I Made $50M Buying & Running Boring Businesses

Episode 681: Sam Parr ( https://x.com/theSamParr ) and Shaan Puri ( https://x.com/ShaanVP ) talk to Brent Beshore ( https://x.com/BrentBeshore ) about buying profitable businesses. — Show Notes: (0:00) $50K/yr to 9 figures (6:04) Accidentally buying a $1M business for $0 (11:06) Just In Time learning (14:11) Buying cash flow businesses (20:30) Private equity or index? (24:26) Buffett's near-death experience (32:54) How to buy your first small business (36:02) Brent's one-liner speed run (47:33) Shaan asks Brent how to hire a CEO — Links: • Permanent Equity - https://www.permanentequity.com/ • Enneagram Test - https://enneagramtest.com/ — Check Out Shaan's Stuff: • Shaan's weekly email - https://www.shaanpuri.com • Visit https://www.somewhere.com/mfm to hire worldwide talent like Shaan and get $500 off for being an MFM listener. Hire developers, assistants, marketing pros, sales teams and more for 80% less than US equivalents. • Mercury - Need a bank for your company? Go check out Mercury (mercury.com). Shaan uses it for all of his companies! Mercury is a financial technology company, not an FDIC-insured bank. Banking services provided by Choice Financial Group, Column, N. A., and Evolve Bank & Trust, Members FDIC — Check Out Sam's Stuff: • Hampton - https://www.joinhampton.com/ • Ideation Bootcamp - https://www.ideationbootcamp.co/ • Copy That - https://copythat.com • Hampton Wealth Survey - https://joinhampton.com/wealth • Sam’s List - http://samslist.co/ My First Million is a HubSpot Original Podcast // Brought to you by The HubSpot Podcast Network // Production by Arie Desormeaux // Editing by Ezra Bakker Trupiano

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shaan Puri?

  So that was the first golden goose. And then you said you started stacking geese like a rapper, you know, at the club. So what's the second?

• 0:06Speaker 01

  I hope that becomes a term that we can use.

• 0:08Shaan Puri?

  Yeah, stacking geese. We gotta get some shirts made.

• 0:11Speaker 01

  Gucci, baby.

• 0:11Shaan Puri?

  Hey, merch guy.

• 0:23Shaan Puri?

  So Brent runs permanent equity. You started off as a founder, started buying companies, and you then started raising money to buy companies. So you raised like something like 50 million bucks for your first fund. You started buying companies with that. Then a couple of years later, you raised about $250 million to buy more companies. And now you own, I don't know, something like 16 companies that do over $350 million a year of revenue. And I believe what you said was $50 million of free cash flow out of the portfolio now, which is pretty incredible. So that's who you are. That's what you're bringing to the table. And I think, Sam, where do we want to go with this? Because we could ask you about buying businesses. I have some questions around that. But I kind of want to start

• 1:04Shaan Puri?

  with something light before we go into like, hey, can you teach me how to be private equity, please?

• 1:09Sam Parr?

  Yeah, we could do the light stuff. And then you also, you've got the, we call it the all shucks Warren Buffett attitude, where you've got a list of one liners. You write amazing annual reports. You're a great writer. So we have a bunch of one liners that we want to ask you about as well.

• 1:22Speaker 01

  Sounds good.

• 1:24Sam Parr?

  What, can you tell me, what's the, what do you buy? And what are the biggest companies? You buy like pool companies and HVAC companies?

• 1:29Speaker 01

  Yeah, I mean, we typically, we've got everything from a children's clothing brand to a military recruitment firm to manufacturing, construction, business services. I mean, it's really the 16 companies. It's a, you know, it looks like the island of misfit toys. For us, they're, they're companies that we love the people who we get to work with. They're in industries that we feel like are not going to be changing. We can talk about how some of them maybe look like high change, especially like the children's clothing would seem high change on the surface, but is actually not. And yeah, we tried to partner with them for a long time.

• 2:00Sam Parr?

  What's the biggest one in terms of revenue and profit?

• 2:02Speaker 01

  Let's see, our, in terms of revenue and profits, probably our fencing business out of Dallas, Texas is probably the largest. So we, we have a big market share in the, in the Dallas market. And yeah, it's a, it's a, it's a pretty sizable business.

• 2:16Shaan Puri?

  I was gonna ask you a similar question, like, you know, people are always like, you can't pick a favorite kid. And as an investor, you can. You have this portfolio and like, some are better than others, and that's okay. It would be weird if all of your companies were equally successful investments. I wouldn't believe you. And so what's like the golden goose for you? So which one is like, like, I know in my portfolio, right? I have like, I have like a mini version of what you do, where we have like four or five companies that we kind of have either bought or own a big stake in. And I could tell you, I'd be like, oh, this business, like, for us, like, the somewhere dot com business was like my golden goose, partly because I got in on a great price, but also the business tripled since we bought it. And it's just this business that just spits out cash flow.

• 2:59Shaan Puri?

  And it's like, the market keeps growing for this. People need this. And so for us, that's been the the golden goose. It just keeps laying a golden egg every single month for us. What's the golden goose in your portfolio?

• 3:09Speaker 01

  Oh, we've been fortunate to actually like, we've kind of stacked golden geese on one another, is how I would describe it. So the very first business I bought is called Media Cross, is a military recruitment firm, bought that in very early 2010.

• 3:23Shaan Puri?

  Explain the layman's surface. What does that even mean? Military recruitment firm? What's happening?

• 3:27Speaker 01

  Yeah, so we, at the time, worked with two branches of the military. Now we work primarily with one. We had two contracts. One was to recruit civilian mariners into a division of the Navy called Military Seal of Command, that resupplies the ships that never came into port. So it's about 1,400 to 1,800 civilian mariners a year recruited into that division. That's our responsibility. So we do all of the marketing and recruitment efforts, and then the processing to bring them into that branch of the military.

• 3:54Sam Parr?

  Does that mean like, you're out, you're out on the street with people? Or does that mean you're running ads and you own like a lead gen website?

• 4:00Speaker 01

  All of that stuff. Yeah, but we're doing, we're doing lead gen. We have a whole processing center. We're actually doing qualifications for these people. So it's a complete soup to nuts operation.

• 4:10Shaan Puri?

  And, and the government just pays you per recruit? Or how does that work?

• 4:14Speaker 01

  Yeah, we're on a fixed contract that escalates every year based on the staffing and needs of the business. So we, it's basically a staffed contract and then we have a sort of a built in profit margin that's on top of that.

• 4:27Sam Parr?

  What do you get per recruit, per referral for one of these things?

• 4:31Speaker 01

  Oh gosh, I don't even know because we're not, we're not based on that, right? So we, we've done this for, the contract is, we've had it as a business for 30 ish years now. It's been forever and I mean, we're so deeply embedded into what they do. We know exactly what it takes. We, I mean, we are the outsourced function of that, a piece of the military.

• 4:50Sam Parr?

  That's insane.

• 4:50Shaan Puri?

  Why is that business great? Is it because you got this cash flow, but you have this contracts, you have the certainty and defensibility with that? Is that what's great about that business?

• 4:59Speaker 01

  Yeah. Yeah. I mean, so I like, for the most part, we know what our profitability is going to be in three years from now. Right? And so, once you get that business optimized and you get great people in place and the leader of that business we've had, I mean, she's been with the business since the very beginning. So we're 15 years into the relationship. She's doing a great job and it just, it clicks. So that was, that was, I would call the original golden goose that allowed me to pay back the SBA.

• 5:22Shaan Puri?

  I've heard you say you accidentally bought your first business. Is that what you meant when you say you accidentally? What does that even mean? How do you accidentally buy a business?

• 5:28Speaker 01

  Yeah, I, I got a call from a guy and he was like, hey, I want to introduce you to this guy. He's at your, he's in your industry. You know, he said, marketing, marketing, because I'd launched a, call it an ad agency for all intents and purposes before then. And he was like, hey, he's in your industry, you should get to know him. And I said, okay, great. And he's like, oh, by the way, the guy's, he's got left at the altar for the second time, trying to sell his business recently. And I was like, well, okay, I guess I could take a run at it. I had no idea what I was doing. I was 24 at the time. No idea what I was doing. And I'd sat in front of this guy and, and you know, we talked about it and we negotiated. And he said, I'd never sell it to you for the price you asked for. And I was like, that's fine, no problem. And I didn't talk to him for seven months. And then seven months later, he called me up out of the blue and said, I've just renewed our largest account. Business is in great shape.

• 6:13Speaker 01

  I'm exhausted. I'll give it to you for the price you asked for, but you got to close all cash 60 days from now. And it was one of those where you kind of like, you make the sale on, you know, they go down the elevator and you say, oh shit. It was, it was like that, right? And I remember getting off the phone and I was like, oh crap. Like I, I just obligated myself to go buy like, buy a business. I have no idea what I'm doing.

• 6:31Sam Parr?

  Did you know anything about digital marketing?

• 6:33Speaker 01

  Uh, yeah, I mean, we had, we had, we did digital marketing work back then.

• 6:36Shaan Puri?

  You have a marketing agency, you stumble into this business.

• 6:41Shaan Puri?

  You're like, maybe somebody tells, tells you, there's a chance to buy it. You're like, all right, I could try. He says no to the first price. He comes back, you're not even following up. He comes back and says, hey, still interested. But you don't have a lot of money. You're 24 years old. So you go to the SBA and you get an SBA loan for this thing?

• 6:56Speaker 01

  Yep, correct. Yeah, I asked my newly married wife to sign a personal guarantee. And she was like, what's that? And I was like, oh, don't worry about it. No big deal.

• 7:02Shaan Puri?

  You're like, good news and bad news. Good news, no prenup, but you do have to sign this other thing.

• 7:06Speaker 01

  Exactly. She was like, what happens if this doesn't go well? And I was like, it's probably not gonna be great. So, yeah.

• 7:11Shaan Puri?

  So if somebody's never done an SBA loan, what, can you explain just like you put down X, you get Y? What's, how it all works?

• 7:18Speaker 01

  Yeah, back then, um, so the requirements have changed a little bit. I think it's like five or 10% you have to put down now. And I think you can actually qualify with seller financing. I'm not an expert anymore on SBA. I've only done the SBA one time, and that was literally 15 years ago. Back then, what I did was I account, uh, leveraged the accounts receivable from the existing business as the down payment. And then got the, the rest of the debt through the SBA. And so, I mean, I put very little cash into the deal.

• 7:43Shaan Puri?

  So you put basically zero down?

• 7:45Speaker 01

  I mean, it was a, it was a lot of my, my money, but it was just tied up in other assets. But yes, I mean, in terms of actual cash that was coming out of my pocket was not a lot. I didn't have a lot of cash. Um, and so, um, yeah, I ended up asking my buddy at the SBA, who was, he was part of an SBA lender. I said, hey, do you guys do like expedited SBA loans? He was like, not really, uh, we don't do that. And I was like, well, I need it in 60 days. And he was like, that's really not possible. And I was like, can we make it possible? Like, let's try.

• 8:14Shaan Puri?

  How much, how much are you talking that, that you had to borrow?

• 8:16Speaker 01

  It was a million bucks. Yeah, it was a million dollars.

• 8:18Shaan Puri?

  And was this like your seize candy? Like Buffett bought seize candy?

• 8:22Speaker 01

  Exactly what I was gonna ask.

• 8:23Shaan Puri?

  It's returned like a billion dollars in free cash flow or more than that to the, to the headquarters it over the last, whatever, 50 years or whatever it's been.

• 8:30Speaker 01

  Yeah, it's, it's, it's like a 20xer. Yeah, so.

• 8:33Shaan Puri?

  That's amazing. So that was the first golden goose. And then you said you started stacking geese like a rapper, you know, at the club. So what's the second?

• 8:41Speaker 01

  I hope that becomes a term that we can use.

• 8:43Shaan Puri?

  Yeah, stacking geese. We, we gotta get some shirts made. Hey, merch guy.

• 8:49Shaan Puri?

  You know how like Rogan has like Jamie, I kind of have this like fictional studio in the room where I'm like, pull that up. Hey, merch guy, get on that. Like, there's nobody here.

• 8:58Speaker 01

  Yeah, merch guy. Yeah, I mean, I knew I knew so little back then. I remember my lawyer said, okay, we got to start due diligence. And I literally typed into Google D O diligence, like due to like, I had no idea what it was. And I was, I was like, reading about it as he was talking to me. I was like, oh, yeah, we just asked questions. Like, how hard can that be? So anyway, it was quite the adventure.

• 9:18Shaan Puri?

  That's amazing.

• 9:19Speaker 01

  Yeah. Another, another anecdote on that deal was a week before closing, I said, okay, so I take all of my money and I give it to you. You take all the money out of the business. Like, how do I make payroll? And the guy was like, well, you obviously got a line of credit on the business, right? And I was like, no, I didn't, I didn't do that. And he was like, well, the business is going to go under immediately. And I was like, yeah, that's not good. What do we do? And he was like, well, you got to figure this out because you're getting ready to close on the business. And I was like, can I get a loan from you? So he actually lent me money to, as a line of credit to keep the business operating because I didn't even, I didn't even think about it. I didn't think about like, oh, well, he's going to take all the money and there's not going to be any cash to operate the business.

• 10:01Sam Parr?

  I was, I was with this guy this weekend and he was like, hey, should I start my own business? You know, I'm 28. I don't think I have enough experience, though. And I was like, yeah, I'm pretty sure like a lack of experience isn't like, hasn't stopped a lot of people. You can kind of be like a kind of a dummy and get into it and you'll probably learn in like six months. And you are a good example of that. You don't really need to know much.

• 10:21Speaker 01

  Huge dummy. He's exactly the way that I think about myself.

• 10:24Shaan Puri?

  In like the lean manufacturing part, like kind of philosophy, they have this idea of like just in time, right? You, you, you do things just in time versus doing everything ahead of time. And so just in time, learning is basically what you did. It's like, oh, when I need to close, then I figure out what due diligence is. Then when I need to take over the business, I learn what working capital is. And you just, you learned each of the core concepts as you needed them, which is actually the real way that people learn, rather than, I'm going to learn everything upfront, then I'm, then I'm fully prepared to now to go do this. And like, in reality, that's not how, how life works.

• 10:56Speaker 01

  Yeah. And sometimes it doesn't work out. And I, you know, I joke that I'm a forced company private equity for a reason. So.

• 11:01Sam Parr?

  What else do you own? That's awesome.

• 11:03Speaker 01

  Yeah. So the next business we bought was a pool business out in Arizona. And that was just with, again, started accruing cash and started building that up and bought that business. And again, that one turned out to be a great investment as well.

• 11:16Shaan Puri?

  You say that nonchalantly, like, oh, a pool business, but it's also like, dude, that would be really random. I don't think about pool businesses. Nobody shows me a pool business. So what were you doing? You're talking to brokers. Where does that deal come from? Like, for you at that time?

• 11:29Speaker 01

  Yeah. So it was about, so let's see, so I had no idea what I was doing. After I bought the business, MediCross, in 2010, I was like, oh, that worked. I should do more of what works and less of what doesn't. At the time, there wasn't a lot of writing on the internet about this. So I mean, there was a little bit of stuff out of Harvard, a little bit out of Stanford around search funds. But there was very little activity online. And so I was like, well, I just need to ask around like, are there other people doing this? I didn't even literally know that there was a thing called private equity. That's how little I knew. I mean, I started, somebody was like, oh, you did a private equity deal. And I literally Googled private equity. And I was like, turns out there's a whole industry of people that do this. Like, why would they not do it like in smaller companies? And that was my foray into it. And so at that point, we said, okay, well, if we're going to go find other businesses. I mean, how hard can it be?

• 12:14Speaker 01

  This one just came to us. There must be just tons of businesses out there just floating around, ready to be, ready to be bought. And so we started reaching out to people and developed deal pipeline. And one of the deals that took us, so that that pool deal we first saw in 2012, I want to say. And it took us about three years to get the deal done. And it was just hanging around the hoop and they actually went with two other buyers before us. And ultimately had a good relationship with them.

• 12:39Shaan Puri?

  And so the time between deal one and deal two was three years?

• 12:44Speaker 01

  It was five years.

• 12:46Sam Parr?

  Sean, isn't it crazy how long things take? Like Brent's a big shot right now. Like, you know, people know you and you like, you're talking about hundreds of millions in revenue. But you started this in like 16 years ago. Like that's, I mean, it's a huge success and everything, but it like really goes to show you that like, you have to grind for, or at least be consistent for a decade plus.

• 13:08Speaker 01

  Oh, absolutely. No, I mean, I, I say to people all the time, like if I had been given $50 million to invest in like 2010, I like, I would have lost all the money. Like it just took so long to build up, like to make a bunch of mistakes, make a bunch of mistakes that were low stakes. Felt like high stakes at the time that were low stakes in order to be able to, to warrant having more resources. And so, yeah.

• 13:29Sam Parr?

  So at some point, somebody did give you $50 million. How'd you get somebody to give you $50 million to go buy companies? Cause I'd like that.

• 13:35Speaker 01

  Yeah. Well, so funny story. I met this guy named Patrick on the internet and literally he put out a tweet, Patrick O'Shaughnessy put out a tweet, and this is when he was like an analyst at, at his dad's firm. And he put out a tweet about capital allocation. I responded, I was like, yeah, I can hop on the phone and talk about capital allocation. I didn't really understand what he was even asking. He was asking about public markets, like capital allocators and public markets. But I, I didn't know much. And so I just reached out and said, yeah, sure. Let's talk. We get on the phone. He's like, so what do you do? And I was like, oh, I buy these, these small businesses. He's like, well, how much do you pay? And I was like, I don't know, like between three and five times. And he was like, what? Like, are these businesses going out of business? Like, are these, are these going under or these distressed? And I was like, no, these are healthy businesses. He's like, I've never heard of this.

• 14:18Speaker 01

  What is this? And so we talked like two or three more times. And then he said, well, can I come visit you in Columbia? And I said, sure. So he flew to Missouri and we spent a day together. And at the end of it, he said, like, I want my family to invest in what you're doing. Like I believe in what you're doing. And I said, sorry, like we don't take outside capital. Like I'm not going to do a two and 20, 10 year fund life. Looked at that, don't want to do a hold co and value the current assets and, you know, get saddled with a bunch of partners that I don't know who they are. Like life's good. Like we're making a bunch of money and compounding and like, everything's fine. And he asked me the question no one else had asked me because we flirted with some family offices at that point. And, and he said, well, what would it take for you to take our capital?

• 14:59Speaker 01

  And I said, well, I don't know. And he said, well, why don't you figure that out and get back to me and I'll tell you if we can do it or not. And so I whiteboarded out our current structure, which is like kind of the opposite of traditional private equity. So we take no fees of any kind, no reimbursements of any kind. There's no cash that comes from the portfolio companies or from the LPs to the GP outside of we take a percentage of free cash flow above a hurdle as we return cash back.

• 15:22Sam Parr?

  You got to redo that last 20 seconds. Can you dumb that down a little bit?

• 15:26Shaan Puri?

  I got you, Sam. He's the guy working in Cinnabon that doesn't touch any of the Cinnabons. So he's in an industry where everybody's like feeing up everywhere. They're just getting high on the sugar. And he's like, I'm good. I don't need that.

• 15:39Sam Parr?

  Can we only do Cinnabon references or analogies? Cause that was much easier than talking about hurdles and sprinting and whatever.

• 15:48Speaker 01

  Yeah, cool. Me too.

• 15:52Speaker 01

  Yeah. Well, so, okay. So traditional private equity, you, you, you raise a fund and you get two percentage of the, of the amount every year.

• 15:59Shaan Puri?

  Twenty. Every year, by the way, you get 2%, which is actually like getting 20% of the total.

• 16:05Speaker 01

  Correct. Every year for 10 years.

• 16:07Sam Parr?

  Which is kind of insane, right?

• 16:08Shaan Puri?

  It's insane.

• 16:08Speaker 01

  I mean, people in private equity get paid well because it's hard to do and not many people can do it and it's a rare skillset. And, uh, yeah, I mean, it, it seemed high to me when I first looked at it, but I was like, okay, well, that's the market for it. So whatever. And I said, I don't need the fees because I'm already paying for the team and the overhead and everything. And so I don't need any of the cash flow from the fees. Just, I want to be entrepreneurial. If we make money, like we want to share in that making it together. And so, um, that's our model. And we don't use debt and we hold it for a very long time. So we have a 30 year initial term on our capital. Typically a private equity firm will have 10 years and most private equity firms, you know, use a lot of leverage. Put a lot of debt on the businesses at closing. We typically use no debt.

• 16:50Speaker 01

  And, uh, so we're kind of in some ways the, the opposite of traditional private equity. And yeah, so I went back to him and I said, hey, this is the structure that I think would work, that we would take capital. And he and Jim, his father said, Okay.

• 17:02Shaan Puri?

  Wait, so I think I missed it. What did you do as the carry then? So you said, okay, no on the 2% fees, but what did you do for the profit share?

• 17:10Speaker 01

  Yeah, so we get 40% of the free cash flow of businesses as we return it back to the investors.

• 17:17Shaan Puri?

  So you don't have to return all the money upfront first? You just start participating from day one with 40%?

• 17:22Speaker 01

  Correct, correct, but it's only on what we return back.

• 17:25Shaan Puri?

  Only on what you return back? Okay, great. And then you said you use no debt?

• 17:30Speaker 01

  Correct. Yep. So these are completely unlevered assets.

• 17:32Shaan Puri?

  Buying all cash, all cash deals using equity from day one. Why don't you use like a little bit of debt? Probably like a little bit of debt.

• 17:40Sam Parr?

  Just a little bite of cinnamon, it's not a bit of buds.

• 17:43Speaker 01

  Just a little icing on top of the cinnamon.

• 17:45Shaan Puri?

  Yeah, exactly.

• 17:46Sam Parr?

  Just this one time.

• 17:49Shaan Puri?

  You don't even do seller notes, like nothing?

• 17:51Speaker 01

  We will occasionally do some seller notes, although we found that having the people that you work with be your creditors is not an ideal situation often. So we've really shied away from that as well. Yeah, no, we typically just close all equity and try to keep things just super simple. I mean, we think that transitioning small businesses is difficult and it's pretty stressful on everyone. We can always lever them up after, you know, after we close, although we haven't really done that.

• 18:16Sam Parr?

  And is that strictly like a lifestyle choice? You're just saying that just helps you sleep better at night?

• 18:21Shaan Puri?

  Yeah. Is it a financial decision or a peace of mind decision to not use debt?

• 18:26Speaker 01

  I think it's both. What I would argue is that the optionality that we have in doing some pretty interesting things with these businesses to grow them is much better when you don't have debt, when you're not paying all the cash to a bank. I'll give you an example. So we bought an aerospace business in 2019 called Pac Air. And I don't know if you guys know this, but the aerospace business never goes down. It always just goes up in the history of the industry, never really has a problem. And I remember when we were closing that deal, one of the advisors to the seller said, are you guys idiots? Like this business does never go down. Why wouldn't you guys lever this thing up with debt? And we said, hey, here's our philosophy and all this stuff. Well, it's not like we actually knew what was coming down the pipe, but 2020 hits. And we were literally the only business out there without debt on it.

• 19:09Speaker 01

  Like literally. And so we were able to take all the cash flow that we were generating because we were still generating cash flow, even though the business was down a lot. And we were able to go out and basically make 10 years of progress in two years. And that business now is seven ish times the size is when we bought it. And everyone else that had debt is, you know, maybe grown a tiny bit out of from 2019, but not much. And so it's really been a transformative experience. We've had that happen over and over again in these businesses. Like, we never know what the future is going to hold, but we know that there's going to be options to invest in really interesting things. If the cash flow is all going to the bank, you don't have that option.

• 19:43Shaan Puri?

  Right, right. I'm gonna still use a little bit of debt, but I think that's good.

• 19:48Speaker 01

  Never hurt anybody.

• 19:49Shaan Puri?

  We've had a bunch of people come on this podcast and I'm always like wowed by their insights, their personality. I feel this way about you and so many people that have come on this podcast where I walk away being like, that guy's the man, like that person's a master of what they do. They're kind of a master of the universe. This is great.

• 20:05Speaker 01

  And it's so easy.

• 20:06Shaan Puri?

  And it's, yeah, it's so easy. But, and forget the easy part for a second. I'm just like, wow, that really works and it makes sense what they said. They're kick ass. And then if you look at people over like a 20 year period or, you know, like a longer period, 10, 10 to 20 years, there's this base question, which is like, if you just put money in the S and P, you get some rate of return, right? So like Sam loves to put money into the index. And he's like, cool. I like that because I do no work and I'm going to get, Sam, what do you want to get? Eight, nine percent, something like that?

• 20:35Sam Parr?

  I would be very happy with eight percent per year.

• 20:38Shaan Puri?

  Okay. So eight percent a year. And so to be smart and do a bunch of work, you gotta beat that. And so we've had people come on this podcast that when they talk, they sound absolutely brilliant. And then later you look at their returns and it's like, oh, they kind of don't beat the index, actually. And I don't even think that's really like a knock on them, or I don't even view that as like, they're not like a charlatan. I just think it's really hard to beat the index, actually. So what do you try to do in terms of like your rate of return? And what, what's your score? So if the S and P is doing 9% of your compounding, what are you doing out of, out of permanent equity?

• 21:13Speaker 01

  Yeah. Well, so I'm under all kinds of SEC regulations, so I can't actually talk a ton. And I would love to talk about that, but I can tell you what's been put in the letters or annual letters.

• 21:22Sam Parr?

  What are you not allowed to say?

• 21:24Speaker 01

  I can't say anything that would be future looking. I can't say anything that would be inducing investment. I can't say anything that that would be considered marketing because we're like top level registered SEC, FINRA, all the stuff.

• 21:36Shaan Puri?

  And what if we bleeped it out? What if you tell us and then we bleep it out? So it's not, it's not on air.

• 21:39Sam Parr?

  Just tell me when to stop.

• 21:42Speaker 01

  Yeah. So, so what I can, yeah, here's what I would say. So we, we target, the minimum underwriting that we have is we target a minimum of a 30% IRR is, is minimum we underwrite to. And we've historically been pretty significantly above that.

• 21:56Sam Parr?

  Okay.

• 21:57Speaker 01

  But, um, you know, we, we really think about terms, things in terms of cash, right? So I think it was last year that we talked about, uh, you know, our total cash out IRR is in the low twenties and that's without any marks, that's without anything. So you, you know, you stack marks and the, the growing, obviously cash flows on top of that and the numbers get pretty ridiculous.

• 22:14Sam Parr?

  Marks being, uh, the valuation?

• 22:17Speaker 01

  The valuations of the business. Yeah, that's correct. And so, I mean, if you, if you underwrite, I mean, if you think about it, like kind of the bottom line, if you're buying a business with no debt, right? So take the debt side off of it. You're just buying the business for all cash. And, you know, let's say on average, we're paying between five and seven times for a business, kind of in that range. And let's say that the business is organically growing seven, 10% per year, and we're increasing that to, uh, sort of call it mid teens a year, maybe low twenties. Um, the math gets pretty amazing, pretty fast. And that's without using any debt. And so I think that's where it's obvious from the outside looking in, there's gold in the hills, right? If you look at small businesses acquisitions, I mean, this is not a secret anymore. I think when I first started talking about it in 15,

• 23:01Speaker 01

  16, right? I remember going on Patrick's podcast when it was brand new. I remember Patrick being like, oh, hey, I'm thinking about starting a podcast. I was like, yeah, sure. I'll help a friend out. Had no idea it was going to turn into what it is, right? Uh, but I remember going on there and people were like shocked, you know, at like what you could buy these businesses for. And people will say, oh, well, that's not fair. It's an inefficient market. Is, is inefficient, but it's inefficient for different reasons why people think it's inefficient. Not because people are getting taken advantage of. It's inefficient because it's absolutely freaking brutally difficult. And it's so easy to lose a bunch of money. Like I had a guy reach out last week and say, hey, I want to be honest. I'm looking for a job. My wife and I went all in. He was working at a big private equity firm based out of LA as an operating partner. He and his wife went all in on a business and it failed. And now they're bankrupt.

• 23:45Sam Parr?

  What attributes make you and others like you successful versus this other guy not successful?

• 23:51Speaker 01

  Yeah, I mean, I think the, the, in the beginning, if, if the first deal I had done gone south. And there's plenty of opportunities for it to go south. And so I would say a lot of our success is attributable to luck in the beginning. And I mean, look, if you listen to any investor, if they tell you that the early stuff they did wasn't lucky, they're lying to you. I mean, I remember getting a chat with Buffett about this. And I said, hey, tell me about Sanborn Maps and Dempster Mill. And he was like, oh, my gosh. Like, he's like, if either of those investments go wrong, there is no Warren Buffett. No one knows about Berkshire Hathaway. None of that stuff happens, right? And they were that close. Like, that's how he met, when he met Munger, he asked Munger, hey, do you know anybody who could help? Help basically turn around Dempster Mill? Because it's, it's flailing. And if that goes under, like, my future's done.

• 24:37Shaan Puri?

  Wait, can you, can you, I don't know the story. Can you tell the story in more detail? So Warren Buffett almost failed at the beginning of his career. What, what was it? Can you tell the story?

• 24:45Speaker 01

  Oh, yeah. So he had 70% of his assets into these two investments. One was called Sanborn Maps and the other was called Dempster Mill. And this is early days of the Buffett partnership. So this is pre Berkshire Hathaway.

• 24:56Sam Parr?

  What do those two companies do?

• 24:58Speaker 01

  So Sanborn Maps was a, was a mapping company. They basically had at the time, the thing about his intellectual property for, for maps, right? If you needed to go build something or if you needed to navigate something, they had all the, the best mapping technology. And so that, that business was a publicly traded business. And I think he was a minority shareholder in it, but he was basically the controlling shareholder. That one, I think, turned around independent of him installing new leadership. But Dempster Mill was a completely different story. He, he bought into that, took control of it. And the business Was just flailing. So Dempster Mill, I can't remember exactly. I think they were building, constructing mills of some sort, hence the name Dempster Mill.

• 25:42Speaker 01

  And it was basically the biggest headache and he was staring down the barrel like I did. And I mean, I can talk about the early days, like we almost failed like five different times.

• 25:50Shaan Puri?

  So, sorry. So he, he had 70% of his assets in these two companies, but those were public companies where he's just a passive investor or he was like owned the majority of those companies where he could make a change in them?

• 26:00Speaker 01

  Yeah. So I, I think that he had, he may not have had a controlling stake in, in, in Sanborn, but I know he had enough shares where he could basically throw his weight around in that one.

• 26:09Shaan Puri?

  Okay, gotcha.

• 26:09Speaker 01

  I think Dempster Mill, I think he actually did buy a majority of it and have control of it.

• 26:13Shaan Puri?

  And so those companies, they're not doing well. And you said he goes to Munger and asks him something?

• 26:17Speaker 01

  Yeah. So we just met this guy, Charlie Munger, who had been back into town in Omaha and he had kind of gotten a matchmaking by a mutual friend who said, "Hey, you guys are the two nerdiest dudes we know. You should know each other." It was like bromance, like love at first sight. They get to know one another. And I think it was actually Charlie who said, "Hey, well, like Warren, what's your biggest problem you're facing?" And he said, "Well, I've got these two, you know, problem children, especially Dempster, you know, Dempster Mill. And do you know anybody?" And Munger said, "Actually, I do know this guy. His name's Harry Bottel. And he's an accountant out here in LA. We should go talk to him." And so they took Harry Bottel to lunch and pitched him on moving his family to the middle of nowhere, Midwest and running Dempster Mill.

• 26:58Speaker 01

  Harry Bottel reluctantly agreed, turns it around, makes Dempster Mill a, a, you know, a fortunate surprise on the upside. And, um, you know, again, he starts stacking geese as we talked about. So,

• 27:13Shaan Puri?

  At all times.

• 27:13Speaker 01

  Everyone in the beginning. I mean, you look, you, you don't, you don't get to be successful by not taking risks. Like all investing is taking risk. And so the question is just how much risk are you willing to take? And when you're younger and you don't have much, I mean, the only way to get ahead is by taking more risk.

• 27:28Sam Parr?

  When you are doing all this research, are you an expert in the pool business? Or are you just an expert in looking at financial statements? Are you an expert in understanding how leadership thinks and how to find winners? What are you great at?

• 27:41Speaker 01

  I think I'm pretty good at seeing the big picture. So taking all those pieces like I'm not the best financial analyst. The joke is I can barely open up Excel. Like I'm not an Excel guy. I've never led the skill set and never learned. I never worked at another firm. Like I never took a finance class in my life. So I don't have a lot of the, what I would call like hard skills that you learn as being an associate or an analyst at a firm. You know, I think that I'm pretty decent at putting the puzzle pieces together and then negotiation. I, you know, I think, you know, and going back to Buffett, he talks about I'm a better investor because of an operator, I'm a better operator because I'm an investor. That's true. And I think the operating and investing are two sides of it. But I think there's a third leg that's not talked about a lot, which is the deal making side. And I think that deal making side, especially as you get into

• 28:25Speaker 01

  more inefficient markets, becomes really the dominant skill set. So understanding how to put the puzzle pieces together. And like in that pool business, I saw a business that had a clear track record of growth. They were in a durable business. I mean, you know, we, we kind of joke that, you know, people stop dipping their bodies in water for pleasure will be fine. It's been happening for a couple thousand years. I think it'll keep going. Like we try to have these like very simple feces for everything. And so if you look at somebody already has a dominant market share in a market, they've had it for a long time. The business is growing, the market's growing. You know, you look at the business model of it and you say, okay, look, we're an asset light business. They're not investing in a ton of equipment. It's a very simple business model.

• 29:06Speaker 01

  It's find customers that want pools, do it better than they could do it themselves and, and take a rip on that on the upside. You know, you started looking at, okay, who is the leadership? And how do you structure a deal? And how do you make sure everyone's interests are aligned? How do you continue to find talent to build the business? I mean, those are all, I say this to sound, make it sound simple. It's not simple. It's very difficult. It's just not complicated.

• 29:29Sam Parr?

  You gave one answer to the question. I think the real answer just was based off of your, how you're answering it. You are a really good storyteller. You are very persuasive and you have, you're, I could just tell you're a good leader because of how you dumb things down to be relatively simple and easy to understand. Right, Sean? I mean, just him explaining that, you're like, okay, that's, you're actually, you're

• 29:52Shaan Puri?

  Yeah, like you don't get stuck on the mid-wit mountain, right? Like the, the middle, the middle part where it's an over, over analysis, over, overthinking, over thesised out. You know, you're like, Do I think the people are gonna stop dipping their bodies in water for pleasure?

• 30:07Sam Parr?

  Exactly.

• 30:08Shaan Puri?

  All right, cool. Uh, you know, that's great. Do I think we're gonna get like, do you think tech, you know, is AI gonna take us out of the pool business? Nope. Okay, cool. So this is an enduring business. Great. We got that. Seems like this guy's been paying himself a lot of money every single year as the operator. Great. We'll probably be able to do the same. Also seems like this guy doesn't do any marketing. He does that and he doesn't have any ads anywhere. If we did a little bit, probably would help, right? All right, cool. Thesis, done. Check, check, check, right? So like not, um, not over complicating things is a skill. I would also say like, it seems like you have a good amount of level two luck, which is the action luck. Like you were talking about that Patrick O'Shaughnessy example. I thought that was a great luck example because you were like, you didn't have any investors. You're just doing this with your own money.

• 30:53Shaan Puri?

  This guy tweets out, hey, I'm looking for somebody, whatever, to, to talk to me about equities and our capital allocation. So you reach out, right? And you reach out. You don't have some like imposter syndrome or insecurity that prevents you from reaching out. You take some action. And you've probably taken a thousand actions like that, you know, cheap lottery tickets where the downside is very low. The upside, if you made a valuable connection like you did, was pretty high, actually. So you filled out a thousand of those scratch off tickets. And then he had luck on the other side, which was perception luck, because he's like, oh, you're buying this company for four times profit. That means like, if you put in a hundred dollars, you're gonna get 25% yield every year, even without growing the business? And wait, I'm in the stock market buying things at 25 times earnings?

• 31:35Shaan Puri?

  And you're buying them at four? So like something is good. That makes a lot of sense. So he had that, that third level of luck, which is like you, you can spot it. You could spot good luck when it shows up at your door. And that's why, you know, that was good on his part. So I think that's impressive to me and a good reminder of like, you gotta take action to get that action luck. And then when you know something and you spot something, what he did a great job was, he flew out to Missouri. He got to know you. He pitched you. You said no. And he's like, he asked the magic question, what would it take? Whereas like, you know, 10 other people could have done most of that and not gotten the result that he got.

• 32:08Sam Parr?

  You want to spend more time talking about why you're successful?

• 32:13Shaan Puri?

  Let me ask you a different question. So I have, I have this goal. I want to retire my sister. So my sister has worked hard. She's got her own business, blah, blah, blah. And she wants to just have an easier life. So she wants to spend time with her kids. She wants to travel. Like her business is brick and mortar. So she's stuck in the certain location where those businesses are. She can't really take her eye off the ball in that way.

• 32:35Shaan Puri?

  So I want to buy her a business and I'm like, buying businesses sounds great. You buy a business that's already working. It's cash flowing. You hire a CEO or you promote somebody internally in the company to be the CEO. But I know there's obviously a lot of ways that can go wrong. And so if you're me and you want to retire my sister, where do you start? Like, what, what is your thought process around buying that first business? That's going to get you to $300,000 to $500,000 a year of free cash flow. What, what would you, where would you orient somebody who's trying to do that?

• 33:05Speaker 01

  Yeah, I mean, I think it's all about constraints. Actually, I wrote a piece called how to buy your first smaller company, like literally, because this is a question I get a lot from people. And I can remember I had no idea when I, when I first got going. And I mean, the thing is, I, everyone's got different constraints. Where do you want to live? How much do you want to travel? What do you actually know about? What are your, what are you good at? Right? So somebody with a very different personality type than me should be buying things that are very different than what I bought. Somebody who wants to live in LA should be buying things that are very different than, you know, living in Missouri. People who don't want to travel a lot or who want to drive to the, to the place like, that's a very different constraint. Capital constraints, how much cash do you have available to be able to invest?

• 33:48Speaker 01

  I mean, look like, you know, if you have, you can buy really, really high quality business assets that are smaller for like seven, eight, 10 times. So if you want something that's going to be more hands off, that's an incredibly durable business model. You can get something that's either software, software adjacent. You can get something that has recurring revenue, like the more you pay up into the value chain. I mean, you're going to have decreased, I think, total returns. But ultimately, like there are easier businesses to run. So like, there are like level 10 difficulty businesses, like I would not recommend buying into your local restaurant. Like that would not be something that I would recommend doing. Especially if you want to quote unquote, have an easier life. Like it depends on if you want the role of a hybrid investor operator, which really is, you're going through a short season of investment and then really what you're doing is you're buying a job.

• 34:34Speaker 01

  Like that's one very specific type of way to leverage your time against your money. If you really just want to be in the investor seat, it's very difficult to only occupy the investor seat in the, in the world of small businesses. It can be done. It's very, very difficult. The first three to $500,000 of cash flow coming from small businesses are very likely going to require a lot of sweat equity in, in, in exchange for that money.

• 34:56Sam Parr?

  Yeah. You should go to that blog post. He has a good Q and A. He goes, the question is, how hard will I have to work? Harder than you've ever worked before. The opportunity in small business, in the small business market is dressed in overalls and likes to, and likes hard work.

• 35:14Shaan Puri?

  Dude, you're poetic when you write. I love the way you're.

• 35:17Speaker 01

  That's my main skill set.

• 35:19Shaan Puri?

  Yeah, yeah, that's great. You have some one liners that are pretty cool. Can we just get you, can I read you a one liner that you've said? And you just kind of rant on it. So just basically kind of like make your case for this thing. Why, why you think this is true or why you believe it? Why you think people should pay attention to this idea?

• 35:34Speaker 01

  This is the lightning round, right?

• 35:35Shaan Puri?

  It's a lightning round. Yeah, here we go. All businesses are loosely functioning disasters. Some just happen to make money.

• 35:42Speaker 01

  Yeah. Anybody who's ever operated a business knows this is true. The only people who have issues with this are consultants. So if anytime I've said this publicly, the only people who come at me are people who either got lucky the first time or have never done it. And I mean, look, every business I've ever been involved in, it doesn't matter how profitable the business, how big the business. I've gotten a pretty good view into some very large businesses. They're all highly dysfunctional. Why are they dysfunctional? Because they're full of people. People are messy. When you get a bunch of people together, that messiness compounds. Like it is not a complicated concept. And so I just think that people should lower their expectations and, and understand what to expect when they get into a business. It's going to be hard. It's going to be hard in different ways.

• 36:22Speaker 01

  Like, you know, the first time you had to put somebody through rehab, your, your guy doesn't show up at the, to man the warehouse because there's been a domestic violence dispute and he's in jail. I mean, literally like, these are things that we're having to deal with. These are things that everyone's having to deal with. Now they may come in different flavors depending on how professional the business is, but the reality is that these are things that happen.

• 36:42Sam Parr?

  Sean, have you watched The Landman?

• 36:44Shaan Puri?

  I have.

• 36:45Sam Parr?

  It's really good. It's a, for those listening, it's a show with Billy Bob Thornton on, it's about like the oil industry. And they, there's this great quote, it says, "Our business is one of constant crisis interrupted by brief periods of intense success."

• 37:00Shaan Puri?

  Yeah.

• 37:01Sam Parr?

  How good is that?

• 37:02Speaker 01

  Yes, yes. Uh, yeah, so I have a, I have a quote on my wall and it says, "Success is founded on a constant state of discontent interrupted by brief periods of satisfaction upon the completion of a job particularly well done."

• 37:14Sam Parr?

  Um, all right, how about this one? "The more humility a leader has, the more their business can grow." What's an example?

• 37:21Speaker 01

  Yeah, so, uh, look, what is humility? Humility is acknowledging reality for what it is. Um, and if you don't acknowledge reality, you, you can't get better. And so, lack of humility is basically a defense mechanism, right? This usually is, is one of two forms. It's either self-protection or self-promotion. And people are usually doing a combination of both when they're in, uh, some form of pride or arrogance. Uh, they're usually terrified, fearful. I mean, I can say this from experience, when I get prideful, uh, is because I feel like I'm not enough and I'm not going to be enough and I'm worried that I might not have enough. And so, uh, what is humility is, is laying that down and saying, "Hey, I, I want to see reality for what it is so I can learn and grow and become better." And that's the only way to do that is to get feedback from the world around you.

• 38:08Shaan Puri?

  I like that. Lack of humility, self-protection or self-promotion? That was strong. Charlie Munger says this thing, he says, "Every time you see the word EBITDA, you should substitute it with bullshit earnings." Do you agree or disagree?

• 38:20Speaker 01

  Yeah, for sure, I agree. I mean, like, look, EBITDA can be a useful tool in some very limited circumstances, but for the most part, it is dressing up something that, uh, is more than, than often obfuscating reality. So when you see EBITDA, especially in the small business world, there usually comes a ton of CapEx, a lot of reinvestment needs that are on the back end of that. And what you have to really do is you have to figure out, okay, just in a steady state, what is the business actually producing in free cash flow? Like, we look at businesses all the time that are making, quote unquote, "making seven, eight, nine million dollars a year." That you ask the owner how much money they've taken out of the business and they're taking out maybe a million bucks a year, maybe two million bucks a year. I got news for you. For the most part, you don't have a business that's quote unquote, "making seven million dollars a year."

• 39:04Speaker 01

  You have businesses making one to two million dollars a year. That's the reality.

• 39:07Sam Parr?

  Have you guys, Sean, have you ever learned the history of the idea of EBITDA? Do you know that's like a newish thing?

• 39:13Shaan Puri?

  No.

• 39:14Sam Parr?

  So basically John Malone, I believe. Is that right, Brent?

• 39:17Shaan Puri?

  He invented it. Yeah, John Malone invented it.

• 39:18Sam Parr?

  So John Malone, his nickname is like the greatest nickname. He's one of the Cable Cowboys. So John Malone, you would know him now as like the guy who owns or founded Liberty Media, which owns F1 and all this other amazing stuff. But basically, he owned a cable company. It was like a small cable company. I think when he took it over, it was like five or 10 million in revenue, something like that, like relatively small. And he needed to get loans because he found that if he could just acquire way more cable companies, cable companies were incredibly sticky and it was recurring revenue. I should go out and buy a ton in order to go and get more cable companies. I need to borrow lots of money. And for some reason, he came up with this idea that EBITDA was an amazing metric to convince banks to loan him money.

• 40:00Sam Parr?

  And so he coined the term EBITDA because for his business, he had lots of depreciation, lots of things like this. So he was like, no, no, no, just give me like the earnings before all of this. And I'm going to convince banks to loan me against that. And that, I think it was the 80s, the mid 80s became like the term. And I hated EBITDA. I think EBITDA is really stupid. But what I think that like is kind of insane is that we've all collectively agreed that this is like the metric. And I always thought it was like weird, but I never had the courage to say like, this is stupid. And then I would like read about Buffett and all these guys and I was like, God.

• 40:33Shaan Puri?

  You think it's stupid, dude? I take the opposite. I'm like, this is genius. I need this in my personal life. I need this. I need the husband version of EBITDA. It's like, you know, my behavior before, you know, before football, before taking out the trash. If you ignore all those things, I'm great. I'm amazing, actually.

• 40:52Sam Parr?

  Well, it's crazy that like you don't pay your personal taxes on EBITDA. You pay your personal taxes on a cash flow or, you know, on a cash base. It's just, there's so many reasons why this is insane. And also, you know what's the most insane thing? Adjusted EBITDA. What the hell does that mean?

• 41:07Speaker 01

  Means wherever you want to be.

• 41:08Sam Parr?

  It's that's insane.

• 41:09Shaan Puri?

  You have another one, another quote you said, you either operate with high authority, top down, or delegated authority. Hell is in the middle.

• 41:18Speaker 01

  Yeah, so this is hard earned, because I would say is I think everyone's temptation is to be high authority when you think there's something wrong and then low authority when you want to be lazy. And that that combination just makes a mess of everything. And so there's really two ways to be involved with the company. You either say, hey, this is what we're doing. This is how we're doing it. You need to get in line. I need people to go and execute this vision. Or you say, hey, I want to be supportive and helpful. It needs to be your vision. And I'm not going to intervene even when I think that something's wrong. I'm just going to go along for the ride and be helpful and very, very, very lightly interviewing. And so you just have to choose. And I think there's both can work. I think both come with certain upsides and downsides.

• 42:03Speaker 01

  But you can't do in the middle, because if you do in the middle, what you end up doing is you end up saying to the leadership team, hey, you're responsible, but I'm basically telling you what you have to do. And so it removes all agency from them. And ultimately, everything that goes right is going to be their fault and everything that goes wrong is going to be your fault.

• 42:19Sam Parr?

  But to make the lazy, when you say the lazy approach, I'm like, yeah, that sounds great. Sign me up.

• 42:25Speaker 01

  Yeah.

• 42:26Sam Parr?

  But that's hard. How do you make that work? You have to find the right person and what attributes does that person have? And, you know, Buffett and Munger always said that, like incentivizing manager was the number one goal of was their number one job. Is that true for you?

• 42:43Speaker 01

  Yeah, absolutely. A hundred percent. If you're going to try to truly be an investor and not an operator in the business, it all comes down to somebody has to do the work and somebody has to exert judgment. And if you're not going to be the person to do the work and exert judgment, somebody else does, and you got to be interested, got to be aligned with that person. And so, yeah, when I say the quote unquote lazy approach, I mean, ultimately, this is the only way you scale, right? I mean, if you look, if you look, again, we keep coming back to Berkshire, it's a good thing to think about, because when people say, hey, let's talk about how Berkshire like buys businesses and leaves them alone. That was not how they operated for a vast majority. Majority of the time that they've done it like they had to do that eventually because they got to such a scale they literally couldn't intervene anymore. If you go back and look at Buffalo News like Buffett and Munger were literally living in Buffalo.

• 43:28Sam Parr?

  Dude, they're writing headlines. They're they're writing like, have you ever read of that chance? They bought a newspaper and they would literally uh like they they were news guys like they liked the news and they were like here's I want this many ads on the page. I think the headline should be like this like they they yeah.

• 43:46Speaker 01

  I did not know this. This is amazing. Yeah, I mean, I was just saying is like Buffalo News is a good example of of like basically their their mode of operation until the call it early eighties, mid eighties, when they got to have so much money, they literally couldn't be involved in the stuff that they were doing. Was to be highly interventionist. I mean, they would be involved in the smallest of details. They would set the tone. They would help on marketing strategy. They would replace leadership. They I mean, they were doing all the stuff that I'm doing. They would do all the stuff that anybody has to do because when you're small, you can do it when you've got less capital and more time, you can do stuff like that. And by the way, the returns are higher. When you could leverage your time against your money, it's an advantage, right? It's not a disadvantage, it's an advantage. But eventually you you have a limited amount of time and attention.

• 44:31Speaker 01

  And as the money grows and your attention stays the same, that ratio gets thrown all off and and you have no choice but to say, okay, I'm going to spread a much more thinly layered amount of judgment over a much wider thing of grouping of things, which means you have to step out of the day to day operations and then you have to hire people who can exert great judgment. And so Buffalo News, I mean, there's a a great quote from Munger saying, hey, like, I'm down to my last like million bucks that I can put into to Buffalo News like after that, I'm calling uncle like I'm out. Um, I mean, it was there's been various times in Berkshire's history, they've gotten it's gotten very hairy. Uh, it was not a guaranteed success and even when they had a lot of success, it it still gets hairy in various points. And I think every business has that, though. That's what should be expected. Like, it should be an adventure.

• 45:16Shaan Puri?

  There's a great letter that you can read. It's in 1972 and it's the Buffett letter to the Seize Candy CEO. If you Google that Buffett letter to Seize Candy CEO. And he says, and because I went into this, I haven't like studied Buffett in depth the way that you would if you're gonna do private equity. And he, I just thought the, oh, he's this aw shucks. He sits at the table, he drinks his Diet Coke. He just allocates the capital and he hires great people and they just do magic. And this letter, I was like, oh, Buffett had the mind of an operator, right? Because he goes, dear Chuck, I was out at Brandy's a couple of days ago and have a few strong impressions to pass along. Number one. And he basically, he starts talking like details about the store.

• 45:58Shaan Puri?

  So he goes, people are, people are going to be affected not only by how our candy tastes, obviously, but what they hear about it from others as well. The retailing environment in which it appears, this class of the store, the packaging, the condition, like this is like Steve Jobs talking about the Apple Store, right? Like a product oriented person. And he just goes through like step by step, kind of like things that he thinks could be improved on, you know, in the store experience. And I thought, wow, this is different than what I had kind of the impression you get when you hear about Buffett just sitting in his room, reading all day, you know, making investment decisions off of, you know, financial, you know, financial sheets.

• 46:34Sam Parr?

  This is a great letter. By the way, how awesome is this that this was like a typewriter letter? Does that make, doesn't, doesn't that make it so much more substantial?

• 46:42Shaan Puri?

  Totally. He licked, he licked an envelope for this one. Dude, how many, how many times have you licked an envelope?

• 46:48Sam Parr?

  I kind of want to like start sending letters like this. It just makes it feel like more authoritative.

• 46:53Shaan Puri?

  Let me ask you something, Brent. I have, like I said, we, we kind of, my business is a little bit different than yours, which is I create content on the front end. It's the mullets. I have content on the front end, which is what I love to do, what I'm great at. But media and content's not a great business model. So my backend is I basically start or buy businesses that I know I can like turbocharge. And we've done this maybe four, five, six times now. And it's going really well. But one thing I've noticed is if I drew a pie chart of what makes it work, it's basically like 60% of the battle was just the initial market selection. When we picked a project that was like the winds were blowing against us, it didn't matter how much effort we put in or how great the operator was, it was always just an uphill battle.

• 47:39Shaan Puri?

  And sometimes we pick these markets that are just like, it's a pull market, you're being pulled in, it's just a sweet spot, the people just need this, it's, you know, it's shooting fish in a barrel type of thing, that creates a big part of it. The second part of it, the next, you know, I'll say like 30%, is the quality of the CEO that we picked, who's going to run the business? And when we pick a sort of limited CEO, we get limited success. When we pick an unstoppable CEO, we get like massive success. And the last 10% was just luck, like the ball bouncing our way on one or two things that could have easily not happened, but that they happened. Or, you know, when the winds that didn't, maybe we missed out on something that we didn't see. I got a question about that second piece, which is hiring the CEO or evaluating the CEO, evaluating the operator. I want to get better at that.

• 48:24Shaan Puri?

  If you sit down with somebody, you're recruiting an exec, maybe it's a, you're interviewing somebody who's maybe in the business that's going to become a CEO, or you're taking somebody external to come run this company. What are you doing to, what are you doing that's like not obvious to get that assessment? Is there any little tips and tricks, anything that you've picked up that, that helps you find the right operators?

• 48:45Speaker 01

  Yeah, well, so actually, I think this is a, probably a pretty underappreciated aspect of being involved in small companies is all about the people, right? And so the better you can be at the people, the better it's going to be for the business. And, you know, we've really deep dived into, I would say, all personality testing is wrong, right? It just depends on what you're trying to get out of it. And so we have actually a huge battery of personality testing that we do for people to try to get as close to a 360 view of who they are.

• 49:18Shaan Puri?

  What do you use?

• 49:19Speaker 01

  Yeah, so we're doing a combination of DISC, Myers-Briggs, and something called Habit Story, which kind of has them see like, what are the habits that they've built in their life? And how are they kind of supporting who they are with the structure and apparatus around them? And I personally also do a lot of study of Enneagram. And so I think actually personally for me, when I meet somebody, I'm instantly categorizing them as what I think their Enneagram number is. And I'm automatically categorizing them across the four main Myers-Briggs.

• 49:52Shaan Puri?

  This is crazy to me. I thought that shit's just horoscopes for dudes. Like, do you really use this as like a core, your core thing? That's amazing.

• 50:00Speaker 01

  Yeah, well, so all of it tells you something about the person, right? So if you think about, so Enneagram, most people don't understand this. So Enneagram basically tells you who you are at your worst. And there's, there's nine numbers. And basically everyone falls into a number and then you have what's called wings, which is kind of where do you tip from that number? So for me, I'm a three and I tip two. So a three is they call the achiever. My biggest insecurities is that I'm not enough and I want people to like me. And so again, if you, if anybody's proud of their Enneagram, it means they don't understand Enneagram. Like, like it's not a good thing, right? This, this basically tells you what are your deepest fears? And what, what is the, your areas of greatest weakness?

• 50:42Speaker 01

  But if you can know that about somebody, you can see them, how is that playing out in their life? Right? So like I, when I'm at my least healthy, I'm a people pleaser. I say yes to way too much stuff. I don't tell people the truth. It's really unhealthy. It's, it's highly destructive behavior, right? I'm very focused on hierarchy. And, and, and my guess is that you guys have different Enneagrams, right? I won't, I won't guess your Enneagrams, but.

• 51:06Shaan Puri?

  No, no, do it. That's great.

• 51:07Speaker 01

  Yeah, keep going.

• 51:10Shaan Puri?

  Do it. I can't wait.

• 51:11Speaker 01

  Yeah. My guess is Shaan, you're a three and my guess is Sam's an eight.

• 51:15Shaan Puri?

  What's three and what's eight?

• 51:17Speaker 01

  The three is the achiever. So threes and eights both achieve, but for very different reasons. So, so three's achieved because they want people to love them. It's like less about the thing itself. And then eights really want the thing itself. So like as a three, like I don't want money to just like want the, want the money. Like I want the money because I want people to love me. Eights really want the money. Cause they want the, the security and they want the power that comes with the money.

• 51:41Shaan Puri?

  Uh, so, so I want to learn the, I want to roll over so that I get pet and my tail can wag. Sam just wants the dog treat.

• 51:48Speaker 01

  Yep, that's exactly right.

• 51:49Shaan Puri?

  Right?

• 51:50Speaker 01

  What do you think?

• 51:51Shaan Puri?

  Exactly.

• 51:51Sam Parr?

  Yeah, well, like, he's describing everything in like the most positive way. So like, yeah, it sounds great. Uh, I like that. And then I looked up who other eights were, and it's like Winston Churchill, Martin Luther King. I'm like, yeah, okay, cool.

• 52:06Speaker 01

  Yeah, for sure.

• 52:07Sam Parr?

  What you did, but you, what this is like crazy fascinating. You said like five different things. So can you give us the exact? So you said Myers-Briggs, and then you said this, this other test. What's like the exact stuff that you're using?

• 52:19Speaker 01

  Yeah, so, so I, well, there's two things. One is when I first meet somebody, I can, I could walk you through what I do. And then I would say is separately from that, in a hiring process, we, we use that. Once we get serious about a candidate, then we put them through a huge battery of testing to make sure we try to understand them. Right?

• 52:33Sam Parr?

  Okay.

• 52:34Speaker 01

  For me personally, when I first meet somebody, it helps me so much to be able to categorize them into what I expect based on just kind of how they're showing up in the world. In Myers-Briggs, right? So you, you have, you have I and E. So are they introverted or they extroverted? Right? Are they S or they N? Which is, are they, are they in the present? Are they sensing? Or are they in the future? Right?

• 52:56Speaker 01

  Then are they a thinker or are they a feeler? Right? So they, are they primarily excited about ideas? Are they primarily excited about sort of the, the people themselves? Right? And then the last one is T and P, which is, um, are they, uh, it's, it's, or excuse me, J and P, which is, are they, uh, very focused on rigid schedules and on creating order? Or do they like to go and test and try a whole bunch of things? Right? And how all these like sort of stack up and combine really gives you a much more holistic view of who somebody is than when you then pair with Enneagram. I think gives you probably those two together, I think, creates the most, the quickest and the most holistic view of who somebody is. Where if you can get like a, a pretty good idea quickly of who they are,

• 53:41Speaker 01

  like how I would talk to somebody who's present oriented is very different than how I talk to somebody who's future oriented. And oftentimes, you know, we assume the whole world operates like the way we do. Like my wife and I are literally the opposites in every single one of these areas. So you can imagine our marriage, like how she shows up and how I show up is. So different and it creates all kinds of miscommunications. We've been married now for 16 years. And it really, we went through personality testing together about, oh, three and a half, four years ago. It was game changing in our marriage. It was, it completely explained a ton of behavior for her and for me. That had been bothering us for a long time and it was just largely how we're wired. So that's how we do it. That's how I think about doing it in the moment. That helps me relate to people a lot more.

• 54:26Shaan Puri?

  It's crazy. By the way, Sean, 16personalities.com is like, these websites are huge that are doing these tests.

• 54:33Speaker 01

  Yeah, yeah, they're really big. I mean, this is, it's an important piece. I would say five voices is a really interesting one. They, they, uh, so it's just the number five voices.com, I think. Yeah, those guys have created, Steve Cockrum and Jeremy Kubitschek are the two founders of that business. They've created an overlay for Myers-Briggs that simplifies it. Um, I think a lot of their stuff is incredible. Um, and, um, yeah, uh, we, we definitely use a lot of their work.

• 54:59Shaan Puri?

  He's like, then we finish off with a quick tarot reading just to see how the future is going to go. And then we're, we're all set. This is amazing.

• 55:08Shaan Puri?

  This is so good.

• 55:10Speaker 01

  You, you also have one thing I read that I really loved. You go, uh, you have this like asshole test. It's like, we, we don't, nobody wants to work with assholes. How do we sort of filter for that? Nobody's trying to present as an asshole in a job interview. And you said, like, uh, you can eat with them, see how they treat the staff. You could, uh, see them interact with their significant other. That'll tell you a lot in their home environment. And then you said, uh, the most telling environment is to travel with somebody. It is impossible to fake it when you're at the airport. You're grinding through security and if there's a delay, your, their true colors will come out. I thought that was great. Yeah. Yeah. It's fun. I mean, you just want to, I mean, honestly, the business we're in is predicting people's behavior. Like that's what we're trying to do. And because of all these businesses are predicated on the people who run them, that they're all going to have the risks. The primary risks of all these businesses are going to be the people. And so what we're trying to do is get to know people.

• 55:56Sam Parr?

  Have you guys ever been out with someone and they've actually been an asshole to the waitstaff though? Whenever people say about this asshole test, I'm like, I've never been around anyone. That's like rude.

• 56:06Shaan Puri?

  Dude, you don't remember the dinner we were at where this happened?

• 56:09Sam Parr?

  Yeah, but that was like one out of a thousand.

• 56:12Shaan Puri?

  Yeah, yeah, it's true.

• 56:13Sam Parr?

  The, this guy, we, Sean and I went out with someone and he was like shooing the waiter when he was like, it was, it was like, it was, it was, I was, I was ashamed. I left that dinner, I'd be like, I felt like, like I had just like participated in like a porno, like I felt like, I was like, I'm so ashamed, like if people find out about this, like I'm gonna be so embarrassed.

• 56:34Shaan Puri?

  That's rough.

• 56:37Shaan Puri?

  Wow. Dude, what a fun episode. This is great. Oh yeah, I really enjoyed hanging out with you guys. It's the one we guys built. Brent, thanks for coming on, man. If you haven't, go check out his blog and his annual letters, they're pretty great. Follow him on Twitter. What's your Twitter handle, Brent B Sure? Just Brent B Sure. Yep. All right. Good seeing you, dude.

• 56:54Sam Parr?

  Thank you. That's it. That's the pod.