Rapid Response: Stop creating businesses. Buy one instead, with Codie Sanchez

Unless we're telling somebody to go dive with great white sharks, in which case they might get eaten, nobody's going to die from trying to start a business or buy a business and it not working out. You're going to learn, you're going to go through difficulty, it might be really hard, you might fail. But you probably won't stand at your grave at the end of the day and say, thank God I took no risk, I stayed in a job I hated, and I never actually went and stood out at the front of anything. That's Cody Sanchez, founder and CEO of finance and media company Contrarian Thinking. With stock market valuations high and the job market tight, Cody argues in her new book Own or Be Owned that taking control of your financial future right now requires investing in yourself. Her impassioned plea for building or buying your own small business includes hardcore data about what turns risk into opportunity. And her advice translates even if you do work for someone else, decrying what she calls cowboying in business as a key pitfall. So let's get to it. I'm Bob Safian, and this is Rapid Response. Hey, listeners, Bob Safian here. Before we get into today's episode, I want to introduce you to Eli Wallen, founder and CEO of Enjin. Enjin is a sponsor of the show, which is something. we're very grateful for. Welcome, Eli. Thanks so much for having me, Bob. How is AI impacting how people book, manage, and finance travel today? And how far along the progress curve are we? It's still very, very early. The larger corporations, the bigger businesses, they really have not had a lot of opportunity to adopt AI yet in a meaningful way, kind of primarily because of the legacy systems that are still trying to catch up. I would say on the consumer side, you've seen more. You've seen people at least book trips. But for the most part, it's still quite nascent. A lot of times, these are big-ticket items. And relying on just an LLM to do that blindly and just kind of take your hands off and just let the agent run and book, I think there's too much nuance. There's too much change potentially that can come up. As you're building Enjin and the Enjin experience, do you assume your customers will be AI agents? Like, is a service for AI agents different than one for humans? How do you navigate that? Our customers can connect and start to, you know, glean insights and understand what's going on with their travel program from their LLM directly. But I don't think the industry has quite yet caught up to maybe the expectations of what buyers have to where the capabilities of the technology is today. So, what makes Enjin distinctive among the tech tools that people could use for their travel planning? You know, we were not cut from the travel cloth, so to speak. So, I think the way that we built this, for the last eight years, we've been working with Enjin. We've been working on the infrastructure and kind of the underlying network of suppliers and content and rates and all of these things that put us in a very strong position today, which is, you know, a modern infrastructure platform that AI can sit on top of travel management, travel policies, approvals. This was all kind of what makes the most sense versus what was done before. And I think it's given us the ability to create something more modern that people are looking for versus trying to repeat kind of the past structure of some of those things. So, I think it's given us the ability to create something more modern that people are looking for versus trying to repeat kind of the past structure of some of those things. Not that they're not working hard, they're not working the right things? Yeah. If you look at the dispersion of returns, basically the top 10 to 20% of companies, they're like 30X more profitable than the lower companies. What we've seen is that most business owners, they don't run on systems. And even I see it in my business. I mean, I just had to let go of two employees. And the reason why, these are execs, serious people making hundreds of thousands of dollars a year, because I couldn't get them to use a system. They wanted to cowboy it because cowboying it as a business owner feels good. By cowboy it, you mean sort of just like wing it. You just make the decision based on what you're feeling like. Exactly. Like if you don't run on a system, you are not going to consistently be profitable. You won't have the data to back it. You won't know why your decisions worked or didn't. And that's why private equity companies eat a lot of normal businesses lunch. What we call the 12 profit levers, the system that we've run for years goes all the way from what you price, to the people you sell to, to the people you hire, to the products you sell, to how you pitch, to how you promote. Every single aspect of your business needs to be systematized. It's not that hard, actually. The only hard part is, is that it's more fun to wing it and riff on things. And that's probably what made you an entrepreneur to start with. But do you want to make money or, you know, do you want to riff? And I guess in this environment where so much feels like it's changing, I can see some of the resistance to systematizing being, well, that makes me rigid. I'm not going to be creative enough. I'm not going to be agile enough. Having a system doesn't necessarily mean not being agile and changing things. It's really important you say that. You know how you go to business books and you're like, well, I guess if I was Elon Musk and then I read his biography and I did exactly what Elon did, I would win. But sadly, I'm not as smart as the guy. I'm not as rich as the guy. Or as lucky, too, right? Or as lucky. Yeah. Or as like prone to misery. Like I don't want to sleep on factory floors for weeks. I'm glad he does. That's great. I don't want to. And so what we realized in this book, you have to have three things to have a system that works. One, we have something called the owner score. It tells you what kind of owner you are, what your proclivities are. For instance, artists or founders, they price like 30 to 40% lower than an archetype that is a closer or a ball hog. And so your first input is what are you? What kind of person are you? What kind of owner are you? Your second input is in your business today, how do you score versus the market on your 12 Ps? We have like a data set of 30,000 businesses. And then the third input is once you have all that data, how are you looking at it every 90 days to make sure you're addressing the system again and again? And none of this is new. These are all theories that have existed forever in private equity. We're just applying it to small business owners in a way that they never got access to before. Yeah. I mean, it sounds like the kinds of rigor that you have to have to make sure that you're addressing the system again and again. That more established, bigger businesses have used for a while. It doesn't seem like rocket science. It was just too complicated to do before? It's cheaper now? Yeah. Well, it was really complicated. It was expensive. If you wanted to go before and get advisory services on how to run your business more profitably, you could go to McKinsey or Bain, but you're going to have to pay $500,000 for an advisory thing. And they're basically just going to tell you the stuff to cut costs and that you want to hear, even though they're really smart guys. No shame to their game. And so what we realized is we're like, well, what about for the small businesses? They don't have the HVAC or the roofing company or the ad agency. They don't need to come up with some crazy new innovation. They need to respond to their customers faster. They need to incentivize their employees correctly. They need to price more intelligently and probably higher. It actually is not rocket science. But when you're in your business, there's so much on your to-do list. And so every day, you're like, I'm going to do this. I'm going to do this. I'm just treading water as a business owner. And I'm hoping to try to stop that. And do you find in your data that our small business owners, are they going to AI bots and asking them advice about what should I do or where the next market is? And is that useful or is that a different kind of trap? Gosh, if you had asked me 12 months ago, I would have said, this is incredible. This is going to be a game changer. Now what we've realized is most of the advice is so generative. And aggregate, it's not actually helpful. And then it will usually tend to tell you things that you want to hear about your business. It doesn't tell you the difficulties. And so you really have to stress test it. So I actually have started to say, don't give me aggregate data. I want only data on home services businesses located in the Southwest. And what do they price that? And where's that data set from? And so if I, if my search is that, if my prompt is that specific, I can get more valuable information. You can, but the problem is they don't have access to that data, usually. And they'll, and they'll make it up and you won't know that they've made it up because they always give you an answer. They never say, I don't know. Exactly. And a lot of it, and the vice is super problematic because you really have, you know, you'll say, well, should I be spending more on advertising or marketing? Okay. Well, the, the, it's really hard for you to feed it enough data for it to give you a smart response on that. But if you talk to a business owner who's been doing this for 10 years in your industry and you have the data set on everybody else, you can just say, well, we do something called a P&L review. You look at the P&L and you're like, hey guy, you're spending 2% of your revenue on advertising and marketing. And the industry average is 15%. You actually have a positive return on ad spend here. Let's up this. This is a very easy thing to do. But AI isn't going to get there because you won't even know the answers to ask it or the questions to ask it. Hmm. And, and for your business, like the McKinsey's of the world make money because they can charge so much for their advice. How do you make money? Cause you have to charge a lot less to much smaller businesses. It's way harder. Um, I think, I think about this daily. We're a mission driven company. We always have been. Our belief is that you should be able to learn how to buy small businesses and build them and that we want to do that at scale for everyone. You know, if, if I was even advising my business, I would be able to do that. I would be able to do that. Our issues are always, we should increase our prices, but we don't. So that means we have to be super effective. And we also have to find other ways to make money, which means we've got to invest in businesses and have those businesses ROI to us on top of it. And if we didn't do that, I don't think we could do this at scale at this price point because the market just naturally is going to move you to more expensive options. Right. It's, it's a better business to go to the bigger companies that you can charge more for, but then it's moving you away from your. Mission. Yeah, exactly. There's three types of businesses I talk about in the book, lifestyle, scale, and exit. Most small business owners, they really do. They just want a $10 million a year roofing business, which is an incredible business. This is a scale business. I don't make a ton of money from this personally. Most of the money goes back in the business. It's not an exit business where we're preparing for profits. If you know who you are, you know what you want, you know what your business scores, and you know how to run a system on top of it, you're probably more likely to succeed. As opposed to trying to do everything. Exactly. Exactly. Most of them want to do all three. That doesn't work. Or sometimes you do one and sometimes you do the other and that, and that's being a cowboy. Right. Yeah, exactly. And then I have to fire you, which is not fun. If you want to work for Cody, don't be a cowboy and don't try to do everything, which is a trap a lot of entrepreneurs and business leaders fall into. So is it better to start your own business or buy an existing one? And are hands-on trades really worth considering in an AI world? We'll talk about that and more after the break. Stay with us. And how to protect what you've spent years building. Creative Planning, where wealth works together. Learn more at creativeplanning.com slash masters of scale. Before we get to the rest of our conversation today, I want to spend a moment sharing with you about Masters of Scale Summit, which returns to San Francisco this October 20th to 22nd. So many of us feel overwhelmed right now. It feels like so much of the world is careening and we don't have power. We don't have agency. That's the thing about the Masters of Scale Summit. It's really designed to remind us that we do have agency. Agency to lead, agency to design, to build the relationships and the partnerships that empower us and to make the change that we want to see. We program a stage. We curate an audience. We set a schedule that builds in time for these relationships to be made and to grow so that by the time you leave Summit, you are fired out of a cannon, ready to run through. We program a stage. shaping the future. Is the AI boom sustainable? How do you protect your privacy in an age of constant surveillance uncanny valley tackles the questions driving today's tech debates and lighting up your group chats listen to new episodes every thursday wherever you get your podcasts before the break cody sanchez of contrarian thinking talked about why owning your own business should be everyone's goal now she talks about the advantages of buying an existing business over starting your own the trap of thinking ai can make a business better and which fields offer the best opportunity right now let's jump back in you launched a business earlier this year biz scout yeah to to help people buy existing small businesses rather than creating ones from scratch so how do you know if that kind of option is a good option for you you can go to biz scout and you can go to our calculators page and they'll give you a valuation analysis and talk to one of the people who's going to give you a valuation analysis and talk to one of the people who's going to give you a valuation analysis and talk to one of our representatives and they'll tell you yeah your business is like totally sellable or here's how you should prep to sell it because a lot of small businesses don't know how to value what they have well yeah i didn't i mean before i was in finance i would have had no idea and also how are you going to get the reps of that you're only going to sell your business once probably so there's no reason to become an expert at that but then the second is how do you know if a business is good to buy or not it's kind of cool on biz scout now we have something called scout sites do you remember like well like zestimate z estimate about like what what a house is worth so scout sites is the same thing it's trained on the you know tens of thousands of businesses it's never really existed for small businesses at scale obviously you have to do more due diligence on top of that but there's for the first time ever you can be like whoa these guys are crazy this is totally out of market it's only rated you know a 30 which would be an f as opposed to an 87 aka b plus but if i'm you know i i want to have a roofing business or i want to open a bakery like how do i do that i don't know how to decide whether maybe i should go on here and see if there's a small business for me like for me to buy versus me starting one my own is that is that about how much money i have to begin with or where i am in my career like how do i make that decision i don't think unless you have a burning demand to like start a business you can't sleep for the want of starting a business the data says don't do it just for the money it you know it'll take three to four years to be profitable you have a 90 failure rate inside of 10 years and most small business owners only make 46 to 65 ish thousand dollars a year yeah boy that sounds like why would i do this at all well that's my point i wouldn't do that i think if you're crazy enough to want to start a business you won't ask for advice you'll just go do it and then if you really want the profits for it go buy one because you have a higher likelihood of knowing if it's going to succeed or not and i'm not saying there's not risk to acquisitions obviously but if you're going to start a business you're going to have to take a loan out typically or do seller financing but the sba's failure rate right now is like less than 13 so you go get a loan on a small business it gets sba approved you have a 13 failure rate over a 10-year period as opposed to in startups a 90 failure rate so i just kind of go back to the math and that's why i talk to so many people about buying a business even though people don't always like that i talk about that why is that one people are always going to dislike you for succeeding at the thing that they were not able to succeed at people will hate you for having less and doing more with it and so if somebody has gone through something incredibly traumatizing like buying a business and failing at it all they see are other people that will fail too and i'm not sure how that is helpful at all like unless we're telling somebody to go dive with great white sharks in which case they might get eaten let's like nobody's going to die from trying to start a business or buy a business and it's not working out you're going to learn you're going to go through difficulty it might be really hard you might fail but you probably won't stand at your grave at the end of the day and say thank god i took no risk i stayed in a job i hated and i never actually went and stood out at the front of anything um i think that's totally irrational so it won't be easy uh but i do think often it's worth it and then i always like to say to people oh yeah okay it was so hard and so terrible and i shouldn't tell people that they could buy a business do you work for yourself still oh you do okay they can't do it but you can come on we're not i'm not that special so um i think that's why sadly now there's this risk of course of putting so much of yourself into it and so there's this trend about fractional ownership sort of co-owning a business are you in favor of that or wary of the like the complications of having it you know having to share it with other people and so i think that's why i think that's why i think that's fair that way well i mean it's how i started so i can't be too out of it i didn't have the balls quite honestly to go jump into full-on acquisition i was a little too freaked out to take a full-on risk so i wanted to own part of a business and i did it with partners in the beginning and then again and again and again um and so we actually created something at the contrarian academy where you can get partnered up with other people so if you want to be an operator of a business but you need investors or capital you can come together if you want to be an operator of a and bring cash and you want another operator and bring cash to the business you can come together there's a lot of best practices we share about how to not totally regret the person that you do this with and how to make sure the terms are useful and you're going to make mistakes and you probably will have some regrets but anytime you diversify risk there's just less likelihood for you to go bankrupt which i kind of like for the first deal like bob owned part of a donut shop down the street get get a little rev share from it see how you like that before you dive into the whole thing i'm totally fine with that um i you know i asked you about ai a little bit earlier and i'm curious how new tech affects new business owners i mean we we've seen sort of sam altman saying he expects like a solo unicorn to emerge you know one person building a a billion dollar enterprise using ai do you feel like we're gonna see a boom in sort of one person businesses in that way is or does that fall into the question of how do you do that i think that's a good question i think it's a good question to like the scaling versus the you know the different categories that you have the scaling versus the lifestyle or yeah i think there will be some crazy outliers those people probably would have built really big businesses without ai too and so i don't think it turns a normal person into a superhero that'd be cool i think it is an accelerator for what is already inside of you one way or the other which is actually a pretty dangerous game in my mind one i don't want to compete with the elon musk so i don't want to compete with the elon musk so i don't want to or the bill gates those guys are super technical they've got billions of dollars in funding i think the better play is let's go compete with the handyman down the street who's 65 and then i can add just a little bit of ai on top of it i can add a little bit of tech on top of it and maybe some cool branding and i can win that is just a better game to play in my opinion than trying to play russian roulette with a bunch of tech nerds that are really smart obsessed with this probably don't want to try to play it's interesting as i'm as i'm listening to you like your book will outline for me the steps and the questions that i should ask to be able to you know to identify and get my business to run better but it also a lot of it is emotional about yourself is sort of being clear about what you want and what your goals are because that dictates your business strategy yeah it's isn't it crazy though that there are so few business books that do that i can give somebody advice until i am blue in the face but if that is not their unique skill set it's not going to work for their business and then the secondary level that's kind of cool is let's say you're an employee you're not an owner i would make my boss take this i'd be like i want to know what your weakness or strength is i want to know what mine is because if i know how to hire and i know how to work around these other types of people i'm going to get more equity and upside in this business and so i'm going to be able to do that and i'm going to be able to do that and i'm going to be able to do that and i'm going to be able to do that and i'm going to be able to do that at the end of each chapter there's basically a portion where it's like okay owner you do this and then you know hustler you do this you make it sound like it's so simple like it it's basic it's all out there you just have to put it together but i guess discipline is never simple there's always a shiny new object to chase you know what we found when we bring our owners in we do these events once a month and we bring business owners in be like well what am i doing with ai i mean bob perfect example there's this it's an hvac company and it's a business commercial and um based in florida and the guy he's like well you know i'm working on this ai integration and it's going here and it's been pretty incredible and i just said can i have your phone number for your business i call the business it's friday it's like 10 15 in the morning i call the business nobody answers there is i kid you not an ai special jingle the guy made it's really cute and then it goes to a voicemail and i'm like guy the ai go and and and what is this voicemail get an answering service you just lost a commercial client potentially what are we doing and so sometimes when you're the business owner you have too many things you need somebody to go like that right there is where the money is just do that and then you can layer the cute stuff on top of it later you know so our methodology overall is like you're kind of over complicating it and that's okay we all do it let's go back to boring it actually works really well You personally have had a lot of success within the creator economy of millions of followers across platforms. Is building a personal brand now sort of an economic necessity for everyone, for every business? No, I do not think most small businesses should build a personal brand at all. I did it by accident during COVID because I was stuck at home and I started with a newsletter and I liked writing and then I had fun creating. And I was like, this is fun. If I just wanted to optimize for making money, I would not do this. And there's cool parts to it. Don't get me wrong. There's very cool parts. I get to have lovely conversations with you. I get to go on Good Morning America. That's very ego satisfying for sure. But most small businesses don't make money off of their personal brands. I mean, if you knew what most of the YouTubers actually make, the sprinkler guy down the road makes like 5X. They don't make that much money. And it's really hard to stay relevant forever. Yeah. It won't be too far in the future where people won't care at all about me anymore. And that's okay because I have these other businesses, but you don't want to create a business of you. Yeah, no. Relevance is an exhausting and difficult track to stay on. And you got to have a thick skin too. We've seen growing media coverage around hands-on jobs that can't be displaced by AI. When you're considering a small business right now, are those the kind of industries you should be leaning towards? If I had to look at the top industries right now, I would say, first of all, anything in manufacturing, there's a ton of grants and a ton of opportunity to reshore back to the US right now. Home services, a massive shortage. Then I would go to more of the skilled trades. You do have to go to some sort of trade school, but the pay is actually quite high. People will say, well, but a plumber, he's never going to make $300,000 a year. He might make $125,000 a year. But that misses the point. As a skilled tradesman, your ability to then go buy a plumbing business is so much higher than anybody else's. The world seems pretty chaotic right now. Political uncertainty, trade war with Canada, oil prices. I mean, it might make people feel like now is not the time to take on new risks, that we need to just focus on what we control right in front of us and sort of stay here and not change anything. What do you say to that impulse? The world has actually never been better in most ways. I always go like, is it a feeling or is that the math? And the math says writ large, we live longer, we're wealthier on average than we've ever been before. We have more opportunities than we've ever had before. And if you live in a developed country, even though in some ways it is harder, aka houses are more expensive, groceries might be more expensive. Some of those not so small things are harder. It's also never been simpler in a lot of ways to get to where we are right now. And I think that's a big part of the problem. And so I would say don't ever let market economics or somebody else labeling you a victim or the time as not being right now stop you from making it your time right now. Because people will win in every market. It's just, are you going to decide to be one of them or not? Yeah. And time is the one thing we don't have an unlimited amount of, right? Why would you ever let somebody tell you that you can't just because it is hard right now or it is you know, yes. And you're probably more capable than you've given yourself credit for. And you're not going to listen to the people who tell you that it's possible for somebody else, but not for you. No, I don't believe, I don't believe that. Well, Cody, this was great. Thanks so much for doing it. Thank you guys for taking the time and covering it. I really appreciate it. I love Cody's optimism amidst all the tumult in today's world. I'll confess, I can get distracted by all the troubling headlines and it's good to be reminded of the positives. It's also good to remember that the only time given to us is right now. So why not make the most of it? I do think a sense of ownership changes how you view the world and how you view your work. For me, I don't necessarily need to be the quote unquote owner of a business to have that feeling, but I appreciate that everyone is different. As for buying a business, starting a business, Cody's underlying message is to craft your ownership, your career, based on your own proclivities and goals. Are you looking for a lifestyle, an exit, a scale journey? Are you a cowboy? Success starts by being honest with ourselves. I'm Bob Safian. Thanks for listening. Humans will never be more intelligent than AI. There's going to be two types of companies. Those who are great at AI and those that went out of business because they weren't. How do we build a future that is human-centered? I'm Rana El-Khayoubi, and on my podcast, Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future, and we take you behind the scenes of the AI that's transforming the world. Our lives. Find Pioneers of AI wherever you tune in. It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Rapid Response is a Wait What original. I'm Bob Safian. Our executive producer is Eve Troh. Our senior producer is Alex Morris, and our associate producer is Masha Makutonina. Mixing and mastering the AI. Aaron Bastinelli and Brian Pugh. Our theme music is by Ryan Holiday. For more, visit rapidresponseshow.com.