When Codie Sanchez left her private equity job on Wall Street, she had learned that she no longer wanted to trade her time for money. Burning out in an intense career taught her that there had to be a better way to reach financial freedom.
The other valuable lesson she had learned in finance was how to make deals. She had become adept at investing in and acquiring companies now she was going to transfer this skill set to her own entrepreneurial pursuits.
Codie began buying what she calls "boring businesses": companies with great cashflow in sectors that wouldn't be considered flashy by most millennials car washes, laundromats and the like. After having now built a multi-million dollar portfolio of such businesses that generates millions in revenue, she has amassed an enormous following on social media where she shares her insights and training for others who want to do the same. She does this through her company, Contrarian Thinking, which has now become a leading force in financial media. Here is how she did it in her own words.
How did working on Wall Street prepare you to become a serial entrepreneur?
Codie Sanchez: It taught me how to understand the reasons why we would make different investments based on a company's financial statements or growth projections. It was a terrific education in terms of the important terms to know, the cadence of a deal pitch and what red flags to look out for.
The best experience that prepared me was when I ran a large Latin American investment business for the asset manager I worked for. I was able to build it from $0 to a multi-billion dollar asset management business.
How did you know whether buying businesses would be a scalable model when you first quit your job?
CS: First, I had just accomplished this. I knew the blueprint on how to buy, build, sell and invest to create a business empire. Developing business models, evaluating finances and targeting underserved industries are all skills I feel confident executing on. I was just doing it on somebody else's terms; simply put I got tired of chasing the dragon.
And in truth, fearful nagging questions asking what if I fail filled my thoughts at night. I do not know if you can ever remove fear, but I did reduce it by adding income streams over time so I could afford to take a big risk. It was just time for me to build my own empire and bet on myself; instead of doing so for someone else.
Can you explain your step by step process for finding and buying a business?
CS: Without giving too much of the secret sauce away, I like to keep the formula simple in five steps. Identify the business; call the broker or owner; evaluate financials and extend offer; secure financing and complete due diligence.
Once you pick the type of business you want to purchase, scout online to see what is listed for sale in your area. Pick up the phone and call the broker and say something like:
"Hi, my name is Codie, I'm interested in making you an offer to buy [listed business]. I'm not a broker and I don't need much information to make you an offer. I'm not trying to low ball you or waste your time."
From there, you will want to see the last three years of financials (income statement, balance sheet and cashflow statement) and extend an offer. In parallel, you should be working to obtain financing to purchase the business. Inquire about seller financing, use an SBA loan or raise money from other investors.
Always complete due diligence on the business. There is often a time period to do this after the close; if not then be sure to complete prior.
What type of annual returns should buyers be looking for?
CS: There are many different formulas that help investors determine their investment's success. First, always buy a business that is already profitable and that you believe there is opportunity to grow.
Aiming for a 10-20x return overall is a great goal. However, there are other metrics that may be more important to measure: did you improve your NOI and cap rate; what was your cash on cash return; and your change in annual cashflow to name a few.
What are your best negotiating tips?
CS: Always ask for what you want. If you don't ask, you'll never receive. However, do not be married to a single outcome when you enter the negotiation. For example, if you wanted $10,000 more in salary be open to options that could get to that goal. It could be a straight bump, but would a $5,000 bump and being able to cash out up to $5,000 of unused PTO days be acceptable?
No matter what you are asking for, be prepared to explain why you deserve it. You want a $10,000 raise, but why? Did you bring in $30,000 worth of new business? Are you the only employee that has specific credentials which require you to work more hours?
Finally, do not be emotional, but rather try to be likable and act like it is not the end of the world if you do not get what you are asking for.
What's an industry that you want to invest in that you believe is currently underrated?
CS: I believe that there is an opportunity to invest in the new infrastructure that will support small businesses. It is a 'pick and shovel' play that I have such strong conviction in that I created the Contrarian Thinking Capital Fund. We were able to raise $5 million just from a single email.
Now, the goal is to invest in the companies that provide the technology to automate antiquated processes. Think turning fax into email; written invoice to auto-billing; or allowing fractionalized investing in previously elusive asset classes. Two examples of what we have invested are Here a company that allows you to fractionally invest in AirBNB real estate and PostPilot a company that helps automate your direct mail marketing campaigns.