that. But like, you could you increase the 459 00:36:57.680 --> 00:37:00.880 lifetime gross profit of the customer, right? If you sold the same amount of units, but you double 460 00:37:00.880 --> 00:37:04.480 the lifetime gross profit of the customer, then you would double the business yet again. Now the 461 00:37:04.480 --> 00:37:11.600 third bucket is one that I've learned over time, which is de-risking, all right? Now, for example, 462 00:37:11.600 --> 00:37:17.280 if you had a company, like let me show you two examples of two companies. One company is super 463 00:37:17.280 --> 00:37:22.080 volatile. And it has big ears and low ears and high ears and big ears and low ears, whatever. 464 00:37:22.080 --> 00:37:27.520 And profit swings a lot. And it's only been around for two years or three years, whatever. 465 00:37:27.520 --> 00:37:32.240 And on the other hand, you've got a company that's been around for 10 years and has grown at 10 466 00:37:32.240 --> 00:37:38.000 percent a year. And they both in this year are the exact same size, which company is more valuable. 467 00:37:38.640 --> 00:37:43.680 This one, the second one. And the reason is because you have a high degree of confidence that it 468 00:37:43.680 --> 00:37:49.680 will continue to generate profits into the future and ideally grow in those profits. And so 469 00:37:50.400 --> 00:37:54.400 we think about all the different ways that a business get to zero and think how can we prevent 470 00:37:54.400 --> 00:37:59.120 all of those from happening. And so on the extreme, you have a business that's absolutely guaranteed 471 00:37:59.200 --> 00:38:03.840 to make money. So like if you had a 20 year contract with the government to maintain its 472 00:38:03.840 --> 00:38:09.520 lawns and you had a lawn care service, that would be an incredibly valuable business. It's almost 473 00:38:09.520 --> 00:38:13.120 a bond at that point because the government's not going to default and the contract's 20 years, 474 00:38:13.120 --> 00:38:18.480 they're probably not going to change the contract either. So like you're set pretty much. And I say 475 00:38:18.480 --> 00:38:24.000 this because a buddy of mine had an app that he contracted with only public municipalities. 476 00:38:24.000 --> 00:38:30.320 It was like an anti-gun shooter safety app or whatever for prevention. He got 1200 municipalities 477 00:38:30.320 --> 00:38:36.000 on recurring annual revenue and he sold it for several hundred million dollars. And from a 478 00:38:36.000 --> 00:38:40.000 revenue perspective, it wasn't even close to that. But because the likelihood that that 479 00:38:40.640 --> 00:38:45.600 cash flow didn't continue on into the future was so minuscule that people were willing to 480 00:38:45.600 --> 00:38:51.200 pay huge amounts of money for it. And so the idea is even if we don't necessarily change the 481 00:38:51.200 --> 00:38:57.280 top line in bottom line of a business, but we can de-risk the founder, eliminate key man risk, 482 00:38:57.280 --> 00:39:02.320 add a couple acquisition channels, eliminate customer concentration, meaning you have one customer 483 00:39:02.320 --> 00:39:06.160 that's 80% of your business, eliminate financial risk, meaning you don't have audit ready financials, 484 00:39:06.160 --> 00:39:10.720 you're just doing quick books and doing crayon napkins, I'm just kidding. And even like key man risk 485 00:39:10.720 --> 00:39:15.840 from each of the roles. So you have key man risk from if you have a public facing founder, for example, 486 00:39:15.840 --> 00:39:20.960 or you have key man risk if like you have a genius coder founder who like if this guy wasn't here, 487 00:39:20.960 --> 00:39:25.840 the product would never continue to innovate the way it has. And so all of these are risks that 488 00:39:25.840 --> 00:39:29.840 in the future it won't continue to perform the way it does. And so when we think about a checklist 489 00:39:29.840 --> 00:39:36.240 of adding value to a company, we're increasing unit sales, we're increasing LTGP and we're increasing 490 00:39:36.240 --> 00:39:41.200 the likelihood that it will continue on into the future. And this is where actually the huge multiple 491 00:39:41.200 --> 00:39:46.240 occurs. And so if you think about unit sold and lifetime risk profit, that's what the EBITDA 492 00:39:46.240 --> 00:39:52.000 or profit of the business is going to generate. Now, the multiple on that profit is how likely it's 493 00:39:52.000 --> 00:39:57.120 going to continue. And so it's the interplay between these two things. So like if we can, for example, 494 00:39:57.760 --> 00:40:03.680 take a company that would be maybe valued at, you know, $5 million that's got $2 million in profits, 495 00:40:03.680 --> 00:40:09.280 that would be taking that biz by cell stat to 1.5x, right? And we take that company to let's say 496 00:40:09.280 --> 00:40:14.960 $5 million in profit. And then it gets an 8x multiple, then you have a $40 million 497 00:40:14.960 --> 00:40:21.680 business compared to a $5 million business. And so that's an 8x difference even though all we did 498 00:40:21.680 --> 00:40:27.040 was we doubled the profit of the business, right? That's the key. So we went from $2 million in profit 499 00:40:27.040 --> 00:40:31.600 to $5 million, so to the little one more. 2.5x, the profit of the business. But we 8x, the overall 500 00:40:31.600 --> 00:40:38.480 value. And that's the magic. So the third belief that I continue to believe is focused founders 501 00:40:38.480 --> 00:40:44.320 and that kind of has two aspects of it. So focus in terms of the avatar that we're serving 502 00:40:44.320 --> 00:40:50.640 and the problem that we're solving, as well as just the ability to say no. And so Steve Jobs 503 00:40:50.640 --> 00:40:58.320 was quoted for saying that focus means being able to say no to truly phenomenal ideas. And he said, 504 00:40:58.320 --> 00:41:03.040 you can count how focused you are by the number of truly phenomenal ideas to try, you choose not to 505 00:41:03.040 --> 00:41:07.680 pursue. And the thing is is that the bigger the company gets, the greater the opportunities become. 506 00:41:07.680 --> 00:41:11.680 Can you imagine the opposite? Like if Apple does anything, it's going to make a billion dollars. 507 00:41:11.680 --> 00:41:16.080 Like think about it. Like anything Apple does, it'll make a billion dollars or many billion dollars. 508 00:41:16.080 --> 00:41:21.680 And so it's not whether something makes money or not is, is it the best allocation of resources? 509 00:41:21.680 --> 00:41:25.680 And I actually see this problem all the time, especially with like creator-based founders who have 510 00:41:25.680 --> 00:41:30.720 like big audiences, is that they get what I consider false positives. And so it's like they create 511 00:41:31.360 --> 00:41:37.120 an umbrella business for their rain channel. And they're like, this is what I'm going to sell. But 512 00:41:37.680 --> 00:41:42.400 is making umbrellas the best opportunity? Will they make money? Sure. They could probably 513 00:41:42.400 --> 00:41:47.120 sell sauce within audience that large. But it doesn't mean that it's the best use of the resources 514 00:41:47.120 --> 00:41:51.920 to capture the highest percentage of the market at the highest LTVs. And that's the idea. When I say 515 00:41:51.920 --> 00:41:59.920 LTV, I mean lifetimeers profit. So focused founder on what specific avatar I want to serve and 516 00:41:59.920 --> 00:42:03.040 what specific problem I'm solving for that avatar. And I'll give you a little story about this. 517 00:42:03.040 --> 00:42:09.600 One of our companies is a PR company, just pretty generic B2B public relations. And we specifically 518 00:42:09.600 --> 00:42:13.600 took this founder on because we just really like the founder. And that's something that I'll share 519 00:42:13.600 --> 00:42:18.800 later in terms of some of the lessons I have. But I really like the founder. And they were doing 520 00:42:18.800 --> 00:42:23.200 a lot of, you know, selling a lot of units. So they're selling 100-ish units a month of services. 521 00:42:23.200 --> 00:42:28.960 The problem was they had super high churn. And so I saw, okay, we have clear demand. There's a lot of 522 00:42:28.960 --> 00:42:34.080 people want this stuff. And we're really bad at delivery. And so once we went through our diagnostic 523 00:42:34.080 --> 00:42:37.840 process, which is what we do at the very beginning when we take on a company after we invest, 524 00:42:37.840 --> 00:42:41.680 is we say, okay, let's find out more. Because the last thing you want to do is immediately jump in 525 00:42:41.680 --> 00:42:46.960 and then just change anything. That's not smart investing. So we go in and we look at the customer mix 526 00:42:46.960 --> 00:42:52.720 and we survey the customer base. And we find out that 85% of the customers are one avatar. And 15% 527 00:42:52.720 --> 00:42:57.120 of the customers are completely different avatar. And here is the funny part. Is that the 15% of 528 00:42:57.120 --> 00:43:01.920 the customers were paying three times more than the 85% and they churned at one third the rate. 529 00:43:01.920 --> 00:43:05.840 And so you're like, wait a second, three times the price, one third the churn. Yes, they were 530 00:43:05.840 --> 00:43:10.480 nine times more valuable. And so I had a conversation with the founder, I said, hey, 531 00:43:10.480 --> 00:43:14.800 look at this data. What do you think about this? And his initial reaction, understandably so, 532 00:43:14.800 --> 00:43:19.360 was, well, what am I going to do about it? And I said, well, what we're going to do is we're going 533 00:43:19.360 --> 00:43:24.880 to stop selling to 85% of your customers. And so you can hear the world's largest gulp. And I was 534 00:43:24.880 --> 00:43:28.640 like, yeah, so we're basically going to kill like most of your business. And mind you, this is 535 00:43:28.640 --> 00:43:33.920 after I like to get invested in this business. And this is the thing. He, having a lot of faith in 536 00:43:33.920 --> 00:43:40.240 us, decided to take that job. And over the next six months, we reconfigured all of the marketing 537 00:43:40.240 --> 00:43:44.480 messaging, all of the sales scripting, the offer, the price point, and you'll notice here, 538 00:43:44.480 --> 00:43:49.600 this is one where I don't like doing product market fit. This is me reimagining product 539 00:43:49.680 --> 00:43:55.120 market fit for a company. I don't do this because it takes a lot of time and a lot of effort and a lot 540 00:43:55.120 --> 00:43:59.680 of trial and error. But that being said, we identified the avatar, we identified the offer, we 541 00:43:59.680 --> 00:44:05.760 identified everything. And here's the cool part. After we made the entire switch, the new customer 542 00:44:05.760 --> 00:44:12.800 lifetime value went from $6,000 to $75,000. And our response rates are advertising went up 543 00:44:13.360 --> 00:44:18.640 despite being more narrow. And so the idea was a lot of people think that you have to go general. 544 00:44:18.640 --> 00:44:23.920 And there are times where going broader is the right decision. But oftentimes, especially if you're 545 00:44:23.920 --> 00:44:29.600 smaller or starting out, selling going general means that the vast majority of people don't resonate 546 00:44:29.600 --> 00:44:34.720 with your message. And so you have to make up for having huge amounts of volume. Whereas we were 547 00:44:34.720 --> 00:44:41.040 now able to cold outreach to a significantly smaller audience and get three times the response rate 548 00:44:41.040 --> 00:44:48.480 and close rates at higher prices by making that switch. So I've only done this massive change 549 00:44:48.640 --> 00:44:52.880 twice. And I'm about to do a third, but that's at a very different stage in the business. But in 550 00:44:52.880 --> 00:44:57.920 terms of like making product market fit at a base level, I've only done twice outside of all the 551 00:44:57.920 --> 00:45:02.480 companies I found it. I want to zoom in on this because I think it's a really powerful lesson. 552 00:45:03.120 --> 00:45:08.320 Most entrepreneurs, I would see most entrepreneurs are not willing to do what this founder did, 553 00:45:08.320 --> 00:45:13.680 which is take two steps backwards so you could take 10 steps forward. And ironically, our second 554 00:45:13.760 --> 00:45:18.320 largest company that we have had this exact same thing happen. When they came to us, they had two 555 00:45:18.320 --> 00:45:23.200 aspects to their business model. And I saw both of them and I hated one of them and I loved the other 556 00:45:23.200 --> 00:45:27.920 one. But the other one was way harder to do at scale. But it had the most enterprise value. This 557 00:45:27.920 --> 00:45:34.800 one was fast, easy money, but didn't scale the same way. And so I told him to cut his personal 558 00:45:34.800 --> 00:45:40.800 income by two thirds in order to double down on this. And this took nine months to stand up. And 559 00:45:40.800 --> 00:45:47.360 it's easy for me to say nine months. But when that nine months is 280 days of feeling like 560 00:45:47.360 --> 00:45:52.160 shit every single day and second guessing because he doesn't know when he's going through it that 561 00:45:52.160 --> 00:45:55.680 it's going to work out. And so think about it. You're six months in and you gave up two thirds 562 00:45:55.680 --> 00:46:00.880 of your income and you still don't know if this is working, right? And so that's where having 563 00:46:00.880 --> 00:46:04.880 trust with partners and that's a lot of I'll get to some of the beliefs that we've learned later 564 00:46:04.880 --> 00:46:09.760 is so important. And so I think one of the big things a lot of entrepreneurs don't do is they don't 565 00:46:09.760 --> 00:46:15.680 play it out, right? Is that they judge their self worth by their monthly cash flow. And 566 00:46:16.320 --> 00:46:20.880 what that prevents you from doing is seeing the bigger picture, which is why to be fair, 567 00:46:20.880 --> 00:46:24.960 it's nice to have an outside investor in because I'm going to I'm going to I'm going to sidequest 568 00:46:24.960 --> 00:46:30.000 here. But I think it'll be I think it'll be worth it is that there's a really well studied phenomenon 569 00:46:30.000 --> 00:46:36.080 called the Solomon paradox. And so the Solomon paradox is simple is that people give better advice 570 00:46:36.080 --> 00:46:39.840 to other people than they follow on their own. And they've actually studied this in a variety of 571 00:46:39.840 --> 00:46:43.280 settings, whether it's business, relationships, finance, people actually give better advice than 572 00:46:43.280 --> 00:46:47.920 they follow. They even take people's actual situations, whitewash the name and then ask them what 573 00:46:47.920 --> 00:46:53.280 the person should do and it's different what the person actually does. And so now you can hypothesize 574 00:46:53.280 --> 00:46:56.800 it's because they're emotionally detached and they can just be more logical about it. But at the 575 00:46:56.800 --> 00:47:02.240 end of the day, they see higher higher correlations with better decision making when you are not 576 00:47:02.240 --> 00:47:06.480 emotionally invested. And so having somebody on the outside or really on the inside who doesn't 577 00:47:06.480 --> 00:47:10.720 have the same emotional buy-in can ultimately allow you to grow the business to a much larger degree 578 00:47:10.720 --> 00:47:15.280 because their identity isn't associated with it. And so it allows you to have some outside 579 00:47:15.280 --> 00:47:20.320 perspective to be like, dude, it's cool. Look at what five years looks like because if you keep 580 00:47:20.320 --> 00:47:23.120 doing the other game you're playing, you're just going to plateau at 10 million a year and you're 581 00:47:23.120 --> 00:47:29.520 going to stay there. And I'm pretty sure that you don't want that. And so as soon as you realize 582 00:47:29.520 --> 00:47:33.440 that you know you can make money and you decide that you want to build a bigger thing, 583 00:47:34.080 --> 00:47:39.280 then you are making progress by taking a step back. You just have to redefine what progress is. 584 00:47:39.280 --> 00:47:44.640 You're making progress toward a much bigger goal. You're not making progress on your monthly cash 585 00:47:44.640 --> 00:47:48.800 flow tomorrow. You just need to expand the time horizon and see that you're on another path that's 586 00:47:48.800 --> 00:47:58.240 way more profitable.