Young and Profiting (YAP) with Hala Taha
Codie Sanchez: How to Make Extraordinary Wealth Buying Boring Businesses | Finance | E320
Mon, 02 Dec 2024
Codie Sanchez started out on the traditional corporate path, working long hours and steadily rising through the ranks. But she soon noticed a pattern: the wealthiest people weren't just starting flashy tech companies—they were buying "boring businesses." Codie decided to break away from the corporate world to invest in steady, everyday businesses that others ignored, like laundromats and vending machines, building her wealth that way. In today’s episode, Hala and Codie dive into how these unglamorous businesses can be your ticket to financial freedom and why sometimes the smartest move is going against the grain. In this episode, Hala and Codie will discuss: (00:00) Introduction (01:58) Wealth Myths Shattered (05:55) The Power of Ownership (10:59) True Entrepreneurship vs. Just Another Job (15:14) Main Street Businesses: The Hidden Wealth Builders (25:03) How to Prep to Buy a Business (32:49) Creative Financing Secrets (38:20) Where to Hunt for Business Deals (43:00) Go Strategic or Diversify? (47:42) Key Financials Before You Buy (49:56) Scaling Smarter, Not Harder (52:00) Plotting the Perfect Exit Strategy (59:43) AI & The Future of “Boring” Business Codie Sanchez is the founder of Contrarian Thinking and co-founder of Unconventional Acquisitions, focusing on small business acquisitions and roll-ups in the micro-PE space. She runs a holding company of service-based SMBs under $10M EBITDA, emphasizing "boring businesses." She previously led First Trust’s $1B Latin America business and held leadership roles at Goldman Sachs, State Street, and Vanguard. She started her career as an award-winning journalist and has since become a recognized investor and thought leader. She holds an MBA from Georgetown University and serves on boards like Permian Investment and Magma Partners. Resources Mentioned: Codie’s Book, Main Street Millionaire: How to Make Extraordinary Wealth Buying Ordinary Businesses: https://codiesanchez.com/book/ Sponsored By: Airbnb - Find yourself a co-host at airbnb.com/host. Mint Mobile - To get a new 3-month premium wireless plan for just 15 bucks a month, go to mintmobile.com/profiting Found - Try Found for FREE at https://found.com/profiting Working Genius - Get 20% off the $25 Working Genius assessment at www.workinggenius.com/ with code PROFITING at checkout Shopify - Sign up for a one-dollar-per-month trial period at youngandprofiting.co/shopify Indeed - Get a $75 job credit at indeed.com/profiting Active Deals - youngandprofiting.com/deals Key YAP Links Reviews - ratethispodcast.com/yap Youtube - youtube.com/c/YoungandProfiting LinkedIn - linkedin.com/in/htaha/ Instagram - instagram.com/yapwithhala/ Social + Podcast Services: yapmedia.com Transcripts - youngandprofiting.com/episodes-new All Show Keywords: Entrepreneurship, entrepreneurship podcast, Business, Business podcast, Self Improvement, Self-Improvement, Personal development, Starting a business, Strategy, Investing, Sales, Selling, Psychology, Productivity, Entrepreneurs, AI, Artificial Intelligence, Technology, Marketing, Negotiation, Money, Finance, Side hustle, Startup, mental health, Career, Leadership, Mindset, Health, Growth mindset. Career, Success, Entrepreneurship, Productivity, Careers, Startup, Entrepreneurs, Business Ideas, Growth Hacks, Career Development, Money Management, Opportunities, Professionals, Workplace, Career podcast, Entrepreneurship podcast Finance, Financial, Personal Finance, Wealth, Stock Market, Scalability, Investment, Financial Freedom, Risk Management, Financial Planning, Business Coaching, Finance podcast, Investing, Saving,
Chapter 1: What are the wealth myths that need to be shattered?
How do you see mom and pop boring businesses really evolving in the next five, 10 years because of AI?
The first jobs that AI took were artists, copywriters, because AI lives online. You know where AI is going to take longer? Painting companies, roofing companies, plumbing companies. The best ways to make money are super simple. If you want to make more money, you should look at... And you will have a hard time being poor.
Young and Profiters, as an entrepreneurship podcast, we're often talking about starting new sexy businesses. I'm an inventor, and so I always love to talk about inventing and innovating and tech and AI and all these sexy things. But sometimes we overlook really great opportunities when it comes to boring businesses, buying existing businesses that are often overlooked.
I'm talking about laundromats, vending machines, landscaping services. There's so many businesses out there that are ripe for the picking. My guest today is an investment expert who has built up her own portfolio of what she calls boring businesses.
Cody Sanchez is the co-founder of Contrarian Thinking Newsletter and Unconventional Acquisitions, a company that helps people learn how to buy small businesses. She's also the author of a brand new book called Main Street Millionaire. I read this book. It is totally awesome. And today we're going to dive in on all her strategies to buy successful, boring businesses.
We're going to learn how we can pick these businesses, how we can set up an operator so that we're not buying a job. We're actually buying a business. We're going to talk about when we should actually sell this business that we acquired and so much more. I'm so excited for my guest today. Welcome to the show, Cody Sanchez. Cody, welcome to Young and Profiting Podcast. I'm thrilled to be here.
Me too. So last time you came on the show, we talked about your background, we talked about your contrarian investment views, and we talked about buying boring businesses, which I absolutely love. And now you have a new book out. It's called Main Street Millionaire. So I can't wait to find out how we can all become Main Street Millionaires.
So my first question to you is trying to really understand some misconceptions that we have about rich people. When I think about rich people, I think about billionaires like Elon Musk and Jeff Bezos and tech entrepreneurs or celebrities like Oprah and Kim Kardashian. But tell me why you are challenging this idea. What stats and facts do you have about rich people?
Let's start with a fun one. Do you want to know who the richest woman in the world is? This is as of the end of last year when the Forbes report came out. If you saw it, maybe it's T Swift. I know she had a big tour. Wrong. She's like 34th on the list. If you thought it was Kim K, you'd also be wrong. She was like 21st on the list.
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Chapter 2: How does ownership relate to freedom?
And so there seems to be a correlation between boring traditional everyday businesses that we need nonstop and more of us making money, which I thought was interesting.
Chapter 3: What are Main Street businesses and why are they valuable?
That's so interesting. And we're going to find out later why these boring businesses are so overlooked. But before we do that, you open up your book basically saying that we are programmed to be poor. Tell us why America basically teaches us to be poor our whole lives.
I heard a quote once that just seared its way into my soul, which was that you are as rich as you programmed yourself to be. And if you think about it that way, there's a good and a bad side to it. The good side is, well, you can reprogram yourself. Just like a computer, you can scrap the software, keep the hardware, and realign what is inside of you.
The bad part is that the foundation on which you and I have learned money is actually one that incentivizes us to stay just sort of tracking to our spend for our entire life, which is why most people will die alone and without much in the way of resources, which is really, really sad. And so when I started thinking about writing this book, I was like, we can't make ourselves smarter very easily.
We can't make ourselves have more money than other people do up front. So what would be a way to level the playing field? And because I was in finance for 12 years, I watched what the really, really rich did. And they did something completely differently, which is they didn't innovate as often as Silicon Valley did. They didn't come up with some crazy startup and sleep on couches.
In fact, they wore Gucci loafers all the way to the private plane they eventually bought. And how did they do this? Because they bought other people's hard work, other people's years of hard work,
And then they did a little bit of what's called financial arbitrage, but basically make expenses a little bit lower, increase profits here, and apply the Wall Street mechanism for growth to most businesses. And I was like, why does Wall Street only do this?
I think that we can reprogram ourselves to be rich by realizing that we just have to copy other people's homework from those who have already achieved the thing we want in life. And that's kind of what I strive to do.
So I'd love to understand the difference between living a life where you have non-ownership versus living a life where you actually have ownership in something. Can you compare and contrast that for us?
I think ownership actually is a synonym for freedom. So the more that you own things, the less other people can tell you what to do. If your listeners are like you and I, you and I, we're probably pretty unemployable, right? We're a pain in the ass, which is why we became entrepreneurs. We are just on the other side of diva, which is like, I think we should do it this way.
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Chapter 4: How can you prepare to buy a business?
And so you will eventually get to a path where you realize that you can own the equity in the business, that you have distributions in the business over a long term, and it can be on legally binding contracts. You can take it with you as opposed to your W-2. And the only little caveat there I like to put out there, Hala, is I loved being an employee, actually.
The tail end of my career, where I was a partner at a few private equity companies, I really liked what I did. I could have done that forever at one company in particular. I just wanted to do it my way. And so I was annoyed at their speed. And because of that, I ended up going and doing my own thing.
But what I wished I could realize at the time is that I could have had even my own business on the side and I could have negotiated for more equity and distributions in a business so that you could stay an employee too if you want and own a business. And so I think there's lots of ways to get to the end game of ownership.
I love the fact that you actually had a corporate job where you were helping people buy businesses. And I think it's pretty safe to say you probably learned so much, which is why you could then become an entrepreneur who has a holding company that buys businesses. So you also learn the ropes on somebody else's dime. 100%.
There's so many people on the internet now, and you're not one of them because you've done this game too, but there's so many people on the internet who want to tell you, go be your own boss, be an entrepreneur. And that's fine. I do think that that's great for many people. However, there's risk associated with pure ownership, where you own the entirety of the business.
And so one, don't assume that in order to buy a business, you have to buy the whole thing. You don't. You can actually just own part of it, and you can use other things besides your money to buy it. That's really cool. We talk about that in the book.
But number two is there is no better way to learn the game of business than by getting a salary, learning under somebody else's tutelage, and eventually, if you're a great employee, getting a percentage of their company or getting them to invest in your business.
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Chapter 5: What are creative financing secrets for business buyers?
And this is actually fascinating because people on the internet don't always love to hear this, but in finance, most of the companies that we start, so if I left a finance firm, like when I left Goldman, I was too young, they wouldn't have given it to me. But when I left my last firm, which was EEC, they asked if they could invest in whatever my next venture was.
They wanted to give me my first checks. And I think more often than not, if we kill it as an employee, we can actually push that into capital in our next venture.
I have somebody named Kate on my team who started as an intern four years ago. And now she's a partner who's vesting to get 10% of my business and helps me manage the whole social side of our team. So it just goes to show you really can get equity in a company. And she's not really an inventor, right? I'm always inventing things, creating things. That's my skill set.
And she's really good at managing. So it's a way for her to become an entrepreneur without necessarily inventing anything.
Oh, yeah, I love that. I think you're really smart because a lot of young entrepreneurs don't understand a few words that will change your life when it comes to making money and ownership, which is vesting equity, aka you can give somebody a percentage of your company, but they don't take it right away. They get it over years of work, a little bit at a time each year. which is called a cliff.
So nothing earned in the first year until they make it to the end of the first year. And if they're successful, then they earn a portion. Same thing with year two, year three. We talk about lots of the lingo in the book. Another thing that you mentioned that I think is really important is she was a high performer. She kept growing.
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Chapter 6: Where should you look for business deals?
And so you were rewarding what you had already seen as positive behavior. not trying to incentivize future better behavior. So I think a lot of times what people don't realize is they give a carrot to somebody who is underperforming or sort of flat.
And they say, you could earn equity in my business if you do X and Y and Z. What you really should do instead is say, wow, you're the fastest greyhound on the track. You're crushing it right now for me. I want to reward you for what you're already doing now over a multi-year period. The best predictor of future behavior is past behavior.
So your high performers are more likely to continue performing than you changing the mindset of a poor performer.
So true. So entrepreneurship is thrown around all the time. Everybody thinks they're an entrepreneur. Can you talk to us about freelancers, gig workers, solopreneurs? Do you feel that that's the same thing as owning a business? Why or why not?
I think we were sold a great lie. And the great lie was essentially this. First, we owned our businesses back in the day. When we first started in this country, we didn't pay a ton in taxes, and we owned our own businesses. And then we apprenticed to eventually take over those businesses.
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Chapter 7: What key financials should you consider before buying a business?
Then one day, big corporations came around, and they said, instead of you owning these little things, come work for us. We have this big, huge opportunity. You can come work inside of our sphere. Then we worked in corporations and realized the only place that padded walls should be is insane asylums, and I don't want to work in cubicles anymore under fluorescent lights.
So we said, wait a second, startups, that's what it is. It's Silicon Valley-backed venture rocket ships We'll go to do those." So then we went and did that as a society, and that's what we glamorized.
The problem there is nobody told us nine out of 10 of those startups would fail miserably, and they would leave a bunch of us with a mess on our hands, with companies that were failing, with heartache, right? And the people who would win would be venture capitalists who got to sprinkle tons of dollars across many companies. And also fueled a ton of innovation. But it's not for everybody.
It's a very hard path. And then finally, we were like, no more venture. I don't want to do that. So we were like, YOLO into freelance, and I own my own company, or what I'll call solopreneurship. Solopreneurship is the way. Well, you've done this before, too. I think the road to hell is paved with individual Zoom meetings back and forth between yourself and no help.
And so we didn't realize that all we did actually was now go work at the behest of an Uber or at the behest of a Substack where they still own us. Silicon Valley still owns us. We just make a smaller percentage of our total profits as a solopreneur. And now we're like, man, we're not even making enough money in solopreneurship anymore and we don't really like this.
So I think the solopreneur movement is actually not as glamorous as we thought it was. And so my hope is the next movement is this Main Street movement.
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Chapter 8: How can you scale your business smarter, not harder?
Can we go back to the thing we were originally talked out of, which is let's own a portion of small businesses all around this country that are already profitable, that have existed for a long time, that don't have crazy volatility of online businesses, and that are simple. And that you're going to pay even if it's in a recession because you want your plumbing to work even if it's a downturn.
And that's my belief.
I love that. You have this quote in your book and you say, your salary will never set you free. Your financial freedom can only come through ownership, specifically through equity done the right way. So my question is, what do you mean by equity done the right way?
Everybody wants equity, right? That sounds good. But the problem with equity is you can't eat it. Meaning, what are you gonna do? I can't take my equity and go pay for something or put a down payment on a house. It's sort of like up in this ether, this thing that I can't touch.
And if you went and looked at a bunch of Silicon Valley startup employees, you'd see, oh man, most of them thought they were being compensated like this, very high, because they had a lot of equity, and realized, wow, my equity wasn't worth anything like that. And so I think there's a better way, which is equity plus distributions. So that means, hey, I get a percentage of a company.
You can't really take that away from me unless I do something fraudulent or crazy. I own, I don't know, 10% of XYZ company that I work at. But because I need to eat and make money, there's something called equity. distributions, which happen for all owners of a business. If the owner takes $100,000 out of the business, then that means that I get what's called my pro rata.
So my percentage that I own of the business, I get distributed to. So let's say the owner is going to take $100,000, I might get $5,000 if I own 5% of the business. And that way we can eat as we move along and get equity. That is equity done right. Distributions today, future profits tomorrow.
So you have this new book that's out right now. It's called Main Street Millionaire. Can you talk to us about what a Main Street business is?
So Main Street business is the business that you pay right now every single month, but you kind of ignore it. It's your landscaping business. It's your house cleaners. It's your roofing companies. It's services like your podcast production company that you pay as a vendor. These are businesses that are the opposite of Silicon Valley. They're not something new and innovative.
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