Courage is just a muscle, if you don’t flex, it atrophies and dies.
But first: from $452k to $6mil? Nick Huber of @sweatystartup on Twitter took a self-storage business from one employee and NOI of $452k, to managing 24 employees on track to do $6mil. So we wrote a playbook on how you can conquer the self-storage side of real estate.
You'll get that one plus 14 others inside cashflow. Check it out?
Sacking up - how courage is a muscle and why you should use it
Market downturn - where are we going and what to do about it?
BRRT - this 4-step method for buying and building a recession resistant portfolio
I was barreling down San Francisco's PNW highway after a meeting with a $15 billion investor.
As I’m careening through traffic the Chief Investment Officer of my then-company sits alongside me his lips pursed. Given I’m lost this added to my anxiety. My CIO is no joke. The kind of guy who wakes at 4 am, inhales the WSJ, and runs a mini-marathon before working 12 hours. Oh also, he holds my job in his callused palms.
So, when he leans over and says to me, "I'm going to say something the HR department would not like." I peed a little.
He continues, "Back in that meeting, you bossed me around like a teenager. You know what you have?"
In my head, I think… a lack of self-preservation. "No," I squeak.
"You have balls of steel, don't you? Big. Huge. Balls,” he grins looking back at his phone.
Thus marked my introduction into the men's world of finance. While I happen to believe women's sexual organs have more courage than an overly sensitized extension rod. It became a bit of a humorous personal mantra. So much so that when I told my mom I wanted to start this blog she suggested "Growing A Pair." Alas, I went another route. Yet, the concept of sacking up, shall we say, is an age-old one.
Turns out courage is just a muscle, if you don't flex, it atrophies and dies.
The more you flex, the bigger it gets and the stronger you become. For what’s coming in the market I think we all may need some sacking up.
Getting Sacked
Coming full circle on my double entendre... you’ve probably seen all the Twittering about the number of layoffs happening in Silicon Valley and across the world. Look closely at Carvana for instance, which just cut its staff by 12%.
Car sales tend to be near-term indicators of a downturn. In fact, you might be able to eerily replace the below dates with 2022 from the 2008 recession soon.
Then you saw bitcoin fall to the floor of its 1 year low.
Then the NASDAQ fell 4% in a day.
Finally, in my parade through all the joyous news of the day. You’ve realized a few days in these markets wiped out ALL of this year's previous return.
That’s a scary world. And while sometimes I like to be that insufferable human that says... I told you so, that’s not altogether very helpful.
There is however a framework for when times are hard that I like to call BRRT, that mimics what private equity firms do during markets like these. I’m going to walk you through one way I plan to grow during a downturn. You want to grow with me?
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BRRT Method
It’s called the BRRT Method: I touched on it last week here. The goal is to buy protected assets where you can raise prices and add tech that allows you to combat inflation and decreased sales. It works like this:
Buy - Buy businesses that cashflow
Resist - In recession-resistant sectors
Raise - With an ability to raise their prices
Tech - Add technology to their offerings
We often talk about how to buy businesses here at Contrarian Thinking. Whether you do it at the stock market by following some of Motley Fools' recommendations (things are on sale), or you buy distressed assets the idea is you get into acquisition mode.
Here's an example of how you can earn using BRRT based on a deal I just did.
Step #1 Buy - but make it cashflow
The goal is simple but it does take work. Buy an inexpensive profitable business that is underperforming, and rehab it. You make sure the purchase price & cashflow (including legal etc) can cover your expenses to fix it up. You use seller financing or SBA to buy it which is very similar to mortgages but on the value of the business as opposed to your assets or income.
Idea in action:
I was scouting around the internet and found an online education business that I guessed was making a $100k rev & $20k profit + a year but was neglected. I figured that out by checking their site traffic on a site like Similarweb. I use SEMRUSH but this one is free.
Then I looked at their product set and they were selling a few templates for $29 so I estimated between traffic numbers and the average conversion on sites being 2-4% of what his total revenue was. To be fair, you don’t really need to do this. I often just reach out to owners and ask if they’d be willing to sell. Embarrassing side note: early on in my career I did this to BizBuySell. Spoiler: they’re owned by a $37 billion company. I do not have THAT level of F you money... yet.
I found this business direct, but these are all over Flippa. I reach out to the owner, in the contacts at the bottom of the page and ask if he'd be willing to sell for the right price. Template goes something like this:
We go back and forth a bit on emails and calls. Specifically:
12 emails
2 phone calls
1 video call
It takes approximately 6 weeks and then we close the deal for $62,000 + a little upside if he stays on for 3 months, transitions it to my team, and sales don’t plummet.
Ok, so we got our business to buy.
If you want more examples of businesses you could buy and how to buy them check these out:
We also have a course exactly on how to do all of this at Unconventional Acquisitions. FYI price is doubling next week so jump on it if you want to learn about acquisitions.
Step #2 Resist - Invest in recession-resistant sectors
You look for businesses that weather storms. These are businesses like consumer staples, grocery stores, discount retail, alcohol, cannabis, mobile home parks, plumbing, HVAC, healthcare, DIY, financial services, info technology, and budget travel.
Basically anywhere people can save money or continue their needed everyday activities. To make sure your area is one such group, search their historical sector returns in downturns and go after those that GROW when others die. Kind of interesting to see which products even do well in a downturn.
While everyone is still reeling from a market you can be making moves to the right recession-resistant area. Most people don’t even realize their portfolios aren’t focused on recession-resistant assets.
So in this instance, I went with a financial services company because they do well in downturns when everyone is concerned about money. The business I bought focuses on financial freedom and protection. That type of business does well in downturns, as do many education businesses.
When people get laid off they need new skills. We fill that need. Choose your battlefield.
Step #3 Raise - your prices
Most businesses forget to raise prices with inflation. Some small businesses NEVER raise prices.
Just like in real estate you invest with the goal of raising prices for underpriced services. It’s that simple, whatever you sell increase by 20-30%.
Idea in action:
This online business I bought was charging $29 a month for access to a library of content.
I thought the content was worth more like $99 a month or $1000 a year. I re-designed the materials, fixed the funnels, and increased prices. 3% churn so far. The biggest mistake you can make here is not raising your prices soon enough to handle the inevitable inflation across sectors. You can raise incrementally but raise. I did a very rough analysis of if I increased to $99 but lost 3-10% of my customers and was still sitting pretty (obviously).
Step #4 Tech - Add technology to their offerings
Small businesses are notoriously NOT tech-savvy. That is our entire thesis for why we launched the Contrarian Thinking Capital Fund, to invest in the technology that will support the future of small businesses. Do you know how very tech backward these companies are?
36% of them don’t have a website
89% of them still use a fax machine in some way (WTF?)
The list goes on. From CRM to paid ads, to growth through automation small businesses are ripe for the 21st century.
Idea in action:
In this tiny little business, I made 4 changes from a technology standpoint that turned a business doing $100,000 in revenue and $20,000 in profit into one I think will do $300,000 to $500,000 in revenue and $100k in profit.
Gave them a newsletter through Mailchimp that sells their product
Hooked them up to Deel for them to pay international contractors easily
Included funnels in their product sales process with lead magnets
Inserted a social media account with testimonials only to increase conversion
The world increasingly may be scary but that is when you are looking at what is outside of your control. You will not focus on what is too large you will do the tiny with the boring.
Tiny compounding creates giants.
Grab em and question everything,
Codie
One RV Park, $15.3k per month??
Our buddy Kenworth bought an RV park that cashflows $15k per month. Want to know how he did it? We did too! So, we did a full YouTube breakdown on it. Check it out.
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Disclaimer – This is the “Be an adult” section. Everything mentioned above isn’t advice, just a recount of what I did. That said: This article is presented for informational purposes only. The opinions stated here are not intended to recommend any investment or provide tax advice. Neither are they an offer to sell or the solicitation of an offer to purchase an interest in any current or future investment vehicle managed or sponsored by Codie Ventures, LLC or its affiliates. All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading and investing do involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk. You are solely responsible for making your own investment decisions. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. By reading/sharing this newsletter or consuming our content on our other channels, you are indicating your consent and agreement to our disclaimer.
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