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The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
Welcome back to another episode
of the Startup Therapy Podcast.
This is Ryan Rutan, joined
as always by my friend, the
founder and CEO of startups.
com, Will Schroeder.
Will, we talk a lot about big
exits as a source of wealth
in the startup space, right?
And you know, the, the fact
that, you know, a bunch of
cash hits your account all
at once is awesome, right?
There's nothing wrong with
it, nothing wrong with it, but
why don't we spend a little
time today talking about how
much value there is in just.
Building something that
keeps spitting out cash
month after month, year after
year.
It's so interesting to me
because I don't think most
people in the startup space
and you know, Ryan, we
kind of like segregate the
startup space and startup
entrepreneurs from like small
business owners, et cetera.
Yeah.
I want to be clear.
Small business owners have
this shit figured out.
Like this is not new
information to them, right?
And I always laugh because
when people talk about VC
and startups and everything
else like that, it's
the world we live in.
We help people raise money
at what we do at startups.
com.
So it's very much our world.
I always say that if you
walk down your main street of
whatever town that you're in and
you look at all of the building
monikers for everything, I'm
talking like office buildings,
I'm talking about like
retail buildings, et cetera.
More often than not, these
are not funded businesses.
Right, they're massive
businesses, huge local
employers, whatever they are.
But they're not
funded businesses.
And I love those businesses.
I'll give you an example, Ryan.
You know, uh, you grew up
in the Columbus, Ohio area.
You grew up with the
Columbus Dispatch.
For folks that don't know
or don't care, uh, the
Columbus Dispatch just
happens to be the local
newspaper, uh, in Columbus.
It's essentially
a monopoly, right?
It has been forever.
And, and they own like some
radio stations, some TV
stations, etc. A hundred million
years ago, for some reason,
they invited me to come speak
at their, uh, company retreat.
And I come out there and
they were, they were so
kind, but I started to learn
about this business, right?
I started to learn about this,
you know, homegrown generational
business at the time they
were generating between 50 to
60 million a year in profit.
Profit,
not revenue, not DRR, profit,
and that's the thing, and
they've been doing it forever,
right?
They've been doing it forever,
and you know, one of the funny
things, yeah, this is just,
I'm going on the side now,
but one of the funny things is
where they actually made maybe
even more money is because
they were so early in this
business, like they've been
around in Columbus, I don't
know, since like maybe the
20s, maybe earlier, they bought
up all the land in Columbus.
actually made even more
money because they had
a lot of money early.
They invested it, they expanded
their portfolio, et cetera.
But my early
access to all this classified
selling land back in the
day when that was the
only way you could do it.
They're like, yeah, it's
never going to hit print.
We'll just go buy
that right now.
But, but think about that
for a second, a business
that generates that kind
of money generationally
generationally, right.
There's like three, four
different people that would have
handed over the reins to this.
Goddamn ATM.
Yeah,
giant ATM.
I love businesses like this.
My wife used to work at an
insurance agency that was
started by two guys that I
know, great guys, and at one
point, same thing, they were
like 15 years into the business
generating 40 to 50 million net.
They were going to buy
the Cleveland Cavaliers.
And these are guys you
would have never heard
of in a million years.
At just like a one
off insurance company.
Not a dime of, of
venture capital.
I love these businesses.
And I want to talk about not
just getting to that level, but
why this path is so important.
Why it is actually so
much more common than
we think to your point.
These just aren't what we would
call startup companies, right?
Right.
The fact that we call them
startup companies and the fact
that they all seem to want to
follow this other path that
doesn't include just having
cash thrown into your pocket
every month, a little bizarre.
We should probably
talk about that.
I, I've got an example too, man.
When we were right, right
after we had moved to Florida
and we were in a really nice
neighborhood in St. Pete,
we were on the cheap side of
the street because we were
on the, on the dry side.
Folks across from us were on
the water directly and watched
a guy buy these two houses,
couple million bucks a piece,
rip them down, combine the
lots and build a monstrosity.
Like the guy, guy had more,
more money than design
aesthetic, in my opinion,
like he really loved it.
This guy had all the toys.
Like this guy brought his
garbage out to the street
using his, uh, like four wheel.
Six passenger thing like it
was hysterical just to be fair.
I absolutely had all the
toys had so much fun.
What was his business?
He rented Temporary fencing to
construction companies mostly
the government And like, but I
remember the, the, the moment
that I found funniest, I had
some interaction with this
guy and he was a funny dude.
You've been running this
business for 20 years,
profitable from the
very beginning, right?
He's like, you know, I didn't
even buy my first fence.
I rented the fence from
another fence rental company,
and then I re rented it to
somebody else until I figured
out how to charge more for it.
And then, then I started
buying my own stuff.
So he was profitable
from the first deal.
We were sitting down with,
uh, with a local, local VC.
Uh, it was a founder's dinner
kind of things, local VC.
And this guy's, it was basically
been telling me, like, I
don't know why I'm here.
Like, I'm not doing
anything like anyone else
in this room is doing.
I was like, well, you're, you're
running a business making money.
He's like, yeah, I think
that's the distinction
I was looking at.
But so then this, this VC turns
him as he goes like, so, uh, you
know, uh, what are the, what are
the, what are the exit plans?
Like you thinking of selling it?
I will never forget.
I have never seen the word
why more clearly expressed.
On somebody's face without
saying it, he just turned
to him and he just looked at
him like because he had just
regaled us with the tail, like
how much money this thing was
kicking off, how little time
he actually had to spend on at
this point, and what an easy and
simple business it was to run.
There's, there's lots
of stories like this.
I think, you know, we're
gonna get some folks that
look at this and say, well,
hold on, hold on, hold on.
You can't tell me for a second
that if I had the choice between
having a fistful of cash, so
to speak, or having to run a
business that I wouldn't rather
have the fistful of cash.
Fistful of cash is
security, it's safety,
it's all these things.
And the answer is yes,
that's entirely true.
Right, so this isn't to
say, if you could get to an
exit and get a mountain of
cash, that's a bad thing.
The answer is, but you're
not going to do that.
Yeah, that's the thing,
the probability is
so, so
much lower.
Right, right.
Probability is so much lower.
I think particularly in
the startup world, and
again, this only exists
in the startup world.
We've created this busted
narrative that says, we've got
to get big, we've got to exit
for a lot of money, that's
the only way to monetize.
And I'm like, what
are you talking about?
It makes no sense at all.
Here's what's
crazy about that narrative,
apart from the fact
that it's just crazy.
The thing that I find
really, really amusing about
that is, how long has that
been the narrative, Will?
Not that long.
That's the thing.
Yeah.
In the grand, in the
grand scheme of things,
not that long at all.
But like.
That didn't even exist
when you and I started
starting businesses, right?
Right.
We're not spring chickens,
but we're not that old either.
Right?
Right.
So the fact that this
has become like such an
instant as if, as if this
was carved on the backside
of Moses's tablets, right?
Like as if this has been
around for time immemorial.
This is how you do it.
It's just not the case, right?
It's, but, but somehow this
became absolutely concreted
into the myth of what you
have to do to start a startup.
This isn't knocking
like the, Hey, sell
something in, make money.
That, that's good.
You know, Ryan and
I've had exits.
We like money, right?
Yeah.
That's not really
the point though.
The point is I would love more
founders to sit down with us and
say, help me make this thing.
Insanely profitable.
I hear that request never.
Never.
That's what kills me.
Help me grow up faster.
Help me
grow up big.
Help me exit it.
Yeah.
Help me raise money.
Help me scale up.
Also, by the way, by the
way, do you know what's
really, really, really
attractive to an acquirer?
Yeah.
A super profitable
business that pukes cash.
I know.
Like, it is.
And so then we hear these
other like, you know,
mischaracterizations like,
Oh, well, that's just
a lifestyle business.
And we've talked
about this before.
Yeah.
No shit.
I hope so.
You have a lifestyle, right?
I was going to say, if
everything goes well,
that's exactly what this is.
It blows my mind because I
know so many quote lifestyle
entrepreneurs, you know,
friends of mine, other founders.
Who print money and
they look at it.
This is so funny.
The outside looking in,
they look at what we do
as the dumbest way to
approach wealth creation.
Now they can't deny
that the winners are
outsized winners, right?
Um, but they just don't
understand why we take a
perfectly good business model
that could just make money.
And fuck it up!
Yeah, by trying to make
it bigger than it needs to
be, or bigger than it needs
to be at that rate, right?
Like, sooner than it needs to be
big.
You know, we've gone
through the exit process.
We are not anti exit,
we're not anti capital.
What we're trying to say is
that the expectation that
the only way to build wealth
in this thing is to scale
and exit and all things.
Is so broken is so misleading
and it's so dangerous that
what we need to talk about what
we're about to unpack now is
how should we be looking at a
business that just makes money?
Like what is that asset
actually look like?
Like what is the value of
that asset so we can start to
think about it differently.
So I think Ryan, it'd be worth
doing just a little bit of math.
Okay.
Level set.
Oh, no, just a little paper.
Very small amount to level set.
And here's what I'm hoping we
can get folks in the mindset of
thinking instead of thinking.
Here's I want to cash
out with 10 million.
Okay.
Which, which is always, I
mean, we do whole episodes on
why that's a broken idea too.
You need to know exactly
how much money you need, but
that's a different podcast.
What I think we should start
with is Take a look at how much
profit your business could make
or does make and figure out what
the cash equivalent of that is.
I'll run some easy math.
Start with something modest.
Let's start with something
modest, something
super achievable.
Okay, cool.
Cool.
So, so let's assume that we
get our business to the point
where it's generating 10, 000 a
month in profit, which is what
we could use to pay ourselves,
whatever, 10 K in profit.
How much cash would we
have to have in the bank?
In order to get that outcome.
Well here's a simple
way to look at it.
If you look at, not recently
because it's been amazing,
but if you look at longer
term averages of the S& P 500,
figure a conservative rate of
return is 8 percent on money.
That's if you've got a
balanced portfolio, not
all in the S& P, whatever.
So you would need to have,
after taxes, and I'm gonna come
back to that in a second, 1.
5 million dollars.
In the bank, in order to
generate 10k a month, the
way your business does.
Now, in order to get 1.
5 million dollars
investable, you'd have
had to pay taxes on that.
And obviously every country is
different, but let's use the U.
S. Depending on how and when you
got that money, the velocity of
it, you could have paid as much
as 40 to 50 percent in taxes.
Yep.
So you would have had to double
that in terms of a cash event.
You bet.
And some people say,
well, that's not true.
You'd get, if you sold it
all as one thing, you'd get
long term capital gains.
Also true.
The point is, you, you
would have to have earned
well in excess of 1.
5 million to ever have 1.
5 million.
Maybe that's 3 million
because you got taxed like
crazy as regular income.
Maybe that's 2 million
because you, you got
it as capital gains.
The point is If you have a
business that will consistently
generate 10, 000 a month, not
10 million a month, 10, 000 a
month, you have a business that
is the equivalent of having 1.
5 to 2 million in the bank and
you're just getting started.
That's it.
And I think it's, it's super,
it's super fun to play this
out because I think most
people would assume that a
business doing 10 K is worth.
Almost nothing, right?
This is the way they look at it.
We talk to you all the time.
That's what I'm saying.
I have to fix this.
I have to fix this.
Like, number one, you've already
beat 95 percent of people that
start out to do anything because
you've gotten to that point.
All right.
Which by the way, if you
set your sights on that as
the goal, how much easier
does this become to achieve?
Yep.
Right.
Because the minute you're like,
it has to be a hundred million
where it's worth nothing to me.
Or as we just pointed out, if
it's doing 10, 000, which they
would look at and go like, that
doesn't even make any sense.
It's so low.
It's worth.
At least 3 million
to you, right?
Probably
let's build on that
a little bit more.
Let's use 2 million just so
nobody gets hung up on this.
What my tax rate was.
Okay, let's use 2 million.
What would it have taken for
you to build this business to
get even a 2 million outcome?
Not now, let me give you a
couple different scenarios.
And this is what really
starts to mess with
your mind a little bit.
Number one, let's say
we took on some cash.
Okay.
And so we've got a
co-founder, we've got,
uh, investors, et cetera.
And best case, we own 20
to 30% of the cap deal.
Probably not even that,
but best case, 20 to 30%.
Okay, let's say 25%.
Just to to, to make it real
simple, easy math, okay?
Yep.
And that would be a lot
by the time you exit.
But, but let's,
let's assume, right?
We would have to sell for
at least $8 million, and
that's before preferences
kick in and stuff like that.
'cause for those that aren't
familiar, when you raise money,
there's often what's called a
preference where you have to.
Pay the amount you raise
back to the investor in
full, and then you all split
your respective shares.
Yep.
So it, it, that could
easily be $10 million.
Okay.
At $10 million, you
pay back your first 2
million that you raised.
Let's say you split the
rest, you get 25% of that,
you get two, $2 million.
You had to have a $10 million
outcome in that scenario
in order to, to earn the
same amount that you're
earning with a $10,000 a
month net profit business.
It is mind blowing.
It's mind blowing.
And also think about,
think about this.
Would the opposite be true?
Right?
If you have a 10, 000 a
month profitable business,
do you believe that you
could sell it for 10 million?
Oh God, no.
Right.
Absolutely not.
But you can generate
exactly the same benefit.
That's where I was
gonna head next.
Yeah.
That's, that's the fun
part of this, right?
Right.
Which is that the probability
of that happening.
So, so much lower, which is
kind of the entire point here.
We'll stick with that.
Think of how many businesses
you can, you can build to
get to a 10, 000 outcome.
You could mow goddamn lawns and
get to a 10, 000 outcome, right?
You'd be mowing an awful lot of
lawns, but you can do it, right?
Landscaping companies
do it all the time.
The, the amount of optionality
you have, if you zoom out
a bit and you say, I need
to get to 10 million, okay?
When you run that, you might
be saying, 10 million net, in
which case, you know, I'm trying
to earn a percentage off that.
The probability that you
will get to that exit
is so insanely small.
I hope you get there.
Ryan does too, right?
Of course.
But you probably
won't, statistically.
Right.
None of us will, right?
Statistically.
Also, for what it's worth,
man, like, I'm curious to
get your opinion on this,
but there's also this
weird, like, dead zone.
Of trying to sell companies
where like at certain prices,
it's really, it's actually quite
hard in some cases to sell a
company for 10 million bucks.
Right.
Why?
Because it hasn't become really
big where you've got acquirers.
You're just super excited by it.
And it's not small enough where
it's like a little, you know,
I, you know, my cash out my
401k buy a business instead.
And then, and then go run
that, that quote unquote
lifestyle business.
Right.
So you also put yourself into
this really weird spot where.
Just not that many businesses
transact at that level.
And that's not the case to
go, Oh, well, you're saying
you have to be bigger, Ryan.
No, I'm saying take the benefit
of the 10, 000 business.
Right.
Uh, a good friend of ours, uh,
Andrew Gazdecki runs choir.
com.
And as, and I were talking
a couple months ago and we
were talking about not just
his business, but the other
folks in that space, like
biz buy, sell, et cetera.
The reality is
among all of them.
They don't do that many
transactions and that's
that's not a knock on them.
There's only so many buyers
that they can't change.
It's like
running a funding
business, right?
Like there's still going to
only be some small percentage
of people get funded.
That's just the way it works.
Right.
We've been running a platform,
a funding platform since.
2012. I don't know that
we've increased the number
of investors that invest.
We've just given the people who
do invest another way to invest.
Well, we haven't changed the,
the, the, the core factor now
for what we want to do, right.
You know, when we're building
these businesses, we're thinking
to ourselves, ultimately,
I want it to be my benefit.
I want it to come back to me
and enrich my life in some way.
Well, if we start forcing
ourselves down a path with this
mentality, that it's gotta be
this go bigger, go home kind of.
We've talked about
this a million times.
We also prevent ourselves
from essentially getting
that 2 million asset value to
get a business that's doing
a 10 K a month in profit.
So call it 120 K a year.
You could have a 300, 000
business that does that.
You could have a 200, 000
business that does that, right?
If we know plenty of
consultants as service based
organizations that do 200
K a year, right on like.
80 percent margins because
it's just a factor of time.
They're going to pay
themselves anyway.
So this is what you're
paying yourself a
hundred percent.
And again, when we think about
selling, we think about getting
this, this big paycheck, right?
And I've gotten some
of those paychecks.
They're pretty fucking sweet.
If they are,
It is a lot of fun to
watch the money hit,
like to see the wire hit.
It's less fun the next day when
you pay the taxes, but whatever.
There is that.
No, but, but, I cannot
tell you when, if, or how
I will ever do it again.
You know, we sold a
business last year.
It was a great, great
outcome for us, great exit.
But if you had asked us
the year before that we
knew we were going to sell
it, but we had no idea.
And so the point
is, these things are
really hard to predict.
But you know what's
not hard to predict?
10, 000 of revenue.
No, I'm not saying it's a layup.
I'm not saying it's a given.
no.
No lack of businesses
have avoided doing it.
But if I hell of a lot
less of a lottery
ticket than an exit.
Yeah, man, if I were getting
into a business for the first
time, any business, first
thought would be, if nothing
else, I want to get to 10k
a month in profit, so that
I have built A two million
dollar asset for myself.
Ideally, that pays forever.
Now, there's those level ups
where you're like, well, it
gets bigger and now I can
hire somebody else that, you
know, it takes some load off
my shoulder, etc. Those are
all the advantages to growing.
But the point is, if I
want to create two million
dollars of value, which 99.
9 percent of the world does
not have, my threshold for
getting there Is way lower
than people think it is.
In my
way, my approach might be
different, you know what I mean?
A hundred percent.
I think instead of, in that
case, especially at that
size, I think that what we're
really talking about is, is
not Looking at exit value, but
looking at replacement value,
replacement value.
Absolutely.
Right.
What, what, going back to
your example, like we said,
in order to get a 2 million
outcome personally, based
on the average is what it
would take to get there.
I need to have a 10 million
total outcome so that I
can land at the same place.
The replacement value of
that being a 10, 000 a
month, profitable business
should be blowing most
people's minds or not.
Cause I just, I don't see most
founders thinking about that.
Right.
Right.
When we start to think about
what do I actually need
to get to that same place?
The replacement value, the
replacement cost of getting to
that same spot, significantly
lower, significantly more
possible, plausible, and
just sort of plotting the
course to that is something
you can actually do.
Whereas to your point, plotting
the course to an exit, you
can't just say like, oh,
well, if we do this, this,
and this, then we get bought.
It's just not how it works.
You know, something
that's really funny about
everything we talk about
here is that none of it.
Everything you're dealing
with right now has been done
a thousand times before you.
Which means the answer
already exists, you
may just not know it.
But that's okay.
That's kind of what
we're here to do.
We talk about this stuff on
the show, but we actually
solve these problems
all day long at groups.
startups.
com.
So if any of this sounds
familiar, stop guessing
about what to do.
Let us just give you the answers
to the test and be done with it.
Now one of the interesting
things is uh, just about
anybody will tell you Yeah
But i'd rather have the cash
as if they as if you had the
choice I'd rather have the
cash because cash is making
money while i'm sleeping Right
for everybody who has the
option right now everybody who's
listening who has an offer on
the table to buy their business
For ten their ten thousand
dollar a month right profitable
business for ten million dollars
And they own 25 percent of it.
Please, please
sign, sign the term.
She didn't take it
for the other 99.
9%. If you keep listening,
there's an interesting
caveat to that.
There's something interesting,
depending on the business.
There's something interesting
about how a business can become
worth exponentially more.
Than the money.
Absolutely.
Let me give you
a simple example.
Simple example.
Yep.
We just said using our math
that a $10,000 a month profit
business has the cash value, so
to speak, pre-tax of $2 million.
Well, what about when we make
it a 20,000 a month business?
Now that's $4 million.
No way in hell.
No matter how Warren
Buffet you got with that
$2 million , you're turning
that goddamn thing into
$4 million anytime soon.
Yeah.
In that same period of time.
Because going from
10 to 20 again, yes.
You're doubling sales.
Or you're doubling
revenue, you're doubling
something, right?
Or you're increasing
sales by something,
you're reducing costs,
whatever it ends up being.
Significantly easier in
every single possible case.
And more probable.
And trying to create a
100 percent outcome in
the market or with cash.
Yeah, anytime soon, right?
I mean, you can go 10 to
20k a month in 6 months.
If you use law of compounding
at two million to four
million, depending on what
your, your thresholds and
paybacks are, you're at least
a decade, at least a decade.
That's if you invest all
of the money back in, in
the market treats you well.
Now, now that said interesting
thing to me, especially at
these, I'm intentionally using
small numbers like 10 K a month.
I want people to understand
that that is millions of
dollars of actual value
of replacement value.
And that when we take that,
and we start to say, well, man,
it's only like year three and
we're only doing 10k a month.
Okay.
In three years, you created
two, a 2 million asset.
Okay.
What the hell were you going
to do over the last three
years that was going to put
2 million of asset value
under your balance sheet?
Nothing.
So do I, do I get to
do what I usually do?
Well, and look at the trades
I could have made after
the fact.
Exactly when to buy
Bitcoin and sell it.
The other side of it is,
what if we go 10k to 100k?
Which, the nature of a
business, not every business,
but the nature of a business
is that it has the ability
to exponentially grow.
I'll give you an example.
When I was running my agency
back in the day, in 1997,
we generated, uh, let me
get this right, it was like,
I'm gonna call it 40 million
in billings, but it's not
what people think of it.
A lot of that's passed
through, it's just media.
That goes through and let's
say that the fees that
we actually captured were
closer to 8 to 10 million.
And I think the business
that year made just over a
million dollars just to give
you an idea of economics.
Now you can look at that
point and say, now agencies
don't sell for a lot, services
businesses don't sell for a lot.
If you're listening and you own
one, you're not going to get a
lot for your services business.
Usually get two to three times.
Let's call it three.
Let's give you the most, let's
give you, let's give you the
best outcome possible here.
Right?
So 3 million exit in, in 1997.
And now you get to compound that
or, you know, this was
anomalous, but you know, we
had a huge agency when we grew
the business like crazy and
we grew it to 700 million in
billings in about seven years.
Now, at that point, that year,
if I recall, this is over 25
years ago, we were doing about
20 to 25 million in net income.
Number one, You know
how few businesses ever
even get to that point?
Think of how much cash I
would have had to have on
hand, post tax, to get to
that level of cash equivalent.
Yeah.
Okay, now.
It
wasn't the three
million exit back in 97.
Yeah.
Uh, now a couple caveats there.
Caveat number one, you're still
running a business which has a
lot of things that can go wrong.
Right.
Sure.
I'll give you some examples
by about this time.
We've got about $10
million a month in payroll.
What that means is when shit
goes wrong, it goes, goes quick,
really wrong, really wrong, goes
really wrong, and really fast.
Yep.
And, and, and we saw like
a hint of this happen when
the.com, uh, bus came.
Yep.
We weren't a dotcom company
and frankly most of our clients
were pharmaceutical companies
that were kind of unimpacted.
But we did see impact
Unimpacted or dotcom buy
Prozac did well in that period.
We were representing Prozac.
Stock went way up.
But you know, what was
interesting about that is a lot
of our clients that were outside
of pharmaceuticals, like Best
Buy was a big client of ours.
Best Buy calls up and we
had a 5 million engagement
with them, right?
A fee engagement.
And they were like,
this is dot com bust.
They were like, hey, by the way,
uh, that's going to go away.
They're like, wait, what?
I've got like a whole crew
of people, like almost
like a small agency.
Yeah, I
hired a wing of the building
to deliver this for you.
Exactly, right?
And they're like, nope, gone.
I'm like, oh shit.
Uh, next phone call I
get is, uh, uh, actually
a pharmaceutical company
called Wyeth Ayers.
And, uh, and Wyeth is like,
hey, you know that 500,
000, uh, invoice you have
out to us, we're just going
to go ahead and not pay it.
And I'm like, wait, what?
Like, that's even possible?
And they're like, you know, do
what you're gonna do about it.
And my point is, things
can also go the other
direction very quickly.
Money isn't 100 percent
safe either, right?
But, you can diversify a bit.
Now, Yes, the business, you
know, uh, continued to grow,
and that was a good thing.
But, at the same time,
that could have gone
very differently.
There were no lack of companies
at that time that got hit
in the opposite direction.
Ryan, I'm curious if, if, if
your history being in the web
design business, do you remember
a company called US Web?
Oh, yes.
Uh, then became March 1st?
They were the, the, the
10, 000 pound gorilla
in the web design space.
I mean Fun side note, just
cause I actually just read about
the founder in a bunch of, uh,
uh, magazines this past week.
Joe Firmage, who's the founder,
uh, genius guy, but kinda crazy.
I remember back then, this
is just, this is stupid
history, this has nothing
to do with the episode, I
just have to say it cause
it's at the top of my head.
And, and it's ridiculous.
Uh, you gotta look him up.
He, he's this genius guy
that made a ton of money
doing US web whatever.
When the dot com bust
hit, it crushed them.
Okay, so here's a guy who's,
you know, billionaire status.
Wiped out, but was very
convinced during that time and
wrote this huge exposé that
all Meaningful technology in
the US was actually given to us
by aliens And that's the only
way we've been able to make
that and he's been pursuing
this alien thing for the last
25 years And there's been this
there's a whole exposé and it
was hilarious Anyway for guys
like Joe Formage things can
go the other direction too.
Yeah
Uh, it's amazing to me because
you could take a business
that, again, was doing
incredibly well like that
and watch it do a hard turn.
When we were looking at our
business, why did we sell
it if it was doing so well?
For that reason!
Because also at any given
time, but also there
was money on the table.
Right.
It wasn't like there was
money on the table, right?
Right,
right.
So we had to go back, go back
to the option, go back to what
we talked about before, which
is that like in 1997, a million
dollars in, in, in profit a
year, there weren't any buyers.
Like nobody was like, we'd
love to buy what would
be a very, very boutique
agency at that point.
Like nobody cares, right?
Nobody needs that.
So at that point you
had a good business.
You could have just
kept cash flowing at a
million dollars a year.
And that compounds too.
Uh, and that's nice.
And that's what we're
talking about today.
But by virtue of staying in
the game and continuing to
do that, not selling at that
point, again, probably wasn't
even anybody to buy it at
that point, you stuck around.
How often do we talk about this?
Just like by virtue of being in
the market, things can happen.
How often has, by virtue of
your money being in the market,
have you seen two, three,
four, five hundred percent
increases in, in a single year?
I mean the percentage increase
for you guys at that point
when you went and won that
massive contract almost in,
I mean not incalculable,
but like, massive outcome.
Yeah, it was like
a thousand percent.
Better than Bitcoin, right?
Like,
you're, you're, you're not,
you're very rarely gonna
see that anywhere else.
Business has that capability.
And, and like everything
else we're talking about,
those are the total one offs.
Like, forget about the fluke.
Yeah, sure it happened,
but who cares, right?
But when we're talking
about going from 10 KA
month to 20 KA month.
That ain't a fluke.
That's what businesses
do all the time.
It's like that's very
common work and grind.
Yep.
Right?
And so if we're saying
that for every 10 k it's $2
million, uh, equivalent, right?
Yeah.
That means at which
point we hit 50 K net.
That's the equivalent of us
having $10 million in cash.
Uh, again, pre tax from
an asset value standpoint.
And a lot of people when
they think about building
a business to 50 K a month,
which is no slouch, by the
way, I want to be clear,
like that's, that's awesome.
But when they think about
building a business to that
size, they don't think about it.
Like they've just created
an eight figure asset.
Right?
They just look at the 50k and
yet we get so fired up about
this concept of selling for,
you know, 10 million dollars
or whatever that number is.
When in reality we can get to
the same outcome way easier
and way shorter of time and
actually make it happen.
Yeah, yeah, exactly.
And actually make it happen.
Right?
Because the probabilities
are on our side.
Look, nothing's certain, but
there's a hell of a lot more
certainty than around if we grow
this, if we become this size,
then someone with more cash
who needs exactly what we went
and built will come and buy us.
I got to tell you for most of
my adult life, you know, in my
career, I've had two assets.
I've had a cash asset and
I've had a business asset.
I've watched plenty of
fluctuations in both.
Right.
Every time you think your cash
assets where it's really at
the market takes a total shit
and you're like, oh, thank God.
I have the business asset.
Every time the business
asset takes a total shit.
You're like, thank God.
I have the cash asset, right?
So I've lived with both
assets for the better part
of 30 years and I gotta
tell you I have so much more
confidence in the business.
Then I do in the cash.
What you have, you have so much
more agency in the business.
That's what I mean.
Of course, you're
dealing with the market.
You have so much more agency.
How much agency as,
as a retail trader, do
you have in the market?
And, you know, and I'm a
very conservative investor.
My investing strategy is,
earning more won't change
my life a lot, but losing
it all will definitely
change my life a lot.
So, uh, again, I'm
more conservative.
So I'm a little less prone
to, like, big swings in the
market or a particular stock
price or stuff like that.
I'm more of a portfolio trader.
And always have been.
Uh, because while I'm
Very risk intensive when
it comes to business.
I am very risk averse.
It comes to my own money,
but it's not even about
the risk aversion.
I think it's like, again,
like, because in this
case the risk is entirely.
In someone else's hands, right?
Lots of other people.
Yeah, yeah, yeah, global
politics and it's not that
businesses aren't affected
by some of those same things.
But like, I can
pivot a business.
I
can't pivot a stock.
Yeah, you know, it's
interesting to me is, again,
when I look at the two, and
it's rare that folks have
the option of looking at,
you know, both their business
and their money in saying,
you know, which one should
I be more concerned about?
I look at my money as more of
like the safety net of the What
I've done so far, like that kind
of the payback for putting 30
years into something, right?
And a little bit of safety
net that comes with that.
And I look at my business as
the future of how I'm going to
make money, or the definition
of my future net worth.
When I think, if I were to
go back, Ryan, if I were to
rewind back, say, 30 years,
and I'm starting all over for
the first time, all I would
focus on, all I would give a
shit about, is 10k a month.
I would be so and honestly,
Ryan, I'm not even sure
I'd care how I got there.
In other words, if I had to
put together this hodgepodge
startup, that was services,
that was, you know, some
sass, some whatever.
How
you got there doesn't
actually matter because the
outcome is still the same.
You bet.
All I would be focused on
is saying I just need to
get to that 10k threshold
and then I can operate.
I can always do something
as a human on this planet
with 10k of cash to be able
to operate and maneuver
for the rest of my life.
So even if my first business
idea, and I want to structure
this, even if my first
business idea isn't even
a million dollar business.
Meaning a million
dollars of revenue.
It's a 300, 000 business.
It's a quarter million
dollar business.
Yeah.
I don't really care so long
as two things are true.
My path to 10k is
Looks very clear again.
It's gonna take time and effort
to get there and I might not
but at least I have a clear
vision to it Okay, the second
is that I can get past 10k I
say that part because there
also is a bit of a challenge
with capping out at 10k.
There's no compounding There's
nothing after then it kind of
depends right because that point
does that just become part of
a portfolio is that something
just goes under management
continues to cough cash lots of
ways to think about that, but
let me ask a question because
I'm curious about how you'd
approach this one, which is
you see the clear path to 10k.
If the path beyond 10k becomes
a little more opaque, does
that make you say no to
starting that at that point?
Would you say like, because
I can't see, but I really
do believe I can get to 10k.
And I believe I'll learn some
things along the way that will
teach me how to get beyond 10k.
You still okay with that?
Yeah, I am the idea is if I'm
doing something that just has
a very hard cap on 10k, right?
And really, that's all I can
really do with it, then sure.
But if I can look at it
and say, yeah, that's what
I'd be doing up to 10k.
But after that, I do product
expansion, market expansion,
you know, things like that.
I'm cool.
And the reality too, is
depending on your lifestyle
and your expectations, you may
never need to get past 25k.
I mean, at 25k in most
of the world, you're
living awfully well.
And so, there's really not
much you can't do in most
of the world at that point.
So I always look at it as,
well shit, if I can get to that
point, and now I've unlocked,
like, 98 percent of what
life can give me, I'm good!
If I don't get the
other 2%, who cares?
Well, also becomes a lot
easier to get to that other
2 percent if you have that
level of stability and you're
already that far ahead, right?
Like you're building
from that point
absolutely aligned But I
think my vision for how I
would approach things and
we talk about this in other
episodes We're optimized
for probability not size.
Yes Absolutely the
best advice ever.
As far as what I've seen for
young entrepreneurs or, you
know, first time entrepreneurs
getting into this and them
saying, okay, I want the big
numbers, but you can get to the
big numbers with small numbers.
Like that's, what's
interesting to me.
I know very few businesses
who didn't pass through
the small numbers on their
way to the big numbers.
Plenty of people who
aimed for big numbers and
never hit the small ones.
And I think that's, that's
something else that it's, it's
very, very hard to realize.
And you said this, we talk
about it a lot in terms of,
I think it's very clear to
see when you start taking
the funded path, right?
The funded path says there
are now only a couple of
ways that the people who
gave me money get paid back,
which means we now have to
go hit these big outcomes.
We're not allowed to stop on the
way and say, Hey, you know what?
Actually we hit 25 K in
profitability per month.
And that feels great to me.
Your investors go.
Yeah.
But it leaves us high and dry.
You can't stop there.
However.
If you start and you build
to that 25k, then you can
go, Hey, you know what?
It might actually be
fun to scale the hell
out of this thing.
Right.
Let's do it.
Let's grow bigger.
Yep.
You can choose to go from,
I'm not even going to call
it small because 25k a
month in profits, not small.
It's not, but you can go from
there as big as you want.
You can't aim big and then
fall back on that and expect
everybody to just accept
that and let you do it.
The last thing I want to
throw out there though.
Is the compounding effect
of time in a couple ways.
A lot of times we'll look
at our business right now
and we'll say, Oh, it's a,
it's a 5k a month business.
It's, you know, not, not
a big business today.
It is.
And just because it didn't go
from 5k to 50 K in 12 months
doesn't mean you, you don't get
from 5k to 50 K in 10 years.
And someone's looking at it
and go, like, Oh my God, you
know, that that's heresy.
Will 10 years, 5k to
50 K. Not if you're the
one making the money.
There's one of the things
that I, when I talk to
founders, who have been
doing this for a long time.
What they'll all tell you,
and what we all miss in our
youth, our youth being our 20s
and 30s in most cases, right?
What we all miss, the value
of consistently making money
over a long period of time,
it adds up in ways most
people don't think about.
Specifically, it allows
you to pay off debts, which
then frees that money up.
To make investments, which
then makes more money,
just a factor of time.
I'm 50 years old.
I bought my house when I
was 25, 26, and paid it off.
At some point, I didn't
have a mortgage anymore.
How many people don't have a
mortgage, or a rent payment,
or anything else like that, and
could otherwise take that money?
And invest it instead.
I didn't have any credit
cards, I didn't have any debt.
So it allowed me to take
that free cash flow and
reinvest it, which then
goes to make more money.
Now here's what's
more important.
When you start doing that early
in your career, the compounding
effect there is insane.
Most people don't get it.
I didn't get it
until later in life.
Yeah.
No, I think it's important and
it can drive decisions, right?
If you aim for that.
Right?
What you aim for that 10, 000
a month business, which starts
to allow me to pay those things
down instead of deferring
that debt, deferring those, or
even buying the house in the
first place, deferring having
the family, you push off some
of these costs until later,
until you've made it right.
Or until you have your big exit.
And just knowing that most
people won't means that
all you've done is defer.
Paying that stuff down, you're
going to pay for it later.
Yeah, I mean, kids
are a big one too.
Like, at some point, our kids
are going to be like, I have
an army that lives at my house.
At some point, I'm less
responsible for them.
Right.
All those things do happen.
Being around and continuing
to compound over time has a
ton, ton of And just, even
as things change, I was
actually, it's funny, it's
funny that he came up today.
But this guy that I knew
that had the, the, the rental
business, I was going back
to some of the challenges
that he had in terms of
running that business.
There was a fair amount and
it wasn't, it wasn't huge,
but there was a fair amount
of like human intensivity,
but around like really
like admin level stuff.
And I was just thinking that
I was like, man, I wonder
how excited he is about AI
because I'll bet it made
running that business.
Even easier for him because
that was kind of easy.
His only gripe left was, you
know, that it still pulled
him in a couple times a week
where he had to do stuff.
He's like, I'd rather just
go get on my boat and go,
which was in his backyard.
Right.
So, yeah, it's funny, but that,
that was a function of time.
Right.
And, and when I watch all of,
uh, my friends who are a bit
older than me, which is getting
harder and harder to do that
are older than me, right.
In our, in our, like, you
know, the point where they've
like exited out of their
business like, like the old
fashioned way, where they've
like given it over to kids
or things like that, and they
talk about how much money.
Their business has generated in
the lifespan of their business.
There's a really well
known hair salon.
I don't know what the
word I'm looking for.
Owner here in town who lives
across the street, or used to
live across the street from me.
And he, he built a 30
million business, right?
By doing hair salons,
uh, local business.
Okay.
Phenomenal guy.
One of my best friends.
Over the life of his business.
He's like 70, over the business.
He's made like 50
million, right?
From this business.
This business has generated
50 million dollars doing hair.
Um, with no exit.
Not
gross, right?
Yeah, yeah.
Oh, no, absolutely.
No, it's significantly
more than that in gross.
Right.
With no exit.
Right, but when he looks at
it in that context Right.
He's like, damn, right.
Who would have guessed?
Like that's doing hair.
Yeah.
When you take a factor of
time and you apply it to
what this acid is that we're
creating here, it is mind
blowing, mind blowing how
much it's actually worth.
So here's what I would say.
I think for folks that are
thinking about building the
business or running the business
or scale in the business, just
take a step back for a minute.
Take a step back and think about
what the value, the long term
value of even 10k is, 20k, 30k,
a number you can achieve in a
number that you can actually
have full agency around, do
things on your own terms.
And get the big outcome
that everyone else is
trying to raise money for.
Overthinking your startup
because you're going it alone?
You don't have to.
And honestly, you shouldn't.
Because instead, you can
learn directly from peers
who've been in your shoes.
Connect with bootstrapped
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advisors helping them
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com community.
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