Episode Transcript
[00:00:00] Speaker A: Welcome to the Independence by Design podcast, where we discuss what it means to be a business owner and ways to get unstuck from the day to day so we can design a business that gives us a life of independence.
When I think about what it means to be an owner, it really comes down to good decision making. How are we choosing to spend our time and our money, and are we allocating our resources in a way that actually make it worth it?
[00:00:27] Speaker B: And.
[00:00:27] Speaker A: And one of the things that I've learned over the long period of time I've been doing this is understanding the game of ownership is one of the most important parts. And that's why Expand Knowledge is the first module in the IBD playbook. And Candace Bradley, who's going to be on the podcast today, it's such a fun conversation because she has worked in so many different ownership structures, from venture capital to private equity. She was investment banking to very large public companies. And then she helped scale her own privately held business that she owned from 0 to 10 million bucks. And every one of them, those ownership structures have a different rule structure of like, what's our desired rate of return and what timeline, how do they view cash? And so Candace and I are going to have a detailed conversation about those different types of ownership structures and what her journey's been like. And then we wrap up the conversation over at around an hour. Mark. The last part of the conversation is all about how do we determine where to spend our time and what's worth it. And it was so fun because the first hour allowed us to have that second half of the conversation where we're talking about making decisions, making decisions of where to spend our time and whether we should do something or not. Because understanding how valuations work become absolutely paramount in order to truly make that decision. And so what I actually did recently is I launched a new newsletter. You can go to ryantanson.com and go to the newsletter tab. And I just launched a bunch of articles on business valuations. I created this framework, the three lenses of valuations. Go jump into that and. And start consuming the material. Because I think thinking about valuations and understanding them is going to be key to be able to have the conversation that Candace and I are as well as then be able to make better decisions for yourself. Thanks for tuning in and I hope you enjoy the conversation with Candace.
Candace, I am. I'm so excited. I, like, wanted to just jump right in because we did a panel last week that I'm sure you and I both have thoughts on. God bless you Graham and Kyle, you're probably listening in.
Thoughts on that? I, I couldn't tell you how pumped I was at like after you and I talked and met like a month ago. Yeah, I was just like the conversation level that we had, I was able to just jump right in at like level or 10. Yeah. Like I was like, holy shit, this is so fun.
[00:02:45] Speaker B: Yeah.
[00:02:45] Speaker A: So let me give you, I'll put a container on this and then you can kind of give the listeners a story arc and then we can navigate within it. So after talking to you, the, the reason I thought we were able to jump in at level 10 of the conversation is your background in private equity, VC, operations, tech, like forecasting out the like, you know, leading indicators of, you know, models and then rolling it all into the financials. You, your deep understanding of valuations and like how like the idea has to come and generate cash flow right at.
[00:03:18] Speaker B: The end of the day.
[00:03:19] Speaker A: At the end of the day. And it was super cool because we talked about the difference between private equity, venture capital, you operating your own businesses and then being the forecaster and the financials and just seeing how all operations and finance connect. So that was kind of my takeaway and lots of cool idiosyncrasies inside the conversation. But I don't know, that's why I was pumped.
[00:03:43] Speaker B: That's right. No, I felt the same way and it was interesting because I, I often, when I, when I talk about what I've done, where I've worked, you know, being an entrepreneur, I often have to like segment.
[00:03:56] Speaker A: What do you say?
[00:03:58] Speaker B: It's hard. Right? Like, cause I have to segment it or, or I'm couching it with, you know, I've done a lot of different things. I've had a very non traditional career. Right. Instead of, you know, kind of jumping. Right.
[00:04:08] Speaker A: And whether you want to talk to them or not, I do finance shit. And you're just like, I don't want, I don't want to talk to like.
[00:04:14] Speaker B: You know, you might not understand but.
And so from that perspective, it was so nice again to be able to just jump in and have the conversation and not have to do all the caveatting and oh, that's so fun.
[00:04:28] Speaker A: So because like I want, like I've got like various rabbit holes I want to go down, but I want to make sure that we bring the listeners on a journey. And I think your background would be a good place to start. But just to plant a couple of seeds, like, like I said, like, I'm fascinated about diving into like the Connection of operations and like the forecasting of like what products and services do all the way into the financials. So that's a unique, you know, idea we can put in the parking lot. As well as the differences of vc, private equity, your own business and this, the game of ownership of like the ownership of the entity, whether it's, you know, there's different ownership structures and how those impact the mandates of cash flow and equity.
And so. But like before, you know, jumping into where we probably could go with all those, like for the listeners, like, I mean, how did you get to understand all of this stuff?
[00:05:22] Speaker B: Yeah, you know what? Again, it was, it was very much it. I think it started unintentionally. Actually it was very much unintentional in the beginning in that I kind of started in banking and private equity more from the perspective of I was coming out of undergrad and I just kind of had this thought process process of what's literally the most difficult kind of thing I can do.
[00:05:45] Speaker A: And for me, why even banking in private equity? I mean, you just skipped past it. Everybody listening in here is like, I what?
Like that was so exciting. I couldn't wait to graduate and get.
[00:05:56] Speaker B: Into and just devote my life to financial services, which literally I did. But. And that's kind of how it came about. I had internships in college and they were always in finance. So like I am that person who started as a finance major.
[00:06:11] Speaker A: Why did you like it though? Like in finance or accounting? And like, what's the, what was the.
[00:06:15] Speaker B: Point of the nuance? So for me, accounting. So my husband's an accountant. Accounting was different. It was very structured, very rules based. And I'm sure this will come up in the conversation. A lot of the rules, I was just kind of like, eh, why, why do we do that? And why does that make any sense? And. But what about this? And it felt like they weren't quite accounted for from an accounting perspective. But finance is kind of wide open for interpretation in many ways.
I think also kind of this missing piece around how the business is actually doing and how it should actually be structured.
[00:06:52] Speaker A: What got you interested in even to study it? Like, I mean, I think about Candace, like my running joke or my listeners are sick of is like, I got a D in accounting and I remember that blue book that was debits and credits. I'm like, what the F are they talking about?
I don't care. And then like, and like the guy was crazy with this chalk all over his face. And like, and so like. And that was the accounting, but finance, Yeah. I got interested. Like, I mean for me, like I backed into all this stuff because like in the family business, like we, we have no money.
[00:07:24] Speaker B: Right.
[00:07:24] Speaker A: So I had to figure out why we don't have any money for the checking account. But like, why did you decide that your parents entrepreneurs, were they finance?
[00:07:31] Speaker B: They are not. What's interesting is that my parents are both salespeople by background.
[00:07:37] Speaker A: Okay.
[00:07:37] Speaker B: So they ran large sales teams. My mom at a cemetery, no doubt.
[00:07:42] Speaker A: Oh, no way.
[00:07:43] Speaker B: Yeah. And my dad.
[00:07:44] Speaker A: How do you sell it? Selling coffins.
[00:07:46] Speaker B: There's so much to talk about here.
[00:07:48] Speaker A: I know that didn't come up last time.
How do you manipulate those front. You just go add some more bodies.
[00:07:56] Speaker B: So my mom there and my dad sold electricity to corporations. Like large electric accounts to corporations. And so that was their background. And so neither, neither of them finance or accounting. Honestly, I kind of mentioned the internship programs I did and that was my exposure to both so these internship programs. So we, we essentially had exposure to different parts of business prior to starting college and so got to chat with accounting professionals, was able to chat with finance professionals, but then also just general management professionals. And what struck me about the finance professionals was just how autonomous one they were from a decision making perspective and then how many different ways you could kind of slice the problem. I am inherently a puzzle solver. Like, I love puzzles. I love like putting pieces together.
And so finance was the only at that point in time in my view, the only kind of discipline within business where I could still do that.
[00:09:01] Speaker A: So I think you just, I think you just found the common thread that I have noticed in like, because I stumbled into finance that way where like, it's how the world works, right? And like in, in, in.
I'm trying to even think of how they'll get the words out of my head because like I've gotten self conscious over the years of like, okay, now I'm a finance geek. And it's like, no, no, like, like here's the like, like it's really interesting because like I think about it in the health the same way as like discipline sets us free. And like if we understand the core principle, like the first principles, like how does the world actually work outside of all of the jargon and all the concepts and like we were talking about that on the panel where like we have to have cash after everything's said and done and then we take that cash and then we reinvest it back into ideas to create more cash. It's just that simple. And there's all these different intricacies inside of that. But if you want to see the full puzzle, we have to understand how that works so we can have more freedom and autonomous or autonomy and independence for ourselves. So, like, I think that's where I see so many people get stuck, is they think that that doesn't have to happen. And it's like, well, you actually have to learn how that stuff works so you can actually be free and forget it.
[00:10:18] Speaker B: Actually, yeah. Well, it feels like finance is one of the most frequently outsourced, like, disciplines within small business. Right. And to your point, because it is described in such, that is very nuanced, very complicated, and it is not. No doubt it is. But those are layers. The foundation is simplistic.
[00:10:39] Speaker A: Well, and you and I were talking about this on the panel last week where it's like, I believe that most American. Most Americans have outsourced their health.
How's that working?
Right. I don't even know if I have to say anything else. It's like, well, guess what? Your doctors are selling you different things based on the insurance code, whether it's pharmacy, you know, pharmaceutical drugs, or whether it's cutting and prescribing. Prescribing and, like, surgeries or whatever. Like, you're gonna be, like, subject to the machine of incentives, of health, when really, like, we were talking about sleep well, eat well, push something, pull something and do some cardio. And, like.
And finance is the same way where, like, I literally think finance and. And health. We can't outsource the understanding of this stuff. And why I find it so fascinating talking to people like you, because then it's like, we can just talk about how it works and then, like, the real game.
[00:11:28] Speaker B: Yeah, no, exactly. Exactly. And we all. We all need to understand it. Not to the same level, but we all need to understand it.
[00:11:35] Speaker A: And I think you. And that's what I want to get through with this conversation is like, the different layers of the onion. Like, we can unpack them, but at the end of the day, it is more cash. So you. You in college went to finance.
Maybe, like, you could zoom in on the finance versus accounting, because I talk a lot about that too, especially when we're talking about, like, where a CFO came from or, you know, or someone's understanding. So what's your. How would you describe the difference of the two?
[00:12:00] Speaker B: So. So accounting is technical. It is the actual inputs that are happening to get you some output. However, that output is somewhat, I would say, manufactured. Right. There's kind of some False precision around that output. And that false precision has a purpose. Right? Like this is not to say that accounting is not important, because it is. The purpose around that to some degree is to have this shared language, to be able to kind of have these shared language. Right. We want to have these comparison points. So you want to say company A in ABC industry can now be compared to company B in that same industry and kind of use these, you know, somewhat complex ratios and things of that nature to do the comparison.
What becomes difficult, I think, is that understanding each of those components, some of those components are indeed engineered again in order to have that simplicity across a group within an industry.
And so if you don't understand the engineered components, then you don't understand what leads to reality. Exactly. And so finance, though, I would say is pure reality. And again, I'm biased because I enjoy finance more maybe, but finance is kind of getting to that reality. Reality. And so there, there are definitions that, you know, as an industry, we have tried to standardize, but in its basis, it is how much money are you making, how much money are you spending and what, what is that result? What do you do with that money once you make it and spend it?
[00:13:38] Speaker A: Love it. Love it. And I want to get back to like, your story arc too, but then we are going to juke and jive, so bear with me is. Well, I think it's important because, and I want to hear how this showed up your journey to like scaling up a company up to eight figures, personally of your own operations after, you know, having some time in PE sometime in VC and, you know, even with Raymond James and. But like, going like, I think this foundation is super important, Candice, because like, the, the engineered reality of, or the engineering of the balance sheet, it's like, okay, what is goodwill? What is retained earnings? Retained earnings is not cash. Your ip, what are you going to throw on there? Like, and at the end of the day, you know, you, you've got like the financial statements that have to be clean and accurate and understanding what's on them. But then when you talk about finance and what you've done for most of your career is like trying to predict the future, right? So, like, they have the understanding how they both correlate. Because I talked to, there was some investment bankers I used to work with, and like, they had no idea how the, how the numbers got onto the financial statements. And that's where I think there could be risk. Right? Is understanding okay, like. Cause if you're, you're, you're, you're Taking a leap of faith, trying to end, you know, do some forecasting if you don't know how the numbers got on the financials.
[00:14:54] Speaker B: Right, Exactly. No, it's, it's such a huge, a huge difference right between the two and to your point in thinking longer term and future oriented a lot of time and we can, you know, kind of go down this rabbit hole too. But a lot of times you're looking very historically right and you're looking at those historical accounting kind of definition oriented items and saying how does that extrapolate to the future when we know that that's not predictable, we can make best guesses and we can kind of make comparisons, but we know that that's not predictable.
[00:15:25] Speaker A: So take us back to then like your brain trying to build the puzzle. See the puzzle, you know, like puzzles and future oriented because like where did this start to show up in your career path and like what, why were you chasing what you were chasing?
[00:15:41] Speaker B: Yeah, so interestingly my, my junior year in an undergrad I had an internship at bank of America Trade finance group. So 100% accounting oriented and so which was necessary, right. So I mean I had to understand the foundation in order to do it but man was it not me. But in any regards and, but we had you know, kind of these intern events and we met other people across the firm and I met the investment bankers and that is kind of what changed it for me. And we, you know, kind of talked about so what, what are you all doing exactly? And okay, you're providing financing, you're hopefully providing sustainable financing or you're providing and that I did Investment Banking in 2004.
So there are many a deal that you know, maybe in hindsight weren't the best but you know, based on the information we had at the time, these were, you know, they could, they could withstand 10 times leverage and you know.
[00:16:37] Speaker A: We could now we're, now we're at 30.
[00:16:43] Speaker B: They made it.
And so that's what really kind of opened it up for me. It became this world of finance kind of turned from this, not just this kind of forward looking tool to use to kind of manage a company with, but then also being a lot more conscious and strategic around how do you use external tools in conjunction with that forecasting capability to then really hyper or grow an organization or in PE case, you know, kind of achieve steady state growth but you know, kind of know which, which levers to pull.
So that's where it became just kind of opened up a complete world. I didn't know any investment Bankers. Before this point in time, I like, no one in my family, no one in my friend group had this. And so it, this just opened up a complete world that I was completely unaware of at that point in time. And I just loved it.
[00:17:36] Speaker A: You know what I've. Well, and what I find fascinating about this space that we're, I'll loosely say we're in because we're trying to bring this like, like we were on the panel last week, bring this level of thinking to the owner operator who didn't have this background.
What is still the same is we're just trying to predict the future.
Right. And then we're trying to make sure that we're staying aligned with the ability to increase the odds that we accomplish our goals.
Yeah. And like, so what was your, like, what was it like in the different, in the different owner or the different companies and industries that you worked in and private equity versus venture capital versus like Raymond James versus your owner operator? Like how were the games different in each of those and what was guiding the games?
[00:18:27] Speaker B: Yeah, they were all completely different. So first, first five years of my career was like, first two years were investment banking, next three were private equity. My private equity time was actually again, a very, very pivotal one for me from a career standpoint because it was kind of post deal activity my first year. We definitely, you know, kind of completed a ton of platform acquisitions, a ton of add on acquisitions. So it's very much financial engineering, like what you would expect from a private equity perspective. Very true to that. But then 2008 happened in the middle of my private equity time. And so we had obviously portfolio companies who that were very much kind of centered in commercial construction and real estate. And so it was not, it was not the best time for any of those companies. And so it was the first time we kind of switched hats, at least from me, switched hats from financial engineering to like, we literally need to make sure that our companies can make it. And so in order for companies to make it, we had to actually sit with our management teams and talk about all of the.
[00:19:37] Speaker A: I'm sorry, holy shit, we got to run this business.
[00:19:42] Speaker B: Exactly. And so that meant in many respects cost cutting, which brings about a whole host of other, you know, kind of situations that perhaps could have been avoided in some instances or not. But we were so much in growth mode. But it really became this tremendous focus on actually operating the companies. And that was so unique and different for me because again, up to this point, you know, it was much less about operations and much more about Financial engineering, like, how do we make the company bigger via acquisitions or financing or you know, like some growth.
[00:20:15] Speaker A: Let's, let's double click on this because before even getting into venture capital and like what you were doing, some of the other companies, I think, because you and I spent a decent chunk on our first call, like talking about the macro environment and what's going on and I think the reasoning behind why. And like, so financial engineering, when I hear that, what I think of is what is the normalized ebitda? How do we figure out what that is? How do we figure out the multiple is what is the deal structure and the combination of debt and equity to get the rate of return that we need. And it's all of those levers that are being focused on from the investor investment perspective and making sure that then the, the numbers all come together based on the assumptions of the future.
Here's a. So I want one, your thoughts on that. And then my, my follow up that I want to hear is like what you and I talked about on our call is like, that was fine from 2008 to 2020 or 2022, when 0% interest rates, where it's essentially like, it's effectively like refinancing your house every year as it goes from 18 interest down to 3 every year, your monthly payment gets lower. So you don't have to focus on making more money as a W2 household. And so like all of a sudden we go wham. And now it's like, holy shit, we need to make money. And you were in the construction space, but I think what you experienced in 2008 and what I also experienced too, Candace, in 2009, because that's what my, when I had my family issues too, with our family business, we both went through that right when the, the cocktail party started for everybody else.
So now all of a sudden the rest of the world is going, holy shit, we need to make money.
[00:22:02] Speaker B: What do we do?
[00:22:04] Speaker A: So like, is it any thoughts about like the financial engineering versus kind of the macro environment and like why things have been happening and why the paradigm is shifting?
[00:22:12] Speaker B: Yeah. So to your point, the financial engineering was very much an option because of the environment that we were in. It was. I mean, again, that's, that's the same reason why you could have 10 times leverage on the company. It's the same reason why companies could IPO faster maybe than they traditionally would have been able to at that point in time. And you know, kind of the, the low interest rate environment allowed them to grow much faster. And them being able to grow much faster meant they had more access to capital. The capital was cheap. And so we could, it's a cycle cycle. We can make all these things happen. And there was so much investor appetite from a, just a private equity, you know, investor perspective that you could move, you know, kind of companies from portfolio to portfolio, make the marks, raise more funds, right? So it was just kind of all cycle work together to kind of create this hyper engineered environment.
[00:23:09] Speaker A: Well, and the reason that the, the industry was so much attract, so attractive is because the pension funds, the endowments and the insurance companies, there was zero percent interest rates which made no money on bonds. So they had to go to private equity, which enhanced the. I mean like you just think about how many factors went into this and people just have gotten so used to this over 16 years.
[00:23:33] Speaker B: It was the expectation, right? It was the expectation.
And it's funny because at this did not become as pronounced to me until I was actually in private equity and we were kind of raising, you know, subsequent funds and things like that. But you really only needed one or two companies to do well, right in the fund. So talk about even financial engineering. Another layer to that. You have this portfolio, you have these funds and like, you know that some companies will work out well and some companies won't. And that doesn't matter because the one or the two can make the entire fund. And you could keep, rinse, repeat and.
[00:24:06] Speaker A: You, and you have tax write offs and the ones that lose money. So it actually enhances the fact that you only need a couple to win. I mean, yeah, it's, I mean that.
[00:24:16] Speaker B: Was the hamster wheel, right? And so when 2008, 2009 happened, that hamster wheel was interrupted in so many regards.
And it, like I said, kind of became this focus around what, what do these companies actually do?
And obviously that's an exaggeration, but.
[00:24:34] Speaker A: No, but, but kind of, kind of not like who are the actual people running the businesses, right? Like what are they actually doing? How are they making decisions? And it got interrupted for you because your exposure to construction, it sounds like, but like the cocktail party was just getting started. For everyone else though, like, I mean every industry has been touched from veterinarian clinics to eye clinics to, you know, I mean every single industry all the way to home services since COVID So I mean, it's interesting that like your reckoning hap. Your experience with reckoning happened then, but it wasn't because interest rates and all the other financial parts, it was because the industry exposure to the economy Right, right, exactly.
[00:25:12] Speaker B: Yep, exactly. Yeah, it was a really interesting time. But so essentially what happened is operations became this huge focus.
We kind of looked at team employees and said well we maybe have too many. We looked at technology spend and said maybe the ROI isn't there and we shouldn't kind of invest in that way we looked at seems really hard and you know, kind of thought more about their backgrounds and their skill sets, what they, they had achieved, what they had not achieved and kind of determined where adjustments were. So it was this very, it was tough but very necessary kind of reckoning.
[00:25:51] Speaker A: So one thing I think the listeners could benefit from is like how.
Because everything that you just said is, applies to every business. It should anyways.
[00:26:01] Speaker B: Exactly.
[00:26:01] Speaker A: But the difference between a private equity firm with loaded loads of birth of debt and variable interests versus an owner operator of like my groups where like they don't have all that debt so they can like how does that constraint of debt, cash flow and working capital, how are you dealing with the constraints? And how would it be different for someone that doesn't have all that compared to like what, I mean maybe where does debt play a factor into this?
[00:26:30] Speaker B: Yeah, like the flexibility becomes much less. Right. So essentially you have, you know, you don't have as many levers to pull at that point. And so, so essentially with, with this level of financing, I mean this is true with, with you know, kind of most bank financing, but maybe to an extended level with like high yield debt and you know, kind of things of this nature, you have covenants that the company needs to meet. And so like to our cash flow conversations, the creditors exp. Expect you to have a certain amount of cash flow and a certain amount of interest coverage and a certain amount of fixed charge coverage and to be able to run the business. And so when you're kind of thinking about the forecast and projecting out where this business can go with incredible changes in revenue and your ability to produce it, you all of a sudden find yourself in a situation where versus being a small business owner without debt, where you're essentially saying like I have to make, you know, interest payments and now that, that becomes a mandatory kind of thing. And of course you can renegotiate these things and things like that, but there's, there's still a high level of interest payments, particularly in these 10 time debt type situations, which is what I was kind of working in.
[00:27:37] Speaker A: So crazy.
[00:27:40] Speaker B: You have to get rid of people, you have to get rid of staff, you have to reduce costs significantly in order to make it. But what's interesting now I'd say, you know, kind of putting on the entrepreneur hat now, now that I've been an entrepreneur, what's interesting is that you're ess actually in some respects, kind of cutting off the hand that would continue to feed you. Right. Because you're reducing your marketing spend, you're reducing your sales team, which is going.
[00:28:05] Speaker A: To impact you down the road.
[00:28:06] Speaker B: Exactly.
[00:28:07] Speaker A: Well, it's, it's very fascinating because with a lot, with a good chunk of my clients, you know, call it between 10, 20 million bucks in revenue up to, you know, 50, I've got my largest one, that's almost 200 million. But all privately held. That's the commonality. All privately held.
And the main constraint that I'm forcing everybody to think about is the owner's distributions of free cash flow outside of their W2 and treat that like almost like a senior lender dividend and senior lender payment or a dividend that's mandatory. But then you can look at your working capital, debt and taxes and the constraints and I've got a lot of people, Candace, that private equity is being suffocated right now around them. And they've done just stupid shit from like reducing pricing, trying to, they're, they're trying to buy market share but, but because of their debt, their, their working capital, their interest payments, they can't do it for that much longer. And so I'm starting to watch first of all, like the services erode to hell. And so now like client, like privately held business owners, I think are going to have a renaissance because it's like if they can weather this storm because they don't have that suffocation.
Right. And I have a couple clients now that are looking at like even the iter economic stuff where like they're not doing really well this year because the M2 money supply growth is softened. But now what they're doing is they're investing as the PE firms are cutting. And I'm like, this is going to pay off in spades over the next 18 months.
[00:29:37] Speaker B: Yeah, no, there's no way around it. But it hampers your flexibility to such a degree. To your point, you are sacrificing your future.
But again, remember, the cycle is they need to be able to sell to the next boat. Right. But so without a growth story, so it's kind of this, it's another hamster wheel.
[00:29:55] Speaker A: So what, how did. After going through that, like what are some lessons learned as you were going through the operational thing and then what was the next stepping Stone.
[00:30:03] Speaker B: Yeah. So it's interesting. One of my biggest lessons learned and we've kind of talked about it was the impact of profitability. Profitability was much more important obviously from a PE perspective than it was from a VC perspective. But I did though eventually go into vc, right. And so you can see the different aspects there. But that focus on profitability earlier I think was a huge, huge lesson for me. And then beyond that, I mean we obviously had views on the macro environment and kind of where commercial construction was going, but missed it. And so for me, and it's funny this happened even in my own business where we kind of miss some of the macro trends as well.
But for me, kind of thinking about the downside cases and kind of planning a little bit more around what happens.
[00:30:53] Speaker A: Is that this doesn't work.
[00:30:55] Speaker B: What if none of my plans work?
Yeah, yeah, yeah.
[00:31:04] Speaker A: And we don't have Jay Powell sitting next to us to hit the control P button.
[00:31:08] Speaker B: So just refill the coffers.
[00:31:11] Speaker A: Yeah, there's a poof. More money magically so, so fascinating. So when you be. Before we move on to your VC exporters like profitability just to. Because these words get all confused. You talking gross profit, net income, normalized ebit, free cash flow. Like what are you talking about?
[00:31:29] Speaker B: Yeah, so interestingly enough like again net income I find to be a very accounting oriented. So I definitely.
[00:31:36] Speaker A: Yeah, agreed. Amen.
[00:31:37] Speaker B: Yeah. Net income, whatever is great. So for me some, some mix between kind of contribution margin.
So we'll go a level deeper than gross profit. So some mix between contribution margin then.
[00:31:50] Speaker A: Obviously free cash flow and there explain the contribution margin.
[00:31:53] Speaker B: Yeah, so. So gross profit is obviously a very interesting metric in that this is how much you can sell something for and this is how much it costs me to either produce it or to provide the service for. And that's simplistic but there's an entire other set of costs as we all know, kind of associated with either that production or that service that need to be allocated if you will, to that product. So in one of. One of the businesses that, that I started was plotting studio. So this is how much a membership costs. This is how much it cost me to provide the classes. So that's my gross profit. But I had sales time, I had some marketing expenses. And so an allocation for the cost of those things against the gross profit kind of gets to a real measure of what do I actually have left to think about. Reinvestment.
[00:32:44] Speaker A: It's fantastic. And combination of free cash. I love that because I think that's why it's so important because people say the word profit and again, people without finance or accounting degrees, it can be all blended together.
Private equity, they need to get their rates of return back to their investors. They're buying cash flowing companies leveraging them, hopefully doing these things to sell them, to give them back to the teachers who need the money for their pensions. Yeah, yeah, for the pensions.
Venture capital is a different flavor of the game of capitalism with different goals, different places, different goals. How did you land on that? And how did you decide to go from where all of a sudden you're worried about cash flow to like hell with it, let's go to someone that doesn't care.
You know what? This is too much work.
[00:33:35] Speaker B: Cash flow. Yeah, you know, it's so this was so fascinating to me and again, I knew these things on the surface, but I think it rings differently when it's your day to day and you're in it. It was so fascinating to me how different this was. But so essentially private equity. I did a stint in general management. So this is when I worked at Raymond James and focused a lot more in like.
[00:34:02] Speaker A: So that was before the vc.
[00:34:04] Speaker B: That was before vc. So I even took it another step further and went far into large corporate settings and really prioritization of strategy. And it was, I mean it was amazing. The post MBA program there is essentially you work with the CEO, the executive chairman, the heads of all the businesses, and you're focused on whatever is strategically important right at that point in time and kind of helping to guide the management team around decisions, decisions. And so allocation of capital at large company was kind of what we learned there. It was amazing. And then from there I really wanted to, you know, kind of go build something from scratch. And so that's kind of where VC came in. And so I worked at Opendoor.
Opendoor is fascinating. Opendoor was I think just before C when I joined and in. And I was there through like a little bit after Opendoor going public. So got to see the full kind of cycle of what you hope happens.
[00:35:04] Speaker A: When you like what size does the company go from, like how many employees from like when you started to when you.
[00:35:09] Speaker B: So I think I was roughly 600, around that number. I mean Opendoor definitely had a thousand plus people by the time I left.
[00:35:17] Speaker A: Okay.
And what was like the chatter and the game that was being played inside the doors?
[00:35:23] Speaker B: Yeah.
[00:35:24] Speaker A: So pun intended.
[00:35:25] Speaker B: So Open Source was again very, very fascinating from the perspective of really incredibly smart team. Just lots of Ivy League MBAs kind of making a lot of Decisions together. Right. And kind of trying to master this puzzle. It was tough because thin margins. Right. You're buying and selling homes with your own capital. So if you don't get the valuation decisions rate.
Yep, that's it. Right. Like there's not any more margin to play with. And so it's fascinating to see if we could build this model around essentially predicting real estate prices.
[00:36:02] Speaker A: So fascinating.
[00:36:04] Speaker B: Yeah.
[00:36:05] Speaker A: How is this scratching your itch for like puzzles and problem solving?
[00:36:09] Speaker B: I mean, talk about. So. So I manage the Florida region and so that included renovations professionals, that included pricing professionals. It included like me doing PR with agents in the community and trying to get them to buy into this idea. Right. It's fascinating. So I love this job in so many ways. But scratch the itch from a puzzle perspective because this business model was incredibly hard.
So buying a home, I can't tell you the number of homes we bought at the wrong price points. Right. And so we just automatically lost money and we were trying to minimize our losses. I can't tell you the number of homes we unfortunately, obviously we got better over time, but the number of homes that we unfortunately bought with issues, foundation issues like things that we would have to spend a lot of renovation dollars in order to be able to, you know, eventually homes even kind of thinking about down to negotiation tactics with agents and with buyers and what really matters to buyers. I mean, it was so incredibly fascinating. But that was kind of the puzzle there was like, how can you make money in the midst of. Of all that? So I would say at Open Door, you. And this is kind of true of vc, I think in general, we kind of accepted that we had this learning period and that that learning period would cost money. Right. And so you had to raise in order to continue.
[00:37:31] Speaker A: And like is this is the thesis then we're going to just break shit, learn. And then on the, on the other side of that, we can generate a what percent irr?
[00:37:40] Speaker B: Exactly.
[00:37:41] Speaker A: You pick up and what. What's like the rate of return that you guys are pro. Because like it's, it's interesting because you're a public company. So we came up. You're going, right. So this is where I think it's so fascinating because of how many layers gets on top. But the game is the same which the internal rate of return is. The dis is the discounted cash flow of the future risk of cash flow of real cash. So you're like, you're in the industry that you choose. You're then using all the inefficiencies of the real estate market, like you're talking about to make money, but then your stock is also public so you guys have to make money on top of a different asset class. So you have all this layering, but the name of the game is still the same.
[00:38:23] Speaker B: Yeah, no, it's exactly the same. And honestly it only became that because the other VC backed companies that I worked with post Open Door were not yet public. So this kind of interesting comparison to how much harder that became once you were a public company, right? Oh, interesting, yeah, yeah, because we, I mean when we went public we had figured most of it, a lot of it out, right. And we could kind of in much higher volumes and like Florida as an example was a break even market. And so we, we knew what we were doing. And so from there it's just, you need the volume, right? And once you have volume, you can kind of get there. But thinking about how unpredictable that is, which, you know, from a public company perspective, you're trying to report these consecutive, you know, kind of quarter over quarter growth stories. That's hard. It's hard.
[00:39:11] Speaker A: Oh it's. And it's so fascinating because like you could, that could be an argument for like where you see all the people that haven't go, they don't go public anymore for like 10 years, which whole VC model is now different. However, now you have all these bullshit valuation reportings because they're not assessed by anybody. So then you go, okay, like all the VC and PE firms are just mark to market. There's just making shit up.
[00:39:34] Speaker B: It's like, hey, we're worth this. Everyone's a unicorn.
[00:39:38] Speaker A: I remember, I never forget it. And as I was sitting, because I just, I talk about this stuff all this time. My wife, when we were talking, I'm like, it's just insane. These things, these valuations are total bullshit. Like someone that I know that's very closely related to me works at a VC backed company and like we have to make money now. It's like, oh my God, like there's literally no mathematical way your company will ever make the money that that is based, that it's needed to get the return.
[00:40:10] Speaker B: Exactly.
[00:40:11] Speaker A: And my wife goes, well, like wouldn't a company that just burns money like that forever just be a unicorn? And I was like, that's literally why the word came AC came like, but, but if every horse has got a horn with purple wings, it's not, it's no longer right.
[00:40:25] Speaker B: You are no loving me.
[00:40:28] Speaker A: Oh my God.
[00:40:29] Speaker B: But it's so true. No, even, even the second VC backed company that I worked at. So to your point about kind of thinking about the cash flow. We. We went from pre seed to be.
I started pre seed. We went from pre seed to B. I want to say right. In less than a year.
[00:40:48] Speaker A: Oh my gosh.
[00:40:49] Speaker B: It was tremendous. It was tremendous. I mean we grew. Talk about needing to kind of think about ways to allocate capital for growth and things like that. My team grew from six people I think when I started to 60 in less than a year. So that's a lot. It's a machine.
[00:41:07] Speaker A: Yeah. And. And trying to keep the operations together while you're trying to hitting the goals.
[00:41:13] Speaker B: People understand what you're selling.
Fine tune your service or product, get more people on board, have cross functional, you know, functioning. Be functioning from across.
It's a lot.
[00:41:28] Speaker A: I think it's so fascinating again Candice, why like all so like kind of level set us again. So we got private equity firms. There's growth buyouts or there's minority but at the end of the day they're. They're using leverage and debt to buy a cash flowing company to hopefully it was financial engineering.
Now it's created more healthy operations and but like at the end of the day it's taking cash flow and creating more cash flow. Hopefully without all the financial engineering then venture capital is do that faster.
[00:41:59] Speaker B: Faster.
[00:42:00] Speaker A: Break. Break. Shit faster.
[00:42:01] Speaker B: Break it every day.
[00:42:03] Speaker A: Yep. And the. The VC firms, it's 1 out of 20ish or whatever that'll work out. Private equity, it used to be like what 4 out of 10 or something like that. Now it's even lower.
[00:42:12] Speaker B: Yeah, exactly.
In the day you have pretty good odds for making it work in PE because of all the things I talked.
[00:42:18] Speaker A: To my buddy Nick Bradley. It used to be like he said it used to be 8 out of 10 and now they've inverted it. 8 out of 10 won't work out.
[00:42:24] Speaker B: Yeah.
[00:42:25] Speaker A: Because now.
Yeah. Isn't that crazy? And like just the, the I know just the destruction to the economy because like there's necessary allocation for PE and VC but like it just.
It's overgrown.
Yep. Over index and so I'm, I'm kind of level setting us because the name of the game is still free cash flow and the in the risk of free cash flow. It's just what's the speed? Are you reinvesting and raising money to get there faster or are you using slower growth? I mean like it's just different levers to pull on this.
[00:42:59] Speaker B: It's just different mindset for Kind of philosophy around how to grow a business. Plus I guess the other unique aspect would be obviously the innovation. Right. For most people part VC will be more will be newer product services, newer ways of doing things relative to PE is more doing the existing things better.
[00:43:20] Speaker A: Well said. And you in order to grow that kind of fast you have to create a new category or new product or service or you know, AI etc. But so I'm going back to then how you're, you're wired, your brain is wired, is trying to predict, predict the future and see puzzles and stuff like that. So like what do you, what do you have you learned up until this point? Like, like how are you kind of like synthesized how the world works? Yeah like how does it all work? And like what do you, what do you, what are you then thinking about at this point?
[00:43:47] Speaker B: Yeah, that's a great question. So I don't think it was clear to me at the time. It became clearer as I kind of moved further away from both of the worlds. But what became clear to me kind of through these processes is that there are an incredible number of ways to create value.
I lean more towards and hence me becoming an entrepreneur. I lean more towards.
There are opportunities that are still incredible returns for investors that don't require business owners slash founders, entrepreneurs, whichever you know, kind of camp you want to, you feel you fit in which don't require those individuals individuals to sacrifice so much. There's a lot of sacrifice from a people and person perspective in management in both PE and vc. Different sacrifices I think to some extent some of them overlap but different sacrifices. But there is an incredible return opportunity for an individual and an investor potentially that doesn't require the same shenanigans frankly that happened within those two worlds. And that is the value creation I wanted to have.
[00:45:06] Speaker A: So awesome. So I resonate with you a lot on that and I want you to clarify how because I, I've got my definitions of those words but like because I like the world is a series of trade offs right. So like you're figuring out what game. Like let me, let me just share with you my articulation of this because I want to hear the why behind your descriptions Candace. Because if I have to play a game every day I want more freedom over my time. So like I'm solving freedom over my time and people not telling me what to do. Like that's just been like every like through line of all of my decisions. Like I don't want to be told what to do and I want to create Value and create. When I, when I think about creating value, it's like, I want to deliver a product or service that makes other people's lives better. And, and that's how I want to get paid.
And while also not being told what to do, while also having freedom over my time, while also having the cash on the equity that all are aligned towards that.
And so, like, then within that, I, like, I had to go, like, you actually went through and like, worked in those different industries. Over the last 10 years, I've had a podcast and had three different, like, kind of service firms where I was like, try this on, try that on, try this on. I was like, I don't like that. It's kind of like my daughter's like, I don't like T ball. Or I like this. And it's just like, like I kind of tasted different things to figure out the alignment.
What is your way of, like, I mean, because it sounds kind of like that's what you did too, is like trying.
Did you do it intentionally? I didn't do it intentionally.
[00:46:40] Speaker B: I did not. So it's so funny. I did not whatsoever. I literally, at each of these junctures, I had a North Star, right? At each of the kind of career decisions, points. In the beginning, it was, I want to do the hardest thing possible, right? It changed to, I want to trade some of my time, but I want to get some of my time back at some point. And that was kind of for my general management stretch. And then at some point it was like, I just want to grow something, right? And that was my VC stretch, right? So I had different North Stars at different points in time, but it was not whatsoever intentional that it happened this way. I'm glad it did. And it definitely made me who I am, but it was not whatsoever intentional.
[00:47:22] Speaker A: What. What allowed you, Candice, to, to change the game or the North Star each time? And how did, how did you deal with that mentally yourself? And how did that hand.
I didn't forget you said your, your husband's an accountant. So, like, how are you convincing him?
[00:47:37] Speaker B: Four children, right?
[00:47:39] Speaker A: Yeah. So how are you pulling this?
[00:47:41] Speaker B: I'm in a box, right?
I have a box. You know what? And he would, he would say this too, when he listens to this. He will laugh when we get to this point because I just, I can't stay in the box. I can't stay with one idea. I've tried, tried really hard. Like, I can't stay with one idea. I can't stay with one theme. I can't I was just like, I'm just this natural explorer and I tried. I tried to become this specialist, right? I was like, oh, I'm gonna be this finance specialist and I'll do deals and I'll. And then I was like, oh, okay. I loved it, but it didn't satisfy the other parts of my life. So I was like, well, I gotta find something different. My husband's like, well, shouldn't you just stick to it?
I'm like, no, I don't have to sacrifice that. I just don't believe that I have to sacrifice these things. And so I'm just crazy enough to believe, honestly. And I wouldn't have said this out loud at the earlier points in my career, but. But I'm just crazy enough to believe that I can do all these things at the same time, right? And I'm just like looking for the opportunities.
[00:48:44] Speaker A: What are these things?
[00:48:44] Speaker B: Okay, you're my current. My current. You know, these will change, Ryan. So my current North Stars are North Stars, multiple.
[00:48:55] Speaker A: Okay, if there's a camel and we're going somewhere, which North Star, which hump.
[00:49:00] Speaker B: Are we sitting on?
[00:49:02] Speaker A: That's awesome.
[00:49:03] Speaker B: So they are a fair bit of time allocation. I like my time. And so I gave so much myself freely in the early parts of my career because as you know, I did things that required me to work 80 plus hours a week and I did not have free time. I sacrificed a ton of my self care to do it and you know, kind of other things. I found out I had an autoimmune disease in the middle of that. So, like, right. Like there was a lot going on on in my life and. But I was okay with sacrificing and I would again, honestly do it again all day long. But time has become a lot more important to me, particularly as, like I said, I have four kids. So as my kids get older and I'm just, I'm in this realization, honestly, Ryan, that one, my mom's getting older and so like, life has finality to it more than I ever felt it did when I was younger.
And not only that, but there's only enjoyment is really important to me and there's only so much sacrifice of enjoyment that I can make. And that is extremely important to me now more than it was then. So that's 1. 2.
[00:50:18] Speaker A: Which enjoyment has to do with your time and the family you have over.
[00:50:21] Speaker B: Exactly.
[00:50:22] Speaker A: Yep. Yep.
[00:50:24] Speaker B: 2 Is that again, I've been very fortunate from a career perspective with the opportunities that I've had, and I have a certain level of, let's just say, like a certain level of wealth that I have in mind that I can achieve and I still want to achieve it, even though I have this time constraint, if you will.
[00:50:47] Speaker A: Yep. So have you seen my flywheel? Yes, Candace, I know. Okay.
[00:50:51] Speaker B: When I saw it, I was like, this is me. This.
[00:50:53] Speaker A: Oh, I was gonna say that's fantastic because like you said, wealth.
[00:50:57] Speaker B: Yeah.
[00:50:58] Speaker A: And wealth being equity and assets. But there's that component of cash flow which becomes the, like. Those are the trade offs where like. Ever read the book the Goal?
[00:51:07] Speaker B: I haven't.
[00:51:07] Speaker A: The goal.
Oh, it's. Yeah, it's. It's like a 1980s book. And it's all about the theory of constraints and it's all about this guy who went in and he turns around manufacturing and it's all about opening up the bottleneck. And the entire point is just open up the bottleneck. Always focus on the bottleneck and open it up. But you have to understand the first principles of constraints. And that's where I landed on the time, the cash flow and the wealth. Because if we want more time back, we can only make so much cash flow and wealth and the trade off of. If we take more cash flow today, we're stealing from the wealth from tomorrow. So these are the.
How do you solve then? So you've got this idea of wealth.
Then how are you delegate or dancing around or optimizing the cash flow in those trade offs of those three.
[00:51:55] Speaker B: Yeah, yeah. So that, that's where I've been doing a lot of experimenting more recently. And so it's, it's kind of a combo of things. So entrepreneurs. So we, we have, you know, some small businesses that we own.
[00:52:09] Speaker A: Give some context there because you scale the business really fast and learned a lot of really hard.
You were almost like NVC and you didn't.
[00:52:16] Speaker B: This tiny thing happened. So our very first business. My husband. I say our. My husband and I. So I was. We were both still working full time. I don't know if I told you this part. We were both still working full time and I was actually on mat leave with our fourth baby and we were kind of out and about. I think we were having lunch with her. And I just noticed all these people were just out and about enjoying again, enjoyment, enjoying their lives. They're just sitting around having lunch and I'm like, well, if I were not on mat leave right now, be in an office and I would be working and that, I mean, not that that's not enjoyable to some extent, but that's what I would be doing if I were not on met leave right now.
[00:52:58] Speaker A: And so not hanging out at two in the afternoon while people are just out and about.
[00:53:01] Speaker B: No, not at all. I didn't even know what that, like you could do that you can do like in the middle of the day.
So, so I started. We both separately kind of started having conversations with people like, what. What do you do that allows you to, you know, have lunch at 2pm and you're not sitting in office? And of course they were entrepreneurs and many different flavors of entrepreneurs. And so we started having conversations with business brokers. We're like, okay, we're going to buy a business and that'll create. I'm very big on like having the foundation and then playing like above my foundation. So again, back to the cash flow. Like, I need my foundation because, because I have a life and I'd like to live it in a certain way, but then I can play, you know, kind of above, above the, above the foundation. And so we were like, oh, well, maybe instead of our foundation being W2 situations, maybe it's this business that we can buy.
And so we, I don't know, probably for six months or so, talked to a bunch of business brokers and honestly, Ryan, I had such a hard time. And you talk about this a fair bit, but I had such a hard time with valuation. It's like, I'm not paying you that much for that company. It's not that.
[00:54:10] Speaker A: And wait a second, I'm going to mortgage my house, my 401k and buy your job.
[00:54:18] Speaker B: That does not sound like I'm going to be sitting in the cafe at 2pm and so I won't do that.
So. So we at some point abandoned the idea. Now I do want to revisit the acquisition kind of idea. And we talked about that, but we abandoned the acquisition idea because. Because of this. But a lot of the businesses, for some reason, a lot of the businesses that we kind of did diligence on were healthcare oriented. Neither of us have a background in healthcare. They were healthcare oriented and they were different flavors. Just like, you know, there was some home health businesses there. I mean, it was just like different flavors all around.
[00:54:57] Speaker A: Assisted living, different random stuff. Yeah.
[00:55:00] Speaker B: And so again, in those conversations, we met a couple of attorneys who kind of focused in kind of businesses. They were representing businesses in this space and consultants.
Again, it was just a bunch of networking. And so we eventually met this consultant who she was like, well, I can help you start one of those if you want me to. I'M like, oh, okay. Because I have some business expertise. Sydney's the accountant. Right. Like he has that piece of it and. And we'll just start our own. And honestly, it never occurred to me that would be much harder than buying.
It has never occurred to me at.
[00:55:35] Speaker A: That point in time, I. Yeah, right.
[00:55:38] Speaker B: Back to my puzzle pieces. I'm like, okay, so this is a.
[00:55:42] Speaker A: Puzzle piece I haven't seen yet. Let's see what it looks like.
[00:55:45] Speaker B: Let's figure it out. And the other ones are too expensive. Like I'm not paying for that. So I'll just make it myself and I'll keep my job full time. So we both have full time job.
[00:55:53] Speaker A: I'm my fourth child.
[00:55:54] Speaker B: Yeah. And I have my fourth child baby.
[00:55:56] Speaker A: Yeah.
[00:55:57] Speaker B: All so this.
[00:55:58] Speaker A: Wait, wait, wait. Have you really. We talked about this constraint called time?
[00:56:03] Speaker B: That came later.
[00:56:05] Speaker A: Yeah, I got it.
[00:56:05] Speaker B: Got it.
[00:56:09] Speaker A: Yeah. Denial is a powerful tool.
Oh, that's awesome.
[00:56:16] Speaker B: So true. So that's what we did. So we started our business in the evenings at night and it grew. We both still have full time jobs. It grew from 0 to 10 million in revenue in two years. And we both still have full time jobs. And so then at some point we're like, one of us should quit.
[00:56:35] Speaker A: What are we doing here?
Did you make any? Because you had been piling every dollar back into the company.
Yeah. So it's like going back to the time cash floor wealth trade offs. It's like, well, definitely don't have more time.
Cash flow is like evaporating as we're piling.
[00:56:57] Speaker B: Wealth was building because I had a theory that we could have a tech enabled healthcare service.
And so that's what we reinvested in technology.
[00:57:05] Speaker A: Well, and like. Okay, so I want to take a pause here for a second because like I think I've had a hard time, Candace, before, my framework of explaining so I Of my three phases of towards the escape velocity, decoupling your time from your cash flow while the wealth is growing without you having to do it all the first phase is. Is the plan phase and the it like it's. Can you picture like a fractal and a Fibonacci sequence where like it shoots up forward where like the inception is taking the ownership red pill.
And we talked about on the panel yesterday and we will get to our opinions about how that went because I got some interesting conversations I want to have with you on that. But we have to understand how valuations work because we can't see the trade offs. Like I could see it and how you just said it like our thesis was we're going to create equity. But instead of when I talk to other people like I hope to that this is going to work.
[00:57:58] Speaker B: But like investment work.
[00:57:59] Speaker A: No idea how valuations work. But you came at this going I understand, you know, hyper growth vc, I understand private equity, I understand strategy. Like I have a finance background where they were. The goal is to create rates of return you intentionally for go for when the cash flow and sacrifice the time for the wealth accretion. So like I just wanted to highlight how important your education and understanding to make that bet. Yeah, it was a thoughtful bet. Whether it works or not is a whole different situation.
[00:58:31] Speaker B: You have to decouple the two. Right. The decision making process was solid.
Yeah. That is the result may not have lived up.
[00:58:42] Speaker A: Oh that's so good because like right when you think about it like how many people do you know that like they're just hoping it all works out.
[00:58:50] Speaker B: Yeah, so many.
[00:58:53] Speaker A: So you hoped that it was going to work out even though the decision making process was still sound. So like so your thought was that we're going to pile this all back in and create equity and create value. So like how did that impact your decision making of what to do in the business and how to. How would it go from 0 to 10 million?
[00:59:11] Speaker B: Yeah, so. So initially it went to. Because remember we both still have full time jobs. So initially it went to staff. Right. So we just needed people to answer the phones during the day because we could.
[00:59:26] Speaker A: And what was the business actually doing?
[00:59:28] Speaker B: We were, it's funny, we, we pivoted. So we started home health quickly pivoted there for a variety of reasons, mostly regulatory related and we went to nurse staffing and so we staffed into assisted living facilities, rehab facilities, some hospitals, things like that. But this was Covid. So my timing again was very perfect, very analogous with banking and private equity. So there was a shortage of nurses. So we had premium, we were able to charge premium pricing because of that.
Oh right. So that. So I, I don't want to say this nonchalantly because it was definitely hard but that was the easy part. We actually because of our kind of business backgrounds we created this non technology.
It wasn't technologized on the back end, it was very manual on the back end but felt technologized to everyone else essentially like recruiting platform on the back end. And so we had people, we had plenty of people. That was, that was what the harder issue was. Just when we started hiring was sales. Like we had to go find the facilities because we had so many people. People. But no, we didn't have.
[01:00:31] Speaker A: Oh, fascinating, fascinating. So you said your thesis was to grow. To grow equity.
So what were you, what were the valuation metrics that you were using? Yeah, what like how were you judging that and like what kind of data did you have? Like a three statement forecast where you were like projecting this stuff out?
[01:00:50] Speaker B: Yeah, like you say. Absolutely. You got the account, Ryan, you got the accountant and the finance person. We got over modeled maybe.
[01:01:00] Speaker A: Like who are we pitching this to? Ourselves or to an investor or a baby?
Is this to make sure that we believe our own bullshit?
[01:01:09] Speaker B: Some of it was right.
[01:01:12] Speaker A: Oh, that's awesome.
[01:01:14] Speaker B: So yeah, so we had that from go. Now what I will say, and I'm sure you experienced this with some of your clients, like your emotional. It's your baby in some respects, especially because this was our first business. And so you know, I put together a lot of upside cases when I was in banking. Nobody was really thinking about the downside cases. And so like yes, we had them but I, we did not predict that our downside would be quite as drastic as our downside was. And so that's why I said like even the best laid plan is still unpredictable.
[01:01:48] Speaker A: Right, but what were your thesis or assumptions that did not pan out the way you thought?
[01:01:53] Speaker B: It was the macro. So the, we were Covid boosted. Right. And our Covid rate come down was faster than we expected.
So that was part of it. And then I think the other we again you have the accountant and the finance person. So we, we had lots of room risk models. Right. So we did think about downside, we just didn't think it would go quite that low. But the, the other risk model that we, we took a bet on honestly was customer concentration.
And there was one particular customer that we had a really great relationship with. They were a great payer until they weren't. Right. And so we got caught with a seven figure invoice which we are currently still litigating.
[01:02:42] Speaker A: Ugh, yuck.
[01:02:43] Speaker B: Yeah, so that, that was more it. But you know, and we've again, I've learned to separate the decision making process from the result. I'm like, I still would have made the same decision all day long because they have been a good player and we were obviously diversifying as quickly as we could, hence hiring staff and you know, those people, et cetera. But they, you know, bad actors, they.
[01:03:07] Speaker A: Show up, up, they show up well in like what I, I learned the hard way and over time to do what you're doing and that's kind of like what we're talking about. Is that the essence of my, of my playbook and my material and like, why I built and think this way, built this framework and think this way. Candace. Because I just want to look in the mirror and be like, I tried and like, not want to kill myself with resentment to myself and all that. Like, we're like, like, like, I love how clearly you said, like, I tried to do these things. I, I like the decision making was sound. You just, there was variables you couldn't account for. And I think that that's okay. And it takes some of the emotion out of it. You know, I, I, over the years, I've read, I don't know if you've read. You probably have Raid Alio's like, decision making and the principles. It's like, okay, we, we're not going to, we're, we're trying to increase the probability we make the right bet. We still don't know if we are, but then if we can understand the, the implications of our time, cash flow, wealth goals, we can still keep this alignment and still be more sane.
[01:04:10] Speaker B: Right.
[01:04:11] Speaker A: And happy along the process.
[01:04:13] Speaker B: Exactly. And that it's hard. It is, it is incredibly difficult. And I mean, I've talked to other, you know, small business owners who, you know, even if it wasn't the same magnitude of the invoice, you get caught with an invoice or you get caught with some situation that you just, you know, kind of weren't expecting. And, and I mean, even for us, my first instinct was just like, man, I could have made a better decision. I shouldn't have taken that risk. I should, you know, and you can emotionally attack yourself.
[01:04:41] Speaker A: Torture, torture yourself. Yeah, exactly.
[01:04:43] Speaker B: It took a lot to come to the point of no, like, let's think about the circumstances that led up to this point. And I'm like, I still would have made that same decision.
It was a risk, reward, trade off. And unfortunately, you know, it fell the other way.
[01:04:59] Speaker A: Yeah.
[01:04:59] Speaker B: But the next time I won't.
[01:05:02] Speaker A: Yeah. And, and so you could still have the business then.
[01:05:06] Speaker B: So that particular business we are, we're doing less and less because we have two other ones now.
So it didn't stop me from being an entrepreneur.
[01:05:16] Speaker A: I just keep going, just turn around. All I can picture is that it's like those, those game shows where they're swooping in and out and they're getting hit with shit and like, you know, they're jumping over stuff and they're like, it's like obstacle course welcome to. Yeah, well, and I think the obstacle course is the point and I think it's like, as we keep our time, cash and wealth goals aligned and in sight, then we're just saying like, this is just the, the game and the landscape that we want to play the game in.
What. There's so many, so, so many good points to this, like, going back, you said go back to the acquisition entrepreneur and the price to pay and stuff like that. And I don't know if this is a good launching point. But like, I think that like, you know, the mission that I've been on, Candace, is like, it's the lack of understanding that then makes people guess on the decisions, which means there's a lack of realistic expectations.
Lack of realistic expectations leads to resentment, unhappiness, anxiety, which makes the journey even more difficult. And like, all these different, like, all like, it's kind of like, like the way I've described it, it's like a, a exponential flywheel up or exponential flywheel down.
And there's not, not really an in between and it's not, it's emotional and financial and everything. So what, what is your experience when you're going through the acquisition entrepreneur or like when you're kind of dabbling in that space? What's your, like, take on the state of the marketplace and like, what, what, what's currently going on?
[01:06:44] Speaker B: Yeah. And so I know we shared a little bit about, you know, some of this on, on our panel. I still, I will maintain that there are indeed good opportunities that exist and define good, you know, somewhat loosely, but meaning that there are businesses that potential buyers are willing to own at, you know, a price point, an acquisition price that makes sense. Evaluation that makes sense to them.
I do think that, and we've talked a little bit about this too. I do think that creativity is more important today than perhaps it was in the past. So again, kind of comparing to my PE time, where creative structures at that point in time was like, more leverage. Right? Like, how do we. More leverage?
[01:07:37] Speaker A: Yeah. You're talking about deal structures. Creative deal structures.
[01:07:40] Speaker B: Exactly. But it wasn't native acquisition structures, let's say.
But, but I think that there are more and more buyers, potential buyers in the market today for a number of reasons. A lot of people looking for that time, freedom, a lot of people have been laid off. I mean, we know that this, this is when, you know, acquisition or sorry, when entrepreneurial opportunities are made. Right. Like into of these significant layoffs. And so I think there are more and more folks in the market There should be more and more assets to buy, but maybe not yet. Right. This is the great tsunami that hopefully comes. We'll see. Right.
But that means that you have to get more creative to make it work. And one of the things that I mentioned in that panel was that I think it becomes. And this is something that I'm considering for myself, I think it becomes a potentially unique situation where you're building portfolios, not necessarily PE style funds. Right. But you build portfolios of smaller companies, potentially, because those are the ones that are available to transact in with larger quantities, frankly.
[01:08:57] Speaker A: So I love this. This is a good. The foundation to. You got another, like, half hour.
Okay, let's. Because now that we've covered, like, our, like, we've synthesized and kind of danced and gotten in sync with the dance of our understanding of, like, the topics, the markets, all that kind of stuff, I think it's very helpful if the. If the listeners are still along us along for the journey is then understanding, like, what. Where. Where is this going? Where's the current market? And like.
So let's. Let's talk about a couple things because, like, that. That panel got a little spicy.
[01:09:28] Speaker B: I liked it.
[01:09:30] Speaker A: Yeah, I know, because I. I just. I think it's a bunch of, like, this whole extra planning, like. And like, I'll be like, we're gonna do a round two. I think Graham and Kyle are gonna facilitate around two. I said I need three hours. Yeah, I'm not gonna do. I'm not.
Because we're gonna have to cover a lot of ground to get on the same page with how we're talking about. So, yeah, some of the things, in no particular order, and I want your thoughts. Just. I'm gonna volley some stuff over there.
So the U.S. census Bureau. And I'll just kind of give you the broad brush strokes of like, okay, what is the current economy? And I think I said this with. Or the current demographics With. With Elliot or. Who introduced us. 27 million companies, 6 million of them have employees. They employ 130, 140 million Americans, which is over half the workforce. It's like two thirds of the workforce.
Only 21 million or 21,000 of them are over a hundred million.
They employ 60 million Americans. So then there's the 5 million to 100 million, which they define as loosely the lower to middle market.
And they employ 300. I'm sorry, there are 350,000 companies that employ 35 million Americans, which ends up being like, only four and a half percent of companies are above five million right.
And over. Over a hundred million is like 0.5 almost not. Yeah. And everybody's like, I want to be a hundred million dollar company. Like, yeah, good for you. Like for the people that are. And I truly mean, like. But again, I'm not running an ironman. There are people that do.
[01:11:03] Speaker B: Right.
[01:11:03] Speaker A: So then that means that most of the people are underneath 5 million in revenue. And then if you took the Pareto principle on that, you go, most of them are a million bucks. Like, that's what that Mike was saying is like they're, they're mainly 100 or a million bucks.
[01:11:17] Speaker B: Yep.
[01:11:18] Speaker A: The average age of these people, of the boomers is 65, 66. Now this is where my whole conundrum I talk about, Candace, of there's the job versus the asset. And unfortunately we have millions of people that went to work every day that have a job with like 15 assistants.
[01:11:40] Speaker B: Yeah. Yes.
[01:11:41] Speaker A: And there's this assumption that it's a company that can. But like, and, and I, and I, and I don't say that because I've had a couple of those, by the way. I started a couple and I was just like, I got out of the last one and I was just like, I can't see the other side of the chasm for the investment of cash flow and the equity return while working. And so I decided to back out of that. But I, I think about.
Because it hit seven figures and there's not enough cash flow to finance that thing.
[01:12:14] Speaker B: Yes.
[01:12:15] Speaker A: While the person also like it. Like there's just all these constraints of the labor, the person's needs for the retirement and like, there's just so many people stuck. So I don't think there is a tsunami, unfortunately. And like, because you've looked through a lot of these.
What is your thoughts on that? Because you wonder. You have to. Yeah. What are your thoughts?
[01:12:33] Speaker B: Yeah, no, it's, it's, it's, it's fascinating. Right. Because to your point, if you think about the structuring that needs to take place in these, you know, kind of sub million dollar categories with sba. And we talked about this. With sba, it's and, and, and cash flow is one of your or your North Star.
Right. It's hard to pencil out any of those situations in many respects and to depending on what your cash flow parameters are. Right. So like, everybody's going to have a different one.
[01:13:07] Speaker A: But like, let's just, let's take time cash flow, wealth and just actually run. Yeah. Let's just like run through it. Say, okay, so you said you want to be at the cafe at 2, and it's like, oh, by the way, you're. You're going to buy this plumbing business or healthcare business, and you're gonna work 70. So you're gonna. You're gonna. As an, you know, through the lens of the acquirer, you're gonna work. You're gonna take on a new job that's working 70 hours while financing an SBA loan that's a couple million bucks that's got your mortgage in your 401k. Yeah. You have no cash flow to reinvest for growth.
[01:13:38] Speaker B: Right.
[01:13:39] Speaker A: And the wealth you hope is gonna come because you. You've got no ability to reinvest.
[01:13:45] Speaker B: Exactly. There's nothing to reinvest.
[01:13:47] Speaker A: So. So which, like, the point of the. One of those. One of those is supposed to overcome the other two, right?
[01:13:54] Speaker B: Yeah. So. So I.
And this is where I'm being very deliberate and slow, honestly, in kind of thinking about what strategy I want to pursue. For me, it has to eliminate the sba. And I know that that is, you know, contrarian to how.
[01:14:13] Speaker A: Well, if you got more rules coming out every day.
[01:14:15] Speaker B: And I was like, the SBA just doesn't work in these scenarios. It works at, I think, a different threshold, perhaps if you're willing to take the personal guarantee. There are a lot of risks with that personal guarantee that I think people don't size. Like, are you.
[01:14:30] Speaker A: Which increases your cost of capital, which actually decreases your rate of return based on the. I mean, like, there's all these. Yeah, yeah, yeah.
[01:14:38] Speaker B: So I think that there. And I don't know what it is yet, Ryan, so maybe you can help me with this, But I think.
[01:14:43] Speaker A: Go ahead.
[01:14:44] Speaker B: I just think that there's some other creative financing structure. Perhaps. Perhaps it's. And I think differently, again, about this because of my background, but perhaps it's some whole code level where the owners are retaining more of the company.
Right. They get some level of cash out, but they kind of have these minority stakes into some level of perpetuity for a period of time. But I think that it has to be a more creative acquisition structuring to make it work, because for me, it's not with the sba.
[01:15:19] Speaker A: Right. So let's talk about, like, the. Both the buyer and the seller thought processes on this, because, like, the definition of a fair exchange that both people saw, like, I'm trading my equity and this thing, you're going to be buying it where, like.
[01:15:33] Speaker B: Right.
[01:15:33] Speaker A: So in order to avoid the SBA loans, there's, like, okay, what are the different ways to do this? Seller financing. And then the seller's going f off, I might as well keep the company. Well, that. So that doesn't work. Yeah, except in a couple situations where they feel like you could.
Yeah, I mean, but then they might. I mean, if it was one of my clients and saying, we're coming after a personal guarantee, Candace, and you're going, I don't want a personal grant, but you might as well do that. And it's like. So you get to. There's a whole conundrum of like, okay, seller finance. Like, if the seller wants some cash or a disproportionate amount of cash at closing, you're going to have to come up with cash or debt. And it's like, okay, well, if you'd come up with more cash, you're going to need a higher rate of return. And you're going to go, that's the stupidest use of put it in the effing bitcoin and get a 30% CAGR. And like. And then you're just like, okay. So you start to go to this. Like, the markets are so inefficient. And so like, there's just been a wrench thrown through everything over the last few years for the financial models that you and I are talking about, Candace. And so not seller financing, conventional loans. You're sitting there going, well, you need like, like 3 to 5 million dollars, a conventional loan for a bank to be interested in you. And then you're sitting at a five to seven year a.m. schedule that's going to suffocate the debt. And you're talking. Or what are you sitting there then at $400,000 a month, it would be 400 grand a month. What would you be sitting at? Probably like a hundred grand a month in debt service.
[01:16:56] Speaker B: Oh, easily like seven.
[01:16:58] Speaker A: Yeah, probably a couple hundred grand. Yeah, yeah, yeah, yeah, yeah. Because you're talking five year. You mean 60 months, 5 million bucks. I mean, it's like. So you start to go like, okay.
[01:17:07] Speaker B: Well that doesn't work. It doesn't work either.
[01:17:09] Speaker A: Then you go, okay, well then you. So I'm tracking you. Then you go whole coat. So I won't do it right now for you and the listener's sake, but I was on the way to a board meeting. I think I might have told you this. I was on the way to a board meeting at Sioux Falls. And so for four hours I was in the car and I had GPT on voice mode, and I built an entire PE fund business model. Okay, so here's the, maybe the, the, the, the thread that you could pull. So if you're familiar with Michael Sailor Micro Strategies. So he's putting Bitcoin on the balance sheet. And a lot of companies are now because bitcoin can now get, is now the risk free hurdle rate.
So if that's the case in the DCF that the risk free hurdle rate is the new free, you know, the risk free rate and you're putting it on the balance sheet as a nuclear engine for your asset growth. So I was like, okay, but I still like if we hypothetically still wanted to be in private equity, right? Okay, so I'm just going to go straight geeky. If everybody listening in, God forbid you can just hit off and like. But like I'm going to, I'm going to now use all of the words that are actually like Candace will understand. So, so here's, here's the model I ran.
What if we raised a $25 million fund, okay. From investors who also like private equity because they understand the asset class, but also understand that the dollar is at risk because we're, we're getting debased at 5 or 8% a year with M2 money supply. So we, we can't like because going and raising the money from just fiat investors, they don't understand the game of fiat. They're just trying to get whatever 10 rate return, which is a stupid game and they should, should rethink that. So then you go, okay, they, we need a certain rate of return to overcome the hurt the, the inflation.
So if we raise 25 million bucks, let's say we put $5 million on the general partners level in Bitcoin.
So we have 20% in Bitcoin.
So then what we do is we take the other $20 million.
So there's an assumption that 5 million bucks, it's a 30% CAGR every year is what bitcoin has been averaging. It's actually been averaging 50 to 60, but it's going to slow as the volatility gets peeled out of it. It's going to go down to about 30 to 20.
So $5 million at a 30% CAGR always sits on the balance sheet because our goal is to raise the money to get around 18% rate of return return, which is realistic private equity, 18 to 20% IRR. Otherwise go do otherwise go put it in Bitcoin actually. But let's assume they want to put it in private equity. We take the 20 million bucks, then we say okay, well, we want to go to a million to $2 million normalized EBITDA, which we both know is not free cash flow.
So then I took some assumptions, Candace, to say, okay, well, we want 13 to 15% of revenue and working capital.
We're going to buy out 60% of the company.
The. It's going to be of the 60% of the company. We're going to do 60% cash at closing, 40% seller's note and debt. Yep.
They could take some of that cash, put it into the fund where they're div.
Yep. So they can actually get part. So then they're getting bitcoin, you know, 20% bitcoin exposure, as well as the other privately held business owner exposure.
And then I've made some assumptions on. Okay, if we bought 10 companies over four years with the 60, 40, 60, 40, how would the deal structure? We have enough free cash flow. Then at the end, what we would. The first one, what we would do with the first company once we get to a certain size, and I have this all in the model, we would do an esop because you can, as long as the IRR is there, you can prove to the bankers it's a guaranteed sale. And then you go, okay, well, on the esab, then you could do with an ESOP full transaction, you could do a. You could actually rebuy out the general partner, the 60% and the 40% the owners.
[01:21:22] Speaker B: Okay.
[01:21:23] Speaker A: Yeah. So you do a full recap to do a full ESOP.
[01:21:26] Speaker B: Yep.
[01:21:27] Speaker A: You can actually then take the ESAB. So let's say it's a, let's say that a $10 million sale. I'm just making for easy numbers.
[01:21:33] Speaker B: Yep.
[01:21:34] Speaker A: You can allocate that $10 million purchase price when that for the ESOP, 50% cash to closing, 25% in MES financing rates, and then 20, they call it 10 to 20% in warrants, which is like a stock stock option.
You can allocate that across all the investors in whatever way you want. So then you can actually offer up flavors of equity or I'm sorry, I have a buyout to like, you want some cash, you want some seller financing at you, which is pre tax, you get an 11% pre tax. Or you want more rolled equity, you can then pull it back in. It's a complete flywheel. All of this has to be done perfectly, literally perfectly, to get an 18% to get to an 18 IRR.
[01:22:20] Speaker B: Yeah.
[01:22:21] Speaker A: So. And like. And I even went through and said, okay, we're going to keep stacking Bitcoin. So we're going to do a sweep over normalized working capital while we're growing these companies. And then that sweep will always go 20% bitcoin, 20% reinvestment to accelerate the ability to acquire. And then when we, and then when we do the transactions at the ESOPs, we're going to have some assumptions that a third of the cash goes back in to a dry powder to reinvest for growth. And then we're going to stack 20% bitcoin and it's this perfect flywheel. Perfect flywheel.
And that, that only generates 18% rate of return with a 30%, with a 30% CAGR of Bitcoin assumptions, which is lower than the 50%. And it's everything going perfectly. I'm like, this is effing insane. How much work in engineering. Go put it into bitcoin.
What the fuck?
[01:23:12] Speaker B: And then you get your time back.
[01:23:14] Speaker A: And you don't have to do any of.
What's so fascinating to me is like, so I like, like I spent 4 hours with GPT running IRRs on the general partnership level. I was looking at the seller. The seller wants X amount of cash at closing. It has to meet the seller's goals, the legacy goals, the deal structure goals. And then went through like okay, you know, and that was even, I think I even did it with a 10 year AM schedule. Assuming that we could potentially raise debt with, you know, how micro sailors got strife strike, you know, all the different convertible bombings, let's assume we could bypass the banks and actually raise debt based on bitcoin.
Just like so, like, right, because it's just what Michael Saylor's proven all this stuff. He's got a product now for everything. And I'm going like, it literally has to be financial engineered to this level to just get an 18% IRR.
And you go, if that's the case, what are all of these funds and people doing? They're all fucking lying to themselves.
[01:24:14] Speaker B: Yeah.
This is so fascinating, right?
[01:24:19] Speaker A: Because I went through that and what I why I want it like, and I'm so grateful, Candice, for you to just listen to me is because I have to talk to robots to get all of my ideas out. No one's willing to listen to me for four hours. And I'm going like, I have tried everything to figure out how to spend my time and money in an appropriate place where I feel like I can win without the debasement of the dollar stealing all of my life. And I'm going like, there's Nowhere to f and hide.
[01:24:48] Speaker B: This is so fascinating. Okay, so one, we gotta look at this model.
[01:24:57] Speaker A: Isn't this, it's fascinating. And I'm like, I'll help you do it. I just, I like after all that, I'm like, that could be an interesting game for someone to play. But I don't want to do that because that seems like a lot of work.
[01:25:06] Speaker B: Yeah, it does seem like a lot of work.
And.
But I'd have to see the model. One, one thought that I had, I don't know, I'd have to see it. One thought that I had was, could there be some level of contribution of the, of the, the companies, the assets, from a seller perspective to the same fund?
[01:25:31] Speaker A: And maybe that's what I was doing.
Yeah, A third of it.
[01:25:34] Speaker B: Okay.
[01:25:35] Speaker A: And then we would split that third 20% bitcoin rest, dry powder to accelerate acquisitions.
[01:25:41] Speaker B: Okay.
[01:25:41] Speaker A: And you don't want to put too much equity down, right? Because then, because then it dilutes it. And then the only other way to get a good AM schedule would be to have like a 10 year note instead of a 7 year. And the only way to get a 10 year note without the SBA loan would be to actually raise actual debt backed by Bitcoin, just like Michael Saylor is doing. So, like, I, I literally, I'm not saying that I, I'm not saying that I thought of everything, but like, I've tried to go like, because I'm coming at this whole thing, Ken, it's like, what should we all be spending our time doing?
[01:26:10] Speaker B: Exactly.
[01:26:11] Speaker A: Yeah, what should we be spending our time doing? And like, where I think is fascinating with where this is, like, and I think they're.
I'll just tell you my opinion because like, there's, I think we built a good enough goodwill here where like where I've landed on is optimize the time, optimize the cash flow and stack Bitcoin.
[01:26:34] Speaker B: That's what that conclusion would lead to.
[01:26:37] Speaker A: And so what's fascinating to that end is if, and I'm not saying that this is financial advice or this is. I have been trying to poke holes in my thesis now for 11 years now. And it's like, okay, well, and this is, this bitcoin coin base layer has changed the game significantly because it, it inverts the entire. Like Michael Sailor on a podcast last week, he literally had a 20 minute rant how all corporate finance is completely effed and like all of the equations for the last 40 years are wrong now.
And so if, now think about this, Candace, if this is the, if this is potentially true, right, Then getting a bag, if you're the seller, getting a bag full of Fiat ships, right, Is the stupidest thing you would do because then you're, you're buying Costco at 55, 55 PE ratio bonds are all garbage.
And then they go back, you know what be really nice is if I bought a commercial cleaning company, I kicked off a million dollars in cash without my job, like, oh, like I want that. And it's like, and then it's like, so like if we can get our time and our income needs needs met.
[01:27:43] Speaker B: Exactly.
[01:27:44] Speaker A: And then put. But, and so like the difference between like a public company like Michael Sailor or like Gamestop or you name all these organizations that are now doing it, they're now just doing it because they cannot overcome the hurdle rate. And so now they're just saying, well, we, we can take the pressure valve down off of the growth rate.
[01:28:03] Speaker B: Well, it becomes rational, right? Like then you what then you're just making rational decisions and it should have.
[01:28:10] Speaker A: To get a return return, not fake assumptions.
And so what's fascinating about this idea then these people with a million dollar companies that are making 250 don't reinvest for growth, reinvest for time back while collecting 300 grand and quit trying to figure out how to, because like trying.
[01:28:31] Speaker B: To make it big.
[01:28:32] Speaker A: That person, that person would have to grow their company from a million dollars to 10 million in revenue, which you and I both know I was doing. 20 million we had had not a pot to piss in for cash flow.
[01:28:42] Speaker B: Right?
[01:28:42] Speaker A: So like it doesn't even mean it's like sellable to someone with the cash flow financing and the deal structure and everything. So I'm saying all this because like, I, like, I literally get lost in my head because like I think about this stuff all day long. And I just think that most people are operating in a game with the wrong rules and the wrong assumptions.
[01:29:03] Speaker B: Yeah.
Okay, so I want to see the model, like we gotta, we gotta talk to this model.
Because I am fascinated and I agree, like, this is like, again, I was trying to come at it from the perspective of these are the greatest number of assets available and how can you transact at this point and have it all make sense? And like I said, I've been going round around about it from like, how can we creatively make happen in a way that satisfies from a return perspective for both the investor, potential investor, but then also from a time perspective because you're right.
[01:29:43] Speaker A: Right.
[01:29:44] Speaker B: One generally speaking wants to buy a job and have thought about to your point, some kind of creative contribution models.
Right. From a seller's perspective.
[01:29:58] Speaker A: And then operationally, yeah, you would need to like centralize accounting, centralize HR and like it's all the bullshit that every investor says they're doing that we all know that they're not. But like actually operationally centralized accounting finance, hr.
[01:30:13] Speaker B: Right.
[01:30:13] Speaker A: In a way that actually enhances culture and stuff like that. Because you'd have to have the economies to scale back to your original point like an hour and a half ago. Is contribution margin has to be real, it can't be fake.
[01:30:23] Speaker B: Right? Exactly.
But I know it's the layer on top of that that you are bringing, which I love, I'm fascinated by is the rationality piece.
There is even if there's a way to do it, is that the most rational way to make your trade off?
[01:30:44] Speaker A: I don't want to work that hard.
[01:30:45] Speaker B: Yeah.
[01:30:47] Speaker A: Like I'm sitting here going like, like it's, it's insane. Like I watched a guy I Enjoy put in $10 million into this business. Private debt financing for a like 11% locked up for 10 years. I'm like, you're an effing idiot. After tax you're talking what, 8?
And that's exactly par with M2 money supply growth. So like you literally are locking up your money and all of the risks associated with random people doing random things and all the economic stuff just to keep par value. And like this is how I landed on Bitcoin Candice. Because I'm sitting here going, there's no other way out.
You're like, like the treadmill gets keep is up on like volume or level 11 right now.
And like we have to literally grow at 11% which is the cost of capital, which is the s and P500, you know, pre tax. And there's only five companies that have superseded the hurdle rate and gone above and beyond that dollar amount. And then what does Microsoft do in Coca Cola? They export their dividends back to us.
So they're getting rid of their equity or buying back their stocks because they don't know what to do with the money.
So I know like to most people who don't usually follow this whole train of thought, it's like we literally end up, it's like we end up. For the listeners, I'm going back in a circle. Like we start here, we go through all this train of thought. We go back to how do we optimize our time and our cash flow Yep.
[01:32:22] Speaker B: Back to the triangle.
[01:32:24] Speaker A: Yeah. It's like, okay, I don't know, I'm like, I'm trying every way to think about, like how I could be thinking about this wrong.
[01:32:29] Speaker B: Right.
Well, that's why I want to see tomorrow.
[01:32:33] Speaker A: So what does.
I already borrowed too much of your time here. I. What are your serious.
If you were to go back to yourself when you were in college and say, hey, you should know this.
[01:32:48] Speaker B: Yeah.
[01:32:50] Speaker A: What would you have said to yourself?
[01:32:51] Speaker B: What would I tell young Candace?
Well, I hope she stays idealistic and it's a journey to stay idealistic, as we've seen. But I'd say take some of my risks. Earlier I waited and for a number of reasons and I think they ended up being great, great bets for a number of reasons. But I would potentially take some of them earlier. Take those lessons and experiences earlier to then be at the point of freedom, as defined sooner. So that's one. And then I said it earlier.
[01:33:27] Speaker A: Oh, as defined. So I was defined.
[01:33:29] Speaker B: Sorry. Keep. Definitely, I think for me it's different. Right. And. And I think it definitely has to be specific to the individual. But for me it's like again, I want to be in that cafe at 2.
I really do. And not even that it has to be the cafe, but it's just, I don't know, there's just like fun things to do and experience and some of that's business related, some of it's not. But I just want the freedom to be able to explore really.
And so that's one, two is. I don't, I didn't have. I was so in the weeds with deals and like working my 80 hours and you know, like things like that, that it didn't occur to me to I had the foundation, but to start building on top of my foundation earlier, I definitely would have done that earlier in hindsight.
And then three, I think it's, you know, kind of what we said earlier, which is the best laid plans, you know, may go. Right. You just, you know, you gotta roll with.
[01:34:31] Speaker A: My plans don't work.
[01:34:32] Speaker B: You gotta roll with it. And it's really more of the name of the game is to keep going more than anything else, which is a learned lesson for sure.
[01:34:41] Speaker A: That's so good. What are you most excited about?
[01:34:45] Speaker B: Oh, I am excited about. Well, I told you I can't be contained right in a box.
[01:34:52] Speaker A: I love it so much.
[01:34:53] Speaker B: I just can't. So I'm excited.
I'm rethinking my foundation right at the moment. So like we have the business Ideas and certainly the acquisition ideas and things like that. But I think of those as like above the foundation. I've been kind of rethinking the foundation. I've been doing some kind of consulting and advisory work which has been so much fun with small business owners and kind of not necessarily exploring all of these angles but really kind of getting the foundation down of like, okay, you make this much money, you spend this much, therefore you have this much in free cash flow. And then you can think about what you do with your free cash flow like that and that that foundation at its at a simplistic basis what I've been working on from a foundation perspective. So I'm just like switching up my foundation a little bit and doing a little bit more of that.
[01:35:42] Speaker A: That's awesome. I, we are going to figure out how to explore.
I just launched last week in my group program the three statement financial model template that Pat, my old partner, had created. And he's now got a template that we can start filling out for people.
And everyone needs a fractional CFO/ operational finance thought partner. So we're going to figure out like how to, how to scratch that itch in a way that might be beneficial to some of the people listening in. Because your mind is very rare of understanding how evaluations, operations and finance work. I think it's, it's interesting.
[01:36:18] Speaker B: Yeah. And such a big piece because I, I mean I even think about that finance layer is like that's, that's base level. So you need, you need the model, you need to know what's happening, you need to know what results are against that model. You need to know when to reforecast, you need to, you know, kind of look at leading indicators. But then from there it gets to be, you know, kind of all the fun stuff. When I, when I said I jumped and I was like, oh, I want to operate something right now. You can operate something, something because you know, like I have to have this much to invest in it and you know, this is the return that I can expect from it and this is how I execute against it with existing resources or with new. You know, like there's, there's all those fun kind of trade offs and decisions, the series of decisions that get to be made once you know what you have to work with.
[01:37:03] Speaker A: And do you think that like, because I, you know, you've said you. Because I feel the same way. You can't put me in a box. And I actually just did a personality profile for one of my clients recently and literally it says I'm professionally unemployable and, and like I'm just like there's zero chance you can tell me what to do. Yeah.
But what I find fascinating and like as I have learned the game of business ownership, capitalism, of finance and free cash flow, the game's the same. And so when I hear you say, you know, what's the next thing for me it's like, it's like, okay, I played soccer growing up.
Like the game of soccer is the same every time time.
But the game that I'm playing today is different than the game tomorrow. I might play a different position, I might play different weather conditions and different team. And that's what I think of like whether you choose to be in the VC space or the, you know, you own a this business. But like the game is really the same and like that's where it took me that long to learn how the game is played. And that's what I hear you is like you kind of synthesize how the game is played. Then it's. I think Candace, it's true through I think business can be one of the best vehicles for self expression and self actualization if we're using the ideas to then synthesize against the, the base rules of the game.
[01:38:22] Speaker B: Yeah, well that, that piece Ryan and I think it's one of the best ways to have impact.
You know, at the end of the day some of our pyramid is all around how we interact with others and how we help and support others. And I think the ability to, to like find your thing, you know, and then be able to share that in such a broad way and triangulate with your North Stars all at the same time.
[01:38:49] Speaker A: It's like what, it's the best game. Yeah, right, right. And like how to, to, to really get into the nuance and like what I, what I think is truly possible. So like that flywheel, it's like time, cash, one wealth. You go, okay, I'm using my trade offs today of how I'm spending my time, the ability to make my income and the wealth. Those all right now are tied to my goals of what they all should be in four years.
But then the escape velocity of like how I'm spending my time is creating value that will be a flywheel to then create more cash flow and more value versus like you're spending your time and you're kind of having mean, you know, you're wasting time hypothetically. But like so it's like that total alignment is like.
[01:39:33] Speaker B: Yeah.
[01:39:33] Speaker A: And then you're doing more of what you love because you. And you've got the freedom over the location of when you do that. Like, I don't know. Like, that sounds like a worthwhile.
[01:39:42] Speaker B: Right? Yeah. Right. You have lived at that point.
[01:39:46] Speaker A: Yeah. Yeah. Like I don't have to retire to anything. Like, this is just fun every day.
[01:39:50] Speaker B: Exactly. Yeah, exactly. Oh, I love it.
[01:39:54] Speaker A: This has been so fun.
Yes. What. What's the best place to find you? Reach out to you or if people want to get in touch.
[01:40:01] Speaker B: Yeah, I, I keep it. Keep it easy with. Just email me. So Candace C A N D I C E team bradley and company.com and we can set up a meeting. We can do fun.
[01:40:16] Speaker A: Yeah, we'll have to do this again. This is a lot of fun.
[01:40:20] Speaker B: And maybe the next time we'll do it with the model.
[01:40:24] Speaker A: Yeah. It would be interesting to have you walk through your thought process on that. And by. Just to be very clear, I didn't create the financial model. I have all of the ideas and all of the assumptions. That's where then I would tap someone like you on the shoulder and go, okay, what if.
Do this. Do something with this.
[01:40:41] Speaker B: Exactly. Yeah. I love it.
All right. This has been awesome. Them.
