Profit Sharing, Open Books, & Selling to Private Equity

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Yeah, so the Mag7 is basically the seven biggest companies.
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And the simple story is in 2010, there were two technology companies on that list.
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If you look at it today, all but one is a technology company.
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The people that do adopt it, the people who already have the money in home services, that already have a big business, they will just continue to take more market share.
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They will become more profitable.
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And then the small guy that's like, I'm not, they're the ones that are going to suffer.
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In service autopilot world, we took 10 million less to go with the group we went with because we thought the other would be not as good for the team and for our clients.
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The really interesting level starts at 3 million a year in EBITDA, not gross revenue, profit.
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When you start getting past that number, now you're starting to really get into better and better multiples.
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If you're not using technology to be one of the fastest people to respond, to answer the phone after hours on weekends, to turn estimates fast, to follow up on it, all the basics, you're just going to lose more and more work.
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You're going to be relegated to just referral-based work.
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And that's a really slow way to grow the business.
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There's a lot to be negative about.
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And if you only think about the negative, you will never build anything interesting.
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But if you believe this narrative, then you have a chance of being optimistic.
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And all the optimists have won in life, in my opinion.
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Mercedes for me, but Corvette would have to be the answer.
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For the money.
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So, okay, so Mercedes, what model then would you be getting?
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Do you prefer?
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AMG GT, something in that, like R, something in that class.
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Okay.
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All right.
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Best retirement, either a traditional 401k or a Roth IRA.
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A Roth IRA.
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And is that just because it can grow tax-free?
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Yeah.
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Okay.
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Got it.
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I can take it out tax-free.
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Yep.
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All right.
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Best investment, commercial real estate or index funds.
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Can I put debt on the real estate?
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Do I put debt on it?
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Yes.
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5X.
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5X.
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Commercial real estate.
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It's a tough one, though.
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That's a tough one.
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Can I put debt on the index?
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Oh, get a bunch of margin debt?
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Let's go.
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If I do margin debt, I might go that way.
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Okay.
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Company vehicles, are you going to lease or buy them?
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Buy.
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Okay.
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You can use cash or debt on that?
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What I've always done, cash.
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Okay.
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That's okay, but I just have done cash.
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All right.
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Best mobile app, Notion or Apple Notes?
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For me, Apple Notes is crazy fast.
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Speed is everything.
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I knew this one because I heard you talk about this in a previous podcast.
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Obviously, Notion's way better.
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All right.
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Best way, if you are buying out your competitor, use SBA financing or seller financing.
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Remember, you can ask a clarifying question.
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You know, I don't know what a clarifying question should be on that one.
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So my default is I want to do owner financing if I can, but it's contingent on the interest rate that I can negotiate with them for the seller financing.
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Okay, I assume they're both the same.
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So 6% across the board.
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I still want seller financing.
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But if we differ on this, I want to hear why.
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Oh, I should have done that.
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I shouldn't have done the differ thing.
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I don't have difference on this one.
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Okay, next one.
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Bench press, your bench press max.
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Is it closer to 200 or 250?
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You know, I don't know.
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It has to be 250.
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Ah, very good.
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But I don't know for sure anymore.
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Okay.
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I figured that was safe because if it's like 270, it's still 250.
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So, okay.
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All right.
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If you're being acquired, so now I'm being bought out.
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Do I want to be bought out by my competitor or private equity?
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Private equity.
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Okay.
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Well, clarifying question.
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Are they a great private equity company?
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Are we going to be happy?
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We'll get into that later in the show.
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Okay.
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Two more.
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We got your favorite AI tool, Claude or ChatDT?
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Claude.
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Okay.
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Last one.
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I think I know the answer to this one.
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Your favorite vacation spot, South America or Africa?
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Yeah.
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Africa.
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Yes, I knew it.
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Okay, so explain to some people, because when they hear that, they do not think of what you're thinking.
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Yeah, so my version of Africa has been buying access to all the greatest experiences, you know, and so getting to do the really unique stuff on Safari, but just like...
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where you're in really unique environments in the middle of the Serengeti and there's six tents and they're super nice.
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And somebody makes you all your meals and you get to go out with the tribe.
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That is like the closest people to original people in the world still left and have no contact with humans.
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Yeah.
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Gorilla trekking, like, which is one of the greatest things I've ever done.
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Like it's the, it's doing all, it's doing a lot of animal stuff and then getting out and hiking with guides.
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And then having really cool, like, meals and things like that.
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The one thing you had mentioned with you and Tiffany was eating with the gorillas, like, right being that close to them.
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Oh, I mean, like, I've got video of a gorilla, a big giant silverback, deciding he's coming right between me and Tiffany, and he just gets up and goes right between us.
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You're that close.
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It's insane.
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Let's go.
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Cool.
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All right.
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Well, we'll jump right in.
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This is probably, I actually think, the first couple of items on the docket, one area where we might actually disagree.
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And I think it's actually, if I had to guess, this would be the one area I actually think we could disagree.
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I think it's going to depend on size of business.
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But this is from questions of the viewers.
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And so if you ever have questions, definitely in the comments, let us know.
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These questions today are mostly from actually comments on the last couple episodes.
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So the first one is about profit sharing.
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as well as partnership or stock options, whether or not to use it, how to use profit sharing, when should I offer stock to a general manager or a key employee.
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And so I'll tee it up for you, Jonathan.
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I kind of know where you're at on this one, and then I'll bounce it back here.
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All right.
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Negative on stock options or ownership.
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Positive on profit sharing.
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Okay, okay.
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So I think the only part then will be doc item number two.
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I didn't know profit sharing was something that you did with the team.
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And so when it comes to profit sharing, what levels do you usually go down to?
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Like, is it just your operations manager or do you go down to the team?
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We haven't gone super far.
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And now also keep in mind, whenever you're asking these questions, I'm not always talking about just city turf.
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My brain's thinking about what I've done inside business.
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And so I'm a fan of profit sharing under the idea that it's tied directly to
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metrics that they are given, that they are trained on, and that they can impact.
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I'm not a fan of giving profit sharing for companies, the company hitting profit margins or a financial goal because I don't believe...
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Right or wrong, my belief is it doesn't massively move the needle because people often don't understand.
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And even if you explain it, they can't feel directly how their actions today impact us growing margin 90 days from now.
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And so there's too much where a person could be slacking off or coasting.
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And they're like, well, in their minds, like, I'll catch up on all this.
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Friday, I'll get this done this weekend.
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And the weekend comes in, they don't do it.
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So there's this part of me that doesn't believe that it makes a massive impact because it's not tied closely enough to their daily performance, which takes me back to, I like, here's the metrics we're trying to move.
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If you move the metrics this much, that's the goal.
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This is the outcome that you'll receive.
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I like that because then they're able to directly impact that and there's no ambiguity about it.
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Got it.
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And so where does profit sharing fit into, when does it work?
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Maybe for example, like an operations manager or someone that is in control of everything with getting the work done, the crew, maybe number two in command, what kind of profit sharing are you looking, how are you setting that up for that to be directly tied to a metric?
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I predominantly, I mean, when I think of it, the number one place that I think about it is around moving gross margin, COGS,
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driving out non-billable costs in the business.
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There's a number of metrics like that that we can talk about.
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And so those are all operational metrics.
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That's where I tend to think about it.
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The next place I think about it is more commissions and profit sharing, and that moves to the sales side of the organization.
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But there's different types of comp profit sharing you could do on RevOps on that side of the business.
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But frankly, when I'm talking about this, I'm almost always thinking in terms of operational stuff.
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And what does that percentage usually look like?
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I know it obviously depends on how long they've been with the business or how mature the company is, what size.
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How do you determine?
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Is this 5% profit sharing?
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Is it 10% profit sharing?
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How is that even determined?
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Yeah.
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Frankly, what I've really done is more goals.
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So that, and this is where it gets more difficult because it requires a lot more work on management or the ownership.
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And that is we're trying to figure out which direct, where are we moving the company right now?
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What are we trying to fix or what are we trying to improve?
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And that's the scenario where you define, here are the metrics we're trying to hit.
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That's the goal.
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Here's the outcome you'll receive.
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And what that percentage is sort of would depend on the situation.
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And so I'm when I'm talking about profit sharing, I'm not even always thinking about something that persists in its exact same state all the time.
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So I like creating goals.
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And also another thing that I'm a fan of is it doesn't even have to be profit sharing.
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It's an outcome that the team will will receive as a company.
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This is what we're going to do.
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If we all hit this goal together or this department hits this goal.
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And so I kind of put lump that into the profit sharing bucket as well.
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Again, it's hard.
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But the more I believe the more precise you can be and say, this is what we're trying to do and accomplish.
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Here's what will happen if we hit it.
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That's what I most like.
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Now, if I was doing permanent profit sharing, it would most likely be at the operations level, at more of an operational management level or a COO level.
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And it would probably be around COGS or gross margin.
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But even that goal would evolve.
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It would be getting to a number.
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Or once we're at that number, it would be maintaining that number or something like that.
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And frankly, I don't even know what that percentage would be.
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I'd have to think through that to give a number because I've never done it quite that way.
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The other thing that I think has value, but it might be predominantly to me, and it's the idea of compensating money.
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For cash.
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So in our case, there was a time where we were trying to build cash in the business.
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And so you could compensate at this would be more at a COO level.
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You could compensate for producing cash in the business that's retained, which that there's lots of margins that go into that one.
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And then there was a time that we compensated for cash extracted out of the business, which is the ultimate goal of a business if you're not building it to sell.
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In that case, I liked 10%.
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So 10% of all cash extracted out of the business will share that cash.
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And I'm not sharing it across the company.
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I'm sharing it with a key group or individual.
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So those are some of, there's lots of other ways you could do it, but those are some of the ways that I've thought about it and the way I continue to think about it.
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we kind of think about like there's if you're in growth mode you're going to be having the goals of the business be much more around revenue number of recurring clients etc and unlocking certain bonuses along the way and then if the goal is distributions what you said like cash then i'm going to give a percentage of that to incentivize that behavior um and so it's funny because like i'm i literally just built a comp plan today that was strictly based upon hitting revenue
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While literally another location I have, it was, it's like literally just get a percentage of every quarter.
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If I take a dollar out, you get X amount of cents.
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And it's just because the only reason that business exists is to extrapolate as much net free cash flow as possible.
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And so I'm definitely aligned on the stock thing.
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I think for a lot of small businesses, there's never going to be any sort of liquidity event.
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And if you actually give them vested stock, it creates a big problem when it comes to ownership as well as decision making, even just feeling entitled to be involved in decisions.
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It's like, look, you own 5% of the business.
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Like, you're not having a say in this.
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Yeah.
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And so I think if you know you're going to sell, for example, potentially something like a phantom equity, potentially, where like if we sell, you get the equity.
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But even that, I feel like so many times just a carrot in front of people.
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And I feel like bad when I know that the vast majority of people aren't going to have a liquidity event.
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They're not going to sell.
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And it's really worthless to the employee.
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Yeah, that's how I feel.
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That was actually one of the points.
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I was going to make on the equity.
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It's like even at Service Autopilot, we had never given out any equity.
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We didn't plan to sell the business.
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It wasn't on the horizon.
229
00:13:30.672 --> 00:13:32.793
We ended up giving some people money.
230
00:13:33.013 --> 00:13:37.076
And unfortunately, you know, that meant they had to pay at ordinary tax rates, which is a real bummer.
231
00:13:38.257 --> 00:13:41.479
And so we were not, it wasn't that I'm unwilling to share the money.
232
00:13:41.499 --> 00:13:46.602
I mean, if you help me build the company, then, and you're one of the higher ups in the company, then,
233
00:13:47.665 --> 00:13:48.688
I think I'm pretty generous.
234
00:13:48.909 --> 00:13:51.377
It's so that that's not really what it's about.
235
00:13:52.217 --> 00:13:53.478
it's exactly what you said.
236
00:13:53.538 --> 00:13:54.278
It's a couple of things.
237
00:13:54.338 --> 00:13:56.979
It's one, I'm not actually building anything to sell it.
238
00:13:57.259 --> 00:13:59.320
And again, I was not building service all by to sell.
239
00:13:59.340 --> 00:14:04.562
We thought maybe it'll happen someday, maybe five years from now when we're much bigger than we are now.
240
00:14:05.122 --> 00:14:06.563
It wasn't even a thought.
241
00:14:07.243 --> 00:14:08.484
CityTurf, exact same way.
242
00:14:08.544 --> 00:14:11.805
I have no, I couldn't care less about selling that business.
243
00:14:11.825 --> 00:14:13.225
Like let's just keep building the thing.
244
00:14:13.586 --> 00:14:16.087
And so it's not even really something we think about now.
245
00:14:16.887 --> 00:14:19.288
So to that point, if you give people equity,
246
00:14:20.030 --> 00:14:22.414
I get a little worried about their expectation.
247
00:14:22.474 --> 00:14:31.770
The other thing that I've seen, I think it's through some friends and then just a couple experiences where, and I don't remember, I don't know where this has come from,
248
00:14:33.440 --> 00:14:39.183
It gets, oh, it might be from John, my business partner, who's been at some other tech companies along the way.
249
00:14:39.303 --> 00:14:43.626
And so they're like, John, you're getting 150,000 shares of this business.
250
00:14:44.346 --> 00:14:47.928
Some employees here, 150,000 shares are like, this is incredible.
251
00:14:48.008 --> 00:14:49.749
Like they're so, I think it's incredible.
252
00:14:49.889 --> 00:14:50.630
It's a big stock.
253
00:14:51.791 --> 00:14:52.851
But what's it mean?
254
00:14:52.891 --> 00:14:56.234
Most people don't even know to ask, what does this mean?
255
00:14:56.274 --> 00:14:57.334
What percentage is this?
256
00:14:57.354 --> 00:14:58.295
What's the market cap?
257
00:14:58.655 --> 00:15:04.299
So they imagine they're about to be millionaires and their 150,000 shares are worth a nickel.
258
00:15:04.619 --> 00:15:13.366
You know, it's that kind of a thing because the company issued 5 billion shares in the company when they wrote up their operating agreement or whatever the scenario is.
259
00:15:13.386 --> 00:15:16.388
So that's where you can also end up with some hard feelings.
260
00:15:17.395 --> 00:15:20.857
And so there's this like, okay, are they going to say this is awesome?
261
00:15:20.877 --> 00:15:22.658
Or are they going to say, that's it?
262
00:15:23.298 --> 00:15:23.938
I've done all this.
263
00:15:23.978 --> 00:15:24.739
That's all I get.
264
00:15:24.759 --> 00:15:25.759
So it's real.
265
00:15:25.959 --> 00:15:26.880
This stuff's complicated.
266
00:15:26.900 --> 00:15:29.741
And the last thing I'll say is I'm not 100.
267
00:15:29.801 --> 00:15:37.905
Like if you give somebody ownership in the business and they've been working at the company and they do a good job and you're only trying to retain...
268
00:15:38.785 --> 00:15:42.386
or you're trying to get them to do more, that really makes me nervous.
269
00:15:42.846 --> 00:15:45.347
The only, trying to get them to do more, I'm not convinced.
270
00:15:45.447 --> 00:15:48.768
If somebody's been there for three years and you give them ownership, it actually changes behavior.
271
00:15:49.248 --> 00:15:50.549
I think they kind of are who they are.
272
00:15:51.369 --> 00:16:00.172
And then on the retention, I'm not convinced that's even smart because if you decide to build your company bigger,
273
00:16:01.257 --> 00:16:05.626
It's not uncommon that you grow out of some of your team members or they burn out.
274
00:16:05.986 --> 00:16:07.950
And so did I really want to lock down that person?
275
00:16:08.211 --> 00:16:11.397
So that's some of the reasons I think the way I do on the ownership.
276
00:16:13.269 --> 00:16:18.672
And even firing them becomes a little weird now because, like, you've given them equity or even phantom equity.
277
00:16:18.692 --> 00:16:20.413
And now you're firing them.
278
00:16:20.553 --> 00:16:24.014
And, like, there's even more hard feelings because you're taking away something of value.
279
00:16:24.034 --> 00:16:28.657
And whether or not that's an arbitrary value is still going to be held against you, likely.
280
00:16:29.137 --> 00:16:29.357
Yeah.
281
00:16:29.617 --> 00:16:29.877
Yeah.
282
00:16:29.957 --> 00:16:30.498
So it's...
283
00:16:31.678 --> 00:16:36.282
I wouldn't, if somebody were saying, hey, I really want to do this, I wouldn't say that's insane.
284
00:16:36.342 --> 00:16:40.646
I would just say some of the, these are some of the watchouts that I see.
285
00:16:41.527 --> 00:16:45.551
And I'm a firm believer in taking care of your team, but there's lots of ways to take care of people.
286
00:16:46.411 --> 00:16:46.551
And
287
00:16:47.372 --> 00:16:55.899
If you've got somebody who has just killed it, like they have shown up and just done the work and they have put in the hours and they did it with no expectation.
288
00:16:55.919 --> 00:17:04.586
Those are exactly the people that I want to really take care of versus there's a lot of people are like, hey, whenever you do this for me, I will give more.
289
00:17:05.447 --> 00:17:08.989
They might give more for a little while, but they're probably not going to give more for the long term.
290
00:17:09.229 --> 00:17:10.770
Those are people that are built differently.
291
00:17:10.790 --> 00:17:13.811
And so I want to take care of the very best people.
292
00:17:13.951 --> 00:17:15.132
And they show them.
293
00:17:15.252 --> 00:17:20.454
You generally figure out eventually, like, okay, these are the people that really deserve this.
294
00:17:20.494 --> 00:17:21.795
But that takes a while to prove out.
295
00:17:22.490 --> 00:17:26.412
Yeah, I see a couple like on the smaller side business, like say under two or three million.
296
00:17:26.432 --> 00:17:27.833
I see two big errors.
297
00:17:28.373 --> 00:17:31.114
One is definition of profit when it comes to profit sharing.
298
00:17:31.814 --> 00:17:33.855
Like, are we talking on the bottom of the P&L?
299
00:17:34.036 --> 00:17:35.196
Are we talking about distributions?
300
00:17:35.416 --> 00:17:38.518
Are we talking about after debt expense before interest?
301
00:17:38.538 --> 00:17:39.578
Like, is this EBITDA?
302
00:17:39.738 --> 00:17:42.700
Like defining what that is very clearly for the employee.
303
00:17:44.020 --> 00:17:48.522
And then also for locations in growth mode, i.e., let's just say growing more than 30, 40% a year.
304
00:17:49.803 --> 00:17:58.569
Giving profit sharing is likely the most demoralizing thing to do because it puts this illusion in front of someone that is impossible when you're growing so fast.
305
00:17:59.009 --> 00:17:59.910
Because growth sucks cash.
306
00:17:59.930 --> 00:18:00.530
You're buying more trucks.
307
00:18:00.550 --> 00:18:01.111
You're hiring more people.
308
00:18:01.131 --> 00:18:01.891
You're expanding.
309
00:18:02.311 --> 00:18:06.334
And like you talked about last week, hey, if you want to keep growing, I'm okay with a smaller margin.
310
00:18:06.414 --> 00:18:07.355
That might be fine for the owner.
311
00:18:07.375 --> 00:18:12.338
But if you put in front of the manager, operations manager, general manager, hey, you get profit sharing.
312
00:18:12.358 --> 00:18:14.360
There's this expectation that I'm going to get something.
313
00:18:15.020 --> 00:18:17.702
And if you're growing fast, there might not be any profit.
314
00:18:18.043 --> 00:18:19.938
That's a fantastic point right there.
315
00:18:21.033 --> 00:18:24.874
The definition of the profit too is so important because a lot of times it's like, well, the P&L.
316
00:18:24.934 --> 00:18:29.795
Well, if you have debt, now all of a sudden your principal pay down doesn't show up on your P&L.
317
00:18:30.235 --> 00:18:36.096
And so you could look really profitable quote on paper, but have no cash in the bank to actually pay them a profit sharing.
318
00:18:36.256 --> 00:18:37.796
So I did that mistake very early on.
319
00:18:37.816 --> 00:18:40.076
I was like, hey, we look at the P&L and you get a piece at the bottom.
320
00:18:40.096 --> 00:18:49.798
And then all of a sudden it's like, okay, because at the beginning when I had to skid steer debt and truck debt, et cetera, back in the day, all of a sudden I'm paying out profit sharing when there was no profits realistically after debt service.
321
00:18:50.105 --> 00:18:51.085
Yeah, that's a great point.
322
00:18:51.105 --> 00:18:52.886
It also can change the decisions.
323
00:18:53.026 --> 00:18:56.288
By committing to that, now you might be changing the decisions of the business.
324
00:18:56.368 --> 00:19:05.271
An example would be, maybe at the end of the year in our business, we want to spend a million dollars in December to pre-buy equipment, pre-buy all our chemical for the year.
325
00:19:05.572 --> 00:19:09.033
Now, if we didn't do that, the profits of the business would look so much better.
326
00:19:09.313 --> 00:19:10.254
Somebody would get a...
327
00:19:11.394 --> 00:19:13.758
nice check, but it costs us 20%.
328
00:19:14.299 --> 00:19:18.446
Meaning we would have saved 20% on those purchases or whatever that number is that we bought now.
329
00:19:19.087 --> 00:19:20.429
And that's not ideal for the business.
330
00:19:20.609 --> 00:19:21.170
And so it...
331
00:19:22.472 --> 00:19:26.753
It's a little bit of my argument against debt in a different way.
332
00:19:27.253 --> 00:19:33.654
When a person has a lot of debt in their business, they make different decisions inside the business because of the debt.
333
00:19:33.694 --> 00:19:35.155
They can't take the opportunities.
334
00:19:35.195 --> 00:19:38.135
They can't prepay for things.
335
00:19:38.255 --> 00:19:41.336
If a bunch of accounts come up for sale for a great deal, they can't buy them.
336
00:19:41.696 --> 00:19:49.238
And so debt starts to impact the decision-making of the business or taking too much money out of your company too early
337
00:19:50.223 --> 00:19:59.066
impacts the decisions, your optionality in the business, well, so does the commitment you make from a profit sharing standpoint to the team.
338
00:19:59.106 --> 00:20:03.688
And so these are big, big questions that require a tremendous amount of thought.
339
00:20:03.928 --> 00:20:09.530
And frankly, really doing a lot of deep diving to try to expose all of the risks in doing it.
340
00:20:09.550 --> 00:20:14.351
So you can kind of like steel manning it in a sense, like trying to like, what are all the things that could go wrong?
341
00:20:14.371 --> 00:20:18.093
And then saying, yeah, these are nine things that could go wrong, but I'm comfortable with it.
342
00:20:18.153 --> 00:20:18.933
It's still worth it.
343
00:20:20.210 --> 00:20:26.373
And I think one thing is like there is no perfect compensation plan for every individual.
344
00:20:26.453 --> 00:20:27.554
It does have to be individualized.
345
00:20:27.794 --> 00:20:30.535
I used to very much ascribe to like it all fits in a box.
346
00:20:31.015 --> 00:20:35.838
And then after doing so many managers and locations, it's like some people could care less about some of these things.
347
00:20:36.378 --> 00:20:41.240
And the goals of the location determine whether they're going to be more revenue based goals.
348
00:20:41.560 --> 00:20:44.502
Are they profit based goals like profit sharing goals?
349
00:20:44.882 --> 00:20:46.463
in theory, is not incentives.
350
00:20:46.483 --> 00:20:48.185
It is actually a piece of the profit.
351
00:20:48.545 --> 00:20:54.110
Well, if you're not being profitable on purpose, probably not a good idea to be like talking about that with the team.
352
00:20:54.590 --> 00:20:55.391
Yeah.
353
00:20:55.411 --> 00:20:56.051
Last point.
354
00:20:56.692 --> 00:20:59.054
I think I was informed on this very young.
355
00:20:59.254 --> 00:21:05.079
So the only job I've ever had was I worked at a software company from 19 to 23 years.
356
00:21:07.097 --> 00:21:19.283
And I was amazingly at that age, I was one of like four people in the company or five people in the company got five profit sharing and I got a year end plus I got a 5% per quarter.
357
00:21:19.723 --> 00:21:22.665
We never knew how the 5% was calculated.
358
00:21:22.965 --> 00:21:26.046
We never actually even knew how the year end bonus was calculated.
359
00:21:26.146 --> 00:21:29.088
And that was real discussion amongst us.
360
00:21:29.568 --> 00:21:38.232
The few of us that got that like we just so we put I remember putting almost no value in the 5% we might get a quarter because we didn't know how it was calculated.
361
00:21:38.512 --> 00:21:40.393
We weren't sure it was being calculated fairly.
362
00:21:40.413 --> 00:21:41.133
Yeah.
363
00:21:41.633 --> 00:21:45.014
And back to my point, we didn't even know how we could impact it.
364
00:21:45.854 --> 00:21:47.434
I kind of see how I could impact it.
365
00:21:47.795 --> 00:21:50.175
But the sales team isn't doing their job.
366
00:21:50.255 --> 00:21:51.195
It was that kind of a thing.
367
00:21:51.215 --> 00:21:52.276
It's like, it's not us.
368
00:21:52.796 --> 00:21:56.717
I was on technical sales, and then I ran support there, and I was on development.
369
00:21:56.837 --> 00:22:00.658
I did several parts in that business, but I didn't do sales.
370
00:22:00.838 --> 00:22:03.458
I remember clearly, it's on sales.
371
00:22:03.898 --> 00:22:06.279
The owner will not give the sales team enough of a budget.
372
00:22:06.319 --> 00:22:07.779
That was my thinking back then.
373
00:22:07.799 --> 00:22:10.920
And I think that really impacted me and everything I did after.
374
00:22:11.520 --> 00:22:13.343
just feeling like it didn't really work.
375
00:22:14.043 --> 00:22:18.569
Yeah, like even in the companies I have, the only department that we don't have profit sharing is the media team.
376
00:22:18.589 --> 00:22:19.090
Sorry, Jace.
377
00:22:19.550 --> 00:22:29.422
But the reason is because I'm the talent and if I make a better video, then it gets more views, it gets more clicks, it gets more leads, it gets more sales.
378
00:22:30.123 --> 00:22:36.125
But it's not really like if it's like, hey, this video is not going to do those things, but we need to make it for the content.
379
00:22:36.425 --> 00:22:40.867
It's out of their control in terms of the performance of the video to some extent.
380
00:22:41.367 --> 00:22:42.488
A lot of it hinges on me.
381
00:22:42.588 --> 00:22:45.629
And it's like, hey, look, do you stunk on this shoot?
382
00:22:45.929 --> 00:22:47.550
There's no way we're making this a good video.
383
00:22:47.950 --> 00:22:52.411
And so I agree with you, like having it where it can actually be impacted by their behavior.
384
00:22:52.492 --> 00:22:56.113
Otherwise, you know, miles just have like a random end of the year bonus.
385
00:22:56.548 --> 00:22:56.748
Yeah.
386
00:22:57.209 --> 00:23:01.313
So I want to use that example because I think it makes another point that I don't think we talked about.
387
00:23:01.953 --> 00:23:03.675
I've thought about this very same thing.
388
00:23:03.815 --> 00:23:16.507
Should I, because I'm slowly trying to get more serious about this stuff, and as I'm thinking about who I need on the team and I'm getting more help, I've thought about this very compensation model.
389
00:23:16.527 --> 00:23:19.170
And I know a couple people that compensate their media teams.
390
00:23:19.984 --> 00:23:27.328
Now, interestingly, what I've noticed with all of those individuals is their content has really drifted.
391
00:23:27.888 --> 00:23:32.631
So they've built really big channels, but they've gone in a completely different direction.
392
00:23:32.691 --> 00:23:33.151
And so...
393
00:23:34.236 --> 00:23:38.657
In my case, I don't, of course, I would love to have a lot of subscribers.
394
00:23:38.717 --> 00:23:43.258
And it's a, you know, it's a, not a bragging number, because I'm not gonna brag, but it's a... Vanity, vanity metric.
395
00:23:43.318 --> 00:23:43.859
Yeah, thank you.
396
00:23:43.879 --> 00:23:44.199
Vanity.
397
00:23:44.559 --> 00:23:45.459
Okay.
398
00:23:45.619 --> 00:23:46.179
It's kind of that.
399
00:23:46.219 --> 00:23:55.202
But so if you compensate somebody for subscriber count or view count or some of those things, you might be, this is the point I want to make, incentivizing the wrong behavior.
400
00:23:55.222 --> 00:24:00.223
And any compensation plan, whether it be commission sales, whether it be profit,
401
00:24:01.043 --> 00:24:06.988
Like everything, pay for performance, every single thing creates an alternative action.
402
00:24:07.348 --> 00:24:08.309
Great.
403
00:24:08.469 --> 00:24:09.310
It does.
404
00:24:09.330 --> 00:24:10.591
The whole world runs on incentives.
405
00:24:10.631 --> 00:24:19.318
And so we'll know when you have your video editor compensated based on subscribers, but every two minutes there's this bell, subscribe now, subscribe now, subscribe now.
406
00:24:20.603 --> 00:24:27.268
And I've drifted off into some kind of other content that's way more popular than home services content with a bigger audience, you know, that kind of thing.
407
00:24:27.288 --> 00:24:39.257
So, but anyway, that was the point that I do want to make for everyone is as you're working on these models, think about what does it incentivize and what might it also incentivize that's negative because that happens.
408
00:24:40.002 --> 00:24:40.102
Yeah.
409
00:24:40.462 --> 00:24:46.404
Tying back into what you mentioned about getting to the end of your year, not really knowing how it was calculated.
410
00:24:46.424 --> 00:24:49.425
This ties into the second part of the docket and as open book management.
411
00:24:49.845 --> 00:24:50.326
Yeah.
412
00:24:51.606 --> 00:25:03.310
Would it be useful if you're doing profit sharing to make sure whoever you're giving profit sharing to does know the numbers and how it's being calculated and how far down in the organization would you typically share the numbers of the business?
413
00:25:04.571 --> 00:25:06.651
The answer is for me, it's a hundred percent.
414
00:25:06.711 --> 00:25:08.552
It's back to my story of, you know,
415
00:25:08.743 --> 00:25:13.505
You know, if I don't know how it's being calculated, I think you can manipulate it, then there's a lack of trust potentially.
416
00:25:13.805 --> 00:25:15.226
And so, yeah, I think they should know.
417
00:25:15.566 --> 00:25:25.950
Plus, because I tend to, if I'm compensating on a number at the bottom of the P&L, then I am probably dealing with somebody pretty high up in New York.
418
00:25:27.350 --> 00:25:31.552
And so that person, if they're going to be high up in New York and they can't read a financial statement,
419
00:25:32.844 --> 00:25:34.205
They might not be high up in the org.
420
00:25:34.265 --> 00:25:36.846
I mean, I need them to understand a financial statement.
421
00:25:36.926 --> 00:25:40.048
And they might come into the organization and not understand all that.
422
00:25:40.188 --> 00:25:40.729
That's cool.
423
00:25:40.829 --> 00:25:42.129
Like we can bring them up to speed.
424
00:25:42.169 --> 00:25:43.570
I'm a big fan of training.
425
00:25:44.091 --> 00:25:45.511
It slows things down, takes a while.
426
00:25:46.032 --> 00:25:49.414
But I'm totally cool bringing somebody up to speed on that.
427
00:25:50.014 --> 00:25:53.256
But the higher you are in the organization, you need to understand that stuff.
428
00:25:53.276 --> 00:25:54.637
So yeah, the answer I think to...
429
00:25:55.277 --> 00:25:56.078
I remember your questions.
430
00:25:56.138 --> 00:25:57.299
It's yes to both of those.
431
00:25:57.559 --> 00:25:57.819
Yes.
432
00:25:58.500 --> 00:25:59.420
They need to know it.
433
00:25:59.741 --> 00:26:07.627
And actually I think I'm off base on whatever your second question was, but the second part is like how far down the org chart do you share the numbers?
434
00:26:08.008 --> 00:26:08.168
I, I,
435
00:26:09.975 --> 00:26:13.478
I'm personally not in the camp of open book management.
436
00:26:14.799 --> 00:26:16.460
But I wouldn't tell somebody.
437
00:26:17.140 --> 00:26:20.283
It's not an opinion where I'm like, you're dumb if you do.
438
00:26:20.323 --> 00:26:21.303
I have no negative.
439
00:26:21.443 --> 00:26:21.984
It's not that.
440
00:26:22.004 --> 00:26:26.527
It's just for me, I feel like it's a little more trouble than it's worth.
441
00:26:27.228 --> 00:26:30.810
My case in point, I've had hundreds and hundreds and hundreds of employees.
442
00:26:31.250 --> 00:26:34.813
It's very frustrating to get people to max out their 401ks
443
00:26:36.497 --> 00:26:37.778
to the point that I will match.
444
00:26:38.218 --> 00:26:39.719
I want to give you this money.
445
00:26:40.620 --> 00:26:42.701
I want you to max out your 401k.
446
00:26:42.801 --> 00:26:51.667
And like the amount of work it takes for a lot to just like help people understand why they should do that, how to think about their 401k, how to invest it.
447
00:26:52.427 --> 00:27:00.832
What, and, and, and some of these things of this sort, it to me informs the fact that most people aren't super financially literate.
448
00:27:01.133 --> 00:27:01.253
And,
449
00:27:02.392 --> 00:27:07.556
Even we, like in Service All Pilot, we used to have somebody in our organization that would do lunch.
450
00:27:08.096 --> 00:27:10.318
A variety of people would do lunch trainings.
451
00:27:10.358 --> 00:27:13.160
You could come to this lunch training on financial stuff.
452
00:27:13.180 --> 00:27:15.722
We'll teach you about these things inside the business.
453
00:27:16.463 --> 00:27:19.144
It was hard to get people to attend a lot of the financial stuff.
454
00:27:20.205 --> 00:27:22.426
And, and then for some people, they just don't like it.
455
00:27:22.446 --> 00:27:30.168
I understand it doesn't stick very well, like they understand their basic finances for their, their own life, but not so much at a company level.
456
00:27:30.208 --> 00:27:33.029
So I just found that trying to teach it through the whole organization.
457
00:27:33.269 --> 00:27:42.911
Now, I never tested it, I, this was an assumption I've made, trying to teach it through all the whole organization, like some number of people, they're going to be all in, they're going to be great, and then other people not so much.
458
00:27:43.331 --> 00:27:45.232
And so my approach is,
459
00:27:45.752 --> 00:27:46.733
And again, I want to be very clear.
460
00:27:46.753 --> 00:27:48.695
I would not talk somebody out of this if they want to do it.
461
00:27:48.735 --> 00:27:49.936
It's just, it's not for me.
462
00:27:50.596 --> 00:28:06.451
My approach is that I want to have you under, whatever part of the business you own and you work within, I want you to understand those metrics, that part of the business, how those metrics roll up to the broader part of the business.
463
00:28:06.911 --> 00:28:08.713
And I want you to be trained on all that stuff.
464
00:28:08.733 --> 00:28:10.375
Because again, you can impact that.
465
00:28:11.402 --> 00:28:20.129
But I think people get very confused when we talk about dollar and percentage numbers around net profit, EBITDA, whatever number you want to use.
466
00:28:20.509 --> 00:28:23.871
I think it gets very confusing for many of the points you articulated earlier.
467
00:28:25.092 --> 00:28:27.154
And I especially get scared of dollar numbers.
468
00:28:27.174 --> 00:28:31.297
So if we were to say, hey, CityTurf made $4 million this year in profit.
469
00:28:33.029 --> 00:28:35.592
well, I didn't put $4 million in my bank account.
470
00:28:35.612 --> 00:28:37.034
There's a lot of retained earnings.
471
00:28:37.574 --> 00:28:39.076
We invested it here.
472
00:28:39.156 --> 00:28:41.098
We did, I mean, there's all these things we're doing with it.
473
00:28:41.119 --> 00:28:42.640
And that can get very, very confusing.
474
00:28:42.901 --> 00:28:44.342
So then if they see Jonathan in a...
475
00:28:45.013 --> 00:28:47.715
Porsche and they're like, where's my money?
476
00:28:47.895 --> 00:28:49.916
I got Mercedes, the Mercedes AMG.
477
00:28:49.936 --> 00:28:50.477
That's what it was.
478
00:28:50.597 --> 00:28:56.581
Actually, I wouldn't even ever buy one of those.
479
00:28:56.941 --> 00:29:05.407
But, but for me, if I buy it, when I buy the Mercedes over the bed, so I'm, I'll try to try to wrap that up and just say, I'm.
480
00:29:06.731 --> 00:29:09.234
My summary would be, what part of the business are you in?
481
00:29:09.354 --> 00:29:13.999
I want you to really understand the numbers of that part of the business and how it helps the broader organization.
482
00:29:14.019 --> 00:29:14.920
We want to train you on this.
483
00:29:15.221 --> 00:29:18.204
But I don't really like getting to the numbers at the bottom of the P&L.
484
00:29:18.844 --> 00:29:23.089
And I do want you in the organization to understand how you can impact the company as well.
485
00:29:23.529 --> 00:29:26.152
For me, a part of it was...
486
00:29:27.275 --> 00:29:31.959
At first, because we did open book management, we give profit sharing all the way down to the lowest level of the team.
487
00:29:32.499 --> 00:29:37.783
And so, again, I'm talking home services, like my locations, not necessarily every other department.
488
00:29:38.364 --> 00:29:42.767
But what we do is like it's P for P, pay for performance is very individualistic.
489
00:29:42.907 --> 00:29:45.209
It's like if I work hard, I make more money.
490
00:29:45.729 --> 00:29:50.493
But the part that we were always lacking was the team component of like, hey, I need to help my team out too.
491
00:29:50.833 --> 00:29:55.997
And I'm caring about the overall that everyone's trained up, that we're all efficient overall.
492
00:29:56.017 --> 00:29:56.558
Yeah.
493
00:29:56.938 --> 00:29:58.199
for the sake of profit sharing.
494
00:29:58.479 --> 00:30:03.084
And that's where we were able to really try to consolidate the P&L to where it is understandable.
495
00:30:03.104 --> 00:30:07.007
If it's on one page, we did monthly meetings where we would go over it.
496
00:30:07.268 --> 00:30:10.551
But we only found they cared if we were giving them profit sharing.
497
00:30:10.731 --> 00:30:14.094
When we did optional meetings back in the day, it was like a couple people would show up.
498
00:30:14.514 --> 00:30:17.878
Whereas once it was like, hey, you get a piece of this in the end of the quarter, assuming you show up,
499
00:30:18.478 --> 00:30:20.299
And you've been on the team for some period of time.
500
00:30:20.679 --> 00:30:22.699
You get a piece of this.
501
00:30:23.219 --> 00:30:26.880
Then they started to care about, okay, well, like you spent, yes, you got $4 million.
502
00:30:27.240 --> 00:30:30.741
It's also like we spent $500,000 in fuel last year.
503
00:30:31.241 --> 00:30:33.662
You know, we spent hundreds of thousands of dollars in insurance.
504
00:30:33.982 --> 00:30:45.065
And then when we do our safety, we always just try to tie it back in our meetings, in like safety meetings, or if there was callbacks or damage cases, like, hey, this damage case kind of comes out of the pot for everyone.
505
00:30:45.085 --> 00:30:45.385
Yeah.
506
00:30:45.665 --> 00:30:51.311
And so I found a lot of solace as we started becoming really profitable, knowing that they got a piece of it.
507
00:30:51.331 --> 00:30:54.274
So even when I wasn't there, they were still fighting for the bottom line.
508
00:30:54.655 --> 00:30:57.418
And that was always my like when I left, we started making more profit.
509
00:30:57.438 --> 00:31:04.806
And in part, it was because I started giving I got a little bit more loose with like general manager, estimator, the team out in the field getting a piece of the action.
510
00:31:05.006 --> 00:31:06.848
So they were just fighting for profit all the time.
511
00:31:07.508 --> 00:31:16.293
And it was a way to snuff out not just low performers on P4P, but also people that weren't team players, because that's what they were trying to shoot for at the end of the quarter.
512
00:31:16.653 --> 00:31:21.456
And they did care about the P&L now that was hanging up or in a meeting because it meant something to them.
513
00:31:21.896 --> 00:31:29.440
And we would give out the big bonus checks like, you know, it's a thousand, two thousand dollars a quarter for a technician means something.
514
00:31:29.760 --> 00:31:37.265
And would I prefer that they put it in a certain way, like a 401k, like, hey, guys, maybe we should invest that random bonus that you didn't expect.
515
00:31:37.625 --> 00:31:45.311
However, I just looked at it as it was a way for me to be able to tell them that as the business made more profit, you will also.
516
00:31:45.971 --> 00:31:46.372
And then...
517
00:31:47.252 --> 00:31:50.713
The thing that for me is like, we gave them a roadmap to become an owner.
518
00:31:50.973 --> 00:31:53.054
So we did the 3F program, the franchise fee forgiveness.
519
00:31:53.394 --> 00:31:54.575
They become a technician for two years.
520
00:31:54.615 --> 00:31:56.075
Then you become a general manager.
521
00:31:56.335 --> 00:31:57.896
And then you can actually join the franchise for free.
522
00:31:57.956 --> 00:31:59.236
Like we waived the initial fee.
523
00:31:59.656 --> 00:32:02.517
And so it was also a way of saying like, hey, there's more for you.
524
00:32:02.797 --> 00:32:03.838
This is not a dead end job.
525
00:32:04.318 --> 00:32:06.279
You can get to the next stage of your career.
526
00:32:06.479 --> 00:32:11.460
And we create like 21 stages to get all the way to there so that they could progress in their career.
527
00:32:11.540 --> 00:32:13.601
And then the profit sharing for us just made it meaningful.
528
00:32:14.041 --> 00:32:16.182
It's like, yeah, it was tangible for them.
529
00:32:16.666 --> 00:32:21.158
And it was training for somebody that might grow into a franchise owner.
530
00:32:21.238 --> 00:32:22.522
So that makes a ton of sense.
531
00:32:22.782 --> 00:32:24.166
Now, do you still do it?
532
00:32:25.198 --> 00:32:26.058
We do, yeah.
533
00:32:26.278 --> 00:32:26.918
Okay, okay.
534
00:32:27.038 --> 00:32:29.379
I thought I was hearing language where it sounded like maybe you'd stopped doing it.
535
00:32:29.399 --> 00:32:29.519
Okay.
536
00:32:30.099 --> 00:32:34.880
You know, as you were talking, one thing I thought about too is, let's say I was building a new company.
537
00:32:35.340 --> 00:32:40.522
It doesn't matter what the business is and I'm gonna keep it to 20 people or something, a smaller business.
538
00:32:41.122 --> 00:32:48.323
Right or wrong, I theorize that I would be more open to it in a smaller organization than a big organization.
539
00:32:48.723 --> 00:32:54.705
Especially one where I'm more directly involved in leading it, or I've got a really strong financial leader in the business.
540
00:32:55.385 --> 00:32:59.548
But for whatever reason, I just theorized that would work even better.
541
00:32:59.568 --> 00:33:00.789
You know, it's funny.
542
00:33:00.849 --> 00:33:01.870
So I agree with you.
543
00:33:01.930 --> 00:33:06.473
And that's why I originally opened up the question saying, I think this size of business will have a lot to do with this.
544
00:33:07.054 --> 00:33:07.674
I agree with you.
545
00:33:08.375 --> 00:33:14.880
What's funny, one thing I heard, I forget who said it, is like the largest businesses in the world are open book management because they're public.
546
00:33:14.900 --> 00:33:15.100
Really?
547
00:33:15.845 --> 00:33:17.046
Oh, okay, yeah.
548
00:33:17.226 --> 00:33:19.528
But who in those companies is reading the P&L?
549
00:33:19.908 --> 00:33:20.348
Sure.
550
00:33:20.689 --> 00:33:21.189
Nobody's reading.
551
00:33:21.209 --> 00:33:22.650
Probably only if they have stock options.
552
00:33:22.890 --> 00:33:24.592
A lot of them probably still don't understand it.
553
00:33:24.612 --> 00:33:28.855
They're just asking somebody else on the team, what's the strike price or what's the option price, you know, whatever.
554
00:33:29.535 --> 00:33:36.921
I think to your point, as it gets more complex on the financial side, as well as the deeper the org chart gets, it starts to get where they do feel disconnected.
555
00:33:37.141 --> 00:33:41.925
Because if I'm one of 100 people and I work harder today, is that really going to affect my quarterly profit sharing?
556
00:33:41.945 --> 00:33:42.265
Yeah.
557
00:33:42.585 --> 00:33:47.149
And we actually did quarterly profit sharing before we did P4P, and it did not change behavior like P4P.
558
00:33:47.629 --> 00:33:53.274
Because P4P is like, if I make more money, if I work harder today, I make more money this week, like on this paycheck.
559
00:33:53.775 --> 00:34:02.322
Whereas when even for quarterly profit sharing, for most entry level technicians, that's too far away for them to even change their behavior today is what we found.
560
00:34:03.265 --> 00:34:13.734
Something else I thought about that could be impactful to this working in a small organization is so much of what works or motivating behavior, it, of course, starts at the owner.
561
00:34:13.754 --> 00:34:14.735
It starts at management.
562
00:34:15.015 --> 00:34:16.776
Management is so important.
563
00:34:17.057 --> 00:34:19.419
But it's also what is my coworker doing?
564
00:34:20.139 --> 00:34:28.861
So if you're, there's a, in a smaller organization where there's a mutual respect, you don't want to let down your other team members and you're highly visible.
565
00:34:29.261 --> 00:34:32.502
As the businesses get bigger and there's departments, people can hide.
566
00:34:33.102 --> 00:34:34.022
It's easier to hide.
567
00:34:34.402 --> 00:34:42.784
And so in an environment where everybody knows the goal, they understand in this example, the financials and they're all hyper visual.
568
00:34:42.964 --> 00:34:49.806
Like I know if you're doing your job, I know if you're not doing your job, all those factors together, I could see how it makes it all work much better.
569
00:34:50.347 --> 00:34:50.487
Mm-hmm.
570
00:34:51.067 --> 00:35:00.580
How did you, just as you expanded, even on the software side, and you had virtual employees, less in person, as well as a larger org where people can't hide, how did you deal with that mentally?
571
00:35:01.061 --> 00:35:06.348
I know, like, once you started the software side, you already ran big businesses, but was it ever difficult for you to...
572
00:35:08.070 --> 00:35:23.944
know that people can hide in the org, how they can hide in the org, know that it's probably happening, but that you still have to stay focused on your job as the CEO, as the founder, and not get bogged down by the fact that, yes, there's going to be some waste as you have a hundred plus person team.
573
00:35:25.587 --> 00:35:32.050
I truly never perfected that or got good at because we sold, we were a hundred percent in office company.
574
00:35:32.390 --> 00:35:34.811
And when we sold, we sold before COVID.
575
00:35:35.011 --> 00:35:39.773
And so it happened to us after we sold the business and that's when everybody went remote.
576
00:35:40.433 --> 00:35:42.534
And so, um, I, I,
577
00:35:43.594 --> 00:35:46.335
I can't even remember the different things that we were trying to figure it out.
578
00:35:46.375 --> 00:35:47.856
But frankly, I had already sold the business.
579
00:35:48.256 --> 00:35:51.157
And so I never had to figure it out.
580
00:35:51.618 --> 00:36:01.542
One of my big observations was if this had happened and we still owned the business and why I say it that way, that means I have complete control.
581
00:36:02.062 --> 00:36:06.484
While I was still the CEO of the business for a while, you have pressure above you.
582
00:36:07.293 --> 00:36:16.976
You know, and at one point right after when COVID happened, Advent, the private equity company that bought us, they made us fire 11% of our company during COVID.
583
00:36:17.196 --> 00:36:21.838
They made, and Advent's like one of the top performing of all private equity companies that exist.
584
00:36:21.918 --> 00:36:22.618
They took WorldPay.
585
00:36:22.758 --> 00:36:23.838
They've done all this stuff.
586
00:36:23.859 --> 00:36:25.279
They're massive if you just look them up.
587
00:36:26.059 --> 00:36:33.822
And they went through their whole portfolio and made all their companies do it because they, at that time, were very concerned about what was going to happen.
588
00:36:34.542 --> 00:36:38.364
And we were like, we had talked last week about rule of 40.
589
00:36:38.404 --> 00:36:41.585
We were like a rule of 55 or something like that when we sold the business.
590
00:36:42.185 --> 00:36:46.527
And so we like, and it was a growth investment.
591
00:36:46.567 --> 00:36:51.028
So where I'm going with this is just to make a point for people that think about selling.
592
00:36:51.389 --> 00:36:53.169
It's like maybe a little subtle side point.
593
00:36:53.710 --> 00:36:55.690
We were, it was, we were a growth investment.
594
00:36:55.870 --> 00:37:00.592
As soon as we sold that business, I was already working on deals to go buy other software companies.
595
00:37:01.052 --> 00:37:01.973
So we, and we were,
596
00:37:02.593 --> 00:37:06.876
going to, like Service All-Pot was going to, supposed to go, grow, grow, grow, and acquire.
597
00:37:07.216 --> 00:37:08.797
So that's what the deal was with Advent.
598
00:37:08.897 --> 00:37:11.719
It was a growth investment, go big.
599
00:37:12.720 --> 00:37:13.700
And then COVID happened.
600
00:37:13.740 --> 00:37:16.342
It changed everything because didn't know where the future was going.
601
00:37:16.362 --> 00:37:16.982
They got scared.
602
00:37:17.002 --> 00:37:20.485
They made everybody in their portfolio fire a percentage of their company.
603
00:37:20.505 --> 00:37:22.526
In our case, it was 11% of the team.
604
00:37:23.046 --> 00:37:29.791
That was a pretty big beat down because we were, the reason I said Rule 55 is, there's nothing called Rule 55, but we were,
605
00:37:30.271 --> 00:37:32.616
we were profitable and we were growing very fast.
606
00:37:33.398 --> 00:37:37.546
And so to have to let part of the team go,
607
00:37:38.941 --> 00:37:40.342
That was not a decision I made.
608
00:37:40.482 --> 00:37:42.224
That was a decision that came above me.
609
00:37:42.324 --> 00:37:44.265
And so kind of got off track.
610
00:37:44.606 --> 00:37:50.870
But I'll tell you why I said that for people, because I think we're going to talk a little bit about maybe selling your company someday today.
611
00:37:51.831 --> 00:37:56.615
You could sell to the very, very best buyer, and you never know what's going to happen to you.
612
00:37:57.195 --> 00:37:58.216
You cannot predict it.
613
00:37:58.636 --> 00:38:00.778
There could be any number of things that could happen.
614
00:38:01.786 --> 00:38:12.055
And so in this scenario, when we went remote, I felt like I had some say, but I also felt like there was pressure coming down from above.
615
00:38:12.456 --> 00:38:16.639
For example, I would not have let the company stay remote nearly as long as it had.
616
00:38:16.819 --> 00:38:26.988
I would have brought them back because my biggest learning was if this was still my company and I had 100% say, if we were going to live in a remote world, I was going to have to let...
617
00:38:27.609 --> 00:38:30.872
25% of my company go, some big number and replace them.
618
00:38:30.892 --> 00:38:37.759
Because my observation was to build a remote company, you hire people that are capable and experienced doing remote.
619
00:38:38.220 --> 00:38:41.203
You don't take people, like some people can make the transition.
620
00:38:41.223 --> 00:38:43.245
A lot of people cannot make the transition.
621
00:38:43.745 --> 00:38:49.767
And the people that couldn't make the transition while they might be great at their company or their job can't be at my company more.
622
00:38:49.787 --> 00:38:54.449
I need to go get a different person that's capable of working in a remote environment.
623
00:38:54.509 --> 00:39:04.272
So long story to kind of give you, make a couple points there, but that's my biggest memory of the remote problem is I don't think a lot of my people will ever be able to make this transition.
624
00:39:04.572 --> 00:39:05.813
And so how did you handle that?
625
00:39:05.833 --> 00:39:08.275
Because like, did you just, everyone just stayed remote after that?
626
00:39:08.656 --> 00:39:16.243
Like, I don't necessarily grapple with this a lot more because we hired and most everyone of them were remote on the tech side.
627
00:39:16.423 --> 00:39:21.227
And the nice thing is I'm able to, the talent pool is so much bigger when I say, Hey, you do not need to live in this city.
628
00:39:21.247 --> 00:39:21.908
That's incredible.
629
00:39:22.008 --> 00:39:22.188
Yeah.
630
00:39:22.288 --> 00:39:23.910
I feel like I'm going to sound like the old guy.
631
00:39:24.905 --> 00:39:27.026
I want the companies to be back in person.
632
00:39:27.206 --> 00:39:31.608
And the biggest trade-off is you may not be hiring the absolute smartest person.
633
00:39:31.788 --> 00:39:35.710
But this, the point I'm about to make also is another example of the other day.
634
00:39:35.730 --> 00:39:38.472
It's like $10 million company or $10, $1 million companies.
635
00:39:38.752 --> 00:39:39.512
What market are you in?
636
00:39:39.752 --> 00:39:40.973
I'm in Dallas, Fort Worth.
637
00:39:41.673 --> 00:39:43.014
There's a lot of great talent here.
638
00:39:43.134 --> 00:39:44.855
I didn't build my company in...
639
00:39:45.615 --> 00:39:49.397
Fayetteville, Arkansas, where, yeah, I'm going to probably build remote there.
640
00:39:49.757 --> 00:39:58.782
Or more likely, I'm going to move and I'm going to build my company in Dallas, Texas, or Boulder, Colorado, or like some market, Salt Lake City, or some market that's strong if I'm not in California.
641
00:39:59.442 --> 00:40:09.628
And so the point here is that I'm very, the way I think about it now for me, I'm very attracted to working with a bunch of younger individuals.
642
00:40:09.648 --> 00:40:09.968
Yeah.
643
00:40:10.806 --> 00:40:14.437
and because I like, I know everybody's like, young people don't do anything.
644
00:40:14.758 --> 00:40:15.079
Okay.
645
00:40:15.848 --> 00:40:16.608
The right ones do.
646
00:40:17.309 --> 00:40:21.551
And I love the energy and I love the raw horsepower and the brain power.
647
00:40:21.691 --> 00:40:30.516
I love the people that have like, yeah, on one hand, I want to be able to teach them like here's best practices, but I also want them to try new things.
648
00:40:30.556 --> 00:40:33.558
Like I don't want to do what we did for the last 20 years in business.
649
00:40:33.578 --> 00:40:35.059
Like what's the new idea?
650
00:40:35.439 --> 00:40:37.780
That is my biggest concern about remotes.
651
00:40:37.820 --> 00:40:42.723
How do I bring a 23-year-old into my company and he or she is working in
652
00:40:43.223 --> 00:40:48.547
in their bedroom at their house, and we're not having conversations in the break room.
653
00:40:48.787 --> 00:40:52.030
They're not being part of the lunch meetings.
654
00:40:52.410 --> 00:40:56.313
They're not being part of just observing everything else that's going on in a business.
655
00:40:56.333 --> 00:41:04.599
They're not seeing what a guy that's 50 years old, how he operates and at the speed he operates, and they're not learning those behaviors and modeling some of them.
656
00:41:05.119 --> 00:41:06.520
I feel like I lose all of that.
657
00:41:06.580 --> 00:41:10.123
And so that's my biggest negative on remote.
658
00:41:10.924 --> 00:41:12.425
And then I'll say one more thing.
659
00:41:12.925 --> 00:41:20.352
Going remote with like John, my business partner, who I met him at that software company I worked at when I was 19 years old.
660
00:41:20.772 --> 00:41:22.233
Like we're practically married.
661
00:41:22.473 --> 00:41:24.355
I mean, I know what he's thinking.
662
00:41:24.955 --> 00:41:29.842
I can tell when his face turns red exactly what that, I mean, I know everything.
663
00:41:29.862 --> 00:41:35.129
And so there, and I had, I knew how to work with Brian and Tim and all these other guys on my team.
664
00:41:35.770 --> 00:41:41.597
And so when we went remote, no problem, no problem at all, because we had worked together for a long time.
665
00:41:42.318 --> 00:41:44.178
And so how do you build that?
666
00:41:44.339 --> 00:41:54.781
We built that stuff by being going to war together, sometimes at the office, sometimes staying late at night, sometimes doing system pushes till three o'clock in the morning.
667
00:41:55.141 --> 00:42:04.483
Like those, we built those relationships and not only relationships, but we built that knowing how to work really fast with the person where like you can just build stuff fast.
668
00:42:04.503 --> 00:42:05.824
You can design stuff fast.
669
00:42:06.264 --> 00:42:08.444
You can get to the root of problems fast.
670
00:42:12.225 --> 00:42:12.766
disagreement.
671
00:42:12.786 --> 00:42:13.446
We're totally cool.
672
00:42:14.147 --> 00:42:16.188
Like, and so I don't know how to build some of that remote.
673
00:42:16.248 --> 00:42:19.851
I know remote wasn't one of the talking points here, but this is kind of interesting.
674
00:42:21.233 --> 00:42:26.697
And so I'm a, I'm a fan of remote, but I think you have to build your company in a completely different way if you're going to do it.
675
00:42:26.957 --> 00:42:29.880
But if I could, in my perfect world, you'd still be building in the office.
676
00:42:30.653 --> 00:42:34.496
Yeah, like the franchise, that leadership team is all in person.
677
00:42:34.996 --> 00:42:38.198
And then the software side, most of them are remote.
678
00:42:38.459 --> 00:42:43.162
And so the dynamics, I've been able to directly compare and contrast pros and cons on it.
679
00:42:43.702 --> 00:42:45.083
And so it's just very interesting.
680
00:42:45.343 --> 00:42:51.328
But I was just asking about how when at a larger size business, when you know people can hide, especially...
681
00:42:51.928 --> 00:42:55.051
in the remote setting, to your point, how did you handle that?
682
00:42:55.071 --> 00:43:02.177
I know at that point you didn't have ownership or control, and I assume that there was less care once they say, hey, cut your team.
683
00:43:03.598 --> 00:43:09.323
But how did you deal with the fact that now you're in a larger org, people can hide, especially behind the screen?
684
00:43:09.883 --> 00:43:12.584
To me, it was really challenging in a few places.
685
00:43:13.144 --> 00:43:17.645
So as an example, on customer service, you could still measure it.
686
00:43:17.665 --> 00:43:21.626
I mean, because we do, we have all these metrics on the customer service teams.
687
00:43:21.686 --> 00:43:23.166
We record every single phone call.
688
00:43:23.186 --> 00:43:24.246
We do call scoring.
689
00:43:24.286 --> 00:43:25.467
We were doing call reviews.
690
00:43:25.487 --> 00:43:26.427
We were doing all this.
691
00:43:26.447 --> 00:43:27.827
So you didn't lose any of that.
692
00:43:28.147 --> 00:43:30.748
But man, people were trying like crazy to hide.
693
00:43:30.928 --> 00:43:35.969
Customer service is one of the big examples where you were either built to be remote or you were not.
694
00:43:36.169 --> 00:43:39.050
That was a great example where I felt like a lot of people needed to go.
695
00:43:39.971 --> 00:43:45.758
You could find things where like that dude just hung up the phone when he answered it.
696
00:43:46.298 --> 00:43:47.460
He did it six times today.
697
00:43:47.500 --> 00:43:48.561
It's like that kind of stuff.
698
00:43:48.942 --> 00:43:52.226
So you could still find that and get those people out of the business.
699
00:43:53.167 --> 00:43:55.570
Commission sales, sales, same thing.
700
00:43:56.491 --> 00:43:57.292
You can work remote.
701
00:43:57.312 --> 00:43:58.013
You can measure it.
702
00:43:58.553 --> 00:44:05.499
it gets a lot more difficult on the technical writing side, on the marketing side, on the development side.
703
00:44:06.140 --> 00:44:09.603
And so, but even a developer can hide at their desk.
704
00:44:10.343 --> 00:44:13.005
And so we had years and years earlier,
705
00:44:14.366 --> 00:44:16.288
committed to Scrum and Agile.
706
00:44:16.388 --> 00:44:17.669
So better said, Agile.
707
00:44:18.249 --> 00:44:22.372
And so we were doing daily stand-ups and we were literally scoring our projects.
708
00:44:22.412 --> 00:44:26.174
So I don't know if you guys do this, but it's the idea where, are you familiar with it?
709
00:44:26.194 --> 00:44:31.737
Where are you, like, here's the project we're doing, we're breaking it down and then everybody's voting on this is the size of the project.
710
00:44:32.258 --> 00:44:34.980
And then the size determines how fast we'll get it done.
711
00:44:35.000 --> 00:44:36.581
And then we do a Scrum or a Kanban board.
712
00:44:36.821 --> 00:44:38.222
Okay, we were doing all of that.
713
00:44:38.502 --> 00:44:41.344
And so again, you could keep some level of accountability there.
714
00:44:42.004 --> 00:44:46.206
Where that slipped was that it was management.
715
00:44:46.566 --> 00:44:48.146
So John left the organization.
716
00:44:49.347 --> 00:44:52.248
And John left Service Hall probably like really fast.
717
00:44:52.488 --> 00:44:55.849
After COVID happened, he's like, I'm not liking this.
718
00:44:56.309 --> 00:44:57.790
And so he left the business.
719
00:44:57.850 --> 00:45:05.593
And so when somebody outside the org came in to do some management, they weren't as hardcore about being in those meetings.
720
00:45:05.613 --> 00:45:06.573
That's my perception.
721
00:45:07.113 --> 00:45:11.055
And so management was at fault in that scenario.
722
00:45:11.935 --> 00:45:13.656
I had some managers inside the company.
723
00:45:13.696 --> 00:45:14.796
I'm not saying they were at fault.
724
00:45:14.836 --> 00:45:15.577
It was a different scenario.
725
00:45:15.597 --> 00:45:24.780
But so I gave a variety of different scenarios because you can see where some of them metrics will allow you to keep manage to know what's going on.
726
00:45:25.241 --> 00:45:28.562
And then some of them like marketing and writing, it's really, really hard to know.
727
00:45:28.742 --> 00:45:31.784
Yeah, and I think for most people listening, they're probably more in home services.
728
00:45:32.104 --> 00:45:38.389
And that's the importance of tracking efficiency scores, budgeted hours, clocking out of jobs, because it's harder for people to hide.
729
00:45:38.789 --> 00:45:47.435
It is to your point, as the company grows and you have multiple levels of management, you have a marketing department, you have a sales team, people can start to hide in the organization.
730
00:45:47.775 --> 00:45:51.218
And knowing that that's going on can sometimes be draining, like mentally.
731
00:45:51.675 --> 00:45:54.697
Yeah, so let me give a better answer on that specific to home services.
732
00:45:54.737 --> 00:45:57.759
So the way I think you have to do it, what you just said, the metrics.
733
00:45:58.059 --> 00:46:03.522
We've got to really make sure now that we understand the key metrics of the business in those areas and we're tracking them.
734
00:46:04.163 --> 00:46:16.691
And that will kind of tell us what's happening, especially when you have multiple people in a division or a part of the business and you can tell this person's handling 48 calls a day and this person's handling nine.
735
00:46:17.011 --> 00:46:19.793
Like you could see that kind of stuff.
736
00:46:20.811 --> 00:46:25.453
I mentioned the word Kanban, spelled with a K, or the word Scrum.
737
00:46:26.653 --> 00:46:27.853
I would look that up.
738
00:46:28.213 --> 00:46:32.895
So now let's say you're managing parts of the business.
739
00:46:33.115 --> 00:46:34.395
So we're not talking about the field.
740
00:46:34.796 --> 00:46:39.077
We're talking about in the office at that level or management.
741
00:46:40.301 --> 00:46:41.602
How do I know what they're doing?
742
00:46:42.223 --> 00:46:43.804
How do I know if they're being productive?
743
00:46:44.384 --> 00:46:48.227
This, what I'm about to describe is what a good company does anyway.
744
00:46:48.807 --> 00:46:50.929
In a remote environment, I think it's even more critical.
745
00:46:50.969 --> 00:46:59.555
And so the basic idea at a very simple level is every day or three times a week, we're doing a standup meeting with our small team.
746
00:47:00.036 --> 00:47:00.996
So like, let's say,
747
00:47:01.877 --> 00:47:04.318
It's the managers of the team.
748
00:47:05.018 --> 00:47:06.759
So maybe you have four managers in the company.
749
00:47:06.799 --> 00:47:18.864
So we would literally be standing in front of a computer screen with a product like Trello on it, or we'd be standing in front of a whiteboard, and we'd be having a conversation amongst that group at the beginning of every day.
750
00:47:19.744 --> 00:47:21.966
Each person, what did you get done yesterday?
751
00:47:22.426 --> 00:47:23.347
What are you doing today?
752
00:47:23.387 --> 00:47:24.667
What are you going to get done today?
753
00:47:24.768 --> 00:47:25.768
And what are your bottlenecks?
754
00:47:26.429 --> 00:47:30.652
And so what it does, and there's other ways to do it, but that's a very elementary way to do it.
755
00:47:30.692 --> 00:47:42.920
So what it does is it creates that example I gave earlier where you can't hide in a small team where if you're not doing your job, your neighbor sitting next to you knows you're the one costing us money right now.
756
00:47:43.000 --> 00:47:43.660
It's that same thing.
757
00:47:43.680 --> 00:47:43.901
It's like,
758
00:47:44.521 --> 00:47:47.504
This guy is never prepared when we have these meetings in the morning.
759
00:47:47.984 --> 00:47:49.626
And every day he says he's going to do this thing.
760
00:47:49.646 --> 00:47:50.347
And here we are.
761
00:47:50.367 --> 00:47:51.107
That was Monday.
762
00:47:51.167 --> 00:47:51.768
It's Wednesday.
763
00:47:51.848 --> 00:47:53.089
Monday's stuff still didn't get done.
764
00:47:53.690 --> 00:47:57.534
And so you create this version of pressure and accountability and visibility.
765
00:47:57.774 --> 00:48:01.838
You can do that physically, but you can also do it in a remote environment.
766
00:48:01.858 --> 00:48:04.801
So that would be one way I would tell you to try to manage remotely.
767
00:48:05.101 --> 00:48:06.703
But it creates more work for the management team.
768
00:48:07.263 --> 00:48:08.064
And it's not easy.
769
00:48:09.105 --> 00:48:17.030
Yeah, and one thing that's helped me a lot is when all those meetings are recorded, the ability for AI to be able to, like, synthesize that data back to me.
770
00:48:17.050 --> 00:48:23.134
So I don't have this nagging notion that because I have not been looped into every meeting, people are hiding or they're not doing work.
771
00:48:23.274 --> 00:48:26.556
Like, that was a big thing for me when so much of the team started getting remote, and they're expensive.
772
00:48:27.057 --> 00:48:30.759
And when you're, like, trying to fund the business, it's like, that is in the back of your mind.
773
00:48:31.200 --> 00:48:34.482
And it's still something I still grapple with because I'm, like, every penny should count.
774
00:48:35.242 --> 00:48:43.307
And so one of the ways that I've been able to handle that or like put a damper on that emotion is getting Codex to like run an automation.
775
00:48:43.607 --> 00:48:45.828
Hey, take all those scripts of those daily meetings.
776
00:48:46.188 --> 00:48:47.489
Give me a quick synthesis.
777
00:48:47.509 --> 00:48:49.430
So at least I know, hey, what are they working on?
778
00:48:49.710 --> 00:48:50.751
What's the current bottlenecks?
779
00:48:50.951 --> 00:48:51.791
What do they get finished?
780
00:48:52.051 --> 00:48:54.493
And have much more of a sense of progress and trust.
781
00:48:54.713 --> 00:49:00.736
Because the part that I don't want to jeopardize is like me looking over their shoulder like, hey, what did you do yesterday?
782
00:49:01.296 --> 00:49:03.998
And that's the part where I never want to become that kind of person.
783
00:49:04.258 --> 00:49:04.458
Yeah.
784
00:49:04.698 --> 00:49:08.721
And a scrum meeting, as I described, doesn't need to necessarily feel like it's looking over your shoulder.
785
00:49:08.841 --> 00:49:10.582
It can feel like a team thing.
786
00:49:10.922 --> 00:49:21.388
And it can also feel like what is, no matter how good an organization is at communicating, everybody, people will say, we don't communicate enough in this organization.
787
00:49:22.473 --> 00:49:24.635
And there's a lot of reasons why that will happen.
788
00:49:25.115 --> 00:49:27.257
Or they'll feel that way or they'll say that in the background.
789
00:49:27.277 --> 00:49:28.477
There's a lot of reasons that happens.
790
00:49:28.518 --> 00:49:33.561
Well, in the scenario I just described, it forces that communication.
791
00:49:33.621 --> 00:49:40.106
So the manager is in the scrum with the team and their job is to eliminate bottlenecks so everybody can go faster.
792
00:49:40.366 --> 00:49:46.891
So the team every day has a chance to describe what the problem is, what we're dealing with and what we need help with.
793
00:49:46.991 --> 00:49:49.413
And so I like it from that standpoint as well.
794
00:49:50.321 --> 00:49:58.208
especially in an organization, I found it was almost hard for me to switch a little bit was when it comes to home services, you get work done, you get paid.
795
00:49:58.808 --> 00:50:04.694
And so if anyone was performing less when it came to output in terms of work, I could see it in the numbers.
796
00:50:05.194 --> 00:50:09.017
When it comes to something like software where it's a recurring revenue business, it's like it doesn't show up on the P&L.
797
00:50:10.178 --> 00:50:11.880
The revenue just is going to be doing this.
798
00:50:12.261 --> 00:50:17.867
And it's like, what degree do they change that might impact the revenue and monthly recurring revenue?
799
00:50:18.247 --> 00:50:24.314
But it is so much easier to hide because it's not tied to, I put more bricks, I get more money.
800
00:50:24.514 --> 00:50:25.916
It's less quantifiable.
801
00:50:26.076 --> 00:50:27.638
It's like, how do you quantify creativity?
802
00:50:28.283 --> 00:50:29.505
Yeah, it's very difficult.
803
00:50:29.605 --> 00:50:33.711
And it just requires pretty strong management was my belief.
804
00:50:33.932 --> 00:50:37.477
Like somebody is just push, push, push all the time.
805
00:50:37.738 --> 00:50:39.721
That's what I conclude is required in development.
806
00:50:39.801 --> 00:50:41.423
It's not putting a developer down.
807
00:50:41.484 --> 00:50:43.226
It's not, it's like, it's not like...
808
00:50:44.364 --> 00:50:54.660
It's not being negative on anybody, but it is so easy to coast in that area, potentially, or refactor your code, or do all these other things that aren't really necessary.
809
00:50:54.961 --> 00:50:59.608
And so if you've got somebody push, push, push, it tends to keep people moving faster, more focused.
810
00:50:59.748 --> 00:51:00.709
I want to, I want us to scare us.
811
00:51:00.749 --> 00:51:06.273
Cause we've been, we went down the rabbit trail of a virtual and remote, um, where to invest money.
812
00:51:06.293 --> 00:51:13.258
This is one of the questions from a last episode for a business between doing between a million and $10 million in annual revenue.
813
00:51:13.579 --> 00:51:14.519
They have profits.
814
00:51:15.000 --> 00:51:16.561
Where should that money be going?
815
00:51:17.242 --> 00:51:17.422
Um,
816
00:51:17.922 --> 00:51:19.583
I think this one's a little difficult because it kind of depends.
817
00:51:19.603 --> 00:51:25.727
Like, I think for both of us, it'd be like, if you have excess cash and you know where to deploy it in your business, that's going to unlock the next 5 million.
818
00:51:25.987 --> 00:51:26.988
You should probably do that.
819
00:51:27.008 --> 00:51:28.089
It's probably the best investment.
820
00:51:28.429 --> 00:51:37.075
But let's assume for a minute, like someone either A, can't grow because their market or B, they don't want to grow number of employees or liability.
821
00:51:37.095 --> 00:51:38.416
They're like, hey, I got a good business.
822
00:51:38.576 --> 00:51:39.156
It's printing.
823
00:51:39.236 --> 00:51:40.897
It's 25, 30% profitable.
824
00:51:41.198 --> 00:51:41.878
It's being ran.
825
00:51:41.938 --> 00:51:42.679
I'm hardly there.
826
00:51:42.699 --> 00:51:43.159
I'm not.
827
00:51:43.359 --> 00:51:44.879
What do I do with the excess cash?
828
00:51:45.540 --> 00:51:48.040
What would your perspective be on this one?
829
00:51:48.480 --> 00:52:04.344
And there, okay, the way I think about this first is there's some amount of cash that is required, and it is probably a bigger number than you might expect or think, that needs to be liquid.
830
00:52:05.364 --> 00:52:07.925
And the reason I say that is,
831
00:52:09.460 --> 00:52:17.967
your best asset that you have in life, and by asset, we're talking about you've got a business, you might have a stock portfolio, you might have some real estate, whatever.
832
00:52:18.047 --> 00:52:19.007
Those are all assets.
833
00:52:19.087 --> 00:52:22.090
Your best asset is your business.
834
00:52:22.410 --> 00:52:27.434
That is the, as they would say, it's maybe not a cash cow, but it's the cash cow in your scenario.
835
00:52:27.454 --> 00:52:32.617
It's like the thing that has to be protected at all costs because if that ends, you've got a problem.
836
00:52:33.118 --> 00:52:36.440
And so when you have excess cash,
837
00:52:39.022 --> 00:52:41.805
And as you're investing that cash, it needs to be liquid.
838
00:52:42.606 --> 00:52:46.269
And liquid means that I can get to it immediately if I need it.
839
00:52:46.610 --> 00:52:52.716
Because that liquidity allows me to protect my most important asset if something really bad happens.
840
00:52:53.156 --> 00:52:55.038
I can put money into it to make payroll.
841
00:52:55.098 --> 00:52:56.480
I can put money into it to...
842
00:52:57.830 --> 00:53:03.696
Maybe it's as even an opportunity comes along to buy a bunch of accounts that is just such a great deal.
843
00:53:03.716 --> 00:53:05.077
It's like it's an absolute no-brainer.
844
00:53:05.118 --> 00:53:08.381
So you've got the cash available because that's going to be your best return on money.
845
00:53:09.262 --> 00:53:14.947
So the first way I think about this is I can only invest my money in things that have a lot of liquidity.
846
00:53:15.915 --> 00:53:19.976
And so when I think about liquidity, that's not buying real estate.
847
00:53:20.356 --> 00:53:24.177
It's not buying private equity, which is not something most people are going to do at this level.
848
00:53:24.738 --> 00:53:29.939
It's not investing in anything like private credit or any of these things that will lock up your money.
849
00:53:30.399 --> 00:53:33.300
So you've got to invest in things that I can get it tomorrow.
850
00:53:33.440 --> 00:53:42.603
And so that pushes you towards treasury bills, your money sitting in a money market account, long-term bonds, stocks.
851
00:53:43.283 --> 00:53:44.263
Things of that sort.
852
00:53:44.363 --> 00:53:52.006
And so for me, my default would be some amount of that money, frankly, is going to be in something closer to a money market fund.
853
00:53:52.726 --> 00:53:57.587
Or it's going to be a lower interest paying device.
854
00:53:57.687 --> 00:54:00.148
But I know for a fact it's not going down in value.
855
00:54:01.067 --> 00:54:05.953
And then some of that money can be put into, for example, an S&P 500 index.
856
00:54:06.413 --> 00:54:10.357
The risk there is you've got the liquidity, but what if you need that money?
857
00:54:10.718 --> 00:54:16.785
What if the reason your business is down is the exact, it's all based on the fact that even the stock market is down.
858
00:54:16.825 --> 00:54:19.107
And so now you're taking money out when it's down.
859
00:54:19.127 --> 00:54:19.568
Okay.
860
00:54:19.928 --> 00:54:37.834
So the strategy that I have used is to keep a lot of, over the years, because my business were, I mean, for a long time, I've had, if you accumulated the revenue of my businesses, even going way back, forever, I've had at least 20 million a year in revenue coming in, going way, way back in time.
861
00:54:38.394 --> 00:54:41.655
And so that's a lot of business to protect.
862
00:54:41.795 --> 00:54:46.637
And so I had millions of dollars sitting in outside of the S&P 500.
863
00:54:47.746 --> 00:54:53.494
And then after some amount of money, then I was investing in the stock market.
864
00:54:53.914 --> 00:55:01.665
And I don't know if you can ask me about this, but I also use some insurance products, which I'm almost afraid to talk about because I tend to be highly negative on insurance.
865
00:55:02.045 --> 00:55:05.129
But I use some insurance products to help close this market.
866
00:55:05.670 --> 00:55:06.730
solve this problem for me.
867
00:55:07.230 --> 00:55:16.453
And so there's really not many, I'd love to hear what you say, Mike, but there's not many more options than that that come to mind if you're trying to solve for liquidity.
868
00:55:16.493 --> 00:55:22.715
Now we can talk about investing money when you don't need liquidity anymore, but those are the things that come to mind for me.
869
00:55:23.015 --> 00:55:29.237
Yeah, like a lot of times it happens almost every time the second half of the year when owners in Augusta are like, hey, we have cash.
870
00:55:29.277 --> 00:55:30.177
What are we supposed to do with it?
871
00:55:30.638 --> 00:55:38.660
And a lot of times they are saving up for like their next expansion or the next spring rush to expand the business, knowing that they have powder dry during the spring rush.
872
00:55:38.800 --> 00:55:40.061
Customer acquisition costs are lower.
873
00:55:40.321 --> 00:55:42.782
That's when ideally I can expand at that time.
874
00:55:43.382 --> 00:55:45.623
And so I've actually kind of created a bit of a framework.
875
00:55:45.963 --> 00:55:47.403
I don't think I've ever shared it before.
876
00:55:47.643 --> 00:55:53.785
It's like anything under a year, if I need the money within a year, I'm probably just doing high interest savings.
877
00:55:54.145 --> 00:55:56.426
I'm doing money markets.
878
00:55:56.766 --> 00:56:00.287
I'm doing maybe some short-term treasuries because I need the liquidity, to your point.
879
00:56:00.387 --> 00:56:00.567
Yeah.
880
00:56:01.047 --> 00:56:03.209
It really comes down to how soon do I need the money?
881
00:56:03.229 --> 00:56:08.174
I think a lot of times people think they don't need it in 10 years, but in reality, they actually need it sooner than that.
882
00:56:08.715 --> 00:56:15.881
But if you actually have a purpose for the cash to be invested in the business, to your point, is the best investment or the cash cow.
883
00:56:16.262 --> 00:56:17.943
If it's under 12 months, usually I say...
884
00:56:18.624 --> 00:56:24.570
Very liquidity, high liquidity in those sort of lower interest rate products.
885
00:56:25.111 --> 00:56:29.415
If you're going to go like 12 months to two years, that's when you think you'll need the money.
886
00:56:29.635 --> 00:56:33.379
That's when generally you're pretty safe putting in the S&P 500 or index funds.
887
00:56:33.639 --> 00:56:39.385
Because over the course of 24 months, I forget the exact stats, like 93% of the time the market's been up.
888
00:56:39.585 --> 00:56:40.005
Yeah.
889
00:56:40.065 --> 00:56:42.388
After two years, you're generally very safe.
890
00:56:42.864 --> 00:56:45.105
Yeah, so if I know I'm holding it two years, great.
891
00:56:45.385 --> 00:56:55.050
If it's above five years, that's when I start thinking real estate because if I can leverage it and get five times the principal, then that starts to become a thing.
892
00:56:55.830 --> 00:56:59.872
I see so many people do the real estate thing and then they need the money in 16 months.
893
00:57:00.232 --> 00:57:03.353
And that's what we talked about last week is like, now your down payment's locked up.
894
00:57:03.693 --> 00:57:09.035
And now all of a sudden you're investing in a completely different business, which is real estate, which moves much slower than your business.
895
00:57:09.355 --> 00:57:11.396
And now you have this huge opportunity that you can't take.
896
00:57:11.756 --> 00:57:12.797
A competitor is going to a business.
897
00:57:12.857 --> 00:57:21.600
You could buy the thing for pennies on the dollar, but you have $200,000 wrapped up in some piece of real estate that you could probably just go rent someplace else, honestly.
898
00:57:22.120 --> 00:57:23.421
And so that's kind of like my...
899
00:57:24.561 --> 00:57:30.985
quick tiers, like really how long will I be keeping this money set aside from being put back into the business?
900
00:57:31.685 --> 00:57:33.526
Yeah, I think it's a good framework.
901
00:57:35.187 --> 00:57:38.209
So when I was young, I thought I was going to buy real estate.
902
00:57:38.229 --> 00:57:42.072
I bought my house, first house when I was 22 and I bought a small apartment building when I was 23.
903
00:57:42.832 --> 00:57:47.595
And just small, like six units, you'd call that a little bitty apartment building.
904
00:57:48.115 --> 00:57:50.176
And I thought I was going to keep buying real estate.
905
00:57:50.196 --> 00:57:50.497
But then
906
00:57:51.788 --> 00:58:04.032
In the businesses, as my business stuff started to work or maybe didn't work and set us back, and then eventually it started working, I could never quite figure out on the real estate thing two things.
907
00:58:04.292 --> 00:58:11.534
One, I was going to tie up a lot of money, and I just always felt my businesses would be the better opportunity.
908
00:58:12.604 --> 00:58:14.966
And so I was always a little afraid of that.
909
00:58:15.006 --> 00:58:20.151
And then I learned with my small apartment property that that's a business in and of itself.
910
00:58:20.291 --> 00:58:23.614
And so I didn't do real estate because I thought it was too big of a distraction.
911
00:58:23.855 --> 00:58:28.058
But that's actually, I always thought I would have had built a big property portfolio.
912
00:58:28.118 --> 00:58:29.980
I always wanted to do that from very young.
913
00:58:30.340 --> 00:58:31.962
I like the real estate thing quite a bit.
914
00:58:31.982 --> 00:58:38.328
But for those two reasons, I'm still a little negative even on real estate, especially because of the business thing.
915
00:58:38.588 --> 00:58:41.791
or because of the, it's essentially a business you're running.
916
00:58:41.891 --> 00:58:44.152
And if you just have one or two, it's a distraction.
917
00:58:44.573 --> 00:58:46.955
It's back to my philosophy of building a bigger business.
918
00:58:46.995 --> 00:58:54.100
Now, I think if you're not building a bigger business and you're like, hey, I'm just building a business to a million bucks, we're gonna extract as much profit.
919
00:58:54.120 --> 00:58:56.042
That's a completely different scenario now.
920
00:58:56.642 --> 00:59:02.385
If that business is running well with a strong manager and you've done what you've talked about, Mike, great.
921
00:59:02.585 --> 00:59:05.906
If you want to do another business, which is essentially real estate, go for it.
922
00:59:05.946 --> 00:59:07.547
That would be my attitude on it.
923
00:59:08.047 --> 00:59:12.009
The question I'd lobby back to you is, okay, you talked about timing.
924
00:59:12.069 --> 00:59:14.890
So if it's under a year, we want to keep it liquid.
925
00:59:16.210 --> 00:59:17.831
How do you think about the amount?
926
00:59:17.951 --> 00:59:21.813
So for example, under a year, how much money...
927
00:59:23.430 --> 00:59:25.412
do we want to hold in the under a year account?
928
00:59:25.572 --> 00:59:27.173
I think it's whatever I need.
929
00:59:27.293 --> 00:59:28.134
I know I can use.
930
00:59:28.354 --> 00:59:30.015
Let's just say you have a million dollars aside.
931
00:59:30.035 --> 00:59:31.216
I need $200,000.
932
00:59:31.576 --> 00:59:33.738
Well, that's the money I'm going to keep liquid.
933
00:59:33.898 --> 00:59:35.780
By need, you mean for operating the business?
934
00:59:36.100 --> 00:59:37.101
I would keep that separate.
935
00:59:37.141 --> 00:59:38.942
I'm thinking savings versus an operating expense.
936
00:59:39.082 --> 00:59:40.983
That's how I was thinking about it too.
937
00:59:41.043 --> 00:59:45.446
I think this is money that I don't need to operate the business, but there's an opportunity that's coming next year.
938
00:59:45.466 --> 00:59:49.129
For example, I'm going to buy three more trucks and get three more cruisers on the road.
939
00:59:49.389 --> 00:59:50.390
I'm going to launch a new service.
940
00:59:50.410 --> 00:59:51.831
I'm going to go into a new market.
941
00:59:51.851 --> 00:59:57.535
I'm going to invest in a marketing manager that I know I'm going to lose on overhead for three months.
942
00:59:57.975 --> 01:00:02.138
That's the type of thing I'm like, hey, that's a future investment that I know in my business is a positive thing.
943
01:00:02.638 --> 01:00:03.679
I need to set that money aside.
944
01:00:03.719 --> 01:00:04.440
It's earmarked.
945
01:00:05.080 --> 01:00:05.880
for that investment.
946
01:00:06.300 --> 01:00:11.861
Anything besides that, that's when it's like, how far down the road am I going in terms of investment horizon?
947
01:00:12.341 --> 01:00:12.521
Yeah.
948
01:00:13.281 --> 01:00:18.562
I think the one year, two year, five year, that's, I think the way you described it, it's quite safe.
949
01:00:18.742 --> 01:00:28.064
Yeah, like the one thing I like about real estate when it comes to excess cash is so many of the times when it comes to investing, it is simply time in the market, like Warren Buffett always says.
950
01:00:28.364 --> 01:00:31.004
And the thing about selling real estate, it doesn't, it's not fast.
951
01:00:31.664 --> 01:00:33.645
Whereas I see so many people being so,
952
01:00:36.354 --> 01:00:40.237
responsive to something happening in the market and they're selling at the bottom.
953
01:00:40.537 --> 01:00:42.759
They get emotional with selling in and out of index funds.
954
01:00:43.099 --> 01:00:44.880
And you and I think like, hey, that money is there.
955
01:00:44.900 --> 01:00:46.181
It's just forever.
956
01:00:46.241 --> 01:00:46.982
It's there for years.
957
01:00:47.222 --> 01:00:49.944
Whereas a lot of people, it's like, I pull the money out when I get afraid.
958
01:00:50.364 --> 01:00:51.105
I see the headlines.
959
01:00:51.165 --> 01:00:53.246
I pull the money out and or I stock trade.
960
01:00:53.647 --> 01:01:00.732
And that's where I see is not only a distraction, but also sometimes the ability to have real estate just where it's not as easily liquid.
961
01:01:00.752 --> 01:01:00.852
Yeah.
962
01:01:01.412 --> 01:01:08.838
is sometimes actually the reason why real estate becomes the huge part of someone's net worth or like the vast majority of millionaires have real estate.
963
01:01:08.858 --> 01:01:15.723
Well, it's because if you just hold any piece of property for the past 10 or 15 years, and they just didn't sell it, that equity has built.
964
01:01:15.943 --> 01:01:21.247
And so I think a lot of times when it comes to something more liquid, the problem is people do buy and sell it.
965
01:01:21.708 --> 01:01:23.889
Yeah, the stock market, great point.
966
01:01:24.030 --> 01:01:27.752
Stock market does not work for most people for the exact reason.
967
01:01:28.093 --> 01:01:29.194
The psychology...
968
01:01:30.272 --> 01:01:35.255
of running a business does not necessarily translate to the psychology you need to be an investor.
969
01:01:36.516 --> 01:01:46.263
And it just got so pounded into me from a young age and because I love finance and reading the destruction that is done trying to move in out of the market.
970
01:01:46.283 --> 01:01:48.464
But I promise you, I have all those tendencies.
971
01:01:48.825 --> 01:01:55.789
I can't tell you how often I'll think like right now, where we're at in the market now, it's like, dang, should I be cutting back my allocation?
972
01:01:55.809 --> 01:01:57.210
Like I do it all the time.
973
01:01:57.530 --> 01:01:57.751
And I've
974
01:02:00.012 --> 01:02:07.118
I think the data is something like if you miss the 10 biggest days in the market, you lose like 40 or 50% of your gains.
975
01:02:07.879 --> 01:02:10.281
It's like I've tried timing crypto.
976
01:02:10.341 --> 01:02:12.803
I've tried trading in and out of so many things.
977
01:02:12.823 --> 01:02:13.924
Like it doesn't work.
978
01:02:14.204 --> 01:02:15.385
It doesn't work for anybody.
979
01:02:15.705 --> 01:02:17.687
Like every once in a while, you'll get lucky, but on the whole, you don't.
980
01:02:17.747 --> 01:02:23.072
So you make a wonderful point that if a person is going to get in and out, you should not be in the market.
981
01:02:24.232 --> 01:02:30.454
One thing I will tell you about the market if you are interested in them, if you're like, hey, I'm interested, but it does scare me.
982
01:02:31.394 --> 01:02:38.917
I will tell you that if the stock market ends and stays down, every other investment you have is trash.
983
01:02:39.417 --> 01:02:41.598
There are only a few non-correlated investments.
984
01:02:42.158 --> 01:02:44.139
Bitcoin is massively correlated.
985
01:02:44.639 --> 01:02:46.119
Crypto is massively correlated.
986
01:02:46.499 --> 01:02:47.800
Real estate is correlated.
987
01:02:48.240 --> 01:02:51.401
You can go down the list of private equity is correlated.
988
01:02:51.421 --> 01:02:51.561
Right.
989
01:02:52.433 --> 01:02:53.574
It's all correlated.
990
01:02:53.614 --> 01:03:01.237
Maybe gold, but gold is a non-correlated asset, meaning they move in different directions.
991
01:03:01.597 --> 01:03:02.837
But then there's a different problem.
992
01:03:03.358 --> 01:03:07.219
People have to raise capital because they put margin on their investments.
993
01:03:07.239 --> 01:03:09.800
They use leverage to buy real estate.
994
01:03:09.840 --> 01:03:11.361
They use leverage to buy crypto.
995
01:03:11.581 --> 01:03:13.382
They use leverage to buy...
996
01:03:14.382 --> 01:03:14.862
stocks.
997
01:03:15.302 --> 01:03:19.784
And so what happens is when everything comes down, people have to raise cash to satisfy margin.
998
01:03:20.144 --> 01:03:30.128
We're currently sitting at a place where margin debt is, I don't know on a percentage basis if this is true, but at a dollar basis, I believe we're at the highest place we've ever been on margin debt right now.
999
01:03:30.928 --> 01:03:31.928
I think that's factual.
1000
01:03:32.308 --> 01:03:38.809
So what happens is when asset prices come down across any of these categories, people need to raise capital.
1001
01:03:39.550 --> 01:03:44.070
And so they'll go to things like gold and they'll sell that down.
1002
01:03:44.411 --> 01:03:49.051
So you might think, oh, well, if the stocks drop, I've got my money over here.
1003
01:03:49.131 --> 01:03:51.212
I'll just, you know, that asset will do great.
1004
01:03:51.272 --> 01:03:55.693
And it might, but if it's a big sell down, that asset will probably come down as well.
1005
01:03:56.233 --> 01:03:57.013
During COVID-19.
1006
01:03:58.501 --> 01:04:03.088
bonds who are supposed to move the opposite direction of stocks, they all came down at the same time.
1007
01:04:03.108 --> 01:04:04.049
People got crushed.
1008
01:04:04.950 --> 01:04:13.243
And so I just want to give a little context on that, but the big, big, big, giant point I want to make is if you're scared of the stock market,
1009
01:04:15.251 --> 01:04:18.292
The stock market is the key to everything.
1010
01:04:19.112 --> 01:04:20.532
It is the key to everything.
1011
01:04:20.652 --> 01:04:23.573
And so you could say, well, I'm not going to do the stock market.
1012
01:04:23.633 --> 01:04:25.673
I'm going to invest in all these other investments.
1013
01:04:25.693 --> 01:04:26.214
They're safer.
1014
01:04:26.514 --> 01:04:29.574
The reason they feel safer is because there's this thing called mark to market.
1015
01:04:29.994 --> 01:04:33.595
Mark to market is where we're constantly getting an updated asset price.
1016
01:04:33.915 --> 01:04:36.056
My private equity fund is worth this amount of money.
1017
01:04:36.096 --> 01:04:37.476
My real estate property is worth this.
1018
01:04:37.536 --> 01:04:41.997
It'd be like if every day you do the exact value that somebody would pay you that day for your house.
1019
01:04:42.457 --> 01:04:44.758
You don't know it, but your house is really fluctuating.
1020
01:04:45.338 --> 01:04:47.119
And all assets are really fluctuating.
1021
01:04:47.219 --> 01:04:51.540
And to your point, one of the things about commercial real estate is you get trapped in it.
1022
01:04:51.821 --> 01:04:53.821
So you can't sell when you get scared.
1023
01:04:54.321 --> 01:04:55.862
Also, you don't know the value of it.
1024
01:04:55.882 --> 01:04:57.803
So you don't live in panic, fear of panic.
1025
01:04:58.638 --> 01:05:03.159
But with the stock market, you're seeing it fluctuate every single day and you got people talking about it all the time.
1026
01:05:03.179 --> 01:05:05.900
And so this is really, really critical.
1027
01:05:06.160 --> 01:05:08.881
And I say it just to give you a little bit of confidence.
1028
01:05:08.921 --> 01:05:13.543
If you're interested in the stock market, hopefully that gives a little context on how it works.
1029
01:05:13.603 --> 01:05:18.584
But also, it's really important to understand it's not it's actually one of the less risky things.
1030
01:05:18.624 --> 01:05:20.985
We're going to have a big drawdown here at some point.
1031
01:05:21.625 --> 01:05:22.766
It's coming.
1032
01:05:23.286 --> 01:05:24.927
But private equity is down right now.
1033
01:05:24.967 --> 01:05:26.068
People don't understand it.
1034
01:05:26.088 --> 01:05:28.189
Like all these other investment classes are actually down.
1035
01:05:28.689 --> 01:05:29.710
Office buildings are down.
1036
01:05:29.730 --> 01:05:32.711
There's a lot of stuff in real estate that's not in a great place right now.
1037
01:05:33.212 --> 01:05:34.072
I mean, a lot.
1038
01:05:35.393 --> 01:05:38.455
And so people don't realize it because they don't have to sell it.
1039
01:05:38.675 --> 01:05:39.956
So a little bit of a diatribe.
1040
01:05:39.976 --> 01:05:42.077
But I really, I'm a fan of the markets.
1041
01:05:43.076 --> 01:05:43.997
And they are scary.
1042
01:05:44.057 --> 01:05:48.520
And so for some people, I think they would do wonderfully if they were in the market.
1043
01:05:48.540 --> 01:05:49.381
I'll say one last thing.
1044
01:05:50.061 --> 01:05:55.105
Do you really believe that the United States government is going to allow the markets to collapse?
1045
01:05:55.926 --> 01:05:58.147
Where is all of everybody's money in this country?
1046
01:05:58.688 --> 01:06:00.209
All the voters are.
1047
01:06:01.967 --> 01:06:04.889
But there's 401ks, there's IRAs, there's retirement.
1048
01:06:04.909 --> 01:06:06.410
It's like so much money.
1049
01:06:06.730 --> 01:06:08.331
It's so much of the people running the country.
1050
01:06:08.531 --> 01:06:09.692
This is where the money's at.
1051
01:06:09.912 --> 01:06:12.814
Like consumer confidence is based, or like so many things are based on this.
1052
01:06:13.174 --> 01:06:15.216
The government will bring liquidity to the market.
1053
01:06:15.236 --> 01:06:16.236
They'll bring down interest rates.
1054
01:06:16.256 --> 01:06:19.659
They'll do whatever they have to do because this is the first thing they want to revive.
1055
01:06:19.679 --> 01:06:23.681
So it's a little bit of my thesis is I'm highly allocated to the market.
1056
01:06:23.801 --> 01:06:28.985
If for no other reason, I do not believe for a moment that the government is going to be like, yeah,
1057
01:06:29.405 --> 01:06:30.526
We don't care about the markets.
1058
01:06:30.566 --> 01:06:31.907
They care in a massive way.
1059
01:06:32.667 --> 01:06:33.408
Yeah, absolutely.
1060
01:06:33.448 --> 01:06:37.991
I think the number one way to get Trump's attention is basically the market going down for about a week solid.
1061
01:06:38.011 --> 01:06:40.772
And all of a sudden, we will make things happen on tariffs.
1062
01:06:40.812 --> 01:06:41.533
Yeah, yeah.
1063
01:06:41.593 --> 01:06:44.295
All of a sudden, we will open up the straighter for moves or whatever it is.
1064
01:06:44.755 --> 01:06:45.575
So, okay, cool.
1065
01:06:45.675 --> 01:06:49.198
Let's move to the next one because that kind of ties into 401ks, IRAs, retirement.
1066
01:06:49.538 --> 01:06:55.021
I think a lot of times people underestimate how much they need to actually retire.
1067
01:06:55.382 --> 01:06:58.844
I know you've done some math on this, so I'll tee that up and hand it over to you.
1068
01:06:59.064 --> 01:07:02.167
I really love this, what I think is a very simple concept.
1069
01:07:02.807 --> 01:07:05.910
And the concept is that you have a bucket of assets.
1070
01:07:06.430 --> 01:07:13.576
You have a business, you have stocks, you maybe have some real estate, you have all these different assets.
1071
01:07:14.016 --> 01:07:15.457
And let's just ignore the income.
1072
01:07:15.858 --> 01:07:17.599
Well, really, we don't want to ignore the income.
1073
01:07:17.719 --> 01:07:18.960
Actually, forget I said that.
1074
01:07:19.000 --> 01:07:19.681
Don't ignore the income.
1075
01:07:19.921 --> 01:07:20.802
Use assets.
1076
01:07:20.822 --> 01:07:21.222
Yeah.
1077
01:07:21.642 --> 01:07:30.168
So if you add up the value of these assets, like let's say that you have, and I know this is a big number, but for simple math, you have $10 million in assets.
1078
01:07:31.129 --> 01:07:40.255
Then there's these rules that have been backtested in all different time periods throughout history.
1079
01:07:41.016 --> 01:07:43.678
And so one, there's two numbers, 3% and 4%.
1080
01:07:45.798 --> 01:07:56.812
So the idea is that it's been highly backtested that you can spend 3% of your assets value every year and not run out of money.
1081
01:07:57.733 --> 01:07:59.356
Some people will stretch that to 4%.
1082
01:08:00.902 --> 01:08:04.703
And even that's back-tested and held up really well that you can spend 4%.
1083
01:08:05.203 --> 01:08:09.844
Those numbers are just that 1% shift is very meaningful.
1084
01:08:10.445 --> 01:08:17.566
I tend to say, because I'm conservative in everything, I like the 3% number better than the 4%, but the 4% is held up.
1085
01:08:17.606 --> 01:08:22.208
So the gist is that if you have $10 million, I can take 3% every year.
1086
01:08:24.425 --> 01:08:29.048
or 4% every year, so $300,000 or $400,000, I can take that out and spend it.
1087
01:08:29.208 --> 01:08:35.851
And if I'm invested, now I can't be invested in just treasury bills that are returning 2.5%.
1088
01:08:36.372 --> 01:08:40.194
But if I have a mixed bag of investments across...
1089
01:08:40.855 --> 01:08:57.127
like lower paying bonds, money market funds, the stock market, some amount of REITs or real estate, maybe a few asset classes where we're getting a blended average of maybe a 7% return or something like that, then I can spend this 3% or 4%.
1090
01:08:57.167 --> 01:09:09.035
So if you buy into that belief, and I buy into it because it's so widely tested, but we never know what is gonna happen in the future, based on just knowing that, you can project what you would need
1091
01:09:09.957 --> 01:09:15.041
And I tend to talk in terms of like going for it, like building the thing you want in life.
1092
01:09:15.061 --> 01:09:18.484
That's the great gift we've been given by getting to build these businesses.
1093
01:09:18.524 --> 01:09:20.525
So like, what do you need?
1094
01:09:20.866 --> 01:09:22.667
Are you wanting to, do you need a hundred a year?
1095
01:09:22.687 --> 01:09:24.008
Do you need a quarter million a year?
1096
01:09:24.028 --> 01:09:24.729
What's that number?
1097
01:09:24.809 --> 01:09:33.736
It's probably more than you think it is, especially depending on if you're pretty young and you don't have kids yet and you don't know, you haven't even experienced healthcare and kids going to college.
1098
01:09:33.756 --> 01:09:38.120
Like there's things that might be coming that the number is actually gonna be more than you think it's gonna be.
1099
01:09:38.780 --> 01:09:39.020
All right.
1100
01:09:39.420 --> 01:09:42.262
So let's just say your number's $250,000.
1101
01:09:42.742 --> 01:09:43.362
Okay.
1102
01:09:44.783 --> 01:09:53.707
So what you do is you multiply 250,000 times, I want to say this correctly.
1103
01:09:54.807 --> 01:09:58.188
If you multiply it by 33, that is a, is that the 4% return?
1104
01:09:58.349 --> 01:09:58.609
No, no.
1105
01:09:58.629 --> 01:09:59.249
It's a 3% return.
1106
01:09:59.269 --> 01:09:59.529
Yeah.
1107
01:10:01.250 --> 01:10:03.431
So if you go with three, which is conservative,
1108
01:10:04.497 --> 01:10:07.079
then you just take your number and multiply it by 33.
1109
01:10:07.999 --> 01:10:11.061
So I think that's probably, I think it's around 6 million bucks.
1110
01:10:11.121 --> 01:10:18.746
So in other words, if you wanna live on 250,000 a year for the rest of your life, you need to save, I think it's just over 6 million dollars.
1111
01:10:19.707 --> 01:10:24.469
and have that $6 million invested in a variety of assets that produce around 7%.
1112
01:10:25.089 --> 01:10:27.110
So just remember your number times 33.
1113
01:10:27.170 --> 01:10:32.732
If you want to be a little more aggressive, but the data still holds up, then you take your number, $250,000, and you multiply that by 25%.
1114
01:10:37.361 --> 01:10:42.085
And I don't remember, but I think that number is something like 8 million or maybe just a little over 8 million.
1115
01:10:42.686 --> 01:10:45.248
So in other words, and that's how you calculate it.
1116
01:10:45.288 --> 01:10:46.549
It's really that simple.
1117
01:10:47.170 --> 01:10:48.411
That's how I like to think about it.
1118
01:10:48.811 --> 01:10:49.312
That was a lot.
1119
01:10:49.332 --> 01:10:49.972
Did that make sense?
1120
01:10:49.992 --> 01:10:51.614
I want to pause there and say, did that make sense?
1121
01:10:51.954 --> 01:10:52.334
Well, yeah.
1122
01:10:52.394 --> 01:10:58.560
You use the 3% and 4% rule basically as if you were drawing down on your investment throughout your time in retirement.
1123
01:10:58.580 --> 01:10:58.960
Yeah.
1124
01:10:59.120 --> 01:11:04.885
One thing that I think we do at Augusta in the training is we don't even touch the principle.
1125
01:11:05.225 --> 01:11:25.363
It's like if you lived off the investment principle and only off the, let's call it dividends or the returns, 4%, 5%, 6%, whatever that diversification is, that compared to what a business could do in terms of having systems, having management in place that can kick off that same kind of net free cash flow.
1126
01:11:26.023 --> 01:11:28.305
passively, if you build a business over the course of time.
1127
01:11:28.725 --> 01:11:31.187
And we do this comparison where it's like, hey, what's easier?
1128
01:11:31.267 --> 01:11:40.594
Getting the $8 million that you can get to $300,000 or building a business that does $3 million, does 20% profit, and half of it you take as distributions.
1129
01:11:40.694 --> 01:11:42.255
That's also $300,000 a year.
1130
01:11:42.676 --> 01:11:50.902
And so looking to your point, as the business, as your investment vehicle for you to be able to retire is kind of how we look at it.
1131
01:11:51.640 --> 01:11:53.484
I actually do the exact same thing.
1132
01:11:53.504 --> 01:11:55.708
I think I might even have a five for 50 video on this.
1133
01:11:56.430 --> 01:11:58.834
I completely agree with the way you guys are talking about it.
1134
01:11:59.255 --> 01:11:59.676
And so,
1135
01:12:01.241 --> 01:12:03.083
If you can do both, killer.
1136
01:12:04.043 --> 01:12:12.849
And by both, what I mean is you build the portfolio of investments that maybe you never have to touch them, but you also have the asset that is the business.
1137
01:12:12.869 --> 01:12:28.180
So if you, just to build on your point, like put actual numbers to it, if you have a business that's producing $250,000 a year that you can actually take out of your business, and it's a very defensible business that will last over time,
1138
01:12:29.130 --> 01:12:30.011
That's really key.
1139
01:12:31.212 --> 01:12:37.659
Then you've essentially created, in my example, the equivalent of having $6 or $8 million in assets.
1140
01:12:38.660 --> 01:12:43.805
And so the way I like to think about this is, again, I like bigger.
1141
01:12:43.826 --> 01:12:44.706
Can you do both?
1142
01:12:44.827 --> 01:12:46.568
Can you build a great asset?
1143
01:12:47.249 --> 01:13:01.744
that is really, really solid, will be durable, will last time, has backup plans in place, and get to a place where you're taking money out of the business, you're investing it in these other asset classes, and you're growing that other pile of cash.
1144
01:13:01.985 --> 01:13:03.506
So you eventually get to this place where,
1145
01:13:04.921 --> 01:13:08.505
If you had to, if something happened in the business, you could live on the 3% or 4%.
1146
01:13:09.386 --> 01:13:20.579
The other reason why I think they talk about a lot of times is taking 3% or 4% instead of just talking about living on whatever the money produces is because we're going to continue to have inflation out into the future.
1147
01:13:20.939 --> 01:13:22.581
So the higher the inflation...
1148
01:13:23.464 --> 01:13:26.047
prediction, the lower this percentage is.
1149
01:13:26.087 --> 01:13:31.272
So like in a low inflation environment, then you could probably follow the 4% rule.
1150
01:13:32.033 --> 01:13:37.178
In a higher inflation environment, you might need to be following the 3% rule, just a little more data.
1151
01:13:38.279 --> 01:13:43.604
And so that's why they talk about it that way versus if your portfolio is spending 7% why you can't spend the full 7%.
1152
01:13:44.760 --> 01:13:45.820
Yeah, no, absolutely.
1153
01:13:46.361 --> 01:14:06.227
Yeah, I think one of the videos you made at 5 for 50, I think way back was around if we could measure the value of our business, like the stock market or even real estate, like to your point, like the mark to market of like every day, you know, your Apple stock is worth $200, 180, 210, 205.
1154
01:14:06.687 --> 01:14:07.787
It's easy to value that.
1155
01:14:07.928 --> 01:14:11.989
Look at an account in your bank account, whether it be cash or stocks, like that is the value.
1156
01:14:12.009 --> 01:14:12.109
Yeah.
1157
01:14:12.509 --> 01:14:21.532
And I think so often at times, it's easier to place that as the dollars and cents of our net worth versus when you're building a business, there is real value there.
1158
01:14:22.032 --> 01:14:30.375
And especially if you're in growth mode, it's very hard sometimes to understand the asset value because there isn't anyone every day like, I would give you a million dollars.
1159
01:14:30.535 --> 01:14:31.535
I'd give you 1.1 million.
1160
01:14:31.555 --> 01:14:32.675
I would give you 800,000.
1161
01:14:32.895 --> 01:14:34.116
That's not happening every day.
1162
01:14:34.556 --> 01:14:41.038
And because of that, we never attribute that to the value that we're building and the net worth that we as entrepreneurs are actually building on.
1163
01:14:41.365 --> 01:14:42.406
Yeah.
1164
01:14:42.686 --> 01:14:46.349
I don't remember exactly what that video was, but I remember doing something like that.
1165
01:14:46.570 --> 01:14:46.710
It's,
1166
01:14:48.925 --> 01:14:53.587
Actually, I think there was a, I've probably done a couple of versions, but there was a fairly recent one I did about that.
1167
01:14:53.927 --> 01:14:59.489
And the title was something around me looking to hire somebody worth like, that I'd pay a million bucks for.
1168
01:14:59.509 --> 01:15:00.410
Oh, yes, that's what it was.
1169
01:15:00.430 --> 01:15:01.430
Yeah, I'd pay a million dollars.
1170
01:15:01.470 --> 01:15:12.195
And I was trying to make this point, like you don't understand all the work you're doing right now, even though you can't see what you said, even though you can't see the value, like you are generating wealth right now.
1171
01:15:12.315 --> 01:15:17.157
Like every day you're beat down, keep that frame, keep going, keep building this thing.
1172
01:15:17.957 --> 01:15:22.119
And one day, you'll see it, but it takes a little while.
1173
01:15:22.619 --> 01:15:29.661
I think sometimes the only time when I push back on that mentality is there are some people who never actually make profit.
1174
01:15:30.002 --> 01:15:33.143
They just stay in this perpetual growth mode of like, I am chasing the bigger thing.
1175
01:15:33.363 --> 01:15:38.105
And then they never actually make it profitable or make it systematized to where there is value.
1176
01:15:38.245 --> 01:15:43.106
Because to your point, it has to have profit and it has to be sustainable long-term.
1177
01:15:43.526 --> 01:15:44.627
Otherwise, it is worth...
1178
01:15:45.047 --> 01:15:45.307
Nothing.
1179
01:15:45.487 --> 01:15:45.807
Nothing.
1180
01:15:46.728 --> 01:15:51.271
And that's a nuanced conversation because on top of that, a lot of people perpetually stay in that mode.
1181
01:15:51.671 --> 01:15:53.592
And they say, I'm investing in my business.
1182
01:15:53.612 --> 01:15:57.654
Like, no, no, you're just running a highly unprofitable business.
1183
01:15:57.714 --> 01:16:01.896
You're not investing in anything.
1184
01:16:02.097 --> 01:16:03.537
It's just, it's priced wrong.
1185
01:16:04.178 --> 01:16:05.799
You've got all these other problems in the business.
1186
01:16:05.859 --> 01:16:07.540
If you fixed them, it'd easily be profitable.
1187
01:16:07.560 --> 01:16:08.380
A lot of stuff you talk about.
1188
01:16:08.873 --> 01:16:09.033
Yeah.
1189
01:16:09.374 --> 01:16:09.654
All right.
1190
01:16:09.794 --> 01:16:12.197
We're going to talk about engineering the business to sell.
1191
01:16:12.217 --> 01:16:15.120
And we kind of glanced over a little bit of private equity stuff there.
1192
01:16:15.621 --> 01:16:24.150
But when if someone is thinking about selling down the road, what can they do to improve their multiple, be able to build it?
1193
01:16:24.791 --> 01:16:29.835
structurally even from a legal perspective, to actually sell it, whether it be to private equity, a competitor, et cetera.
1194
01:16:30.175 --> 01:16:33.537
You have a lot of experience in all these areas, specifically private equity on the software side.
1195
01:16:33.917 --> 01:16:43.164
So what would you be giving advice to that person that is actually building to exit the business and not just live on it more of a sustainable, passive investment for the long term?
1196
01:16:43.284 --> 01:16:45.426
you probably need to clean up some stuff in your business.
1197
01:16:45.506 --> 01:16:56.137
So I would tell you first and foremost, there's a lot of things we can talk about here, but you need your accounting and your books to be very clean, very trustworthy.
1198
01:16:56.938 --> 01:16:58.799
They need to, they're gonna get audited
1199
01:16:59.420 --> 01:17:01.522
and they're going to get compared to all your bank statements.
1200
01:17:02.042 --> 01:17:04.944
Like, the people buying are not done.
1201
01:17:05.664 --> 01:17:06.945
They are very sophisticated.
1202
01:17:07.606 --> 01:17:11.208
And so your stuff has to be legitimately clean.
1203
01:17:11.689 --> 01:17:18.914
Also, you might want to tell the story of like, yeah, I know that my wife's car is in there, but we need to back that out, put that into my...
1204
01:17:19.074 --> 01:17:26.079
There's all these things like, oh, yeah, we take vacations out of the business, get all that junk out of the business years in advance of selling the business.
1205
01:17:27.893 --> 01:17:30.195
and so many people do that.
1206
01:17:31.195 --> 01:17:43.041
And you got to get that stuff out because there is no guarantee that you will get essentially credit for that back into your EBITDA or your net profit, and that will cost you money.
1207
01:17:43.301 --> 01:17:44.422
So clean that stuff up.
1208
01:17:44.562 --> 01:17:49.825
Also, the more games you play like that, it just, like, we didn't do any of that at Service AutoPilot.
1209
01:17:49.845 --> 01:17:51.245
Like, again, we weren't ready to sell.
1210
01:17:51.285 --> 01:17:52.166
We weren't planning to sell.
1211
01:17:53.042 --> 01:17:54.723
And then we decided to do a deal.
1212
01:17:54.843 --> 01:17:56.804
We didn't have, we didn't clean up anything.
1213
01:17:56.844 --> 01:17:58.405
There was no time to clean anything up.
1214
01:17:58.745 --> 01:18:00.767
Like by the time we decided we were going to do the thing.
1215
01:18:01.127 --> 01:18:02.728
Fortunately, we didn't play any of those games.
1216
01:18:02.748 --> 01:18:05.829
We had incredibly clean books.
1217
01:18:06.050 --> 01:18:10.632
And I would just tell you, if you're thinking about selling, just run the business that way.
1218
01:18:10.672 --> 01:18:12.693
If you're never going to sell, do whatever you want to do.
1219
01:18:13.234 --> 01:18:17.436
But if you're going to sell the business, that's imperative.
1220
01:18:17.576 --> 01:18:18.477
That's where it starts.
1221
01:18:20.065 --> 01:18:23.566
What will also happen is you're going to go through due diligence.
1222
01:18:23.966 --> 01:18:25.747
And Mike, I mean, there's so much I could say here.
1223
01:18:25.787 --> 01:18:29.148
Please interject and add color to this or redirect me.
1224
01:18:29.168 --> 01:18:31.069
But you're going to go through due diligence.
1225
01:18:31.249 --> 01:18:32.669
And due diligence is painful.
1226
01:18:33.550 --> 01:18:36.091
Simply because they're going to ask you a million questions.
1227
01:18:36.111 --> 01:18:37.771
They're going to look at everything in your business.
1228
01:18:37.791 --> 01:18:42.273
They're going to want to make sure everything's legit from your books to your contracts to
1229
01:18:42.693 --> 01:18:45.335
to your payroll, to your federal tax.
1230
01:18:45.375 --> 01:18:48.338
I think everything that's ever been paid to all your tax returns.
1231
01:18:48.758 --> 01:18:50.419
They want to make sure you own your trademark.
1232
01:18:50.459 --> 01:18:52.521
I mean, they want to know everything.
1233
01:18:53.442 --> 01:18:56.244
And so there's just a lot of stuff like that.
1234
01:18:56.284 --> 01:18:57.985
Are you, I mean, is everything dialed in?
1235
01:18:58.746 --> 01:19:02.329
Do you know where you're, I mean, just down to the most basic stuff.
1236
01:19:02.369 --> 01:19:11.175
And so if this is where you're going someday, then you want to be spending the money now on the right people, accountants, bookkeepers,
1237
01:19:11.916 --> 01:19:16.359
a consultant, and just get it all cleaned and just up and run the business that way.
1238
01:19:16.379 --> 01:19:18.501
Okay, so that's the basic stuff.
1239
01:19:19.001 --> 01:19:21.503
Like, again, I mean, this, another thing came to mind.
1240
01:19:21.683 --> 01:19:23.524
They'll probably never, I'll just keep going.
1241
01:19:23.544 --> 01:19:25.225
So I'll eventually not give you everything that comes to mind.
1242
01:19:25.245 --> 01:19:28.688
But like, what about pay employees versus contractors?
1243
01:19:28.708 --> 01:19:31.190
Like, is all the contractor stuff done right?
1244
01:19:31.210 --> 01:19:32.511
Like, where do they have risk?
1245
01:19:32.671 --> 01:19:33.912
That's why I voiced that one.
1246
01:19:34.072 --> 01:19:36.473
Like, what are their risks after they buy the company?
1247
01:19:37.654 --> 01:19:39.696
And so they're gonna be looking for all that stuff.
1248
01:19:40.016 --> 01:19:41.337
So you wanna clean that stuff up.
1249
01:19:42.263 --> 01:19:45.804
Then the next way you could think about it is you want to think about it from their perspective.
1250
01:19:46.645 --> 01:19:53.347
So what might, there'll be a variety of potential buyers of differing types that value different things.
1251
01:19:53.407 --> 01:19:56.268
So one buyer might be buying for cashflow.
1252
01:19:57.124 --> 01:20:08.673
So they just want to buy cash flow, meaning they want to know you're going to produce a stream of income, and that income is going to be highly durable, meaning it's going to last for a very long time out into the future.
1253
01:20:09.113 --> 01:20:13.937
They can allocate money based on that belief and prediction of how long that cash flow is going to come in.
1254
01:20:14.237 --> 01:20:16.839
But also, they want to look at this business and say, you know what?
1255
01:20:16.859 --> 01:20:17.420
We could double.
1256
01:20:17.540 --> 01:20:21.422
We can triple with just making some changes and doing some certain things.
1257
01:20:21.502 --> 01:20:24.644
I could turn this cash flow into three times this.
1258
01:20:24.664 --> 01:20:26.565
That's the story they want to be able to tell themselves.
1259
01:20:27.066 --> 01:20:28.487
That could be one thing they're buying.
1260
01:20:29.247 --> 01:20:36.191
Or another buyer might be buying, I don't know if it's a term used in the trades, but I think it is.
1261
01:20:36.271 --> 01:20:38.473
It's what might be called a platform company.
1262
01:20:38.813 --> 01:20:40.654
So I'll use my company as an example.
1263
01:20:40.994 --> 01:20:44.036
You wouldn't be buying my company as a tack-on.
1264
01:20:45.795 --> 01:20:48.536
I guess you could, but it'd have to be a massive company.
1265
01:20:49.136 --> 01:20:50.316
And I probably wouldn't do that deal.
1266
01:20:50.516 --> 01:20:51.677
I would want to be the platform.
1267
01:20:51.717 --> 01:21:00.899
So I would, the platform company is the idea that we buy you and then we go and do lots of acquisitions around your company.
1268
01:21:01.359 --> 01:21:09.182
So like maybe you buy a $25 million company and then I buy a bunch of two and three and $4 million companies and I roll them all in to the bigger company.
1269
01:21:09.502 --> 01:21:12.543
Or another way to think about the platform is we're buying, we'll use CityTurf again.
1270
01:21:12.583 --> 01:21:13.843
I'm buying the CityTurf brand.
1271
01:21:14.343 --> 01:21:20.507
I'm going to take CityTurf to Austin, to Houston, to Oklahoma City.
1272
01:21:20.648 --> 01:21:23.670
I'm going to start to spread out to the southeast.
1273
01:21:23.710 --> 01:21:27.312
I'm going to build a big, giant regional business using the CityTurf brand.
1274
01:21:27.332 --> 01:21:27.893
It's a platform.
1275
01:21:28.153 --> 01:21:30.274
So another person could value that.
1276
01:21:30.334 --> 01:21:33.737
So they're going to think very differently about that story.
1277
01:21:34.277 --> 01:21:40.001
And so you want to kind of think about how big is my business, why might it be bought, and what are they going to value?
1278
01:21:40.381 --> 01:21:42.483
So generally, the things you can sort of bet on,
1279
01:21:43.303 --> 01:21:47.887
is they're going to value speed of growth and they're going to value profits.
1280
01:21:47.907 --> 01:21:50.109
I mean, it's kind of that simple.
1281
01:21:50.469 --> 01:21:53.691
And then how well put together is the business?
1282
01:21:53.912 --> 01:21:56.053
Is it clean like I talked about?
1283
01:21:56.974 --> 01:21:59.236
Is it in a strong market where we believe we can...
1284
01:21:59.316 --> 01:22:00.157
grow this business.
1285
01:22:00.197 --> 01:22:09.267
Because if you're buying a business for the cash flow, but there's not a belief that there's a lot of opportunity in the market to grow it bigger, then we're just buying it for that cash flow that it is today.
1286
01:22:09.587 --> 01:22:10.769
And we're going to pay a lesser amount.
1287
01:22:10.809 --> 01:22:18.137
But if I can buy your business, and I believe I can triple it, quadruple it, 10x it, okay, that business is worth a lot more to me.
1288
01:22:19.617 --> 01:22:21.678
Again, I'm just going to, I think this is valuable.
1289
01:22:21.698 --> 01:22:23.318
So I'm going to throw, keep going for a bit here.
1290
01:22:23.759 --> 01:22:24.499
There's other things.
1291
01:22:24.679 --> 01:22:26.460
You may just flat out be lucky.
1292
01:22:26.700 --> 01:22:28.540
You're in a great market in the United States.
1293
01:22:29.141 --> 01:22:33.222
This company buying you has gaps in their region or their portfolios.
1294
01:22:33.242 --> 01:22:33.962
Like, you know what?
1295
01:22:34.022 --> 01:22:36.143
We really need a presence in this area.
1296
01:22:36.343 --> 01:22:37.864
We're all over this other place.
1297
01:22:38.284 --> 01:22:41.005
And we want to own a premier company in this market.
1298
01:22:41.765 --> 01:22:46.607
And we're willing to pay up for it because we need to own the bigger company to block out competition.
1299
01:22:46.647 --> 01:22:49.409
because this is a really important place to us and we don't have a presence here.
1300
01:22:49.730 --> 01:22:50.450
That could be a scenario.
1301
01:22:50.470 --> 01:22:56.315
And that's sort of like a getting lucky kind of scenario, where there happens to be a buyer in the market that needs exactly what you have.
1302
01:22:56.716 --> 01:23:00.159
And if you kind of get clued into that, it's like, hey, they'll pay up for that.
1303
01:23:00.799 --> 01:23:05.403
And so there's the reason I tell you all these different scenarios is there's a lot of scenarios.
1304
01:23:05.944 --> 01:23:09.327
But if I and you can't predict what those scenarios are going to be.
1305
01:23:10.332 --> 01:23:14.096
So what you do, in my opinion, run a super clean organization.
1306
01:23:14.816 --> 01:23:26.328
Build an organization that has, if it's bigger, if it's a bigger business, build a that has redundancies in it, where when you leave, this is imperative, when you leave, you're
1307
01:23:26.828 --> 01:23:31.511
the business will be just fine because other people are actually running the business.
1308
01:23:31.991 --> 01:23:35.754
I've given this example before when we sold Service Autopilot.
1309
01:23:36.234 --> 01:23:37.294
I didn't sell it all.
1310
01:23:37.335 --> 01:23:38.015
I sold part of it.
1311
01:23:38.615 --> 01:23:39.556
I had no earn out.
1312
01:23:40.136 --> 01:23:43.618
And I did have a non-compete, but we could have left day one.
1313
01:23:44.139 --> 01:23:45.760
So we didn't have to stay in the business.
1314
01:23:45.820 --> 01:23:46.400
They wanted us to.
1315
01:23:46.420 --> 01:23:47.601
They would have been unhappy if we left.
1316
01:23:47.841 --> 01:23:49.302
But contractually, I didn't have to stay.
1317
01:23:49.642 --> 01:23:50.523
And there was no earn out.
1318
01:23:51.323 --> 01:24:03.491
If you have a business that they're more concerned that the leadership team can't run the business, then you're more likely to be, we'll call it trapped in the business, meaning they're gonna lock you up for years.
1319
01:24:04.012 --> 01:24:05.513
You have to stay for three years.
1320
01:24:05.673 --> 01:24:08.775
It has to hit these goals to get to earn out.
1321
01:24:09.035 --> 01:24:13.398
And earn out means to earn what we've bought you for 5 million or 10 million.
1322
01:24:13.638 --> 01:24:17.661
You're gonna earn out that five or 10 million based on hitting certain goals over a period of time.
1323
01:24:18.121 --> 01:24:19.923
The better your business is put together,
1324
01:24:20.867 --> 01:24:29.737
the better the team is, and it's not all on you, the better and more favorable the terms will be when you go to sell and the more money you'll get for that business.
1325
01:24:30.620 --> 01:24:34.342
And so then you want to be able to show a growth story.
1326
01:24:34.742 --> 01:24:39.505
Like one is we believe and you can prove to them there's a lot of potential to grow in this market.
1327
01:24:39.725 --> 01:24:40.806
And we're already proving it.
1328
01:24:40.866 --> 01:24:41.526
We are growing.
1329
01:24:41.906 --> 01:24:45.468
So companies are often highly valued on the profits and the speed of growth.
1330
01:24:45.769 --> 01:24:49.951
So Mike talked about in the software world, there's this nice clean metric called the rule of 40.
1331
01:24:50.431 --> 01:24:51.392
And he defined it the other day.
1332
01:24:51.412 --> 01:24:53.253
But just to remind you, it's like...
1333
01:24:53.793 --> 01:24:58.214
You could either be a company growing at 40% top line with no profits.
1334
01:24:58.414 --> 01:24:59.114
That's amazing.
1335
01:24:59.234 --> 01:25:00.094
That's fast growth.
1336
01:25:00.414 --> 01:25:03.775
Or you could be a company with 40% profits and no growth.
1337
01:25:04.015 --> 01:25:05.615
That's a great cash flow story.
1338
01:25:05.975 --> 01:25:09.196
Or maybe you're growing at 30% and you have profit.
1339
01:25:09.676 --> 01:25:13.577
Like I think Service Autopilot was growing at like 30, high 30%.
1340
01:25:13.717 --> 01:25:14.857
And we were 55.
1341
01:25:14.897 --> 01:25:18.998
So we were high 30% growth rate and then whatever the profits were.
1342
01:25:19.926 --> 01:25:21.446
That would make up the rest of the 55.
1343
01:25:22.487 --> 01:25:25.308
While that's not a metric use in home service, you could kind of think about it.
1344
01:25:25.388 --> 01:25:27.728
It tells the story of how companies are valued.
1345
01:25:28.249 --> 01:25:34.470
So they're going to want a story of growth and already showing profits even while you're growing.
1346
01:25:34.650 --> 01:25:35.671
So I'll stop there.
1347
01:25:35.751 --> 01:25:37.971
But there's a lot more.
1348
01:25:37.991 --> 01:25:39.612
But those are some of the biggest items.
1349
01:25:40.767 --> 01:25:48.793
Yeah, I think that's why a lot of times too when people build the business finally where it is clean, they have a team in place and it doesn't rely on them running every day.
1350
01:25:48.854 --> 01:25:53.197
Like this is probably a better asset to hold and just let the cashflow keep coming in.
1351
01:25:53.237 --> 01:25:53.838
It's growing.
1352
01:25:54.278 --> 01:25:55.119
I don't need to be there.
1353
01:25:55.879 --> 01:26:00.983
And I think that owner dependency is probably the reason why so many businesses can't be sold.
1354
01:26:01.404 --> 01:26:09.050
The one thing that I always laugh at is like the caveat to the story, the example is like that's different is Elon.
1355
01:26:09.490 --> 01:26:13.692
Like if Elon got hit by a bus tomorrow, I don't know what would happen to Tesla stock.
1356
01:26:14.292 --> 01:26:14.773
I agree.
1357
01:26:15.173 --> 01:26:17.014
It's so built around the founder.
1358
01:26:17.474 --> 01:26:26.359
But yet here we are about to not appeal for a $2 trillion company that, again, I believe if the founder got hit by a bus, would probably go down by 50%.
1359
01:26:26.539 --> 01:26:33.002
Yeah, I'm amazed at how little that feels considered in the market, in the valuation.
1360
01:26:33.022 --> 01:26:33.122
Yeah.
1361
01:26:33.707 --> 01:26:34.167
incredible.
1362
01:26:34.347 --> 01:26:39.110
Like it's, it's, it's, I always call it the biggest influencer led company in the world.
1363
01:26:39.570 --> 01:26:46.694
Like it's, it's Zuhlunov Prime, you know, or, or any of these other influencer led, like I look at Augusta as really influencer led.
1364
01:26:46.794 --> 01:26:48.515
Every lead comes from my content.
1365
01:26:49.076 --> 01:26:50.897
And so that would be a dependency in my mind.
1366
01:26:50.917 --> 01:26:56.400
And then I also look at, then I look at Elon, I'm like, okay, he posts one thing and all of a sudden the stock goes up 20%.
1367
01:26:56.440 --> 01:26:57.040
Like how in the
1368
01:26:59.121 --> 01:27:06.368
I've always been very interested by the fact that we have key man risk, but also when we're there, what are we doing for the business?
1369
01:27:07.189 --> 01:27:13.034
But when it comes to selling it, unless it's public market, it actually becomes a liability if you as a founder have to be there.
1370
01:27:13.375 --> 01:27:14.035
I think a lot of times...
1371
01:27:14.756 --> 01:27:18.198
We always thrive off the adrenaline that comes with being needed.
1372
01:27:18.718 --> 01:27:28.685
I always say like a lot of times, especially at two, $3 million marker, when you need to start handing off delegating kind of that super amendment, like I need to be felt like I need to feel needed.
1373
01:27:29.025 --> 01:27:30.486
I'm used to people coming to me with problems.
1374
01:27:30.806 --> 01:27:36.209
And that's the exact thing that keeps you from being sold because people come to you for problems.
1375
01:27:37.110 --> 01:27:37.310
I agree.
1376
01:27:37.330 --> 01:27:37.430
Yeah.
1377
01:27:38.939 --> 01:27:41.641
I like the, you know, a lot of people probably heard it.
1378
01:27:41.801 --> 01:27:43.321
It's I've heard it said frequently.
1379
01:27:43.341 --> 01:27:44.922
It's like, just build a business.
1380
01:27:45.602 --> 01:27:46.443
That's really great.
1381
01:27:46.663 --> 01:27:48.144
Just like build a really good business.
1382
01:27:48.204 --> 01:27:51.325
And the attributes of a really good business are almost everything.
1383
01:27:51.445 --> 01:27:52.886
They're everything we just talked about.
1384
01:27:53.266 --> 01:27:53.946
I just build it.
1385
01:27:53.986 --> 01:27:58.569
And you may find out in when you own that type of business, you don't even care about selling the thing.
1386
01:27:59.449 --> 01:28:05.532
And so if you're just building a super high quality business, it will be worth money as it gets bigger.
1387
01:28:06.401 --> 01:28:06.881
I have a question.
1388
01:28:06.901 --> 01:28:13.784
So when you sold the private equity, then you were there for a while as CEO, but there was a day you had to walk out of the doors.
1389
01:28:14.324 --> 01:28:14.524
Yeah.
1390
01:28:14.585 --> 01:28:19.106
I'm just wondering, like I hear some people talk about it's like a big deal.
1391
01:28:19.146 --> 01:28:20.267
Some people it's like, who cares?
1392
01:28:20.307 --> 01:28:20.787
I got paid.
1393
01:28:21.387 --> 01:28:22.028
Let's rock and roll.
1394
01:28:22.328 --> 01:28:23.308
Let's move on to something else.
1395
01:28:23.328 --> 01:28:24.409
They're excited about what's to come.
1396
01:28:25.049 --> 01:28:25.769
What was it like for you?
1397
01:28:25.809 --> 01:28:29.131
Because for me, I'll be honest, I can never imagine the day.
1398
01:28:30.093 --> 01:28:34.197
where I walk, like, I don't care how much money, I don't even know, like, my identity is so wrapped up in it.
1399
01:28:34.958 --> 01:28:44.747
And I don't know if that's a good thing or a bad thing, but, like, I can't even imagine the sense of, like, oh, like, Augusta is not, it's not part of me anymore.
1400
01:28:45.287 --> 01:28:46.248
What was it for you, though?
1401
01:28:46.809 --> 01:28:47.229
It sucked.
1402
01:28:47.489 --> 01:28:48.030
It was terrible.
1403
01:28:48.430 --> 01:28:49.171
Really?
1404
01:28:49.872 --> 01:28:50.552
I dreaded it.
1405
01:28:51.193 --> 01:28:55.237
I also was really concerned about even telling the team we sold.
1406
01:28:56.402 --> 01:28:58.604
It was hard for me to even tell the team.
1407
01:28:58.904 --> 01:29:10.192
But I had a little, I didn't feel so bad about telling the team that we sold because I was planning to stay for quite a while because of what we were going to build.
1408
01:29:10.232 --> 01:29:15.535
I mean, I guess I'll give a little background in answer to your question here.
1409
01:29:15.675 --> 01:29:16.756
Maybe it'll be interesting to people.
1410
01:29:16.776 --> 01:29:24.602
But the group we picked, because I had 27 formal offers, the group we picked is known to build stuff big and take it public.
1411
01:29:25.322 --> 01:29:26.122
That's what they do.
1412
01:29:26.823 --> 01:29:30.684
And so that was what we were going to do.
1413
01:29:30.805 --> 01:29:45.031
And I was really interested in doing that and seeing, having that experience in acquiring nine-figure companies and building this thing to where John and I originally had planned.
1414
01:29:45.491 --> 01:29:47.252
And we were going to staff up the dev team.
1415
01:29:47.272 --> 01:29:48.633
We were going to do even more.
1416
01:29:49.213 --> 01:29:50.775
And we already had a pretty big dev team.
1417
01:29:51.035 --> 01:29:54.079
And so I wasn't planning to leave.
1418
01:29:54.159 --> 01:29:59.185
So if I had been just selling the company, it was sort of like goodbye to the team.
1419
01:29:59.225 --> 01:30:00.406
That would have been brutal.
1420
01:30:01.007 --> 01:30:05.472
But when I was able to honestly stand in front of the whole company and tell them about the event.
1421
01:30:06.425 --> 01:30:08.846
that happened, and I didn't feel so concerned about it.
1422
01:30:09.266 --> 01:30:11.767
So that was hard, but not painful.
1423
01:30:11.807 --> 01:30:16.129
But then telling everybody I was leaving officially, that was tough.
1424
01:30:16.949 --> 01:30:22.071
I mean, Service All Buy was my baby, and I loved the team we built.
1425
01:30:22.431 --> 01:30:24.692
I really liked our members, and John did too.
1426
01:30:24.712 --> 01:30:27.433
I mean, we just really liked what we built.
1427
01:30:27.494 --> 01:30:29.354
It goes back to we didn't plan to sell it.
1428
01:30:29.414 --> 01:30:35.877
So having to tell people that, I think it actually turned out to be less hard around the identity part.
1429
01:30:37.436 --> 01:30:39.921
I would have thought it would have been harder, frankly.
1430
01:30:40.081 --> 01:30:43.047
But I got to this place where I was like, man, I could do this again.
1431
01:30:43.067 --> 01:30:45.252
I was getting to this place.
1432
01:30:45.312 --> 01:30:47.155
I could be excited building another thing.
1433
01:30:48.202 --> 01:30:51.405
Do you think at that point that you were looking forward to getting out of there?
1434
01:30:51.445 --> 01:30:54.927
Cause now you didn't feel like you even had control for that, that year or two.
1435
01:30:55.147 --> 01:30:55.328
Yeah.
1436
01:30:55.348 --> 01:30:57.209
When I, when I left, I was ready to go.
1437
01:30:57.289 --> 01:30:58.350
I had been a little bit.
1438
01:30:59.010 --> 01:30:59.591
Yeah.
1439
01:30:59.751 --> 01:31:00.231
It's tough.
1440
01:31:00.291 --> 01:31:09.519
Like had we executed the plan that we were, we had planned on, I don't think it wouldn't have been the case, but because of everything that happened and COVID kicked it all off.
1441
01:31:10.139 --> 01:31:12.561
I wish I could run the parallel universe thing.
1442
01:31:12.581 --> 01:31:14.603
And I want to see what would happen if COVID never happened.
1443
01:31:15.343 --> 01:31:16.624
COVID was horrendous.
1444
01:31:16.824 --> 01:31:20.546
I think it was the thing that screwed it all up is my belief.
1445
01:31:21.207 --> 01:31:24.148
And so, and it didn't need to be, but it was.
1446
01:31:24.188 --> 01:31:28.071
So my point there is I had already been a little bit worn down.
1447
01:31:28.771 --> 01:31:32.834
And so maybe that's why I was able to get comfortable and felt comfortable with.
1448
01:31:32.894 --> 01:31:34.555
I could go do a new thing and I'd be excited about it.
1449
01:31:34.795 --> 01:31:40.158
But even then, telling the members I was leaving and telling the team I was leaving, that never got easier.
1450
01:31:40.959 --> 01:31:44.401
Almost the hardest thing was telling Academy I was leaving Academy.
1451
01:31:44.561 --> 01:31:46.001
That was really, really hard.
1452
01:31:46.841 --> 01:31:49.422
And so, yeah, that was my experience.
1453
01:31:49.502 --> 01:31:49.882
I don't know.
1454
01:31:50.042 --> 01:31:52.543
I mean, you go to battle with these people and they become...
1455
01:31:52.923 --> 01:31:55.223
I mean, they've done so much to help build the company.
1456
01:31:55.263 --> 01:31:55.743
You like them.
1457
01:31:55.763 --> 01:31:57.384
You care about their futures.
1458
01:31:57.424 --> 01:32:00.624
Like you want... And I knew we had built something unique.
1459
01:32:00.804 --> 01:32:02.985
I hear it all the time.
1460
01:32:03.325 --> 01:32:05.885
Like, I wish we could go back to the old service autopilot days.
1461
01:32:06.446 --> 01:32:07.266
I hear that all the time.
1462
01:32:07.286 --> 01:32:12.507
Like people wanted... We did so many cool things inside that business that don't get done in most businesses.
1463
01:32:12.527 --> 01:32:12.667
Yeah.
1464
01:32:13.567 --> 01:32:15.592
And that stuff all went away over time.
1465
01:32:16.253 --> 01:32:21.384
And so I, you know, it's that's the kind of painful part about it.
1466
01:32:22.406 --> 01:32:23.187
But I will tell you,
1467
01:32:24.176 --> 01:32:27.258
you should plan on that happening when you sell your company.
1468
01:32:27.358 --> 01:32:29.360
Because the economy could go bad.
1469
01:32:29.420 --> 01:32:31.961
It could be the best buyer and the economy could go bad.
1470
01:32:32.402 --> 01:32:33.502
They could get in.
1471
01:32:33.542 --> 01:32:35.284
Something could happen inside the portfolio.
1472
01:32:35.304 --> 01:32:42.128
Like there's a million little things that could happen that they have to do whatever they have to do to protect their investment.
1473
01:32:42.468 --> 01:32:44.490
And you just never know what's going to happen.
1474
01:32:45.030 --> 01:32:49.253
The team in the private equity company could change dramatically.
1475
01:32:49.533 --> 01:32:51.634
then that changes the strategy.
1476
01:32:51.674 --> 01:32:52.654
Like there's so many things that happen.
1477
01:32:52.674 --> 01:32:55.515
So I just tell you going into this, go into it, eyes wide open.
1478
01:32:55.535 --> 01:32:57.876
And I had been advised, I knew going into it, I knew all this.
1479
01:32:58.476 --> 01:33:03.578
I had been advised by so many people that this stuff can go really sideways.
1480
01:33:04.218 --> 01:33:05.479
And so I knew it happens.
1481
01:33:06.039 --> 01:33:09.920
I just thought maybe we, you know, that everything was going to go to plan.
1482
01:33:09.960 --> 01:33:10.981
And it was until COVID.
1483
01:33:11.001 --> 01:33:11.141
COVID.
1484
01:33:11.982 --> 01:33:17.089
So just know that when you sell your company, you no longer own your baby, and it may not work out like you want.
1485
01:33:17.149 --> 01:33:20.094
And also, I'm sure this will come up again another day.
1486
01:33:20.454 --> 01:33:23.539
When you leave money on the table, you may never see that money.
1487
01:33:23.839 --> 01:33:24.821
And they will tell you.
1488
01:33:24.861 --> 01:33:25.822
Now, I saw my money.
1489
01:33:26.543 --> 01:33:33.730
But they might tell you that, yeah, you're going to get three or five extra money.
1490
01:33:33.770 --> 01:33:37.094
The most common thing you're going to hear is like, yeah, you're going to have this liquidity event.
1491
01:33:37.114 --> 01:33:38.956
Your next liquidity event is going to be even bigger.
1492
01:33:39.196 --> 01:33:40.477
We're going to just blow this thing up.
1493
01:33:40.878 --> 01:33:42.579
Maybe that does happen to some.
1494
01:33:43.580 --> 01:33:44.521
I wouldn't bank on it.
1495
01:33:45.281 --> 01:33:51.304
And I would also know that whatever you're leaving on the table, you could lose it even with the best company.
1496
01:33:51.944 --> 01:34:03.830
And when you say leaving the table, just for everyone listening, that is equity that you still own after the buyout or under the pretense to, hey, we're going to keep growing this thing and whatever you have left over is still going to grow in the future.
1497
01:34:03.850 --> 01:34:04.990
Yeah, so let me put a number to it.
1498
01:34:05.391 --> 01:34:09.313
So let's say you do a 60-40 deal and you sell your company for $10 million.
1499
01:34:09.333 --> 01:34:09.453
Yeah.
1500
01:34:10.651 --> 01:34:13.012
Okay, so they valued you at $10 million.
1501
01:34:13.332 --> 01:34:16.032
That means you're going to get a check for $6 million.
1502
01:34:16.492 --> 01:34:17.573
There could be some other nuance.
1503
01:34:17.593 --> 01:34:23.674
Like in our case, we negotiated, we got all the profits in our company, all the cash in our company, which was millions of dollars.
1504
01:34:24.054 --> 01:34:27.615
We had prepaid for Salesforce and HubSpot and all this other stuff is prepaid for a year.
1505
01:34:27.675 --> 01:34:29.255
I clawed back everything that got prepaid.
1506
01:34:29.475 --> 01:34:32.956
Like there are all these other ways that we got to pull money out of the company.
1507
01:34:33.536 --> 01:34:35.637
So we left the company, no working capital.
1508
01:34:35.757 --> 01:34:37.257
That was all negotiated into the deal.
1509
01:34:37.317 --> 01:34:39.758
So not only did we get our number, we got all this other money.
1510
01:34:40.618 --> 01:34:44.399
And, but, but all I, that's a really important thing just to know that's even possible.
1511
01:34:44.639 --> 01:34:47.660
Like, and so you do a 60, 40 deal.
1512
01:34:48.701 --> 01:34:50.121
Um, and there's all kinds of deals.
1513
01:34:50.161 --> 01:34:53.102
You could do a minority deal where you sell less than 50% of business.
1514
01:34:53.122 --> 01:34:54.283
You could do a majority deal.
1515
01:34:54.303 --> 01:34:55.983
You sell more than 50% of business.
1516
01:34:56.443 --> 01:35:00.405
Pretty common deals are 60, you sell 60, 70, or 80% of business.
1517
01:35:00.885 --> 01:35:01.925
Some people sell 90.
1518
01:35:02.305 --> 01:35:06.167
They generally don't want you to sell the whole company because they want you to have skin in the game.
1519
01:35:06.387 --> 01:35:08.347
They want you to stick around and help if you need that.
1520
01:35:08.447 --> 01:35:09.588
They want you to have skin in the game.
1521
01:35:10.128 --> 01:35:12.090
So let's just say you do a 60-40 deal.
1522
01:35:12.150 --> 01:35:14.071
Your valuation was $10 million.
1523
01:35:14.471 --> 01:35:21.917
You get $6 million put in your pocket, maybe some other money, maybe, and you leave $4 million in the business.
1524
01:35:22.258 --> 01:35:25.420
So now the business is valued at hypothetically $10 million.
1525
01:35:25.960 --> 01:35:31.245
If you grow that business into a $20 million company, next time you sell it, you sell it for $20 million.
1526
01:35:31.745 --> 01:35:33.606
Your 40% or $4 million is now worth $8 million.
1527
01:35:33.646 --> 01:35:33.827
Okay.
1528
01:35:36.008 --> 01:35:41.938
The very, very, very best deals want that $4 million to turn into about $12 million.
1529
01:35:43.072 --> 01:35:43.652
That's the idea.
1530
01:35:43.672 --> 01:35:48.774
And so that's where somebody might say, hey, you took $6 million off the table in the first transaction.
1531
01:35:49.214 --> 01:35:51.615
In the next transaction, you're going to make even more money.
1532
01:35:52.055 --> 01:35:55.376
And the example would be like, maybe you get $12 million out of the business the next time.
1533
01:35:55.736 --> 01:35:57.357
It's a wonderful story.
1534
01:35:57.417 --> 01:35:59.117
It's a wonderful promise.
1535
01:35:59.678 --> 01:36:02.018
It's a wonderful thing to tell yourself.
1536
01:36:02.078 --> 01:36:03.039
It's very exciting.
1537
01:36:03.379 --> 01:36:04.279
It might happen.
1538
01:36:04.399 --> 01:36:06.720
It absolutely happens, but it might not happen.
1539
01:36:07.300 --> 01:36:08.941
You might get just your money back.
1540
01:36:09.281 --> 01:36:14.824
You might get one and a half times your money, meaning you left 4 million in, you get 6 million.
1541
01:36:15.144 --> 01:36:22.389
You might get no money because depending on who you sell to, private equity gets their returns based on using a lot of debt.
1542
01:36:23.249 --> 01:36:24.310
And things can go bad.
1543
01:36:25.310 --> 01:36:28.951
And so there's a million stories.
1544
01:36:29.111 --> 01:36:34.513
And so some people have never got the second part of their business or they had earn outs and the business never got to those lofty goals.
1545
01:36:35.013 --> 01:36:37.434
Or one more, I feel like I'm talking so much.
1546
01:36:37.534 --> 01:36:38.274
Hopefully this is okay.
1547
01:36:38.614 --> 01:36:42.075
Or one more, it's like you got such an incredible valuation in the beginning.
1548
01:36:42.495 --> 01:36:48.697
Like this is what I think most software companies that sold during COVID, like we sold so dang early.
1549
01:36:48.817 --> 01:36:50.778
Like we left so much money on the table.
1550
01:36:51.799 --> 01:36:55.147
But who knew what was going to happen to interest rates and government putting money in the market?
1551
01:36:55.167 --> 01:36:56.350
But the reason I tell you that is...
1552
01:36:57.708 --> 01:37:09.214
A bunch of companies that sold later, like during COVID, that didn't do transactions like us where we took the cash off the table and they rolled stock, they might have rolled at these massive valuations.
1553
01:37:09.595 --> 01:37:11.636
Then the software market came down.
1554
01:37:11.936 --> 01:37:14.277
Then software markets come down again now.
1555
01:37:14.637 --> 01:37:23.002
They may never get another dollar out of their companies because when they go to sell them again, they may sell them for the same amount they originally sold them for six years earlier.
1556
01:37:23.362 --> 01:37:24.723
So that could happen in your case.
1557
01:37:24.743 --> 01:37:27.103
Like maybe you sell your company for 10 million.
1558
01:37:27.123 --> 01:37:31.265
It was such a great deal for your business because somebody just wanted into your market.
1559
01:37:31.785 --> 01:37:40.648
But then for whatever reason, next time they go to sell the business, it's still only, even though it doubled in size, it's still only worth 10 million or 11 million bucks in the market.
1560
01:37:41.008 --> 01:37:42.649
You basically just get your money back.
1561
01:37:43.049 --> 01:37:47.951
So I'm just trying to give you some ideas of how this thing works and expose it to you.
1562
01:37:47.971 --> 01:37:50.372
But there's just a lot of factors in this.
1563
01:37:51.472 --> 01:37:53.995
Did I leave anything out that you asked me that I didn't answer?
1564
01:37:54.576 --> 01:37:55.337
No, I think it was excellent.
1565
01:37:55.377 --> 01:38:05.327
I think just knowing that that world exists, for some people, they'll never experience it, but knowing how the structure operates, what these type of individuals that buy businesses are looking for.
1566
01:38:05.727 --> 01:38:11.253
And I think a lot of us, if you're just looking at social media, you buy businesses by walking to an old person's business and say, hey…
1567
01:38:12.014 --> 01:38:20.316
Can you do seller financing when there's such another level, when you do have an actual asset that does run without you, it does have systems, it does have a leadership team in place.
1568
01:38:20.497 --> 01:38:21.657
There's a whole nother level.
1569
01:38:21.877 --> 01:38:29.359
And that's why I like to open up the audience, their mind too, is like, it's not just, hey, I'm going to pass this along to my uncle or my friend that wants to start their business.
1570
01:38:29.579 --> 01:38:30.620
There is another level.
1571
01:38:30.800 --> 01:38:36.381
If you build a business that can run without you, that does have systems that has longevity and quality of earnings.
1572
01:38:36.741 --> 01:38:38.982
And in home services, yeah.
1573
01:38:39.783 --> 01:38:41.845
What I'm about to say can absolutely be challenged.
1574
01:38:42.325 --> 01:38:49.152
The way I think about it is the really interesting level, and I don't want to use this to discourage anyone.
1575
01:38:49.912 --> 01:38:55.638
The really interesting level starts at $3 million a year in EBITDA, not gross revenue, profit.
1576
01:38:56.675 --> 01:39:02.381
And so when you start getting past that number, now you're starting to really get into better and better multiples.
1577
01:39:02.421 --> 01:39:08.147
Now that doesn't mean you have to get to that number to sell your business for a number that will change the rest of your life.
1578
01:39:09.228 --> 01:39:11.530
It absolutely, you don't have to get there, but yeah,
1579
01:39:11.690 --> 01:39:13.011
There is levels to this.
1580
01:39:13.591 --> 01:39:19.676
And the reason for that is the companies, like I won't say anything else after this unless you ask me, Mike.
1581
01:39:19.996 --> 01:39:21.958
This is kind of how it works.
1582
01:39:22.058 --> 01:39:23.459
But I think this is worth knowing.
1583
01:39:23.919 --> 01:39:28.903
So a guy starts out a private equity company, goes out, he raises $100 billion.
1584
01:39:29.844 --> 01:39:31.205
So he's only got $100 million.
1585
01:39:31.265 --> 01:39:33.907
And so, and there's a ton of deals in the market for him.
1586
01:39:34.668 --> 01:39:35.008
or her.
1587
01:39:35.669 --> 01:39:38.732
And so they can be very careful about which deal they pick.
1588
01:39:39.172 --> 01:39:40.654
They, it's only a hundred million dollars.
1589
01:39:40.734 --> 01:39:43.316
So, um, they could buy 20 deals.
1590
01:39:43.336 --> 01:39:46.019
So they could buy $5 million deals, buying 20 of them.
1591
01:39:46.179 --> 01:39:48.021
Like they could, they could physically do it.
1592
01:39:48.061 --> 01:39:52.505
They've got the, they personally with a small team can actually go do these deals, close them.
1593
01:39:53.065 --> 01:39:54.327
That fund does incredible.
1594
01:39:54.347 --> 01:39:56.549
Like they return three X to their investors.
1595
01:39:56.589 --> 01:39:58.891
So next time they go out to raise money, they're,
1596
01:39:59.151 --> 01:40:02.914
Everybody wants to be an investor in his private equity fund because it returned all this money.
1597
01:40:02.934 --> 01:40:04.475
So now they raise a billion dollars.
1598
01:40:05.175 --> 01:40:06.416
So now they have a billion dollars.
1599
01:40:06.436 --> 01:40:09.398
They go back out to the same market to run the exact same playbook.
1600
01:40:10.158 --> 01:40:13.020
But now they can't buy $5 million businesses anymore.
1601
01:40:13.060 --> 01:40:16.863
Whatever a billion divided by 5 million is, I don't know that.
1602
01:40:17.423 --> 01:40:18.524
Yeah, it's a lot of companies.
1603
01:40:18.544 --> 01:40:19.545
Like, it's just too many.
1604
01:40:19.585 --> 01:40:21.086
So now they got to buy big deals.
1605
01:40:21.881 --> 01:40:25.064
So now they need to be buying $20 million companies or above.
1606
01:40:25.544 --> 01:40:27.626
And now there's a lot fewer of those companies.
1607
01:40:27.666 --> 01:40:36.813
So what happens is a lot of the very best funds with the best track records are big, and they're all competing for a small number of big companies.
1608
01:40:37.133 --> 01:40:41.197
And that's one of the probably simplest arguments of why those companies are valued a lot more.
1609
01:40:41.657 --> 01:40:54.063
They're also valued more because I would argue once you get past $10 million in annual revenue, you have most likely been forced to build layers of management inside your organization where you're less of a key person.
1610
01:40:54.663 --> 01:40:59.345
And there's probably a flywheel in the business for sales and marketing, or you're getting close to it.
1611
01:40:59.925 --> 01:41:01.286
Operations has been figured out.
1612
01:41:01.366 --> 01:41:03.067
And so that company has momentum.
1613
01:41:03.707 --> 01:41:09.551
And so once you get past 10 million, if you've done it right, those businesses are hard to stop.
1614
01:41:09.711 --> 01:41:16.635
Like they just kind of keep going over time, maybe depending, they may go fast and they go slow, but they're probably gonna keep going.
1615
01:41:17.055 --> 01:41:18.636
Private equity knows that math.
1616
01:41:18.796 --> 01:41:21.458
And that's another reason the bigger business is attractive to them.
1617
01:41:21.678 --> 01:41:23.900
So those are just, again, some more behind the scenes stuff.
1618
01:41:23.940 --> 01:41:30.744
But if you understand it and you're interested in this, that matters in knowing all this for the day you go to sell the business.
1619
01:41:31.764 --> 01:41:42.631
And for those listening too, that's the whole value in a roll-up is if I can take 10 companies and combine all the revenue, well, now it's not that I have 10 businesses that do $2 million a pop.
1620
01:41:42.651 --> 01:41:43.352
Well, it's $20 million.
1621
01:41:43.372 --> 01:41:45.873
Will that 10x my values?
1622
01:41:45.933 --> 01:41:53.718
No, it can very well 20 or 30x it because now the size of that business is going to be attractive to a much larger pool of money.
1623
01:41:53.738 --> 01:41:55.859
And the buyer is much more sophisticated.
1624
01:41:55.900 --> 01:41:56.700
It's more competitive.
1625
01:41:57.000 --> 01:42:01.223
And to what we were going to talk about multiples, you could very well double your multiple
1626
01:42:01.583 --> 01:42:27.059
simply by increasing revenue and bringing all that revenue together and so this is like what what even john was talking about with the the the previous plan for service off i was like let's roll all these these software companies together and when they're 10 times the size we might get a 20 times a different multiple altogether and so sometimes the best thing to get a higher price is simply get a better buyer
1627
01:42:27.299 --> 01:42:32.901
And the way to get a better buyer is build a bigger business that they are even interested in buying you.
1628
01:42:33.081 --> 01:42:33.941
That's exactly right.
1629
01:42:34.001 --> 01:42:37.262
We're just too small to actually even get a sophisticated buyer.
1630
01:42:37.862 --> 01:42:47.484
And I would, one little thing on the roll-up thing, this is when sometimes I feel like, and I think I'm talking from an educated standpoint here.
1631
01:42:47.765 --> 01:42:56.187
This is one of those areas where a company that's doing a lot of roll-ups can go great, but it's also what I think can give private equity a bad name.
1632
01:42:56.647 --> 01:42:56.787
Yeah.
1633
01:42:56.847 --> 01:42:59.888
But that's when you also hear this idea of financial engineering.
1634
01:43:00.368 --> 01:43:02.149
So let me paint two pictures.
1635
01:43:02.309 --> 01:43:07.651
If you're a $15 million company, a private equity company comes in, they buy you.
1636
01:43:07.811 --> 01:43:14.974
And hey, we want to take your 15 organically, meaning naturally by acquiring clients in house or just acquiring clients.
1637
01:43:15.174 --> 01:43:18.215
We want to grow your company from $15 million to $30 million to $45 million.
1638
01:43:18.575 --> 01:43:19.195
We're going to do that.
1639
01:43:19.235 --> 01:43:23.357
And maybe here and there, we'll do a few little very strategic, careful acquisitions
1640
01:43:24.177 --> 01:43:30.461
That can be a very thoughtful approach to building a company where you don't destroy the culture.
1641
01:43:30.481 --> 01:43:41.508
Maybe you don't put too much debt on the company because you buy a $15 million company and then you go buy $100 million worth of other companies and you put so much debt on this business to make all those acquisitions.
1642
01:43:42.730 --> 01:43:48.174
that can be pulled off and it can go well, but companies can, private equity companies can also get themselves in a world of hurt.
1643
01:43:48.234 --> 01:43:49.495
Like those things can go bad.
1644
01:43:49.535 --> 01:43:54.739
That's an example of how they go bad, but it can also go bad for you because that's where culture gets destroyed.
1645
01:43:54.979 --> 01:44:03.005
That's where it could start feeling like the only thing that matters to anybody is just making the number, just hitting the growth goal to the detriment of everything else in the business.
1646
01:44:03.045 --> 01:44:04.706
That's so it could go either way.
1647
01:44:04.746 --> 01:44:04.927
So,
1648
01:44:05.687 --> 01:44:06.828
I think I blended two things.
1649
01:44:06.888 --> 01:44:10.831
The model I am more attracted to is I would want to be purchased.
1650
01:44:10.911 --> 01:44:21.140
And we do some very careful strategic purchases over periods of time as the company can onboard and absorb those companies are being acquired.
1651
01:44:21.180 --> 01:44:29.727
And if that's the strategy that's going to be employed when you're being bought and you want to stay in the company long term, there's a high probability you might be able to stay there and be happy.
1652
01:44:30.347 --> 01:44:39.971
If the strategy is we're going to buy you and we're going to buy 10, 20, whatever number of companies as fast as we can, we're just going to merge them all together and we're going to flip them to the next buyer.
1653
01:44:40.011 --> 01:44:41.872
That's generally called financial engineering.
1654
01:44:42.273 --> 01:44:44.454
And they're just playing a game that's called arbitrage.
1655
01:44:44.974 --> 01:44:46.835
And they're sticking all these companies together.
1656
01:44:46.875 --> 01:44:54.558
And maybe originally you were worth a five times EBITDA and now you're worth that nine times or 10 times EBITDA by cramming all this stuff together.
1657
01:44:54.598 --> 01:44:55.659
That's financial engineering.
1658
01:44:56.019 --> 01:44:58.420
That sucks if you're living in the middle of it.
1659
01:44:58.620 --> 01:45:01.002
Now, if you're an investor in it, you might be like, that's cool.
1660
01:45:02.083 --> 01:45:08.208
But if you're the guy running the business and your team is running that business, that is not a fun world to live in.
1661
01:45:08.608 --> 01:45:10.210
And so that's the thing else to know.
1662
01:45:10.670 --> 01:45:11.831
This is the neighborly thing.
1663
01:45:12.151 --> 01:45:14.533
Like they brought all these franchises together.
1664
01:45:14.653 --> 01:45:16.655
Most of them were founder-led originally.
1665
01:45:17.035 --> 01:45:20.958
And now they have kind of the portfolio of 20 different home service brands.
1666
01:45:21.539 --> 01:45:27.383
But almost every single one of them, depending on their management individually, the brands have just said, it's just like,
1667
01:45:28.144 --> 01:45:29.946
All it was because they all even sold to KKR.
1668
01:45:30.526 --> 01:45:31.427
Oh, yeah.
1669
01:45:31.507 --> 01:45:31.767
Yeah.
1670
01:45:31.827 --> 01:45:33.068
Neighborly put it all together.
1671
01:45:33.148 --> 01:45:34.730
And then now it's been sold to KKR.
1672
01:45:35.050 --> 01:45:36.972
And it's just numbers, numbers, numbers.
1673
01:45:36.992 --> 01:45:40.875
Like one of their one of their team, their their management has became an owner in Augusta.
1674
01:45:40.895 --> 01:45:49.102
So I got all the inside baseball of like what happened the day that happened and like the entire leadership team leaving over the course of 12 months.
1675
01:45:49.142 --> 01:45:52.445
And like that's the part where I think, to your point, it gets a bad name.
1676
01:45:52.749 --> 01:45:53.331
Yeah, yeah.
1677
01:45:53.411 --> 01:45:56.442
There's great private equity and there's lousy private equity.
1678
01:45:56.622 --> 01:45:59.673
And it just, you know, so if you kind of understand the game that's being played...
1679
01:46:01.257 --> 01:46:02.298
you can decide.
1680
01:46:03.358 --> 01:46:07.341
It might give you a little information on which one might feel better for you and your team.
1681
01:46:07.821 --> 01:46:10.483
But you might also say, I mean, you've got to decide for yourself.
1682
01:46:10.503 --> 01:46:11.724
You might say, I don't care.
1683
01:46:12.144 --> 01:46:13.505
That one gives me the best value.
1684
01:46:13.625 --> 01:46:17.008
I'm taking my money and I'm going to go whatever.
1685
01:46:17.568 --> 01:46:18.268
Go do something else.
1686
01:46:18.328 --> 01:46:19.029
And you may not care.
1687
01:46:19.049 --> 01:46:20.110
Turn your phone off.
1688
01:46:20.470 --> 01:46:25.914
In the software world, there's been a whole ton of private equity companies that's known, that's the game.
1689
01:46:25.974 --> 01:46:30.497
And people are like, like Vista used to be a name where people are like, they have killer performance.
1690
01:46:31.197 --> 01:46:32.637
but it's going to be painful.
1691
01:46:33.237 --> 01:46:38.958
And so a guy buying to Vista or selling to Vista is like, yeah, I know what we're in for, but I just want the maximum number.
1692
01:46:39.298 --> 01:46:53.481
And so that could be your, like in service autopilot world, we took 10 million less to go with the group we went with because we thought the other would be more, but just be not as good for the team and for our clients or members.
1693
01:46:53.541 --> 01:46:57.962
And so that's going to be a decision you might face someday if you have multiple buyers.
1694
01:46:58.502 --> 01:47:00.242
And that's a few ways you think about it.
1695
01:47:01.103 --> 01:47:08.126
Yeah, I want to wrap up the day with what was actually, I think, the first thing you ever put on our shared notes app for our docket.
1696
01:47:08.166 --> 01:47:11.667
So for those listening, we have a notes app that we should share our ideas.
1697
01:47:11.707 --> 01:47:13.568
I think this was the first one you ever put in there.
1698
01:47:13.768 --> 01:47:18.870
So talk about the Mag7, what it's done in the past, let's just call it 15, 16 years.
1699
01:47:19.530 --> 01:47:28.694
We have the graphic, if we want to show it up on the screen, of the valuations of some of the top companies back in 2010 versus today.
1700
01:47:29.334 --> 01:47:37.321
with the Mag7 being NVIDIA, Apple, Alphabet, Microsoft, Amazon, and then also like Tesla, Meta's in there, et cetera.
1701
01:47:37.341 --> 01:47:40.704
So go ahead and give us your perspective on this.
1702
01:47:40.744 --> 01:47:42.866
I know your argument is that the future is tech.
1703
01:47:43.186 --> 01:47:44.427
This is where all the money is going.
1704
01:47:44.507 --> 01:47:45.408
This is the future.
1705
01:47:46.229 --> 01:47:51.493
So for all of the people that just sat through, let's talk about hundreds of millions of dollars going to private equity.
1706
01:47:51.813 --> 01:47:56.457
Let's talk about now the public markets and all of these tech oligarchs making more money.
1707
01:47:56.477 --> 01:47:56.898
Yeah.
1708
01:47:57.218 --> 01:47:59.180
Money that can't even fathom.
1709
01:47:59.541 --> 01:48:02.584
Yeah, so the MAG-7 is basically the seven biggest companies.
1710
01:48:03.125 --> 01:48:11.894
And the simple story is, if you look at this graphic on the screen, in 2010, there were two technology companies on that list.
1711
01:48:12.114 --> 01:48:15.338
If you look at it today, all but one is a technology company.
1712
01:48:15.398 --> 01:48:17.080
And so the gist of my argument is,
1713
01:48:18.073 --> 01:48:24.400
This is a visual that proves my thesis that the future of your business is also technology.
1714
01:48:24.940 --> 01:48:33.909
It's really easy for us to look at a graphic like this and say, well, this just applies to the big companies or just applies to the actual technology companies themselves.
1715
01:48:34.695 --> 01:48:42.600
Who's like, where is the money coming from that makes this possible for NVIDIA and Microsoft and Google to be the biggest companies?
1716
01:48:42.820 --> 01:48:45.401
Take a chat GPT or better say Claude.
1717
01:48:45.441 --> 01:48:46.262
Where's the money coming from?
1718
01:48:46.302 --> 01:48:47.342
It's coming from business.
1719
01:48:48.023 --> 01:48:48.883
It's coming from enterprise.
1720
01:48:48.903 --> 01:48:53.286
And now, and that's who's spending all the money to make Claude or Anthropic as valuable as it is.
1721
01:48:53.606 --> 01:48:54.907
And where's Claude going next?
1722
01:48:55.027 --> 01:48:56.168
Or Anthropic's going next?
1723
01:48:56.188 --> 01:48:57.468
They're going to SMB space.
1724
01:48:57.708 --> 01:49:00.030
They're building tools now for the small businesses.
1725
01:49:00.370 --> 01:49:01.751
And again, all the money,
1726
01:49:02.151 --> 01:49:05.613
that's giving them these insane valuations is actually coming from business.
1727
01:49:05.973 --> 01:49:07.935
That means people are using this technology.
1728
01:49:08.415 --> 01:49:15.359
And so my argument is simply that when you see this data, it is proof positive that this is where it's going.
1729
01:49:15.399 --> 01:49:16.900
And I would ask you this question.
1730
01:49:16.920 --> 01:49:19.942
I mean, looking at this data, well, let me make this statement.
1731
01:49:20.002 --> 01:49:27.007
If in 2010, you and I had taken all of our money and solely invested it in purely technology,
1732
01:49:27.993 --> 01:49:34.539
we would be far better off today than we would have been spending that money, investing that money almost anywhere else.
1733
01:49:34.899 --> 01:49:37.821
It has been the gross story of humanity.
1734
01:49:39.062 --> 01:49:52.434
And I believe that for you to not believe that this is going to continue to be the story, you have to believe that we're about to hit pause on the technology growth, or you have to believe that it's about to slow down.
1735
01:49:53.332 --> 01:49:56.254
I actually think we are accelerating.
1736
01:49:56.795 --> 01:50:04.080
And one of the things that I know, like a lot of people, I might say, hey, parts of the economy are doing really good.
1737
01:50:04.901 --> 01:50:06.062
And people will say, no, it's not.
1738
01:50:06.082 --> 01:50:06.943
The economy is terrible.
1739
01:50:06.983 --> 01:50:11.766
Everything's bad, you know, and everything, the employment numbers are all, unemployment numbers are all fake.
1740
01:50:11.786 --> 01:50:17.350
Like there's so many of those arguments out there and we can debate those types of things.
1741
01:50:17.671 --> 01:50:20.393
And people will say the same thing about this, what I'm about to say.
1742
01:50:21.918 --> 01:50:28.822
I actually think that in the last four years, something incredible has happened.
1743
01:50:29.102 --> 01:50:29.922
Maybe it's three years.
1744
01:50:30.102 --> 01:50:30.443
I don't know.
1745
01:50:30.543 --> 01:50:33.024
It's something as incredible as happened in the United States.
1746
01:50:34.305 --> 01:50:36.806
And I'm 100% the guy in the camp.
1747
01:50:36.906 --> 01:50:38.647
There's a lot of bad stuff going on.
1748
01:50:38.947 --> 01:50:42.089
And I'm very negative on how a lot of things are going and how the country is.
1749
01:50:42.829 --> 01:50:45.430
I'm probably with you on a lot of that stuff.
1750
01:50:45.911 --> 01:50:48.472
But here is a story that I think is incredible.
1751
01:50:49.665 --> 01:50:56.982
historically, if you think about how a lot of the money has been made, people have gotten really rich building buildings.
1752
01:50:57.406 --> 01:50:59.166
social media sites.
1753
01:50:59.706 --> 01:51:07.928
They've gotten really rich investing, like financial investments, trading, the market, the Goldman Sachs, the JP Morgans of the world.
1754
01:51:08.248 --> 01:51:10.568
They've gotten really rich in oil and other things.
1755
01:51:11.149 --> 01:51:17.830
And we've been building things and doing things that, like, they don't, in my opinion, add tremendous value to the world.
1756
01:51:17.850 --> 01:51:23.991
Like Goldman Sachs making more money doesn't necessarily make the world a better place, just as Facebook...
1757
01:51:25.932 --> 01:51:31.414
doing social media doesn't necessarily have, I think kind of proved positive, generally hasn't made our world better.
1758
01:51:31.814 --> 01:51:35.836
But now if you look at what's happening, people are building AI.
1759
01:51:36.016 --> 01:51:37.496
I know there's an argument, it may not be better.
1760
01:51:38.317 --> 01:51:39.517
They're building robotics.
1761
01:51:39.577 --> 01:51:41.138
We're investing in life sciences.
1762
01:51:41.458 --> 01:51:46.500
We are investing in things that are material, like maybe eventually robots.
1763
01:51:46.520 --> 01:51:49.601
And I understand you can argue this story like, hey, it might displace my job.
1764
01:51:49.941 --> 01:51:54.783
But if you think about where we're investing, we are now investing in things around healthcare,
1765
01:51:55.903 --> 01:52:00.566
technologies, tons of things that will actually have a chance of making our lives better.
1766
01:52:00.986 --> 01:52:04.008
I think that's an incredibly exciting story for the country.
1767
01:52:04.188 --> 01:52:06.149
We're actually doing, in my mind, productive things.
1768
01:52:06.550 --> 01:52:12.813
And guys, fewer, fewer people, I say guys as a general term, are more and more people are now getting excited about this.
1769
01:52:12.833 --> 01:52:15.395
And instead of coming out of college and going to JP Morgan and
1770
01:52:15.995 --> 01:52:20.078
Goldman, they're coming out of colleges and they're going into biology and life sciences.
1771
01:52:20.378 --> 01:52:21.399
They're going into space.
1772
01:52:21.419 --> 01:52:24.901
They're going into all these other things that legitimately will change the world.
1773
01:52:25.361 --> 01:52:32.726
So if you were to think about where money gets focused, what is the outcome a decade later?
1774
01:52:33.086 --> 01:52:37.289
So I came up as a young person in the 90s.
1775
01:52:37.949 --> 01:52:41.512
Money was lost, but very, very focused on the internet.
1776
01:52:41.532 --> 01:52:41.632
Yeah.
1777
01:52:42.732 --> 01:52:44.613
10 and 20 years later, it is trans.
1778
01:52:44.734 --> 01:52:48.636
Our lives are for sure better, in my opinion, because of the internet.
1779
01:52:49.657 --> 01:52:53.860
And that money that was focused there led to great breakthroughs.
1780
01:52:54.000 --> 01:53:07.730
And a lot of times when the incredible brainpower of humanity is focused on problems at the same time, and a lot of money comes in to solve that problem, big breakthroughs happen some number of years after.
1781
01:53:07.770 --> 01:53:11.693
So if you're an investing person, if you think about investing, and I do,
1782
01:53:12.670 --> 01:53:15.411
And you think about trends, like where do you want to be in business?
1783
01:53:15.511 --> 01:53:16.772
What markets do you want to be in?
1784
01:53:16.832 --> 01:53:18.853
What waves do you want to ride?
1785
01:53:18.873 --> 01:53:19.993
What trends do you want to ride?
1786
01:53:20.413 --> 01:53:26.215
You want to think about what's been happening in the last few years, what's happening right now, because there's something coming on the other side.
1787
01:53:26.516 --> 01:53:31.958
And what's happening is one of the most, I think the most exciting thing in my lifetime, we are actually...
1788
01:53:32.558 --> 01:53:43.266
investing massive amounts of money and massive amounts of like the smartest people in the world on some of these problems that will have, in my opinion, massive transformation on humanity.
1789
01:53:44.091 --> 01:53:56.216
And so I don't know how you look at that story and what's happening right now and what will probably come and say this whole entire chart is not going to be – it's going to be orange.
1790
01:53:56.276 --> 01:54:04.719
There's only one – this person's gone at some point, and it's going to remain all tech moving forward, and tech is going to dominate more and more of the S&P 500.
1791
01:54:04.799 --> 01:54:06.520
It's going to dominate more and more of our lives.
1792
01:54:07.060 --> 01:54:09.603
I believe with certainty, AI is going to get vastly better.
1793
01:54:09.723 --> 01:54:12.205
I believe with certainty, AI robotics is coming.
1794
01:54:12.566 --> 01:54:17.030
I believe with certainty, we're going to have incredible breakthroughs in longevity and health.
1795
01:54:17.371 --> 01:54:21.535
I don't know when, but it's coming, probably on a slower timeline.
1796
01:54:21.895 --> 01:54:25.099
And so I say all of this for a couple reasons.
1797
01:54:25.959 --> 01:54:27.241
A very basic one is,
1798
01:54:28.615 --> 01:54:30.117
There's a lot to be negative about.
1799
01:54:30.257 --> 01:54:34.564
And if you only think about the negative, you will never build anything interesting.
1800
01:54:35.064 --> 01:54:39.991
But if you believe this narrative, then you have a chance of being optimistic.
1801
01:54:40.232 --> 01:54:42.955
And all the optimists have won in life, in my opinion.
1802
01:54:43.236 --> 01:54:44.958
Like they're the ones that have built everything.
1803
01:54:45.499 --> 01:54:45.659
Right.
1804
01:54:45.879 --> 01:54:48.240
That's a little exaggerated, but generally that's who wins.
1805
01:54:48.420 --> 01:54:50.741
And it also, it's all about keeping your energy up.
1806
01:54:50.761 --> 01:54:55.083
So I want to tell you this to say there are good things happening and reasons to be optimistic.
1807
01:54:55.503 --> 01:55:04.667
And then, but the broader point, what started this whole thing was, if this is happening and you buy into my thesis, that's going to continue to happen.
1808
01:55:06.455 --> 01:55:09.699
then why would your business be immune to it?
1809
01:55:10.600 --> 01:55:22.213
And it's my argument that the future of your business is one where for a long time, it just means you use more technology in your business to run it, automate it, do things for you,
1810
01:55:23.650 --> 01:55:29.051
where the team you have today is more capable, faster moving, can get more done.
1811
01:55:29.711 --> 01:55:34.693
There's a million things inside our businesses that we do not do, that we could do so much better.
1812
01:55:35.373 --> 01:55:37.113
And we're going to now be able to do those things.
1813
01:55:37.133 --> 01:55:39.994
This isn't a story of firing all your people, in my opinion.
1814
01:55:40.274 --> 01:55:45.275
It's a story of doing the 90 things you know you're not doing right, could do better, could do faster.
1815
01:55:45.475 --> 01:55:46.535
You're just going to do more.
1816
01:55:47.176 --> 01:55:49.296
And the way you're going to do it is you're going to do it with technology.
1817
01:55:49.316 --> 01:55:51.497
And so technology is going to become a bigger part of your business.
1818
01:55:51.937 --> 01:55:53.017
So why does this matter?
1819
01:55:53.817 --> 01:55:57.779
If you don't believe this, then you're not going to adopt technology.
1820
01:55:58.479 --> 01:56:02.721
And if you don't like technology and you fight it, you're going to get crushed.
1821
01:56:03.122 --> 01:56:03.942
I believe that.
1822
01:56:04.422 --> 01:56:15.788
And so I would encourage anyone watching this to get comfortable, whatever that takes, with this idea that you live in a world of having more and more technology in your business.
1823
01:56:16.408 --> 01:56:20.850
And like anything, if you don't like bookkeeping, you don't have to do...
1824
01:56:21.350 --> 01:56:26.653
It's like if you outsource your bookkeeping because you hate it, well, you can do much of that with your technology.
1825
01:56:26.773 --> 01:56:29.274
I actually think most people should outsource their technology.
1826
01:56:29.294 --> 01:56:31.935
And that will come still in the form of buying tools from companies.
1827
01:56:32.415 --> 01:56:39.118
And it might also come in the form of hiring technical people, the equivalent of the IT person to help them inside their company.
1828
01:56:39.479 --> 01:56:42.120
But if you fight this, even as a smaller company...
1829
01:56:42.600 --> 01:56:44.341
You're just not going to be as efficient.
1830
01:56:44.761 --> 01:56:46.082
You're going to make less profits.
1831
01:56:46.402 --> 01:56:48.283
Your life's going to be harder than it's going to need to be.
1832
01:56:48.383 --> 01:56:49.564
And you're not going to get found.
1833
01:56:49.844 --> 01:56:54.966
Like that, we could have two hours on why you just flat out will never get found and people won't buy from you.
1834
01:56:55.387 --> 01:57:01.170
And so I wanted to give a visual to this to say, this is where the world has gone over the last 16 years.
1835
01:57:01.930 --> 01:57:09.614
And I don't know how you could possibly convince me that this isn't where the world's going at an even faster pace over the next 16 years.
1836
01:57:09.914 --> 01:57:11.575
So it informs what we need to be doing.
1837
01:57:12.437 --> 01:57:12.937
Yeah, 100%.
1838
01:57:12.977 --> 01:57:26.827
It's been so interesting the past few months as it's really started to accelerate, just gauging, even instead of Augusta, when we have a couple hundred people, everyone's different ideology of this has been very difficult actually for me to navigate.
1839
01:57:27.167 --> 01:57:28.668
What is our stance as a brand?
1840
01:57:28.949 --> 01:57:33.312
How fast are we adopting the AI in our images, in our video, on our website?
1841
01:57:33.692 --> 01:57:40.437
How we collect information on the forms, how we use in communication, because everyone is so different at what...
1842
01:57:41.177 --> 01:57:44.359
what you're saying is like, how fast do I want to adopt this in my own business?
1843
01:57:44.900 --> 01:57:52.865
And because AI, aunt Sally, uncle Bob, they just lost their jobs and it was tacked on as AI, which is a lot of just COVID bloat.
1844
01:57:53.145 --> 01:57:58.649
But like, because it was tacked on as that, because that's not a very like pro thing to do for your valuation in the public market.
1845
01:57:59.110 --> 01:57:59.250
But,
1846
01:57:59.790 --> 01:58:03.452
now that AI made them lose their job, now I'm going to use AI in my business.
1847
01:58:04.052 --> 01:58:10.234
I'm going against Uncle Sam, or not Uncle Sam, Uncle Bob, whatever his name was, Aunt Sally, who lost their jobs.
1848
01:58:10.515 --> 01:58:22.620
And so it's been really very much of a balancing act because for myself, who's very much absorbed in it, very involved in trying to use the tools, adopt it on the software side.
1849
01:58:22.900 --> 01:58:27.522
But then it's like, there's a lot of elements when it comes to home services, I feel like there's a resistance
1850
01:58:28.322 --> 01:58:32.263
And as much as I want to say the words that you just said, which is like, you will be crushed.
1851
01:58:32.843 --> 01:58:41.526
I have to be very careful to say, like, I also see the emotions wrapped up with all these other labels that have been attached to the technology.
1852
01:58:41.846 --> 01:58:45.067
And so that's been like a thing that I've been navigating, I guess you could say.
1853
01:58:46.873 --> 01:58:49.115
I try not to be too dramatic about anything.
1854
01:58:49.255 --> 01:58:51.857
And maybe you will be crushed as a little dramatic.
1855
01:58:51.897 --> 01:58:53.099
Maybe that's a little strong.
1856
01:58:53.579 --> 01:59:07.131
But I think I worded it that way because I do really worry for people that are just anti-technology because you're not going to be competitive at a margin standpoint.
1857
01:59:07.431 --> 01:59:11.435
So my general belief what's going to happen is that...
1858
01:59:12.483 --> 01:59:18.727
There's a lot of things I theorize, but one of them I believe is going to happen is that margins are going to get better.
1859
01:59:19.608 --> 01:59:21.930
So we're going to become more profitable.
1860
01:59:22.490 --> 01:59:28.014
But I also believe that in time, those profits are going to be competed away.
1861
01:59:28.754 --> 01:59:32.437
So I think we're going to have a moment of time where the businesses get more and more profitable.
1862
01:59:33.258 --> 01:59:38.241
And then over time, they're going to kind of settle back down to where they're at today or something like that.
1863
01:59:38.941 --> 01:59:39.542
And so...
1864
01:59:41.292 --> 01:59:48.157
for you to even have a chance of maintaining the profit margins you have today, you're going to need to be using these tools.
1865
01:59:48.377 --> 02:00:03.147
Especially if you're a small person, if you could have one person in the office in a small business, and yet you have two and that extra person's $60,000, $65,000, and you're running an $800,000 business, that's meaningful.
1866
02:00:03.187 --> 02:00:05.048
That's a big hit to profit margins.
1867
02:00:05.248 --> 02:00:09.732
That's an example where it might be in the future, you just needed the one person.
1868
02:00:12.170 --> 02:00:17.794
With technology and you've got two people whereas everybody else has one, that could be your risk.
1869
02:00:18.294 --> 02:00:23.578
That's why I say there is this risk of getting crushed if you don't use and utilize these tools.
1870
02:00:24.198 --> 02:00:27.881
But I also hinted at this idea and I don't know exactly how this is going to play out.
1871
02:00:27.961 --> 02:00:30.783
It's also going to impact you on just getting the business in the first place.
1872
02:00:31.183 --> 02:00:45.052
And we don't know where it's going, but if you're not using technology to be one of the fastest people to respond, to answer the phone after hours, on weekends, to turn estimates fast, to follow up on it, all the basics.
1873
02:00:45.773 --> 02:00:52.037
If you're not doing the basics faster and faster because your competitors are, you're just going to lose more and more work.
1874
02:00:52.337 --> 02:00:52.958
You're going to be...
1875
02:00:53.858 --> 02:00:56.022
relegated to just referral-based work.
1876
02:00:56.263 --> 02:00:58.206
And that's a really slow way to grow the business.
1877
02:00:58.246 --> 02:01:01.672
So those are the types of things I mean when I say getting crushed.
1878
02:01:02.313 --> 02:01:04.417
And the other, sorry, go ahead, Mike.
1879
02:01:04.835 --> 02:01:19.624
Oh, I was just going to say, even the leadership on the, whether it be Anthropic or Chatea Petit or even the government, I think part of it is the labeling of AI is such as this bad thing in a way to even how you say, you're going to crush.
1880
02:01:19.824 --> 02:01:23.286
I feel like I need to say that sometimes because the fear is what drives behavior.
1881
02:01:23.527 --> 02:01:23.727
Yeah.
1882
02:01:24.127 --> 02:01:30.951
But also the optimism that can come from this versus every other technological revolution, we have been better off afterwards.
1883
02:01:31.331 --> 02:01:33.533
And we have found more meaningful work to do afterwards.
1884
02:01:33.733 --> 02:01:33.873
Yeah.
1885
02:01:33.893 --> 02:01:34.013
Yeah.
1886
02:01:34.253 --> 02:01:46.624
And so it's almost a shame that it is negative because what I feel is going to happen is the people who do adopt it, the people who already have the money in home services, that already have a big business, they will just continue to take more market share.
1887
02:01:47.025 --> 02:01:48.206
They will become more profitable.
1888
02:01:48.226 --> 02:01:51.449
And then the small guy that's like, I'm not, they're the ones that are going to suffer.
1889
02:01:51.969 --> 02:01:58.074
And so to your point, the person that is small, they have to adopt these tools to stay competitive, in my opinion.
1890
02:01:59.015 --> 02:02:00.336
Yeah, you said the...
1891
02:02:01.319 --> 02:02:06.741
what I was about to say, I agree with you with an asterisk.
1892
02:02:07.642 --> 02:02:13.364
So I feel like what's going to happen is we are going to, it's going to play out.
1893
02:02:13.624 --> 02:02:16.585
My theory is that it's going to play out like it has in the past.
1894
02:02:17.005 --> 02:02:18.966
We're just going to, new careers are going to be invented.
1895
02:02:18.986 --> 02:02:21.067
It's everything you just said, new jobs will be created.
1896
02:02:21.187 --> 02:02:21.627
All of that.
1897
02:02:22.007 --> 02:02:22.868
The asterisk is,
1898
02:02:23.868 --> 02:02:25.329
depending on how fast this happens.
1899
02:02:26.190 --> 02:02:28.612
That's the risk that I don't know how you quantify it.
1900
02:02:29.213 --> 02:02:33.077
Because the AI stuff does seem to be moving really, really fast.
1901
02:02:33.957 --> 02:02:46.349
And so if it happens, if it just keeps truly accelerating on a straight-up curve and we get robotics incredibly fast, that's where so much disruption might happen.
1902
02:02:46.449 --> 02:02:47.510
We could be in trouble.
1903
02:02:48.452 --> 02:02:55.279
But what we don't know is will AI really legitimately go straight up like everybody's saying it is?
1904
02:02:55.319 --> 02:02:56.441
I mean, at the end of the day...
1905
02:02:57.740 --> 02:02:58.921
it's a prediction machine.
1906
02:02:59.041 --> 02:03:01.003
It's not actually a brain.
1907
02:03:01.063 --> 02:03:03.705
Like people don't under, it's just a prediction machine.
1908
02:03:04.185 --> 02:03:07.248
It's a smart calculator, as some people say it.
1909
02:03:07.468 --> 02:03:11.931
And it's not like when somebody, I mean, there's this story.
1910
02:03:11.951 --> 02:03:18.036
So if I was listening to a thing with Marc Andreessen the other day, and he was given example of, and it's so true.
1911
02:03:18.156 --> 02:03:21.439
And he just articulated in a way that's like, okay, that's a good way to explain it.
1912
02:03:22.260 --> 02:03:25.442
You hear these stories about how the AI
1913
02:03:26.963 --> 02:03:30.065
tried to protect itself and to keep itself from getting turned off.
1914
02:03:31.066 --> 02:03:33.488
And so, okay, he's like, and he basically told the story.
1915
02:03:33.508 --> 02:03:35.629
It's like, there was no intelligence there.
1916
02:03:36.089 --> 02:03:37.931
It was the prompting.
1917
02:03:37.991 --> 02:03:40.632
It was the training data that had been built in.
1918
02:03:40.652 --> 02:03:41.413
It had training.
1919
02:03:41.793 --> 02:03:44.155
I'm probably getting it slightly wrong, but they'll at least make the point.
1920
02:03:44.675 --> 02:03:48.397
The training, it had been trained on data on how to protect yourself.
1921
02:03:48.417 --> 02:03:53.319
Like as an example, it might have been trained on sci-fi movies where the AI was going to get turned off.
1922
02:03:53.379 --> 02:03:54.860
And so that was its context.
1923
02:03:55.260 --> 02:03:59.142
So all it does is read a bunch of words, make predictions.
1924
02:03:59.222 --> 02:04:02.584
And so it followed that training data.
1925
02:04:02.604 --> 02:04:04.685
And so it's like, so it's going to keep itself from getting turned off.
1926
02:04:04.985 --> 02:04:07.527
It's about how we train it, the data we give it.
1927
02:04:07.607 --> 02:04:09.127
And then it's about the prompt we give it.
1928
02:04:09.448 --> 02:04:10.148
It's dumb.
1929
02:04:10.468 --> 02:04:11.429
It's really, really dumb.
1930
02:04:14.170 --> 02:04:18.277
where we stand today to get to maybe what some people are predicting.
1931
02:04:18.297 --> 02:04:19.479
There's a lot of debate.
1932
02:04:19.579 --> 02:04:28.153
If we can really go from a prediction machine as we have today to make this leap to like this real incredible intelligence that is,
1933
02:04:29.296 --> 02:04:33.900
able to come up with novel and new ideas without even looking like piecing.
1934
02:04:34.180 --> 02:04:43.188
What it's doing today is it's like maybe putting together combinations, but to come up with something completely new and novel, can that be done with the tech we have today?
1935
02:04:43.389 --> 02:04:44.490
People don't know that answer.
1936
02:04:44.530 --> 02:04:45.651
So there's a lot that's,
1937
02:04:46.091 --> 02:04:48.632
Like if you listen to the news, you might think we're already there.
1938
02:04:49.492 --> 02:04:49.953
We're not.
1939
02:04:50.133 --> 02:04:55.335
There's a lot of breakthroughs that have to happen to get us to where Elon and so many other people are predicting.
1940
02:04:55.655 --> 02:05:03.558
And they're predicting based on just the power laws and the charts say, well, if we're moving at this pace, we're probably going to be here by this amount of time.
1941
02:05:04.078 --> 02:05:05.619
You're predicting where we might end up.
1942
02:05:05.659 --> 02:05:10.021
We don't know where the technology might run into a bottleneck and be slowed down for years.
1943
02:05:10.081 --> 02:05:10.641
And so those...
1944
02:05:11.575 --> 02:05:18.821
Because I believe we are going to most likely, because we usually do have these bottlenecks and these periods of slowdown, things are still advancing, but not as fast.
1945
02:05:19.121 --> 02:05:26.127
That's where I'm a little optimistic that people are going to have a little more time to adopt and learn new skills and go into new jobs.
1946
02:05:26.748 --> 02:05:28.069
That's why I told you all that.
1947
02:05:28.189 --> 02:05:30.671
That's my general theory of what's going to happen, but we don't know.
1948
02:05:31.232 --> 02:05:32.213
Yeah, 100%.
1949
02:05:32.594 --> 02:05:34.036
All right, let's wrap up.
1950
02:05:34.116 --> 02:05:38.782
I want to end it out the way that we do the ceasefire unfiltered, which is non-financial advice.
1951
02:05:39.222 --> 02:05:46.472
So in case anyone is new, non-financial advice can be financial advice, but it can also be non-financial advice.
1952
02:05:46.492 --> 02:05:46.852
Yeah.
1953
02:05:46.992 --> 02:05:48.954
So I'll come up with one.
1954
02:05:49.034 --> 02:05:50.715
You try to think about one while I talk here.
1955
02:05:51.056 --> 02:05:51.236
Okay.
1956
02:05:51.296 --> 02:05:52.477
Because I know I sprang this on you.
1957
02:05:52.757 --> 02:06:07.230
So my non-financial advice is if you are doing instant quotes on your website or over the phone estimates or any sort of automated way of getting an estimate sold, call the customer once they are on the schedule and offer them another service.
1958
02:06:08.228 --> 02:06:09.328
We're doing this right now at CommandStorm.
1959
02:06:09.348 --> 02:06:10.049
We just made this.
1960
02:06:10.489 --> 02:06:13.550
It's just a very simple thing, especially if they have not had a human connection.
1961
02:06:14.150 --> 02:06:14.930
Call the customer.
1962
02:06:15.270 --> 02:06:16.771
Say, hey, just confirming that schedule.
1963
02:06:16.791 --> 02:06:17.351
I just emailed.
1964
02:06:17.371 --> 02:06:18.111
I just texted you.
1965
02:06:19.051 --> 02:06:20.032
I want to offer you another thing.
1966
02:06:20.452 --> 02:06:25.413
We have seen a huge adoption of a secondary service when we actually get a human on the phone.
1967
02:06:26.253 --> 02:06:28.054
And so that would be my non-financial advice for the day.
1968
02:06:28.815 --> 02:06:29.095
Smart.
1969
02:06:30.316 --> 02:06:31.617
Okay, so I didn't know this was coming.
1970
02:06:32.738 --> 02:06:37.181
I'm going to go with something I'm going to do a 5 for 50 video on at some point here.
1971
02:06:37.501 --> 02:06:38.982
And I just so believe this.
1972
02:06:41.103 --> 02:06:43.045
It's basically this idea that...
1973
02:06:44.199 --> 02:06:57.784
At the end of the day, the most important thing for your business to be really successful, for you to be optimistic, for you to keep your foot on the gas, for the thing to keep growing, it's about you and how healthy you feel and how healthy you are.
1974
02:06:58.005 --> 02:07:02.226
And it's like you are the key to this whole thing.
1975
02:07:02.586 --> 02:07:05.788
And so I would just ask you, how are you eating?
1976
02:07:06.592 --> 02:07:07.453
How are you sleeping?
1977
02:07:07.553 --> 02:07:08.494
And how are you exercising?
1978
02:07:08.514 --> 02:07:09.695
I don't even need to tell you what to do.
1979
02:07:09.736 --> 02:07:10.496
We all know.
1980
02:07:10.516 --> 02:07:18.605
And every time I go on a vacation and I let any sugar, I'm just going to say this so you can think about it in your life.
1981
02:07:18.846 --> 02:07:23.751
Sugar, I have a drink, I eat whatever for me, even a lot of carbs.
1982
02:07:24.612 --> 02:07:25.833
Anytime I let that in my life,
1983
02:07:26.614 --> 02:07:29.136
I, why don't I not feel like I have that much energy?
1984
02:07:29.156 --> 02:07:31.558
Like I can just tell that I'm not working as fast.
1985
02:07:31.939 --> 02:07:36.963
As soon as I come home and I clean it up and my diet is like meat and vegetables and everybody's different.
1986
02:07:36.983 --> 02:07:39.365
I was like, I have so much energy.
1987
02:07:39.425 --> 02:07:40.426
I'm so optimistic.
1988
02:07:40.466 --> 02:07:41.587
I'm ready to go for everything.
1989
02:07:41.807 --> 02:07:44.009
So think about having that in your life.
1990
02:07:44.069 --> 02:07:47.592
And like, if you're not doing that, then how are you going to get the thing you want?
1991
02:07:47.933 --> 02:07:51.536
How are you going to show up as the very best, most optimistic person to lead your company?
1992
02:07:52.138 --> 02:07:53.760
That's what we need to do for all the AI doomers.
1993
02:07:53.780 --> 02:07:55.061
They need meat and vegetables.
1994
02:07:55.081 --> 02:07:56.262
They'll become more optimistic.
1995
02:07:56.482 --> 02:07:59.004
It will be a good place tomorrow.
1996
02:07:59.885 --> 02:08:00.766
So fantastic.
1997
02:08:00.786 --> 02:08:05.250
Thank you all for watching from the Sultan of Service and the Pharaoh of franchising.
1998
02:08:05.510 --> 02:08:06.431
We'll see you next week.
1999
02:08:06.792 --> 02:08:07.352
Good seeing you.
2000
02:08:07.392 --> 02:08:08.033
See you next week.