- Having a Mentor
- Economic Cycles
- Life after selling
- Using Leverage
- Real Estate Investment & other investment types
- Not spending Principle
Mentioned in this episode:
- Rob Barry
- Babson College
- Goldman Sachs
- La Dame de Pic
- Warren Buffett
- Charlie Munger
- David Lindahl
- Benjamin Graham's, Intelligent Investor
- Shawn Cook's, Real Estate Private Equity
We are live today on Truth About Exits, I have my good friend Rob Barry on the call and we've got some really interesting stuff to cover on today's call. I asked Rob to come on the call partially because he sold his business but more interestingly after that is his journey through investing. We’ve had the good pleasure of hanging out multiple times over the last few years. I think you're going to get a kick out of out of Robs approach. But Rob, thanks for coming on the show. Yeah, glad to be here Coran. Awesome. Rob, could you tell the guys what you are up to. You built and sold and e-commerce business, we won't reveal the brand name or the terms of that deal. Of course. You actually went with a another brokerage. We won't talk about that too much at all. I think there's more interesting stuff to talk about today. What were you doing before you started your ecommerce business?
Yeah, my background was actually as a newspaper journalist. It's what I went to school for and what I did for the first five or so years of my professional career. There was another startup company that I had gotten involved in. We were trying to do video classified, sort of craigslist meets youtube sort of thing. That didn't work out. We were all too young and inexperienced to create a viable model there. I guess early on I was sort of bouncing between writing for newspapers and websites trying to start a business. Ultimately, the business that I sold in 2017 was the one that kicked off and ended up doing pretty well.
Awesome. You built this business with a little help from someone who had been there before you're a big fan of mentors which was great. That's awesome. What was it about running the business or what happened to make you finally say, yes I'm ready to sell this business? What happened or what was the thought process there?
Yeah. Then it's a good thing to bring up that mentorship. I mean that's my approach to most things in life is to find something or somebody who knows it better than anybody else I know. Get next to them, make myself indispensable to the extent that I can and learn what they know. I think it's a great way to go about things. In terms of what got me to want to sell it was really a number of factors that all came together. I had always wanted it to be more involved in real estate. I mean everybody's got a class to sell, right? Getting involved in real estate with low and no money down. I think that's all crap.
You need money to be involved in real estate to do it really well without having to just constantly hustle and starve yourself to greatness. I really wanted to build a business and then exit some point and then diversify into real estate. My thought process on how I was going to go about that it's changed a little bit since I actually got active. I had always had this figure in my mind of when my business is worth about this much I'll exit and then move on to other things. I was living overseas with my wife when I realized that day had come and I had been preparing for a few years, getting my books in order, getting the growth curve. Having a steady stream of product launches and improvements. I realized as well at that point that margins had never been better prospects. Good growth was in the pipeline and that as a purchasable asset, it was very attractive. From the perspective of somebody who would want to come on and take it on. I pretty much automated myself out of it and then there was also the consideration that it's a we're 10 years now or into a bull run, a major economic expansion. Prices are high across all sorts of assets and there's a lot of discussion that we're pretty late in the cycle, which means that valuations are high, things are expensive and it's just not going to last forever. Sooner or later something will happen and it'll be trickier to grab that liquidity that's out there right now. I guess for all those reasons with a sprinkling of the fact that I was living overseas and would have to pay a lot less taxes if I disposed the asset while living in London. It all came together and just made the decision pretty easy for me.
Awesome. You talk about that like it was a super calm, easy, straightforward position. You mentioned a couple things there economic cycles. You mentioned taxes. You'd mentioned getting the growth trend in the right direction of the business before going to sell. You took the time to plan your exit, which is what we recommend everyone do when they're thinking about it. But on the economic front, is there any resources that you would recommend people read? How would someone go about that if they're not really versed on economics at all?
Yeah, I mean I had the benefit of well I just have a fantastic wife. She had gone to Babson College, which is number one or two business school. I think private business school in the country. She got me involved in an accelerator program there. Organized by that school and Goldman Sachs called 10,000 small businesses. Not to say that, I'm trying to shout out to them specifically but the whole program was about bringing sort of fortune 500 thinking to a small business people. To people who maybe don't have an MBA or any formal education in business. I certainly didn't and that was probably the seminal moment that got me thinking long term about the business that I had cause a lot of people that you and I both know Coran are very lifestyle business oriented. We launched products when the growth slows down. We don't work ourselves to the bone, well you certainly do. But you know, most of the people we know are not sleeping under their desks at night. When I went to, when I went through this program and just learned about forecasting and discounted cash flows and planning, planning for exit. The number one thing that they really tried to hammer home is you need to be planning your exit from day one. You need to know what does an asset that's a hot target for acquisition look like? What are the elements present? How are your financials doing? You need to be able to call up P&L with some modicum of accuracy at a moment's notice just to keep track of how the growth curve is moving.
You have to sort of have an exit plan in mind or else you might never get out or you might get out of it in terms you don't want. It was really through the course of coming up with the growth plan and all that which I didn't really follow but it at least got me to think about, okay, what does this business mean to me? How long do I want to hold on to it? At what point will I be okay with letting it go? I think you mentioned before how easy I made it sound like the decision was it wasn't an easy decision but having thought about it many years in advance really made it something that was more actionable when all the conditions were, right.
Perfect. Yeah. I think that's really important to start thinking early. You may actually find like you did, I'm doing planning and it doesn't really end up becoming the plan but at least putting pen to paper and figuring out where you're at, what you're thinking about, where you want to go, we'll give you more insight into when that time, that time window for you to sell the business could be. That's super, super good advice that I made. I appreciate that. Let's jump forward a little bit you sold the business you got the cash in the bank, what do you do next?
Yeah, I'll never forget that that moment. I was sitting with my wife at a table La Dame de Pic this wonderful restaurant in London at the Four Seasons Hotel. I got a message from my attorney saying we're all set check your account. I logged into my Chase app and pulled up the balance, saw all those zeros and it was just one of those moments in life. At the same time I felt kind of saddled now with this responsibility. To anybody who's thinking about selling a business especially one that they've owned for about 5-10 years a good amount of time you’ve got to realize that when you get that exit, when you get that cash injection, this sort of represents the fruits of your labor and your life up until this point. You can't take that lightly. The first thing I did was nothing. I didn't buy anything. I didn't go anywhere. I didn't live my life anyway, outside of the normal, outside of the ordinary because in my mind that wasn't cash that I had to spend that that was capital that I worked hard for over the past seven years. Until it was generating a return I actually felt quite poor. Because I didn't have cash flow and I went about really spending the next year, even up until now I'm still at it I'm just studying some of the great investment minds that we've had Warren Buffet and Charlie Munger and then a lot of real estate books that I've been reading. David Lindahl is really great. There's many ways of trying to figure out how to come up with strategy for a portfolio design and that's really what I started doing. I think that’s probably the best book I read, shout out to Benjamin Graham's intelligent investor. That's probably a good starting point for anybody who's just had a decent liquidity event. That mostly covers dealing with the stock market. But just trying to not make any super rash moves because one of the challenges is as I mentioned before I think we're very late in economic cycle and it's not generally a good time to invest in much what does one do? Okay, you've got cash you want to make a return on that but most things are pretty expensive. I guess it just comes down to coming up with an approach that works for you. I've been slowly developing one that I think works for me but it's going to be a little different for each person but the whole thing is to be intentional about it not just snap up whatever opportunity comes your way but to really sit and think what do I want all of this capital to be doing.
Absolutely. I think that's great. Great Advice. I think it was Warren Buffet. He said he wishes every investor had a punch card at six oh five investments that they could make in their entire life. Most investors would do much better if they only had five or six shots at investing. I think that's wise advice. It's tough when you have a lump sum of cash in the bank and the cash flow isn’t coming in anymore to feel that urgency to deploy the capital like you said to get a return on that capital. It is good to remember that you don't have to rush and rushing is actually a really bad decision. Would do if you were to do it over again, I know you have very bullish on real estate and we've had multiple conversations about real estate but would you recommend someone you said before they need access to capital to really move the needle in real estate. But would you suggest someone maybe looking at reading the Intelligent Investor now, even while they're still running their business, what would you recommend someone should do and what do you think you should have done? If you were to go back in time and say Rob while you're doing this other planning, do this as well?
Yeah, well I mean top of mind, if I could go back and change a few things, I'll tell you one thing I wouldn't do which is mess around much with all that crypto garbage but fortunately I had read Benjamin Graham's the Intelligent Investor and that you never put more than a couple of points of your net worth at risk and highly speculative assets. It didn't really come back to bite me in a big way as much as some people I know. Let's just say I'm not really pleased with the returns in the speculative part of my portfolio currently. I mean at the end of the day I think that success, wealth, poverty, all of this stuff is a combination of mindset a little bit of luck and what knowledge you've gone out and gained and all these things sort of work together as you look at opportunities and recognize opportunities and either act on them or not. I think given that this is a podcast for people who are looking to sell or potentially buy businesses these are people who are going to be dealing with various amounts of capital through the course of their life. I would absolutely recommend reading books like that. I mean Intelligent Investor itself is kind of old school and it's very dense and different people will get a different amount out of it. But go to the Bogleheads learn about index fund investing and how rare it is that anybody's able to beat market averages. Being okay with just the Beta returns. I think I can't say that there's too much but I would really do a lot differently. I mean, I'm not really a person who feels a lot of regret but definitely I've scaled back my involvement and time spent thinking about crypto. I think it was a few times when you I can say though, if I could go back to when I was still running the business one thing I've learned a lot more about now that I'm on the other side and looking at all different types of, different firms approaches to investments and what they offer. When I was running my business, I never thought much about leverage and the potential use of leverage. I mean I had a couple hundred thousand dollar line of credit that I almost never used it every year or so I'd go and ask for them to increase it and they say well you haven't been using it. I put an order of product on that and then say look I used it though. Let's bump it up a little bit. But when you have something like a seven figure business with no leverage on it. Yeah. It's an incredible collateral collateralizable asset that you can use for things like buying other businesses and what I might think about if I could do it over again, which I mean it was a different time and place. I was seeing the world, I was traveling and I wouldn't have done this and I didn't. I also know about it is, I might've thought about growth through acquisition. The larger your businesses, the more institutional the players that would be interested in it tend to be the higher multiples you can get. If you can take out say 50% of the value of a $2 million business, take that million dollars and then get an SBA loan you could go and buy a $10 million business, run that for a few years. If you can move the needle just a little bit by I dunno streamlining operations you could get a considerable return. Which isn't something that really lifestyle business oriented people would do. But I'm certainly, I think I ultimately I do plan to acquire a business and start thinking more intelligently about leverage for sure. Yeah. I think it's easy to say in hindsight but in that about bootstrapped mode, you've mentioned multiple times you started with very little cash. It started with about five grand in my pocket. I literally had 1K into my bank account and maxed out all my credit cards and man I had nothing.
Sometimes the back against the world mentality that gets you to a certain point, it holds you back to get to the next level. Yeah, the thought of acquisition is something I'd bring up with a lot of people. When I speak I often will spend about half of my time talking about acquisitions cause I find it fascinating actually that a guy who built an ecommerce business to 1 billion in annual revenue and 300 million of that was via acquisition. That's definitely a proven strategy of acquiring and bolting together. You mentioned improvements. I mean for the sake of an actual sale sometimes just centralizing operations is enough to get the business to a sellable point. I love the fact that you said looking up as well. This is something usually blows people's minds, is looking into a higher asset class or a larger business instead of everyone normally looks down. I think that's really good. Really good advice. Awesome we've covered a lot here. I'd love to get your take on a little bit more on real estate if you would mind sharing. I know you started with single family homes and you've done some other stuff since if someone was just getting started and let's use you as, as an example I won't talk in generalities I'll make it more about you. Cause obviously we're not giving financial advice here neither of us are licensed to do that. But I'm curious if you were to go back to yourself while you were in the business running the business and you said, Hey Rob, let's look at some real estate. Where would you have started and would you have started sooner?
Yeah, absolutely. I did start before I sold the business. I think the first single family home I acquired was maybe a little less than a year before I before I exited. The thing about the thing about real estate is especially in the US the way that our tax code is set up there's really no asset that affords a person the the ability to make use of leverage and compound growth. The way that that real estate allows for that as soon as you buy an asset it can start depreciating, the value of it a steadily over time against your earnings. Now that we've got this 20% deduction that that can come off of a certain real estate earnings, have an entire industry of lending set up to be secure it against collateralized real estate assets with very decent rates. You can leverage up a of single family home for less than 5%. How are you going to get, where are you going to get a commercial loan for rates like that. There's just not much to it. That I really think makes it, I mean it's basically the oldest business, business of Kings. If I could go back and get started, probably what I would do is pick up a little known book by Shawn Cook which is a pseudonym, but, it's called investing in Real Estate Private Equity. This guy he's a insider, he's been in the industry maybe 20 or 30 years and he just breaks down all of the particulars of dealing with private equity deals. Because if you're getting involved in Real Estate you can either be active or passive about it. If you're running a business you're probably gonna want to be passive about it because you don't need two businesses. Going out and hunting for a bunch of single family homes and getting them renovated and rented. You're not going to have the bandwidth for that. If you have stable cash flow and you're earning, much more than you need to spend you could put it in a savings account or you could put it in the stock market or you can invest in what are essentially highly tax advantageous other businesses, real estate businesses that offer compelling returns and capital events and all that great stuff. That's probably what I would focus on. It was more of the private equity side of things. I mean, of course you kind of need to be an accredited investor to play meaningfully in that realm. Your business would have to be doing pretty well. But even if not there are a number of crowdfunding platforms out there and certainly some are better than others. I don't really use any of them because I've joined up with a couple of tight knit circles of high net worth individuals who all they do is look at real estate deals and they share what's the cream of the crop and negotiate for better terms on that stuff. The deal flows pretty strong there. If you're just starting out, you know, you could at least, you know, join it. a couple of the crowdfunding real estate crowdfunding platforms and start looking at deals and doing diligence. There's a lot of factors that determine whether or not a deal is going to be successful. I mean at the end of the day there is far less moving parts to real estate than there are with businesses. I mean people need a place to sleep there's only a limited quantity of land that exists and if you're at a hotter market where all the jobs are generally things are going to be going up for a while and it's not terribly correlated to the stock market. It makes sense to have some meaningful exposure to that especially us being far along in the economic cycle as far as the stock market is concerned. Maybe we're a little less far in a lot of the sub markets in real estate, which is very regional and market and sub market specific.I've been rambling on a bit. Feel free to direct my thought process here.
No, I think that's super, super useful. The economic cycle thing, I did read one of David Lindahl’s books and he was talking a lot about economic cycles and movement of jobs and the like. I guess the biggest takeaway is stop working on your mindset. Number one to believe this is possible that you can start investing before selling a business and then start looking at which assets make sense to you. A lot of people do default to real estate because like I said it's the business of Kings, maybe take a look at that take a look at other options as well. Find someone who's actually doing it. Like you said, Rob, you've got a group that are exclusively looking at deals it makes it very easy for you to come up to a high level of competency quicker when you're working with other people that are already doing it. That seems to be a recurring theme. We've known each other for a while and that's a recurring theme I see with you as you find who's doing what and then go learn from them and then try and connect with people on a one to one basis to get that extra level of knowledge and that's worked.
It makes no sense to reinvent the wheel. I mean most most things that can be done have been figured out by somebody. You just got to go find that person. There is nothing particularly crazy about it. It's just something you go and do slowly, ask the right questions make sense of things. I think everybody should invest. If there's one takeaway that I can really leave someone with it's to start thinking intentionally about what would they invest in, what would their portfolio look like? It's great to talk to a financial advisor about this stuff. Somebody who's a fiduciary who has to take your best interest in mind. When the time is right they can be very helpful. You don't want to wait to start investing. I mean, if you start in your 20s the effects of compounding by the time you're 50 if you just say like $10 a day, by the time you're 50 it'll be a millionaire. Just from that.
Exactly. Starting small is definitely the thing that I think you touched on mindset and a lot of really the biggest difference I see between smaller operators and larger operators is 100% mindset and also their willingness to invest in improving themselves, whether that be going to conferences, getting mentors, joining mastermind groups but also doing something every day to move that needle forward. Even just as simple as reading books I listen to podcasts can actually help quite a lot. This has been awesome and I appreciate you taking the time out of your day to, to jump on the call here, but is there anything else before we wrap up here that you'd like to add on this specific topic of mostly what we'll be calling this is more around the investing side, having a liquidity of that and then investing or anything else.
I think the number one rule of investing or I guess a effective capital management in my opinion is to not spend principle and that's basically my goal is to live a life where I never spend the principle that I could indeed be investing in things only the cashflow that you make off of what you've invested. That right now means even though I've had my little seven figure of liquidity event until I get my cashflow I'm not going around Driving Range Rover, chartering yachts or any of that stuff because I can't do all that stuff passively. I dunno if this is what the fire movement is all about and there's always some soup digeorge of investment philosophy. But I think the goal should be ultimately to not not spend principle and then you are truly free.
Absolutely no that's the thing. It's not about taking your income and enjoying that's going to be temporary whatever that is of. Yeah. That's solid advice, mate. I really like it. Awesome. Well, is there any way that people could reach out to you or is there something else that someone could read that you've done that you'd like to share with people or are we just gonna leave it at that?
Yeah, I mean, you can, you can hit me up at rob it, Robbarry.com. My website doesn't have a lot on it. There's some photography but sure I mean I’m always game to chat to people.
Awesome. Well, yeah, definitely reach out to Rob if you have any, any further questions or just want to let him know that you, you liked this episode. Hopefully you found that that is as useful and helpful as I did. I appreciate your time again, Rob and I look forward to catching up with you back in New Jersey, 7,001.
Thanks for having me.