Look at around 100 business listings before deciding; avoid falling in love with the first few. - This builds experience to spot winners from losers and prevents desperation.
Transcript:
Dan Certner
But there's a website called searchfunder.com. Like, those were my people during the time. Because search is like, it's a very lonely process.
Sam Parr
When you guys say look at 100, what does that mean? Does that mean browse a website with 100? Or does that mean actually due diligence on 100?
Dan Certner
So it's something in the middle. So you basically see kind of like the headline on the website, it's like laundromat for sale, you know, $4 million, like usually you'll get like the flashy headline and not much more Information. Then you kind of got to double click in and request information. And so you usually sign kind of an NDA, and you'll get something called a SIM or a confidential information memorandum. So it's kind of look at like a hundred of those because that's really going to show you like, here's the finances of the business. Like here's kind of the story that they're putting together.
Shaan Puri
It's like a summary of the business today. And so that's the one where it's like, you know, I think a mistake is people think you fall in love with the first few businesses you see. Oh, this is great. Yeah, I could buy this. And you kind of really like, I mean, you're just like a teenager that just went through puberty and you just fall in love with the first set you see. And you're like, well, no, that's probably not the right way to do this. Let me actually (Time 0:26:12)
Write a memo for every deal that you like to stay organized.
Include the business description, current state, reasons for buying or not buying, and reasons for the sale.
Transcript:
Dan Certner
That's another thing.
Shaan Puri
One thing you did that, uh. I think I kind of was like, the one piece of advice I think I was pushing on you was like, hey, write a memo for every one of these deals that you like. (Time 0:32:05)
Don't buy a business that feels like a full-time job; it limits your freedom. - Aim for businesses that produce real profit and function as assets, even if risk and effort are higher.
Transcript:
Shaan Puri
Couple other, I thought, like key points. One was don't buy a job. So I think early on when you go to search, you see big price tags and you get scared a little bit because it's like, how am I going to afford this? And like, this is too risky. And so you gravitate towards things that feel like kind of safer and more achievable. But it's actually a bit of a trap because it's like, yeah, this is safer, more achievable. It nets 100 grand a year of profit. I can buy it for only, you know, he only wants 180 or something like that. And so you get excited because it seems cheap. But the problem is it's still going to take all of your time to own, to buy this business, to run this business. And you basically bought a job versus the thing you bought, which was like $11 million in revenue, doing a million dollars. Real dollars. Yeah. That's not a job anymore. Now that's like an asset. That's like a real business. And yes, it took more risk and it took more time to find a good one of those, but it was like well worth it. So I feel like that was another (Time 0:33:57)
Pay yourself regularly to create a feedback loop that drives business improvement. - Saving all profits in the business delays recognizing problems and correcting them.
Transcript:
Dan Certner
So that's the million dollar question. It's like, okay, cool. Your business is making all this money. You know, at the end of the day, two years in, I'm still only making, you know, 150 a year. Like I take the minimum amount that I need to for, you know, IRS compliance because I'm saving the rest in able to finance growth. Like I, like I've made enough to pay back the loan, but I'm not paying back the loan because I need that cash to fuel the growth. It's a very cash intensive business and I'm not in a place quite yet where I can take as much off the table. Although Sean has been giving me some other frameworks saying like, hey, you actually should be doing this.
Sam Parr
What's that framework, which is like, if you want to replace yourself, you have to pay yourself the replacement costs?
Dan Certner
No, not that.
Shaan Puri
But basically, I did this in one of my businesses, not right for everybody. But I think it's easy to go into rainy day mode as a business owner when you play like two conservatives you know several of our businesses right now have just like like one of our business Has just like two three million dollars just sitting in the bank account and the bank like it goes up every month it's not like we have this like wild swings where you need this big cash Reserve buffer it's not like a heavy inventory business it's like you know your all of your operating expenses is salary and you know your salaries. So there's no surprises coming next month. And even if there was, like one of my friends, our buddy Sui told me this, I was like, how much do you keep in there? Like three months of working capital, six months, 12 months. Like, I think I have like 12 months of working capital sitting in the bank right now. He's like, no, I just take it all out. I'm like, zero months? He goes, yeah. He goes, I own this business myself. So if I ever need the money, I just lend it back into the business. I could always write the check back. It forces you to make a profit as well. Yeah. And so Andrew Wilkinson came on this podcast and had this book. He was talking about profit first. I really liked the philosophy of it, which is basically with normal business, you have your revenue, then you have all your expenses. And then it's like, surprise, here's how much profits left over after all that. And usually what actually happens is there's not as less profit than you would have guessed. And it's why, because expenses were a little higher, blah, blah, blah. And you're always in this profit comes last. Profit first was basically you decide up front, you say, okay, I want to have a 20% profit margin. So you take your revenue, you set aside money for taxes, which you know is going to be, so you take your revenue, take your profits, you do set aside amount for taxes. What's left is your expenses budget. So instead of making profit, the thing that comes last, you make the expenses come last. And then you have to say, all right, cool. Then my marketing budget can only be this much because I've decided to take this much as a profit, a set profit margin out of my business. And I don't adhere to it 100%. I don't think it's right for every business. But I do think that, you know, Dan, in this case, I think he's being a little overly conservative as to how much cash he's leaving in the business. I did that too. And the longer I delayed it, I took away one very valuable thing, which is if you pay yourself every month out of the business and one month that's light or another month that's heavy, The body just reacts to it. If it's light, you're like, yo, what the hell? And you will go fix a part of your business that was broken. If you just leave it in and it's just like a P&L, it's just numbers on a spreadsheet. It's not money you actually receive. You'll wait 15 months before you end up correcting that problem because it's all fictitious money anyways. It's not money you're actually getting. And so I think that actually getting that check every month creates this feedback loop that's actually like quite valuable to a business owner. It'll cause you to scrutinize unnecessary expenses or like go after it. Because once you taste a big month, like Sam, we have this with MFM. If we have a big month in the next month, I'm kind of like, well, I kind of liked the feeling of that one. Yeah, let's do that again. What do we need? One extra episode too? Should we go get a guest? What's Monish doing today? Let me see what's going on over there. Right? Like you start to think about what you could do to go drive it back up. And I think there's an unhealthy version of that, but there's some healthy components to that. (Time 0:46:57)
Shaan Puri suggests not keeping too much cash in the bank, as it can lead to unnecessary conservatism.
Instead, withdraw profits and lend money back to the business if needed to force profitability.
Transcript:
Dan Certner
Although Sean has been giving me some other frameworks saying like, hey, you actually should be doing this.
Sam Parr
What's that framework, which is like, if you want to replace yourself, you have to pay yourself the replacement costs?
Dan Certner
No, not that.
Shaan Puri
But basically, I did this in one of my businesses, not right for everybody. But I think it's easy to go into rainy day mode as a business owner when you play like two conservatives you know several of our businesses right now have just like like one of our business Has just like two three million dollars just sitting in the bank account and the bank like it goes up every month it's not like we have this like wild swings where you need this big cash Reserve buffer it's not like a heavy inventory business it's like you know your all of your operating expenses is salary and you know your salaries. So there's no surprises coming next month. And even if there was, like one of my friends, our buddy Sui told me this, I was like, how much do you keep in there? Like three months of working capital, six months, 12 months. Like, I think I have like 12 months of working capital sitting in the bank right now. He's like, no, I just take it all out. I'm like, zero months? He goes, yeah. He goes, I own this business myself. So if I ever need the money, I just lend it back into the business. I could always write the check back. It forces you to make a profit as well. (Time 0:47:29)
Every small item in stores represents its own profitable business. - Lack of creativity and effort, not lack of opportunity, limits business success.
Transcript:
Shaan Puri
And I asked you, I said, usually we try to brainstorm business ideas with people. Like what opportunities do you see? You said you would come up with a couple ideas. Give us a couple of your ideas of what you think other people could go do. This is just like the sort of random section.
Dan Certner
Yeah, I think the I mean, the biggest takeaway, like from buying a business before I get into the ideas, like everything's a business, right? Like you walked, you know, go look at any store. You know, every little piece of that business is something that someone sells. That display that says for sale, someone sells that. The holder for the gum on the store, that's a business. I don't think I really appreciated how random and how basic some of these businesses can be. And people make really good money doing it. Even packaging. You don't really think about that.
Sam Parr
By the way, I'm pretty sure Robert Kraft, the owner of the Patriots, he owns the Kraft Group. I think that's a packaging company. It could be. There are so many packaging companies. They make corrugated cardboard, I believe. Cardboard, okay.
Shaan Puri
One of our best episodes ever, if you want to go listen to a great episode, is the Sarah Moore episode on this podcast. And she's the, I think it's called the Egg Carton Queen. And her thing was, she did the same thing you did, basically. She went and found a retiring guy who owned a business that sold egg cartons. Like not the eggs, the carton they come in. And you don't even think that's a business. When you go look at, you're like, eggs, yeah, okay, there's a farm that sells eggs. You don't even realize that the farm has to then buy egg cartons. And there's somebody whose job is to make egg cartons and they sell it at the best price and the best value, blah, blah, blah. And so her episode, I think is amazing. And you see that? The other example, Sam, that I always give when I explain what this podcast is to people is I talk about like, everything you see is there because someone sold it. Nothing gets there by accident. And so I was like, even in the workplace, if you go to your break room and there's a poster on the wall, that's like the labor code. There's a guy in Minnesota that sells that. He makes a million dollars a year selling you the poster every year. Once I heard that, I was like, oh shit. It's like a physicist when he learns about string theory or some shit. It's like, oh, it's everywhere. I get it. Oh, the waves are particles.
Dan Certner
You see the world as a component.
Shaan Puri
Yeah, all the components themselves are businesses too. And then you realize like, if you're not making it in business, it's mostly because of a lack of creativity and effort. It's not because of a lack of opportunity because literally every (Time 0:56:22)
Sometimes, over-planning is just a sophisticated form of procrastination.
Transcript:
Shaan Puri
We had not sold a single role to a single customer, and we're worried about all this other shit. But what we think, we're tricking ourselves into thinking that planning equals productivity. And spoiler, planning did not equal productivity. We're basically doing a very fancy form of procrastination. (Time 1:03:33)
Instead of seeing problems as reasons to dismiss an idea, view them as opportunities for innovation. Identify pain points and address them to create a significantly improved customer experience.
Shaan Puri learned to identify what needs improvement to create a 10x better customer experience.
Transcript:
Shaan Puri
And it just feels cheap. And we're like, that's why it sucks. And our takeaway was, therefore, no. And his was, wow, looks like you found all the things to improve to make this a 10x better experience. And like, since then, now I see this all the time. If you talk to entrepreneurs, it's like, you think about a space and you're like, oh, that's horrible. That's horrible for these reasons. And like, the entrepreneurial response, the customer response is, it's horrible. The entrepreneurial response is, wow, what an opportunity. Because if I just change those four things, I (Time 1:09:01)
