Buying Existing Businesses to Make Millions with Codie Sanchez #577

was out of control. But now things are different. Cody is financially independent. She owns something like twenty six small businesses, and she's the founder and CEO of Contrarian Thinking, where she basically she's on a mission to free the minds of individuals who are hanging on to traditional careers and they're also hanging onto the common narrative of what it means to be successful, and oftentimes that can be via buying existing businesses. This is more feasible than you might

think to achieve. So Cody, we are excited to talk with you today. Thank you so much for joining us. We're excited to talk about all of the things that we just mentioned, plus a whole lot more. I'm thrilled to be here. Thanks for having me, guys. Yeah, we're glad to have you. And I think Matt was actually wrong. I think Cody bought two businesses while you're doing the introduction, Matt, So maybe she's at twenty right now. I don't know who can con who can count anymore? Well, uh, Cody.

The first question we ask anybody who comes on the show is what they like to splore John. It helps us learn a little more about them. But Matt and I were being smart with our money, saving and investing for our futures, but we still like to spend a lot of money on a good craft beer. What's your what's something you spoor? John, what's your craft beer equivalent? I got a weird thing, maybe not so weird these days for crystals Texas? Okay, Yeah, very hippy letting that

very hippie. You know, if there's like some overpriced gift shops somewhere with some shiny amethysts something or other, I'm gonna probably buy it for two bucks, and my husband's gonna ridicule me mercilessly. So you know, a little bit finance, a little bit uh hippie. Okay. So it makes me think of Hank from Breaking Bad when he was at one point like laid up in bed. He was like, buying all those crystals and stones off the internet. Is

that is that you? Yeah, it's basically me. It's like, you know that saw a great me and it was like, God, look at those idiot kids with their light up shoes thinking that they're running faster with them on. And then it's like me buying a crystal and putting it outside so that I, you know, have a healthier week this week. It's that's where we're basically in life. So I did not even know this entirely like this, it's an entire subculture.

And recently our family we we hiked up a local mountain and up on top of the mountains were on some of these rocks. There were some crystals set out and I was like, what in the world are these are? Our kids are wanting to play with them. They're like, can we have these? I was like I don't, no, no, no no, no, I think you should leave those alone.

I think those are somebody else's. And my wife she filled me in and she's like, actually, we had there was like a special moon recently, and she's like, I think somebody left him out to essentially like recharge overnight. Like wow, that sounds familiar. I don't know, you know, I believe it. I don't know anything about horoscopes or like what crystals actually do. It's just a weird quirk of mine. Um so yes, but I think you know, I was actually reading that the crystal business because that's

where I always go to. But basically, crystals, tarot cards, all that nonsense. I had one of the fastest growth rates ever in And in fact, there was in l A this weekend is perfect l A story. And I was walking down um like Venice, the main street whatever that's called Abbot Kenny and there was this crystal store and the crystals were crazily pry all over the place, and there was a sign that said closing sale or whatever, and I'm like, crystal business tough, like, oh no, actually

we're opening up three new larger stores street. Yeah, you can imagine. Abbot Kenney is the most expensive, I believe rent per square foot street in the country besides now South Congress in Austin. Holy yeah, I was gonna say other than like Fifth Avenue up in New York or something like that, but I think it's higher. I thought you're gonna make a inflation crystals joke with the business, but no, it seems like they're doing just fine. At the very least, they are pretty uh, And I'm glad

that that's something that you that you like to splore. John. We are not going to hate on that at all. Cody, let's talk, okay, because before you were a serial business owner, you were a journalist. You reported from the US Mexico border, and it seemed like that that actually motivated you to pursue a career in finances. Is that right? Um? I would love for you to connect the dots for us

for our listeners. Yeah, so, Um. Like lots of young college students, I think I had grandiose plans about changing the world, and I thought that one of the best ways to do that might be to be a journalist, and specifically I wanted to be a conflict journalist along the US Mexico border, dealing with things like human trafficking and drugs smuggling. This was like two thousand voters in six seven eight something like that, and I was writing stories about some some of the horrible things that were

happening along the US Mexico border. And I had a grant from the Howard Buffett Foundation, which is Warren Buffett's a kid, actually, and I wrote a couple of stories that were I thought were pretty decent. They got picked up, we want a couple awards me and some of the other journalists that worked on them. And oddly enough, what I realized is that, you know, I had this opportunity to drum up a bunch of awareness about an issue,

but nothing actually changed. So all the awareness in the world couldn't change the fact that these terrible things were happening on self. And so I had my little like quarter life crisis at twenty one years old or whatever, and realized, you know, my last name is Sanche's. These people's last name is Sanche's. What's the difference. It's this one thing green and uh. And I wanted to understand the language of money. And that's why I end up going into finance, because I think money is the thing

that changes lives. It's not just where you're born, it's not the country that you're in, you know, it's can you understand this language of money. Well, and you're a you're a second generation immigrant, is that correct? That's right? I am. Uh. So, you know, my family is from Spain, and then I have family that's that's from Latin America as well, and so I suppose that seeing my family sort of come over and struggle and strive and grow was a big influence on me getting into where I

am today. Also, there's really cool stats for Hispanic heritage. Months. I'm just like how Latino's work in the US and the percentage of workforce that they are. I'm not into um, you know, I think all means are more like than not, but uh, it is cool to look at you know where your heritage is, and I love anybody who loves to labor. Yeah, there's I mean, there's something to the reality that the numbers bear out that second generation immigrants

are more successful than the rest of the American population. Right, even if your third, fourth, fifth generation, you've been here a long time, it seems like maybe you have all of the inherent privilege of someone maybe who has you know, deep family connections to this country. But second generation immigrants end up being they make up end up being most successful in business and making more money. Like, why do you think that is? I think you can't teach desire.

That's something that my father always said to me. And so a lot of times, what I've found in hiring gosh, now, hundreds of SMO I don't know, maybe thousands, tan gently of people across my career is that there's nothing that you can substitute for desire and curiosity. I will take somebody who wants it and somebody who is curious to learn and iterate and change over somebody who has innate ability or intellect nine times out of ten for the type of businesses that I do. And I found that

they say that what makes most people succeed. I think it was Angela Duckworth study from the University of Pennsylvania about grit being the number one, number one indicator for whether somebody would succeed long term and whether it was startups or business in general, I'm not sure, but that I think is the difference is, you know, the desire is really innate in immigrants, because if lack is that close to you, you know, if if you've ever spent time,

like really spent time. I'm not talking about going to Cancun, and Alcapulco and going to you know, Meta Gene and Bogata. But if you've spent time in Latin American second and third and fourth tier cities and seeing the just difficulty that is living, then when you're presented with an opportunity to actually really grow something here in the US, you want it badly because you know what the alternative is and you're willing to do a lot to get to it. So I wish I could give everybody a second gen

immigrant mentality. Yeah, I mean, and it's true, it's there is something weird too about second gend, because it's not only the fact that second gender are more successful than like maybe say first gend, but even third generation. Right, Like, there's something about It's like there's a scene in Your Parents of seeing your parents sacrifice and the steps that they had to take and probably work two or three jobs in many cases. I think there's, Yeah, there's something

really cool, There's something really powerful. Can I harass you on one other point there? Think about they talk about wealth transference with the really really wealthy, So they say, you know, the first generation makes the money, the second generation retains and grows the money, and the third generation loses it, and so I think it's similar with an

immigrant mentality. If you're talking about generational wealth, there's a reason why I don't anticipate leaving a ton of our cash to our kids, because I think that's a huge disservice. Typically they need to imagine this, like you graduate from high school and you're given BMW or Mercedes spends, and then you go get a job that is the annual equivalent salary to that car that you were given when

you were sixteen years old. Now that car breaks down in the first car that you can buy as a Miata for five thousand dollars like it, just it doesn't make you want to work more when you've started so high, you've got a reverse and then grow again. So I think you're exactly right second gen immigrants, and then you know wealth transferred its being with the first or second generation.

It definitely makes you think twice about passing on wealth to future generations, makes you want to think long and hard before you even start hinting at what you might leave to your kids. Purposefully imposing hardships on your kids, not you know, not making them necessarily like army crawl through the mud, but not giving them everything that you know, you wish maybe you would have had, even like I don't know, I see I see it as building up an ethic in my kids by not giving them the

things maybe that we could give them totally. So do you You ended up working on Wall Street. While you were there, you had a couple of you know, like fancy shmancy jobs. You even worked for one of our favorite companies, Vanguard actually um and you know, we're kind of talking smack about some of these big banks, some of these big companies, but like, it wasn't all that bad, wasn't where there's some some pros to being there on

Wall Street and learning and working. Of course, if you want to start out and get a free almost free sort of MBA training without having to go get an m b A, I think getting into a training program at a company like Van Vanguard, Deloitte, you know, Goldman, any of the consulting companies like BCG is probably one of the fastest accelerants to your career. Out there, you're learning on somebody else's dime. The interesting part for these big companies is they spend a ton of money on

their higher level new hires. So I learned a lot on Vanguard's dime. I learned a lot on Goldman's dime and State Streets dime, and they have a ton of resources for you. I don't think you want to end your career buying large at a huge corporation. I really like the idea of you starting it there. If you're the type of person who's going to take advantage of all of the resources surrounding them. Then the second thing is you know less for Vanguard and more for let's

say gold Men. Being around people who are incredibly intelligent, smarter than I was, you know, pretty pedigreed, helped soften some of my edges, given I didn't know much about money coming into this industry at all, and I didn't know about doing deals, and I didn't know, you know, what it was like to be with a bunch of kids that went to Harvard and Stanford and Yale, etcetera, you know, as a public school kid, and so being in these big corporations where they require a lot of

edge softening I think has helped me later on. And now I can say, you know, if I want to wear cut off shorts and crop tops, I'll do it. But I know how to dance, you know, in cuff links and suits too. So was that what made you leave? Was it, hey, I want to be able to wear whatever I want? Or what made you leave a place where you feel like you got a good education? The salary was pretty meaningful. What made you say, now it's time to get out and go do my own thing?

A wild thing happens once you've had a taste of freedom and work, which is at a certain point, you become unemployable. And that's what happened to me. I became unemployable. Really. I had run a couple of business divisions inside of one of these big companies, and I was doing really well and the business was growing like crazy, and then because of some bureaucracy inside of the business, they basically said, oh, we gotta change it this way, we gotta do it

this way. And I said, that makes no sense whatsoever. If our goal is to grow the business and make money in an ethical way that aligns with our company mission, so four parameters that hits all of them, why would we do this asinine thing? And they said, because that's what the company wants to do. They did just have a bunch of consultants come in and so we're actually going to realign this business. And that's when I realized

I couldn't really shut up about it. I pushed back about that idea, and I said, I want to go build this myself. And I do think that's what happens after a period. If you're really sort of type A you're meant to run and build businesses, you're going to be at a certain point really hard for somebody else to employ. You became unemployable. I just like that phrase. I think I'm at now that we've been working for ourselves for like a few years, and like how do

I go back and work for the man? Like once you get a taste, I mean, this is this is gonna kind of date us a little. We're all kind of old millennials here, but like it makes me think of the matrix. And once you have a taste of what it's actually like outside of the doesn't matter how good the steak taste inside the matrix, you can't go back. You want to be able to fly, But like not everybody can see it that way, you know, Like I'm guessing a lot of folks assume that you're crazy. Once

you were like yeah, I'm not gonna do this anymore. Instead, I'm gonna go by this business like a laundromat. Laundromat, and that's what I do now, where people are like, Cody, you're nuts, What are you doing? Why are you throwing it all the way. Oh absolutely, I'm sure you all can relate. But throughout my career, I think I've known I've made the right decision, typically because each time I made a move, somebody said that I was out of

my mind. And so you know, when I aft journalism, got some offers from great newspapers that a bunch of other people wanted and said no, I'm going to go into Vanguard's training program, people thought I was nuts. Then when I left Vanguard, good paying job, I was being promoted in all these ways. My mom was basically crying. Then when I left Goldman, you know, cream of the crop, it's the top of the industry. To go to State Street and run a business in Latin America, again, I

was crazy. Then when I did it to go to First Trust, and when I went into private equity. I mean, every single time people have basically said the grass is not always greener, be careful, And what I've realized is that, at least for me, the point of life is an accumulation of experiences and skills that build me a really fun life resume that I'm glad to have read at

some point in which I go underground. And so I never really worried about if I was making the wrong decision, because I thought the experience on the skill set was really interesting in and of itself, and if the thing that I was going to go do work out awesome. That said, I have never been the type to be able to rip off the band aid and just quit easily. You know. I always had to mentally really ponder it for some time and ensure that that was the right

move and how could I d risk it? So sure, everybody thought I was crazy just about every single time. And um, even when I, you know, finally finally left to go build a media company and I rescinded, you know, my partner position and at at a private equity firm of which I was one of the main members, they really thought I was crazy for going to start a quote unquote blog. And doesn't sound great when you put it like that, but oh no, don't. Now people are

sort of getting it. But I'm sure like all of us who are creators, they're like, wait, you're gonna you're gonna leave to go talk with your buddy on zoom calls and people are going to listen to that ak A podcast, right, So, yes, every time they thought I was nuts, And I think that's when you know you're

doing something interesting. Yeah, for sure. Well, I like how you you've mentioned the word d risk in there, because there's a way you can do it with zero dollars in the bank, and you can make it a really risky endeavor where you might have to go hat in hand back to your old boss two weeks later. But there's a way that you can do it with some runway, some financial runway, so that you actually have a chance

to succeed and build that business. But I want to know too, one of the things you've done that you've become very successful doing is buying other people's businesses. So we want to talk about that a lot today. What made you decide that it made sense to start buying other people's businesses that they had created, and when you could have like just started some of these businesses yourself.

I'm curious to know, like the value proposition there. I'm a numbers person, and so when I looked at my goal, I want to be a billionaire. I want to create billion dollar empires. Money to me as a game, it's kind of like a scoreboard, and then you can take, you know, the outcome of that game, the money that you've won, and use it as a tool to arcts text the world that you want to see. I like that idea, and so when I thought, Okay, if I want to play billion dollar games, I don't want to

play small guy games. I want to play billion dollar games because at the end of the day, they're all the same ones just a level ten activity and one's a level one activity. And so if that's the truth, and then where is more wealth created then anywhere else? And what I would argue is that more wealth is created in private equity than in any other industry. It's

created more Forbes billionaires in the other industry. And I mean that loosely defined by people who actually run private equity firms, people who do hold codes Allah Warren Buffettum, people who do acquisition strategies in order to grow their business. Alla. Most of the large companies in the SMP five, including Amazon and Apple and Google and et cetera. And so I realized, wait a second, why are all of the smartest, wealthiest people out there buying businesses? Because the numbers they work.

And so I thought, if the game is the same, if they're buying a billion dollar business or a multibillion dollar business, why can't I apply the strategies that I learned in private equity to a small business. Then I don't want to go bankrupt on my first deal. So what business could I buy that I could understand? Probably

a hundred percent of the time. That would be what I call a gateway drug business, uh business that's easy to start with that then I could replicate and buy more and more of them and cash full off those businesses and they would act like assets for anything else. And so that's why it's a billion dollar game that's created more billionaires than any other industry. And if you're going to play a game, you might as well pick

one that's a level ten. I like it. And that's what we're going to spend the rest of this episode talking about. Specifically, we're gonna dive into how to go about buying somebody else's business, because Cody, we've got a lot of folks listening, and they are looking for more that gateway business, that gateway drug of businesses. Uh. And so we're gonna ask you a bunch of questions pertaining to how exact it to go about that. Right after

this break, all right, let's keep rolling. We're talking with Cody Sanchez about buying other people's businesses in order to make serious money. And the one of the coolest things about the strategy, I think Cody, is that it's endlessly replicable. It's not like they're our listeners are competing against you, right unless they live in your neighborhood. Typically there are there are millions and millions of small businesses. So I guess I want to know about demographics for a second.

It certainly seems like we're in a time of abundant opportunity for people to more than ever be looking into the strategy of buying other people's businesses in order to make money. Would you say that we're in like a demographic windfall for a lot of people to really think

about the strategy. Yes, I am writing a book right now that I'm loosely titling The Three Waves, which basically talks about this idea that there are three corresponding waves that are happening that I think together create a bit of a tsunami. First wave, great resignation. We've all heard this, people our age. They want meaning they don't want to work for the man anymore. They want something to matter after going through a pandemic and a lot of proximity

to death. Then we've got the great retirement. Boomers are aging out, and boomers happen to own more small businesses than any other segment. And then simultaneously we've got this great corporatization which I sort of made this term up, which I think means we have big businesses becoming a bigger and bigger portion of our lives and the SMP. And yet we now have this pushback. We don't want to live in these big urban cities anymore. We don't

want to really go to McDonald's in Starbucks anymore. We have this feeling of localness and community were more interested in because lots of people are moving to smaller communities. And so the idea that I have is, what if by buying small businesses, what you can do is you can actually take advant edge of these three waves. You can have an immediate impact upon your community, and you can have more corner stores than Walmart's. Wouldn't that be

an incredible trend? And I think that's what's happening right now, an ability to buy businesses because they're being transitioned out do good while you're doing it, become an owner and cash flow, and there's obviously something incredibly fulfilling and gratifying about supporting these mainstream businesses and not only funneling your dollars towards towards Wall Street. I'm sure that's a huge part of like I guess, like the lifestyle side of it that makes you feel really good about what it

is that you're doing as well. Right, that's exactly right.

I don't think it serves anybody by having such a small percentage of the population owned so much of the business that we touch every day, the businesses that we touch every day, And that is increasingly what happens, and it's a skill and knowledge deficit, and so you know, we're seeing right now, I think commoditization or easy access to buying businesses in a way that we saw twenty years ago with real estate, you know, before Zillo, Red Finn, before MLS, it wasn't so easy to go and buy

single family homes and understand what the market was for that. I think in the future it will be perhaps not as easy, but it will be much easier to buy businesses. And we're already seeing a bunch of technology that supports that thesis. Well, yeah, I talk to us about you know what it takes to find a business that makes sense to buy? Like, where should listeners be looking if they are interested in buying a business? Like you said, everybody knows to go to Zillo if you're looking to

buy a home or red fin something like that. Where do you go if you're looking looking to buy a business? The best place to buy a business right now is not on the internet similar to a hip pocket listing or you know, an off market deal. That is the best place to buy a business. And the way that I teach people to buy a business is all about proximity. So let's say that we are going to buy a business for Joel and Matt. What would Joel and Matt's

perfect business be. It's going to be different than Cody exactly. It's going to be different than Cody's business. And I'll use an example of this guy named j K who's relatively public. He's kind of like a Twitter growth guy. He was tweeting about stuff on the internet frequently and doing consulting right, so it's making you know, a couple of thousand bucks a month off each client telling them

how to grow on Twitter. Well, he started using this tool that I'll leave the name off of it, but a Twitter growth tool, and that Twitter growth tool, he realized, what's growing so fast? But he really liked it, and he thought that his suggestions could make the tool better. So he reached down to the owner of the business and said, Hey, I think I could grow your business because I know about Twitter growth. I could get you a bunch of other people, but I want part equity

in the business. Can I give you some cash matched with the growth that I will give you through new clients and own a meaningful percentage of the business and we could do it together. That I think is a there's like sort of four tiers to business. Mind. That is a level for or a tier four way to buy a business, which is you're using your unfair advantage unique in an area in which you have some personal expertise.

And then there's the tier one way to do it, which would be the lowest, most entry level way to do it. Then that would be by going to sites like bis By, cell Loop, net Flip, e commerce, Flippers, Quietlight Brokerage, all of which would be the equivalent to a red fin or Zillo for buying a business, just not as good because none of these sites are are

great at this stage. And that's just straight up dollars for a business that is showing a certain amount of income, and so you have to kind of take what you can get. You're looking at pickings that are publicly available, and whereas you're talking about the level four is it seems like there's more of a network effect involved there, right that, So I guess, like my question is how

important is networking in this process? And maybe I don't know what suggestions do you have for folks to grow their network to increase their chances of success as they're like interested in buying a business and you said proximity so likely local to where they live, right, So it's up to you. The bigger your network has and the more you are willing to specialize in your search, probably the better deal you'll get with the higher return. If you want to just buy something that's on market, like,

let's say a laundromat in your local area. I think it's pretty easy to do the thing that most people don't do, which is go around to local laundromats and try to get in touch with the owners and start talking to them about their business and tell them that you're looking to buy one. And I would pretty much guarantee you that after you talk to twenty of them, you're gonna find one to five that are interested in selling.

Someone's tired of owning a laundromat out there, you know, Yes, there's a lot of people who have, you know, think about it this way. Most people like, why would somebody sell a business for two to three x profit that you know is kind of passive and making them a hundred K a year. Nobody's ever going to sell that. And then I ask them, are you going to keep your job for forty years, the same job that you have today. You will not be promoted, you will not

change positions, your title remain the exact same. Will you keep it for forty years? And the answer is no. We've seen as a society two to five years, increasingly more like three to four, and so it's the same for business owners. At some point you're like, all right around the laundromat. It was cool. I added a few on that was cool. Now I'm gonna sell it to somebody else. I got this other business that I want

to start. It's a progression, just like you don't stay in the same house your entire life either, And so there's plenty of people that want to sell for what are called the five d s, So you know, death, divorce, disaster, despair, just meaning like something going wrong in the business, et cetera. Or the fifth D is something goes sideways in the business, but I can't remember what the exact D is, so like, um, your business has a disgruntled partnership issue or something like that.

So for all those reasons, people are constantly wanting to sell their business. It's just are you finding the right person at the right time. Makes a ton of sense. Also, side tangent oodie, did you happen to watch everything everywhere, all at once takes place within a laundro matte? It kind of gives you an inside look how soul sucking

that my that industry might actually be. But well, as an entrepreneur, you can make money running on it was the Yeah, the basis of the entire movie kind of surrounded this laundroy mate, that this family, and also just a fantastic movie. It's a really trippy, out there kind of movie. I think you might like it's one of those films. Um sorry, but uh okay. So, once you found a business that you think could make you some money, that that might run well, Like, how do you know

that is a good one? Like, how do you know that it's gonna make sense? Is there a is there an easy way to crunch the numbers for folks who might be used to running their own books right, Like they're good at running you know, Joel lars Guard LLC. Joel is really good at his own money, but it takes a little extra when it comes to running a business.

What are some things folks should be looking at? First of all, I think you should really spend the first thirty to sixty days learning how to do act positions before you do them. It's not necessary. But the last thing that you want to have happened is have your first deal be a bad deal, because then you're gonna think buying businesses is a bad idea and you're not going to realize no, no no, no, you just made a

mistake and how you did it the first time. So my caveat would be it really should be for anything in life. But it's very easy to go in place a trade on Robinhood right. You don't really have to learn too much about it. You can go read a couple analysts reports. No problem with buying a business. There's more complexity, which means that there's more opportunity because there's a barrier to entry with that same thought, though, like

you can go to Unconventional Acquisitions dot com. We have a blog of a bunch of free tools on how do you analyze a business? How do you break down if a business is worth it or not? How do you hire an operator? All the things that you would probably think of as objections or reasons why you wouldn't do it, we try to talk about in our free blog, and there's a weekly newsletter that comes out. You can get on the list. But quick, down and dirty. If you only do three things, it would be this one.

You want to look at historical tax return in tandem with their P and L, so you just want to make sure that what they're telling you in their profit and law statement is what's on their tax return. So

are the numbers real? To businesses? In my opinion sub five million dollars in revenue typically trade at a profit multiple of two to let's give it like six x. So if I make it a hundred k in profit in my pocket in a business, I should be selling that business for anywhere from let's call it two hundred six hundred thousand dollars. So now you've got kind of a rough valuation. And then the third thing is you have to understand there's usually in every business, like of

the numbers drive of the return. Meaning if I have a laundromat, I really want to understand what the leases and how long I'm locked in because it's expensive to put in the pipe being and all the washing machines or whatever. You need a long waist if I'm a laundromat, Also, what are going to be my biggest expenses my equipment certainly, and then you till the water and electricity for washing and drying. So like you need to get to the meat of whatever it is that you're buying, and that's

where you can do risk the most. There's probably like twenty or thirty other main things you should be looking at, but these top three will get you quite far. It's kind of like you don't want to be buying the expensive baseball team when all of the contracts of the biggest stars are set to expire, and you're like, you might have just bought the crappiest baseball team now that they're all like set the walk or or set to

get paid a lot more. Right, Um, I guess let's talk about negotiating, because yeah, you said there's this sweet spot somewhere between two x or six x the earnings. But yeah, how do you go about negotiating a fair price and figuring out what that is? I'm sure a lot of that is relational, but there have to be like standards to that you can point to in order to kind of push for a better price for you for the business. You want to buy a lot of

meat here. So I think one of the most important things or valuable things for your career you could do is learned to negotiate. If you can learn to negotiate, it will be aplical on everything you do in life, and you'll just make more money period. If you spend time learning how to do what I call deal making, or of the people called negotiation. So let's just say that first, if you needed to spend some time on that, I would read, like you know, Chris Voss never split

the difference. I would actually read some of Trump's books. He has that one book that I can't remember what the name of his. I know people don't like him as human, but what he's really good at is that, uh, he's really good at dealing with discomfort and negotiation, which is an incredibly important part of it. And then I would also go and read as many case studies as I could about negotiation. So if you've done those three things,

then I think beyond that. The next step is basically where most people screw up in negotiating businesses is don't don't get caught up on the price in the beginning. In any negotiation for buying a business, there's two main factors price. In turn, everybody focuses on price. What you should really focus on is terms. Think about it this way, Joel and Matt. I'm going to buy your podcast for a billion dollars. Do you want Yes, I'll take it.

You'd say yes. What if I changed it and said okay, great, You've said yes, we signed the paperwork, but the terms are I'm gonna pay you a billion dollars five cents a day over the lifetime of that billion dollars. I'm never going to get this money coding. Just focus on the price turns right. So now Joel has done a bad deal. Bad job, Joel. And so what you really have to focus on is you can say in the beginning.

I usually set the tone so that the seller doesn't get crazy with their expectations of saying, Hey, businesses that do what you do typically sell for around two to six x, depending on how clean the balance sheet is, what the s ops are inside the business, how much revenue you guys do. I just want to set the tone that's typically what businesses like this sell for now. I don't really want to talk about price in the beginning, because I want to get into a partnership with whoever

selling me this business. You know this is this will be a relationship that we will have for at least a few months, if not years. So we need to make sure that we do this in a way that makes sense. So I kind of set the tone, which is called primings. You're gonna prime them that they're not going to get ten x their revenue for a business, it's just not gonna happen simultaneously. And you're setting the range. So maybe the range you even says two to three

acts instead of two to six sex. You've now allowed, You've you've narrowed their aperture. But the next thing you're gonna do is say, but, but, but but I don't want to talk about price. No, no no, no, no, I don't want to talk about price. I want to talk about you and your business. We'll get to all that stuff later. And so the big thing you should do up front is not over index on what is the cost? It's totally different than real estate, and which cost is

the only question. Okay, so you're telling us to downplay costs, focus on the terms. What about folks said? There might be a lot of folks listening who are thinking, all right, this this all sounds awesome. I don't have the cash on hand. Uh that does regardless of what a business might be selling their business for, how can I actually

go about making that purchase happen? Like, what are some of the different creative ways I guess that that folks can think about purchasing some of the different businesses that are out there. I use something called the get rich tripod, which is an awful name that I came up with, but you know, clickbait. But basically the idea is, there's three legs to a tripod, right. The way to do a deal and get financing is to use one of the three legs, if not all three. So the legs

are time, expertise, money. So let's say somebody listening and wanted to go and buy a car wash, and they have time, but they have no experience on car washes, and they have no money. How do you get that deal done? Well? You? If if I was you, I'd say you focus on the time factor. So you do the due diligence on the deal. You understand the industry, You put together a business plan on why to buy it.

Then you go find somebody who has cash. That somebody could be the sp A Small Businesses Association would get through scales loans to small business buyers. Because you have a business plan and a valuation that you think is reasonable for the business, You're going to take it to basically the s b A and say will you give me money? Will you loan me money for this? You can also do what's called seller financing, which is put together that same thing and say to the owner, hey,

I'm going to run this business. I will put up some percentage of the total purchase price, let's say tenent, but the other X percent I want you to carry in a seller's financing note over a two to three to five year period, which basically means, if I'm going to buy your business for two K, I might put down a hundred K, let's say, and then tell you I'm going to pay you back the next hundred kt kt dollars a year over a two year period from

the profits of the business. And the way to do those two is interesting because six small businesses are sold with some type of seller financing, meaning that the sellers are relatively used to the ask that, Hey, if I'm gonna buy your business, I expect you to carry some of my risk in the purchase price. It's pretty normal. And so that's one leg of the tripod. The other two you just flip it. If you have money, you

use that, use somebody else's time and expertise. If you have expertise, you find somebody else with time and money, and so that business owner it is kind of actually expecting you to not have all the cash and to maybe have to to wait to get back to get some of your investments. Um as you take over and round the company for a certain period of time. I guess too. We're talking about we've talked about some physical businesses yere, We've talked about laundromats, you mentioned car washes.

Are are there like non physical businesses that you can do this sort of things thing with that maybe might even cost less. I mean you mentioned the Twitter growth tool, are like, what about websites or blogs or buying other people's online businesses? Is that something that you've worked in or that you encourage other people to check out? Absolutely? I buy a lot of online businesses. Is so, Um, no real difference between online and brick and mortar businesses.

The only difference is they're a little bit more competitive to buy because people can buy them anywhere. Um. They also are typically a little bit more de risked in some ways because the API right into their financials. So you know, if you guys tell me we have a website, it does a hundred thousand views a month and it makes teno dollars. I can literally look in the history of your website and your stripe account and see that all rolling right in right. Small businesses typically have a

percentage that's cash. They don't have very clean books. You don't know where the actual moneys come from, so you have to do more what's called due diligence on on hard asset businesses. Then you do these online businesses, but the process is relatively similar. The way they value online businesses is by month, not years. So you'll say, while this is selling for you know, uh, twenty four x, and what they mean is like four months of revenue.

And so there's some differences between the two. But I would say the most competitive sites sell pretty quickly because smart buyers really know what they're doing. And again that industry has been a little bit more commoditized. Although a business to you and Joel could be a lot different than a business to me. And you could say, hey, we have this podcast, and look there's this tool that

helps podcasters I don't know reach out to guests. That business only makes ten dollars a year, so it's probably only worth let's call it thirty two fifty K or something like that, but to us it's actually worth a hundred K because we're paying somebody to do that right now, and this tool would save me for that too. And so that's where you want to get a little bit more into what's your unfair advantage? Got Yeah, yeah, we've talked. We didn't talk about that, but that's one of the

things you've discussed too. So maybe I don't know. Could you give us a quick take on on what you mean by unfair advantage and how how do we figure out what are unfair advantages? There is a rate quote from one of the partners at KKR and he says, no conflict, no interest, And I loved that quote because it's how smart, smart dealmakers do deals. KKR is a multi multi multibillion dollar private equity firm, and what he's basically saying is if I don't have a conflict, I

don't have an interest. And what he means by conflict is if I don't have an unfair advantage and unfair insight into this industry, deal, entrepreneur, sector, whatever, I'm not going to do it because I want outsized returns. So let me give you an example. Let's say that Warren Buffett was going to go and buy his railroad company, which was BNSF. When he went to go buy BNSF, a lot of people thought he was nuts for buying

that railroad. But what did Warren Buffett probably know that is allowed in public deals Before he purchased that company. He knew that pipelines were going to start shipping energy or oil around the country, and b n S stuff was going to get some contracts for that deal. So he did that deal because he had a conflict. He had an unfair insight into the industry in the same way that you, Joel and Matt might know. Man, podcasters over the next ex period of time are going to

do this thing that nobody else realizes. So I'm going to buy this business in advance. Or I'm an accountant and I know that it's really brutal for other accountants to hire X type of person, So I'm going to buy this outsourcing accountant firm. You want to use whatever the industry is that you have unique insight into, and say, Man, I want to leverage my expertise for an unfair deal.

The last thing I'll say is, like a good example of this right now would be if I was a realtor and I saw that last month open door lost forty lost money on of all deals that they did, and that generally across the ecosystem, real estate is coming down in cost. I would probably be thinking, huh, I bet I'm not to do as well this year in real estate as I did last year. How could I offset the return that I'm making on real estate this

year through an acquisition? So I might say I'm going to buy a property management company because people will still have to have their property managed during a downturn, even if they're not buying or selling. I make money no matter who owns it. Great, that is your unfair advantage. Yeah, yeah, I like it. You've got to find out what that is so that you can exploit it and that edge.

You can't succeed in everything, Right, You've got to kind of pick your niche, and that's how you're going to be able to kind of get those abnormal returns you're talking about. All right, Cody, We've got We've got a couple more questions we want to get to, including the power of people and and also like where you're doing business, how you might need to move in order to get a better advantage. We'll discuss a couple of those things, right, after this all right, we are back from the break

talking with Cody Sanchez and Cody. Essentially, what we're talking about here is passive income, right, and so I'm curious if you have like an overarching philosophy when it comes to passive income, because I feel like that phrase, it gets thrown around a lot, certainly sounds amazing, but it's also not nearly as easy, you know, as the phrase might make it sound. I would love to hear you

talk about just your general take on passive income. One of my favorite mentors, David Osborne, said a word to me that I think makes all the difference. He calls

it horizontal income instead of passive income. Basically, what this means is that this is these aren't types of income streams like investment stocks, differentiated businesses from your main salary that keep making you money regardless of your day to day income and your main vein which so I almost see it like a chart, like vertical income goes up and down, that's your earned salary. Horizontal income gets layered over whatever it is you're doing on a day to

day basis. You only have so many hours in a day vertically, right, and you could maybe take up eight of those hours with something, but horizontally, you could add as many as you want, right because they just continue to stack. I like that because passive income is a misnomer. Unless you're investing in funds, you know, some sort of commingled vehicle, the stock market, somebody else's deal, you're going

to be involved in some way, shape or form. And even for those deals, you're going to be involved in the beginning by at least making sure that the due diligence is right or that you should do this deal. But it's a good deal. So I don't love that term passive income. What I like to think about is having horizontal income streams that stack, and that is something

that these businesses can do over time. You know, I always debate people about this because some people say you should go all in on your main thing, and I think that is true for some people. I do not think that is true for everybody. There are just some outliers out there who should, no matter what the gets hard on the one thing that they're supposed to do because they're going to be the one to ten percent

that survives in business. But most people numerically categorically are not that and they should have diversified income streams because you need something to fall back on. And I do not think that we should proselytize or make it seem amazing that we're sleeping on floors to achieve our dreams. I don't think that's necessary, And I think you could do it away. That causes a lot less stress for you and your families and your bodies through having horizontal

income streams. Yeah, I like that. And like you said, over the years, it doesn't happen over and over the overnight. But as you're stacking up some of those horizontal income streams, they can start to look close to the vertical income stream and eventually replace it, which which is really cool.

But yeah, take take some time, take some intentionality. I guess one of my questions too, when you're talking about maybe some of the physical busines this is that you've bought they don't run themselves, right, So you buy a laundromat, but Cody Sanchez isn't going in there and unlocking the doors at six am to make sure people can come in and wash their clothes, like and and some of these businesses are more labor dependent than others, So how do folks need to think through the putting the right

people in place part of the equation when they're purchasing a business so that they're not stuck being the person who now just got a new job that requires forty hours a week of their time. It's the difference between operators and investor owners. An investor owner is somebody who takes money, or structures a deal, or does something that has infinite return on time. Ak, my dollars do not have a time construction and invest that in a business where then your operator is the person who day to

day runs it. So I don't want to turn this into a Cinderella fantasy land. For your first deal, you probably are not qualified to be an investor owner. You know, you need to get some reps under your belt. You might have to open the door on your first long termat because you've never done this type of deal before. You might have to get in the back end of

your website for the first website that you buy. But the goal is is that you do bigger and bigger deals which have more and more free cash flow in them that allows you to hire people with that free cash flow. So your first deal, you're probably kind of you know, you're probably really involved, or at least kind of involved. And then the more deals you do, the more infrastructure you can build so you don't have to

be involved. And that's how Warren Buffett runs businesses that do tens or hundreds of billions of dollars in revenue with a team of thirty five people, because they are overseeing all of their operators inside of those businesses they are they have a early Monger has an amazing quote, which is or it might have been Tarling Mungiger's mentor. He says, when you get a dog, you let it do the barking, and so it's the same with hiring. You know, you hire an operator, you let them do

the operating. And that's the difference between the two. I like it too well. Matt and I were mom and pop landlords, right, and it just makes me think that the first property that I bought, I was I was fixing everything. I was mowing the lawn, I was self managing. I was doing all the above in order to make sure that my bottom line was solid so that I could have more money to invest in the next deal.

And I just for the first time, hired someone to manage some of my properties, and it's it's like, I'm I feel like I'm fine at that point, and now that I'm eight doors into real estate investing, like as it grows, you have more opportunity to be able to hire those things out. Whereas the first deal you're gonna need to be more involved, but every successive deal you can be just a little more, a little further away

from the operating of of that business. Yeah, and Coudy, it seems like that you're not buying and holding forever when it comes to these different businesses that you have. What is it that makes you want to sell a business that you currently own? Are you just kind of taking advantage of a business that's not valued exactly where it should be? Right? Like so the arbitrage you quoted Warm Buffet a bunch that he calls those the cigar butts.

Are you doing that or are you looking for some different businesses that can provide you that cash flow over time? I think the cigar Butts strategy, which basically was like can you take the last polls off of business that people aren't thinking about? Like is there something left in something that people think is dead? Is actually a really tough strategy to do if you are not super skilled.

An analogy to this is there's something called a turnaround company, which is basically you buy a company that's not doing well right now and you're like, I'm the white Night, I'm the savior. I'm coming in and turn this bad boy around and we're going to make it profitable again. Those I think are not great for new beats. And here's why because whenever, and you guys know this is

property managers. Have you bought a house that's a fixer upper, gone into construction for it, fixed up the fixer upper, and on it under budget and faster than you value would right? Doesn't happen? Doesn't happen? Right? The same thing for a business. It's just going to take longer and be more expensive than you anticipate. So start with buying the nice house on a great street that you understand and think you can help appreciate or cash flow off

of as is as opposed to a turnaround. The main you know, strategy that I use to decide if I want to buy keep a business or if I want to sell a business is just is the business worth it? From a an R O I perspective? So you know, for my businesses, if the business will do at least a hundred thousand dollars in free cash flow to me and I don't have to spend time on the business, I'll keep it. But that number keeps creeping up, and the more they ask of me and the more I

have to do within the business. If it's not one of my main ones, I'll probably divest or I'll sell it and I'll let somebody else go take that perfectly sized business for them and run it. And then I'll take that money and I'll put it into a bigger deal, just like you would tend thirty want to exchange a piece of real estate. Yeah, it makes sense that the

fundamentals need to be solid. You can't just decide to come in there and just your magic touch, Like you're not gonna have the Mnus touch and be able to necessarily turn something around, especially as a nube. Yeah, exactly. Well, I plays chuckle too with like the year olds. They're like, I'm gonna buy this plumbing company. I'm going to take it to ten million dollars dollars right now. I'm like, have you ever managed plumbers? Have you ever been in

a plumbing job. Do you know anything about the industry? And it's okay to not know all that stuff, but come in with no hubrist be like, this business is doing X, I think I believe X, and I can continue X if we can add more to it. Awesome. Well let's just make sure that we understand it as is first. Yeah, that's a good point, or else you could lose a lot of money if you if you're shooting for the moon when in all likelihood that plumbing company you're not going to be able to like fifty X.

That's that's a tough endeavor. But Cody, this has been an awesome conversation. Thanks so much for joining us. And where can our listeners find out more about you and what you're up to? I think the best place for that is probably contrain Thinking dot com. We have a free newsletter on there all about different ways to cash flow and interesting um industries, et cetera. Same with unconventional

acquisitions dot com. Apparently we like vowels and then uh anywhere on the social's Cody Sanchez, I'm all over them, you know, TikTok in Instagram and whatever we do on the internet. I love it awesome. Thank you and yeah, your newsletter is a must read for anybody who wants to like deep dive even further into these topics and get specific examples on a weekly basis of cool stuff you could be doing that increase your income. So yeah, I love the space your end, the ability that you

have to open folks minds as to what's possible. I think that's the biggest takeaway as folks are hopefully considering what owning their own business might look like, it doesn't necessarily have to look like the the job that they've had for the past five to fifteen years. I think you're doing a great job with that. Cody, thank you so much for joining us, saying on the on the podcast, this is a blast. As you me, it's super easy. Thanks for having me, all right, Matt, I love that conversation.

I feel like I'm totally picking up what Cody's putting down. I think she is. She is one of the only people that I know of in this space talking about how people can change their lives by buying other people's businesses. And like we talked about for just a second, demographically, there is there is more opportunity than ever to take part in this bonanza that is buying other businesses and being able to yeah, pay your bills and and eventually

leave your job. Specifically, there are three ways that are leading to this being a fantastic time to to consider this. For sure. I can't wait to read that book when it comes out. But what was your big takeaway from

this combo? Yeah, so, as we were just kind of talking through a lot, I mean, we we kind of dug into a lot of good meat, which I really appreciate, um, but I think there might be some folks who are thinking, holy cow, I feel so incredibly overwhelmed, And how how am I supposed to know if me buying somebody else's business or even being a business owner myself, if that's something that I want to do. And earlier on in the conversation, I can't remember what we were talking about,

but she I didn't like someone out or anything. But I can't remember what she was responding to specifically, but she was talking about how of all the people that she's hired, like hundreds, if not thousands, she hires people based on desire. I think that was when we were talking about second generation immigrant? Was that? Yeah? Okay? So like and she said you can't teach that. You can't

teach desire, you can't teach curiosity. And so if you have an innate curiosity, if you have a desire to be your own boss, to run your own business, to figure out what it takes to own a business right now in the moment, I wouldn't worry so much about all the specifics of what it takes to find and locate, uh and hone in on a successful business, because those are all things that you can figure out if you

have that desire. Though I don't see that as a litmus test that, Okay, you are likely going to be a good candidate for somebody to to purchase the business or to own your own business. But if you're listening to this and maybe you are like, okay, yeah, thinking about all the different things you know, matching up their historical tax returns to the current profit and lost it. Maybe you're thinking through all the nuts and bolts and you're thinking, I got all that, that's that's no big deal.

But if you have no desire, if you have no curiosity, you might have all the fundamentals down. But if you don't truly want to do this, then I don't know if this is gonna be good a good opportunity, I don't think this is going to be a good path for you to take. I will say too, I think you can foster some of that curiosity. I don't think. I think sometimes it's innate. There's a lot of that

that that is just kind of instinctual. But that is also something that you can prod in yourself if you're if you're interested, if you can personal development, that might lead to you taking some steps and you otherwise wouldn't. If you get an ink to go in that direction, there is work that you can do to kind of push yourself to Like, I've become interested in all sorts of things I never thought I would be interested in.

And as I kind of give into that desire and I listen to content or I'm I'm following other people who are doing cool stuff in that space, it gets me excited about maybe participating. So yeah, I think that that that you can find maybe that desire even if you're like I don't know if I see it now, but don't push it. You don't have to go get at it right now even though you don't feel it, but you can foster it along the way and then

maybe protect later on down the road. Yeah. I do think there's a difference though, between interest and something and a desire to learn, because I feel like you've always probably had a desire or that curiosity, even though you might stay to yourself, well I've never cared about World War two. But then all of a sudden, because you have that desire because you are curious, you realize, oh, man, this is now something that interests me. I did not used to be interested in this, but now I am.

I do hear what you're saying that. I think there are ways for us to kind of cultivate that within ourselves. And I think what Cody was saying is that second generation immigrants kind of naturally have some of this. It's instinctual based on what these kids have seen their parents go through, which makes sense to me. I think my big takeaway was when she said more complexity equals more opportunity,

and I think that's completely true. There is there is the potential for outsize returns when you're endeavoring to get into a space that fewer people are interested in getting into at all, Like how many people are talking about buying car washes and laundromats, Like not many people, right, Cody is one of the few people out there talking

about this as a viable business strategy. But because there's not a lot of attention there, not everybody is trying to There's not like shows on h G TV endless ones about house there are endless ones about houselping, but there's not endless ones about buying laundromatics, you know what I'm saying. And so because of that, because of the fact that they're more complex or more boring, there is the ability for people to make more money getting into

that business. So the numbers can be better, they can work out more to your advantage if you're getting into something that that you have to have a little bit of extra knowledge and a little bit of extra gumption to get into. Totally. Yeah, I love it, man. All right, let's get to the beer. You and I enjoyed an open Space Haze. This is not surprisingly a hazy I p a another beer by Boss Brewing Company. What were

your thoughts on this one? Yeah, man, I'm gonna say this one was kind of a classic hazy style here. I feel like it's solid. If it was a six pack version, I could have this semi fridge all the time. It was just very drinkable, but also like nice, sweet, delicious. I p A. Yeah, I couldn't agree more. Man, it didn't have like one of those overly complex, hoppy backbones. Uh. It drank fairly clean for a hazy I p A. Really delicious. I'm glad you and I were able to

enjoy this one on the show. We will make sure to link to some of the different resources that Cody mentioned during our interview up in our show notes for this episode up at how the Money dot Com. That's right, but Matt, that's gonna do it. So until next time, best Friends Out, Best Friends Out,