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.
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.
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?
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And honestly, you shouldn't.
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