WEBVTT 1 00:00:00.000 --> 00:00:05.760 Unique, expensive, sticky, air. 2 00:00:07.680 --> 00:00:10.560 Welcome to the game where we talk about how to get more customers, how to make more 3 00:00:10.560 --> 00:00:13.760 customer and how to keep them longer in the many failures and lessons we have learned 4 00:00:13.760 --> 00:00:18.560 along the way. I hope you enjoy and subscribe. What's going on over what happy Tuesday? I hope you 5 00:00:18.560 --> 00:00:24.080 guys are pumped for today's podcast such video. I've been looking forward to this one for a little 6 00:00:24.080 --> 00:00:28.080 bit and if I sound a little bit stuffed up it's because I have two passive tubes that are like 7 00:00:28.080 --> 00:00:33.440 four inches long in each of my nostrils. But that was no reason to not give you guys some sick 8 00:00:33.440 --> 00:00:38.880 stuff for business stuff and this is mostly just for me too. So anyway, I hope you enjoyed. 9 00:00:38.880 --> 00:00:42.560 So today what I want to talk about is the perfect business and so believe it or not this is actually 10 00:00:42.560 --> 00:00:47.520 something I talk a lot about not as much publicly but what I like if we were to ever talk in person 11 00:00:47.520 --> 00:00:52.080 and talk talk shop about business. I love talking about business models. I love talking about 12 00:00:52.640 --> 00:00:57.280 just monetization structures in general, breading of books specifically about the state structures. 13 00:00:57.520 --> 00:01:04.080 So I'm really excited about it. But I just recently finished Berkshire Hathaway University which is 14 00:01:04.080 --> 00:01:13.120 basically the consolidated 30 years of shareholders that were Buffett and Charlie Bunger, 15 00:01:13.120 --> 00:01:20.080 the co-founders, co-chairman, et cetera of Berkshire Hathaway. They do these yearly 16 00:01:20.080 --> 00:01:23.360 shareholder events. I think you guys are worth billionaires. They're either both in their 17 00:01:23.360 --> 00:01:28.560 high 90s which is crazy. They've been investing for 50 plus years, investing for 50 plus years 18 00:01:28.560 --> 00:01:33.200 and they've built a, you know, a trillion dollar empire. I think as of today it's worth half a trillion 19 00:01:34.320 --> 00:01:40.000 which is just nuts. Their return on capital was 2 million percent. So when they started, 20 00:01:40.000 --> 00:01:43.120 when they acquired Berkshire Hathaway, which was a publicly traded company at the time, 21 00:01:43.120 --> 00:01:49.840 was a textile company. The stock was $19 I believe. Actually, no, they offered to buy 22 00:01:50.480 --> 00:01:58.480 were Buffett out at $11.30. I love 50. Anyway, the point is, is that it was between $11 and $20, 23 00:01:58.480 --> 00:02:06.320 right? And at this point, that same stock is worth $377,000. All right, so that's a, that's a 24 00:02:06.320 --> 00:02:12.880 $20,000 extra turn. So if you, so his aunt put $10,000 in, it's not worth 200 million. All right, 25 00:02:12.880 --> 00:02:17.680 that's how crazy this is. And over, you know, 30 years of shareholder things, 26 00:02:17.680 --> 00:02:21.360 there was many times where he gives little nuggets of wisdom of what he's looking at, 27 00:02:21.360 --> 00:02:26.880 what he's buying and business or what he, what he believes to be valuable businesses. And I was 28 00:02:26.880 --> 00:02:34.000 really, it was cool for me because I have always had three made things that I look for businesses 29 00:02:34.000 --> 00:02:38.640 and in reading his book, or the book that was about his showholder meetings, I added two, 30 00:02:39.360 --> 00:02:44.800 two to that list. And so I wanted to share those with you today. All right. And the moniker that I 31 00:02:44.800 --> 00:02:59.360 have had for this is, I'm going to share with you, is unique, expensive, sticky air. 32 00:03:02.000 --> 00:03:05.040 And I said there's five, there's four words here. And that's okay because I'm going to show 33 00:03:05.040 --> 00:03:10.800 the last one in a second. But unique, expensive, sticky air. So I'm looking for like, in my mind, 34 00:03:10.880 --> 00:03:15.040 of what a perfect business is. It's unique, expensive, sticky air. And I'm explaining each one of 35 00:03:15.040 --> 00:03:20.160 these. So unique is something, and I'll even tell you one of the things that he said in his 36 00:03:20.160 --> 00:03:23.680 shareholder meeting that I found really just, it was just so, it was so short and so like packed that 37 00:03:23.680 --> 00:03:29.120 I loved it. He said, in response to what is an ideal business in one of the, what are the meetings? 38 00:03:29.120 --> 00:03:36.240 He said, something that costs a penny sells for a buck and is having for me. And it was so 39 00:03:36.240 --> 00:03:40.480 succinct, it's so great. And reading some of the other stuff, he's got other things, but that 40 00:03:40.480 --> 00:03:46.720 one was three of the five in three sentences, right? So that cost a penny sells for a dollar 41 00:03:47.280 --> 00:03:52.320 and is having for me. And I just like, it's just so great. All right. So let's, let's break this 42 00:03:52.320 --> 00:03:57.840 out. So something that costs a penny, so that would be like air, something that costs you almost 43 00:03:57.840 --> 00:04:05.120 nothing to make. All right. It's expensive, meaning you could sell it for a dollar. So cost you a 44 00:04:05.120 --> 00:04:10.560 penny, you could sell it for a dollar. And it's sticky. It's habit for me. People come back and 45 00:04:10.560 --> 00:04:15.840 keep buying it again and again and again, right? Which means very long lifetime values. All right. 46 00:04:15.840 --> 00:04:21.680 That's, that's what he's looking at initially. Now the, the unique part is something that if you 47 00:04:21.680 --> 00:04:26.160 listen to some of his other stuff is he likes to have big competitive boats. All right. So what's 48 00:04:26.160 --> 00:04:31.200 something that's, you know, what's, how can I fight air for a penny? Sell it for a dollar that 49 00:04:31.200 --> 00:04:36.960 people come back. You want to keep breathing and no one else can sell it. So it's unique air, 50 00:04:36.960 --> 00:04:41.680 right? It's not air that anyone can sell. It's specific to the, to, it has a brand behind it 51 00:04:41.680 --> 00:04:47.120 that no one could copy. It has share of mind. He talks about that a lot, like Geico, 52 00:04:47.120 --> 00:04:50.880 everyone here probably does. Like you could say 50% or more of my switching to Geico. You've heard 53 00:04:50.880 --> 00:04:56.560 that because he 10x their advertising budget as soon as he bought the whole thing. It just had 54 00:04:56.560 --> 00:05:01.120 them go on a massive red page that they could take over my chair and Geico has grown proportional. 55 00:05:01.600 --> 00:05:06.960 And so this is four of those features, right? Unique, expensive, sticky air, 56 00:05:06.960 --> 00:05:13.920 something you could make for a penny, sells for a dollar, is habit-forming that no one else can 57 00:05:13.920 --> 00:05:20.560 replicate. And for me, this is just so cool. And I'll talk about a couple of the features of this 58 00:05:20.560 --> 00:05:25.920 in a second. You know what? I'll talk about it now. So one thing that you'll notice, and this is 59 00:05:25.920 --> 00:05:30.960 for all the newer entrepreneurs, or you don't really fuck it, any entrepreneur, who's interested 60 00:05:30.960 --> 00:05:36.400 in this kind of thing, notice the gross margins he's talking about, right? A lot of people quote, 61 00:05:36.400 --> 00:05:41.840 feel bad for charging for things that don't cost them much, which is a terrible mindset to have. 62 00:05:41.840 --> 00:05:47.920 You charge with the market will give you, right? So if, for example, you know, you find this, 63 00:05:48.880 --> 00:05:53.040 these widgets, like these pens, and you know that you get them from some place in China that 64 00:05:53.040 --> 00:05:58.000 cost you a dollar, if someone's willing to give you a hundred dollars for it, do you feel bad 65 00:05:58.880 --> 00:06:05.760 taking it? You're like, well, if only they knew. Markets are built on information advantages, 66 00:06:05.760 --> 00:06:11.520 information inefficiencies, meaning one person, the seller knows more than the buyer. That's how 67 00:06:11.520 --> 00:06:18.080 these things work a lot, right? And so I noticed this because, you know, you're listening to one of the 68 00:06:18.160 --> 00:06:23.040 best investors of all time, if not the best investor of all time, and he looks for like a hundred to 69 00:06:23.040 --> 00:06:27.920 one, right? Cost of penny sells for a dollar, a hundred to one, it costs one penny, one percent 70 00:06:27.920 --> 00:06:34.880 cost of goods compared to what it's being sold for. So 99% gross margins. That, for me, was actually 71 00:06:34.880 --> 00:06:41.440 very, very interesting, is that he doesn't go for like an 80% or a 90%, he goes for 99%. And for 72 00:06:41.440 --> 00:06:47.840 perspective, the difference between selling something for a dollar that costs you 10 cents, 73 00:06:47.840 --> 00:06:53.520 versus selling something for a dollar that costs you a penny, is not that, you know, it's just 74 00:06:53.520 --> 00:06:58.560 9% more profitable to sell some, you know, so a dollar that costs a penny versus a dollar that 75 00:06:58.560 --> 00:07:04.000 costs a dime, it's actually 10 times more profitable. And here's why, but I've explained this, 76 00:07:04.080 --> 00:07:11.920 is that for one unit of cost, the penny would get sell 10 times the amount for that one cost. 77 00:07:12.800 --> 00:07:18.480 So does that make sense? So if I were to sell 10 pennies worth of my cost, it means I make 10 78 00:07:18.480 --> 00:07:24.320 dollars, whereas 10 pennies worth of the other example of a dime is only one dollar. And that's 79 00:07:24.320 --> 00:07:28.800 one of the things that people don't understand about margins, right? The gross margin of the product 80 00:07:28.800 --> 00:07:34.800 that you have, like every increment, when you go from, when you go from 90 to 95% gross margins 81 00:07:34.800 --> 00:07:39.120 in a business, you double the profitability of the business. That's what's crazy. 82 00:07:41.600 --> 00:07:46.320 Hey guys, real quick, if you're new to the podcast, I have a book on Amazon, it's called 100 83 00:07:46.320 --> 00:07:50.160 million dollar offers that over 8,000 five star reviews and it has almost a perfect score, 84 00:07:50.160 --> 00:07:53.920 you can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand 85 00:07:54.000 --> 00:07:58.800 hours into writing that book and it's my biggest gift to our community. So it's my very shameless 86 00:07:58.800 --> 00:08:03.760 way of trying to get you to like me more and ultimately make more dollars to that later on in your 87 00:08:03.760 --> 00:08:08.560 business career, I can push the bar towards you. So that's my gift. Go check it out. Amazon and 88 00:08:08.560 --> 00:08:16.800 back to the show. Right? And so that's why this is so important. Right now, if you try, for example, 89 00:08:16.800 --> 00:08:21.600 look at, look at your prices right now. Let's say I want to get to, if you're at 90 and you say 90 00:08:21.600 --> 00:08:28.160 I want to get to 95% gross margins. Now let's say it costs you, right? Let's say it costs you 91 00:08:28.160 --> 00:08:33.680 $10, right? For your thing, right? And you sell for a hundred. That's 90% gross margins. 92 00:08:33.680 --> 00:08:39.280 90 dollars is margin for you. $10 is cost you sell for a hundred. All right? So if you wanted to 93 00:08:39.280 --> 00:08:46.560 get to 95% gross margins, what do you think you do? Would you add $5? Would it be $5? No, that's not 94 00:08:47.120 --> 00:08:53.920 math. To get to 95% gross margins, you'd have to sell the same $10 I think for $200. That's what 95 00:08:53.920 --> 00:08:58.960 people don't get about margins, right? And so what I, like what I would, when we would turn gyms 96 00:08:58.960 --> 00:09:03.760 around and whatnot, I would have guys who are at 66% margins. That's usually where most people are 97 00:09:03.760 --> 00:09:07.840 and that's horrible, by the way. And I would say we need to get you to 80. And they would see 98 00:09:07.840 --> 00:09:14.400 66 to 80. Only 14%. Only 14%. You just saw me double the price from a hundred to 200 to get five. 99 00:09:14.880 --> 00:09:20.480 Right? And so that's, that's how important these margins are. And so to hear this man say, 100 00:09:20.480 --> 00:09:24.960 I want something that I can create for a penny, sell for a dollar, that's have it for me, 101 00:09:24.960 --> 00:09:28.640 get people, keep buying over and over again for the rest of the lives. And then nobody else can buy 102 00:09:28.640 --> 00:09:33.680 because it's unique, right? That was pretty cool. And so these are the four out of components of 103 00:09:33.680 --> 00:09:38.480 the business itself. But the last thing that Buffett talks about, and he talks about this a lot, 104 00:09:39.200 --> 00:09:45.120 so much of our little dot of line here, is the person who is running it. 105 00:09:45.120 --> 00:09:48.160 All right? And he has three characteristics that I saw him repeat over and over again 106 00:09:50.160 --> 00:09:55.280 for the management or the operators. All right? And they have such a brilliant model of managing, 107 00:09:55.280 --> 00:09:58.800 right? Because Berkshire really has like 19 employees or something like that. So exquisite. They 108 00:09:58.800 --> 00:10:04.080 have a gazillion, they did 88 billion in profits last year. Think about that. 88 billion. They 109 00:10:04.080 --> 00:10:08.080 second most profit the entire world like a 21st-year company because they're so good at 110 00:10:08.080 --> 00:10:12.720 advocating response, just basically delegating out responsibility to the businesses that they bought. 111 00:10:12.720 --> 00:10:18.160 Now, he turns out a lot of deals. But what he looks for in operators, and this is why I think 112 00:10:18.160 --> 00:10:23.680 this is cool, is that what he looks for in operators, we can look for it ourselves. We can create 113 00:10:23.680 --> 00:10:28.480 that in ourselves as entrepreneurs, right? We can think, how can I embody these characteristics? 114 00:10:28.480 --> 00:10:34.080 All right? And so the first of these characteristics is he says, what's somebody who's risk a verse? 115 00:10:34.080 --> 00:10:41.920 All right? Because he said many times, anything's time zero is zero. He's like, you can have 30 years 116 00:10:41.920 --> 00:10:47.360 of a great track record and make one bet that goes to zero and lose it all. And that is why he's so 117 00:10:47.360 --> 00:10:52.480 risk averse. And I had a bet tour who told me something once that I just loved. He said, Alex, 118 00:10:52.480 --> 00:10:57.840 you should only have to get rich once. And for some reason, it's just like that hit different. 119 00:10:57.840 --> 00:11:04.080 You should only have to get rich once. And so, and the smartest best of the world feels that way too. 120 00:11:04.080 --> 00:11:09.120 You should be risk averse. He's like, I give, I give up bigger opportunities all day long 121 00:11:09.120 --> 00:11:13.520 to cover my downside. All right? And the richest people in the world, I'm telling you this right now, 122 00:11:13.520 --> 00:11:17.360 if you don't have access to people who are worth a hundred million, a billion, I do, and I'll tell 123 00:11:17.360 --> 00:11:23.120 you how they think. All right? It's all about downside risk mitigation. They will give up, 124 00:11:23.760 --> 00:11:29.840 they will give up huge returns to not risk losing money. And the funny thing is that poor people 125 00:11:29.840 --> 00:11:35.440 think they exact opposite. They go for the lottery. They have basically 100% guaranteed downside, 126 00:11:35.440 --> 00:11:41.440 right? One in 300 million of winning and they do it all the time, right? And one of the things that 127 00:11:41.440 --> 00:11:48.640 above it says is like, if you bet poorly small, you'll bet poorly big, which I love that too, right? 128 00:11:48.640 --> 00:11:52.080 So anyways, number one management is risk averse. So if we think about ourselves, how can I be more 129 00:11:52.080 --> 00:11:55.680 risk averse? How can I make sure that I can't lose? Right? It's much more important to not lose 130 00:11:55.680 --> 00:11:59.920 than it is to win. And what's interesting is that if you don't lose long enough, you kind of win 131 00:11:59.920 --> 00:12:04.080 by default, which is kind of interesting, which brings me to the second point, which is 132 00:12:06.240 --> 00:12:12.960 long term thinking. So the reason that they like family owned businesses specifically is that 133 00:12:12.960 --> 00:12:18.000 families think about generations. They think about passing it down between, you know, father and 134 00:12:18.000 --> 00:12:23.760 son, parents and kids, right? And they like those businesses because they don't cut quarters. 135 00:12:23.760 --> 00:12:28.720 They think about quality. They think about long term investment, long term competitive strategy. 136 00:12:28.720 --> 00:12:34.160 They're not thinking about quarterly earnings and, you know, it basically short term gratification, 137 00:12:34.160 --> 00:12:40.800 which is what most of the stock market companies are forced to do because they have to pander to stock 138 00:12:40.800 --> 00:12:45.360 stockholders, right? And so if you can't, I've talked about this by other podcasts, 139 00:12:45.440 --> 00:12:49.440 shifting from CEO to investor, but what are the most beneficial things that I have done for my 140 00:12:49.440 --> 00:12:54.560 mental health and for the success of my business is thinking in a long term, time horizon. And I 141 00:12:54.560 --> 00:12:59.680 can't tell you that I'll tell you that of the people that I encounter the longer their time horizon 142 00:12:59.680 --> 00:13:05.600 that they talk in, the wealthier, more successful they are invariably. So when I talk to somebody, 143 00:13:05.600 --> 00:13:08.720 all they're thinking about is this week, the next two weeks payroll and what they're going to make 144 00:13:08.720 --> 00:13:14.480 this month, the last but I already know that they don't make a time, right? And it's because that's 145 00:13:14.480 --> 00:13:19.120 only thinking, right? And then they can get from there, you get to a slightly higher level entrepreneurs, 146 00:13:19.120 --> 00:13:23.680 they're thinking in quarters. Okay, this quarter, we can't focus anything, this quarter is all we 147 00:13:23.680 --> 00:13:26.800 got, this is all we can do, right? And that's fine because in the smaller you are, the less stable 148 00:13:26.800 --> 00:13:31.760 you are, it's more volatile, right? But over time, as you expand those horizons, right, you'll be able 149 00:13:31.760 --> 00:13:35.360 to make better, better decisions because you'll start thinking, well, if I did this for five 150 00:13:35.360 --> 00:13:41.280 string years, would it be reasonable that I would win? Probably, right? If I do this consistently for 151 00:13:41.280 --> 00:13:45.520 five years, do I think that I will, it would be unreasonable that I won't be able to be far past by 152 00:13:45.520 --> 00:13:50.320 my goal? Probably, right? But most people still think in these tiny chunks of time and can never 153 00:13:50.320 --> 00:13:55.760 get ahead. And they spend month after month after month for 30 years, try to become millionaires, 154 00:13:55.760 --> 00:14:00.800 rather than just set a goal of like, well, let me just see if I can increase by income by $20,000 155 00:14:00.800 --> 00:14:05.760 in the next year, right? And then next year after that, I'll try to increase it by another $20,000. 156 00:14:05.840 --> 00:14:12.560 And they do that by, you know, and in five years, do you have the top 1% income? But only 99% of 157 00:14:12.560 --> 00:14:17.200 people don't think that way, which is why only 1% do. So anyways, number one for the management 158 00:14:17.200 --> 00:14:22.320 is that they're risk averse, they will take, they will take the loss, they will not take the 159 00:14:22.320 --> 00:14:28.000 opportunity to avoid the loss. Number two, they think of long term horizons, right? And number three, 160 00:14:28.000 --> 00:14:36.800 they have unimpeachable character, which I just really like that as a word, unimpeachable 161 00:14:38.080 --> 00:14:48.080 character. And if you listed the war talk about, about, about losing body, he said, if you lose 162 00:14:48.080 --> 00:14:52.880 body, that will be forgiven. He said, but if you lose me a shred of reputation, I will be ruthless. 163 00:14:53.520 --> 00:14:58.720 And he's, he's so, so big on this. And I think that's, you know, these, these, 164 00:14:58.720 --> 00:15:03.040 these kind of three things come together. People who have unimpeachable character are not 165 00:15:03.040 --> 00:15:06.560 trying to get rich quick, right? They're trying to build something of value. They're trying to 166 00:15:06.560 --> 00:15:13.440 build something that's enduring, something that's a long term. And they're honest. And so what 167 00:15:13.440 --> 00:15:17.440 happens though is that when you have an impeachable character, it's actually an intangible that 168 00:15:17.520 --> 00:15:23.600 has compounding returns. And Alex, he talks about it for his own business. He's like, the fact 169 00:15:23.600 --> 00:15:29.680 that our checks always clear that we, we do what we say we're going to do, allow us to get access 170 00:15:29.680 --> 00:15:34.560 to more deals because more people want to work with us, right? And we, we, we close deals faster. 171 00:15:34.560 --> 00:15:38.480 And so the thing is, is that your reputation over time becomes a competitive advantage. 172 00:15:39.360 --> 00:15:44.560 And that's what, what's a unique, that's a sustainable and compounding competitive advantage. 173 00:15:44.560 --> 00:15:47.600 Because somebody who's stuck with their word for 10 years compared to somebody stuck with 174 00:15:47.600 --> 00:15:51.920 their word for 30 years, whose word is worth more. The 30 year guy, someone who's stuck with, 175 00:15:51.920 --> 00:15:55.040 you know, who's done everything and but unimpeachable character for 30 years compared to guys 176 00:15:55.040 --> 00:15:59.680 that have for 60 years, who has the stronger word, the 60 year guy. It's something that if you can 177 00:15:59.680 --> 00:16:05.920 develop, it literally compounds with time. And it's, and it's, it has been in priceless. And I think 178 00:16:05.920 --> 00:16:11.760 he's a very good value of things. And so anyways, the perfect business model, I'll give you a quick 179 00:16:11.760 --> 00:16:18.000 recap. It's unique, expensive, sticky year that's managed by somebody who's risk-averse, 180 00:16:18.000 --> 00:16:22.800 long-term thinking and has unimpeachable character. All right. So something that you can create for 181 00:16:22.800 --> 00:16:29.520 a penny, sell for a buck that's habit-forming, that no one else can do. And you do it in such a way 182 00:16:29.520 --> 00:16:34.080 that you don't take short-term risks. You think long-term in terms of how you're going to invest 183 00:16:34.080 --> 00:16:39.680 in the business and the legacy and building something of value and not, not obsessed with short-term 184 00:16:39.760 --> 00:16:44.960 volatility, but for a long-term earning. And finally, that you do it in such a way that people will 185 00:16:44.960 --> 00:16:51.120 think everything that this bit has done has been fairly earned and wisely used. And so with that, 186 00:16:51.120 --> 00:16:54.080 I will leave you with the perfect business. I hope you enjoyed this. I'll be without this 187 00:16:54.080 --> 00:16:58.480 valuable. This is one of my favorite things to talk about and keep being awesome. And if you're in 188 00:16:58.480 --> 00:17:05.040 the arena, keep getting up. I promise you will be better over time. Lots of love. I'll catch you guys soon. 189 00:17:05.040 --> 00:17:13.120 Bye!