The 7 Strategies to Achieve Financial Freedom | Codie Sanchez - PT 1

Summary

Podcast Summary: "The 7 Strategies to Achieve Financial Freedom | Codie Sanchez – PT 1"

Podcast: Impact Theory
Host: Tom Bilyeu
Guest: Codie Sanchez
Date: December 3, 2024

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Episode Overview

In this thought-provoking episode, Tom Bilyeu hosts Codie Sanchez to dissect the seismic shifts happening in the American economy—and the unique moment of opportunity for building generational wealth. Sanchez, known for demystifying business ownership, outlines both the threats and strategies for achieving financial freedom today. The conversation unpacks the dignity of trades, the looming $68 trillion generational wealth transfer, and what it actually takes to break into business ownership on "Main Street."

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Key Discussion Points & Insights

1. The Dignity Deficit and Lost Purpose (02:01)

• Deaths of Despair: Codie attributes much of America’s rising "deaths of despair" (suicide, addiction) among working-age men to a lack of personal purpose and loss of dignity in traditional work, particularly in trades.
• Changing Sentiments on Trades: Despite growing interest among younger people in trades (a significant 40% rise), over 60% of parents still discourage their children from entering these fields—even though income potential often exceeds that of average college graduates.
  • Statistic: Average tradesman earns $75,000/year vs. $30-40,000/year for recent college grads.

Notable Quote (Cody Sanchez, 03:37):
“Dirty fingernails are a sign of dignity in labor.”

2. The Case for Ownership and Main Street Wealth (06:28)

• Ownership = Wealth: The strongest predictor of becoming a millionaire is ownership (equity) in a business. Over 80% of millionaires own a business or part of one; over 70% are self-made.
• Declining Business Ownership: Direct ownership in established businesses has plummeted from double digits to below 4%.
• Critical Mindset Shift: It’s not about starting your own business or being a founder; even employees can (and should) negotiate for equity.
  • Tom’s Emphasis (09:30): “You’re never going to get rich if you don't have ownership.”

3. Generational Wealth Transfer: A Historic Opportunity (12:04)

• $68 Trillion in Transition: Baby boomers are poised to hand down or lose $68 trillion, with a large share (estimated $20-40 trillion) tied up in small businesses.
• Potential Crisis: If not purchased or continued, these businesses and the jobs/resources they provide could be lost, as illustrated by Japan, serving as a cautionary tale.
• The "Porsche Effect" (15:00): Awareness creates opportunity—learning the language and skills to spot these deals is crucial.

Notable Quote (Cody Sanchez, 16:09):
“Only 1 in 11 small businesses sells in a given year. Most just close down. That’s a huge opportunity if you know what to look for.”

4. Who Should Pursue Business Ownership? (17:24)

• Myth-Busting the “Best in Class” Fallacy: Not everyone needs to (or should) try to be a startup founder or visionary; pursuing "boring" businesses can provide greater likelihood of cash flow and freedom.
  • Risk vs. Reward: Service/trade businesses are often more profitable, have faster return on investment, and greater stability compared to tech startups.
• Buying vs. Building: Acquiring an established, profitable small business can bypass the “valleys of death” that doom most startups.

Notable Quote (Cody Sanchez, 18:36):
“If you can’t sleep for the want of the business, go do it. But if what you really want is cash flow and freedom, look where the odds are best.”

5. The 10 Steps of Buying a Business (22:46)

Codie distills private equity best practices for individuals:

• Recognize the opportunity
• Identify a good deal ("deal clarity")
• Originate leads
• Finance the purchase
• Convince the outgoing owner
• Due diligence
• Negotiate terms
• Structure legally
• Close effectively
• Set the first 90-day operating plan

Skillset Needed (25:47):

• High risk tolerance and courage
• Fast learning and adaptability
• Willingness to suffer and persist
• Negotiation and persuasion
• Deep self-understanding

Notable Exchange (Tom Bilyeu, 25:48):
“If you want to buy a business... you have to have balls. You’re going to get in way over your head. You have to have an ability to learn, a willingness to suffer, and you actually have to have a belief in yourself.”

6. Know Thyself: Avoiding Mimetic Desire and Unnecessary Risk (27:21)

• Codie stresses the importance of honest self-assessment and tailoring the business to your actual desires and capabilities, not chasing trends or copying influencers mindlessly.
• “Deal clarity worksheet”: A tool to help define personal financial and lifestyle objectives.

7. The Reality of Entrepreneurship: Rule of Thirds (31:40)

• Entrepreneurship’s Emotional Cycles: 1/3 of the time great, 1/3 neutral/stretching, 1/3 miserable. Knowing this helps manage expectations and build resilience.

  • Notable Quote (Cody Sanchez, 31:53):
    “Most entrepreneurship is long periods of boredom punctuated by extreme periods of fear and misery.”

• Alternative Paths: Employees can seek ownership/equity in someone else’s business, balancing risk and reward according to personal preference.

8. Deal-Making vs. Operating (40:17)

• Distinction between visionaries and integrators/operators; most people lean one way and need to compensate or partner accordingly.
• Tools like the Kolbe test can help identify strengths and weaknesses.
• Finishers (detail-oriented, execution-focused) are as critical as idea generators.

Notable Quote (Cody Sanchez, 45:51):
“Most businesses and people’s bank accounts die at the altar of 80% done.”

9. The Window of Opportunity: 2025-2035 (47:13)

• Codie estimates the wealth transfer window will largely close by 2030–2035, as businesses decay or are absorbed by institutions/private equity.
• Urgency: Now is the time to build skills and take action.

10. The Rise of Private Equity and Power Centralization (49:17)

• Private Equity Growth: Private equity ownership of businesses ballooned from 4% in 2000 to 20%+ today.
• Concentration Risks: A handful of firms (e.g., BlackRock, Vanguard, Blackstone) now control enormous swathes of the economy—leading to less diversity, reduced local character, and vulnerabilities in markets and policy.
• Voting Power: Passively managed index funds consolidate shareholder voting rights, shaping corporate agendas.
  • Sanchez warns: True economic freedom means more widely distributed ownership, not further centralization.

Notable Quote (Cody Sanchez, 52:24):
“People think that we’re passive [investors] and we’re not. We absolutely talk to these companies about things like ESG and corporate governance.”

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Memorable Quotes & Moments (with Timestamps)

• “Dirty fingernails are a sign of dignity in labor.”
  —Cody Sanchez, 03:37

• “You’re never going to get rich if you don’t have ownership.”
  —Tom Bilyeu, 09:30

• "Only 1 in 11 small businesses inside of a year will sell on average. Whoa."
  —Cody Sanchez, 16:09

• “Most entrepreneurship is like war. Long periods of boredom punctuated by extreme periods of fear and misery.”
  —Cody Sanchez, 31:40

• “I think most businesses and people’s bank accounts die at the altar of 80% done.”
  —Cody Sanchez, 45:51

• “Should any of us own 40% of the country’s companies, and 80% of the S&P 500? No, that doesn’t seem like a good idea. Not even me. Not even you.”
  —Cody Sanchez, 58:24

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Key Timestamps for Important Segments

• 02:01 – Jobs, dignity, and the crisis of despair in America
• 06:28 – Main Street Millionaire, the equity imperative
• 12:04 – $68 trillion generational wealth transfer: threat and opportunity
• 22:46 – The ten essential steps to buying a business
• 25:47 – The real skillset and mindset required for business acquisition
• 31:40 – The rollercoaster of entrepreneurship
• 40:17 – Visionary vs. operator: finding your lane
• 47:13 – The urgency of the wealth transfer window (2025–2035)
• 49:17 – Private equity’s rise and the dangers of centralization

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Tone & Language

Conversational, data-driven, candid, and empowering. Tom pushes for practical clarity, while Codie balances optimism about opportunity with warnings about economic realities and a no-nonsense approach to risk and self-knowledge.

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Bottom Line

This episode centers on the crossroads of economic disruption and historic opportunity for everyday people to claim a stake in generational wealth. Codie Sanchez provides not just a blueprint for buying and owning small businesses, but a challenge to listeners: get educated, know yourself, seize the moment, and resist the tide of wealth and power concentration. The window is open—but not for long.

Transcript

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[Cody Sanchez]

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[Tom Bilyeu]

I'm Tom Bilyeu and this is Impact Theory. We're standing at a crossroads where generational wealth, economic opportunities and personal freedom are all in a blender and being world up. Here's the kicker. Most people do not even realize that there is a game being played, let alone know that they're being inflated into oblivion or that there is a way to sidestep all of this and still win. The economy is shifting, opportunities are being reshaped and if you don't understand how to adapt, you're going to get left behind. Today I brought on somebody that really understands how to get ahead in today's economy. She is taking Main street by storm. Understanding that this is a unique moment in history where truly wealth is being passed from one generation to the next, creating these tremendous opportunities in the market. If you understand how to take advantage of it, you're really going to be able to leapfrog a lot of people who are blind to what this moment really is. You guys are gonna wanna dial into this one. So without further ado, I bring you Cody Sanchez. Cody Sanchez, welcome back to the show. Thanks for having me, truly my pleasure. Researching you every time is extremely enlightening. And this time something very interesting occurred to me and I wanna see if you think I'm out of my mind. I. What if I told you I think that there is a causal relationship between deaths of despair and plumbing?

[Cody Sanchez]

What's interesting is today we know that there are 7 million working age men that are out of the labor force. And in the ages, you know where they're supposed to be, prime age working men, so 20 to 30, they largely don't have work, they say, because they can't find it. And, and I don't actually think that's the case. I think what we have is we have kind of like J.D. vance, popularized in hillbilly eleg and normalize. Now we have the statistics to back it up that a lot of people have lost dignity in their work and they don't believe that the things that they do have dignity any longer. They don't believe that being an employee has dignity any longer. And I think a lot of the despair we have in this country is attributed to drugs, rightly so, fentanyl, suicide, especially among men, but is actually because they don't have purpose. And that sounds touchy feely, except if you go to the data and you see the employment correlation between those who are working and have substance abuse overdoses or suicides and those who are not, you'll find an incredibly high correlation between unemployment and deaths of despair, which would be things like suicide and overdose. And so what does that have to do with plumbing? Well, I think in particular with plumbing, we have lost the dignity that we thought existed with the trades back in the day. And you know, back when we were growing up, there used to be a show called Dirty Jobs, right. Mike Rowe and his entire purpose was to bring dignity.

[Tom Bilyeu]

I was like in my 30s. I love that you're trying to make us the same age. That's extremely generous.

[Cody Sanchez]

Don't tell them how old I am. You know, I was four. But, but he basically popularized this idea of like dirty jobs have real dignity. And he tried to make that mainstream. And it was kind of like this niche on the Internet that did get a cult following. But then we sort of popularized huge TV stars, twitch streamers, you know, how dare you, you know, YouTubers, right? Like all these, these people who like we really don't build anything. I think we do serve a purpose, but we're not the person you're going to call when your house is falling apart. And so I think one little good avenue about today is while in the past there was a study that was fascinating that showed young people increasingly want to go into the trades, aka plumbing. For the first time ever, we've seen a 40 increase in young people wanting to go into the trades. But you know what? We haven' scene a change in their parents perspective. Most parents, still more than 60% of parents do not want their kids to go into the trades. They do not want their kid to be a plumber. They want them to go to school, take a huge loan out, go work very minimum wage job following it. You know, the average college degree afterward, afterwards makes somewhere between 30 and $40,000 a year. A tradesman makes $75,000 a year on average. So they actually want them to make less money because of status, which is wild. And so I think deaths of despair because these people don't feel like their work is valued anymore because we don't value it. And then simultaneously, they can't find other work because they're not skilled in the 21st century economy. And so the only good thing on this is I think it's starting to change. Like, there was just a Wall Street Journal article last week, and the headline was Millionaire Millionaires in H Vac and Plumbing. Like the Next Generation. Something like that. Now, we've been talking about this for three years. So I'm like, good job, Wall Street Journal, you're catching up. But for the first, they put the words plumbing and empire in the same sentence in a mainstream news news campaign. And so I think we might be changing it, and there might be a way to get those 7 million men and all the women as well back into the workforce. And to believe the thing that I believe to be true, which is dirty fingernails, is a. Is a sign of dignity and labor.

[Tom Bilyeu]

Yeah. So I'm always trying to figure out what's going on, what there's malaise, a deep malaise right now, and yet the economy, rip roaring. And so trying to piece those two things together has been really jarring for me. I think people been sold a bill of goods that everybody needs to go to college, get a degree, become part of the elites, and that model feels super dysfunctional. You, I think, were certainly the earliest voice that broke through the noise on this. But what is the opportunity? So you've got the book Main Street Millionaire. What is that trying to encapsulate?

[Cody Sanchez]

Yeah, well, I think if you want to make money, you should follow the math. Where are the numbers? Where can you make money more reasonably with a bigger surface area? So, of course, if you become a Hollywood celebrity or an NFL athlete, you can become one of the top 1%. But what happens with most people? Well, the 99% never make any money. And so that's really only good to go to the elite jobs if you are absolute best in class. If you're not best in class, you're probably better off actually being in finance or real estate or owning a business where most wealth is created. And so the idea with Main Street Millionaire is we started going down this roadmap and realized, oh, man, the highest correlation between millionaires and wealth is one thing, and it is ownership. Do you have equity and ownership in a business? More than 80% of people who are millionaires have some ownership in a business structure or are a business owner themselves. And at that point you might say, well, must be Nice. Maybe they got it all from daddy. Well, no, it turns out more than 70% of millionaires are self made. They actually come from very medium backgrounds. We, we don't see a lot of outliers as the norm. The norm is that they made it themselves. And so the idea with Main Street Millionaire is like wait a second, where are people making a ton of money? Where is the biggest indicator for, for wealth? And if it's ownership then how do we get more people to get it? The other thing that's fascinating is Basically since the 40s we've seen stock ownership and equity ownership in companies come down. So we saw the youth get really excited about it during Robin Hood, et cetera. Right. And, and, and Gamestop and they started taking stock ownership. But actual ownership in a direct company down significantly from double digits to less than 4%. And this is a like profitable businesses that exist, not LLCs signed. So tax returns as opposed to LLCs created. And if you measure by LLCs created you'd say, Cody, it's a boom. Everybody's got business ownership. Well no, people have like dabbled in things but they don't actually have real

[Tom Bilyeu]

ownership there because they're creating their own little llc.

[Cody Sanchez]

Yeah, there's lots of like, you know, you and I have done it. I mean how many little one off businesses or LLC is have you created over your life? Probably a lot. I know I've done distressing number. Exactly. We should all actually own part of an accounting firm instead.

[Tom Bilyeu]

Yeah.

[Cody Sanchez]

And so the idea on Main Street Millionaires like let's get normal people back into ownership and we can talk about sort of the waves happening in the economy right now that I think are generational wealth creation event triggering. But the one thing I want people to understand more than anything is if you don't understand ownership and how to get it eventually and how to trade your skills for some type of contract that allows you to earn even if you are no longer able to work, which is what equity is, the statistics say that you have a much lower likelihood of becoming a millionaire. And so it doesn't mean you should go become your own boss. By the way, not everybody wants to run a company. It can be totally miserable. But it does mean that you should become so valuable and know how to negotiate to a business that you can at least get a part of it.

[Tom Bilyeu]

Yeah, I'll say that even more aggressively. You're never going to get rich if you don't have ownership. Getting ownership though is harder than people think. I know you going to make it simple. And we'll go through that. But ooh, it is, it is a real shift in thinking.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

Before we go there, I really want to put a fine point on what I think is going on in this moment right now. And I want you're going to know the details of it a lot better than I do. But there, the big divide right now is between young and old is I try to piece together why do people feel really like, hey, the economy's great, jobs up, everything wonderful. And yet on the street it's like, this is madness. I feel like I'm being gaslit. But I, I don't know that they're lying. Like, let's just assume that it's all true. How can those things be true and there still be a problem? And I think it goes something like this. A lot of the jobs being created are second and third jobs. They are not first jobs of somebody who wasn't working and is now working. I think it's somebody who's working but still not able to make ends meet because of inflation, despite it being down. We were high for so long, it's not like we've started reversing the trend. We're just not growing as fast anymore. So you hit this plateau that was already brutal. So people are still having a hard time paying for things, but if you own assets because of the way that the debt is working and now my long term listeners will feel very comfortable right now. So we've got so much debt that we have to keep money printing to deal with the debt, which devalues people's ability to buy things. So even if the cost isn't going up, your purchasing power is going down. But the way that money gets into the economy is with people that have assets. Right now, that's old people. So old people are able to take advantage of this complete distortion in the economy, which is the debt and the money printing. And young people are like, hey bro, you yanked up the ladder. Like, I'm not sure what I'm supposed to do here, but to me, looking at what you're doing, it's not going to be the only hope. There's never only one thing. But this really feels like a huge opportunity, which is for better or worse, all of the people that have accumulated that wealth, they're going to die or retire. And so we have all this wealth trapped inside of the baby boomers is an easy way to think about it, but how do we get that back out? How is that wealth not just dissipated when they die and the business Just folds, which is one way, because this, we could fumble this moment. This can either be a tremendous wealth transfer from old to young, or it can be wealth destruction. That poof, just goes away.

[Cody Sanchez]

That is the part that nobody's talking about is that right now, today, if you want to get rich, what you should realize is there are $68 trillion of wealth that may be transferred in baby boomers to the next generation.

[Tom Bilyeu]

Be transferred.

[Cody Sanchez]

Right. Or it could be completely destroyed. And the, the. And then a lot of people go, oh, great, well, they'll just hand down their house to me. They'll give their money to their kids. Here's the problem of the $68 trillion in wealth transfer. What do we know? We know that most baby boomers, so more than 60% of baby boomers own a small business. What do we know about business owners? We know that business owners have 90% of their net worth on average, tied up in the business. So what does that mean? It means that $68 trillion likely is tied up entirely in businesses in a number that we can't quite imagine. Like, we're talking somewhere between 20 and 40 trillion dollars of the 68 trillion is tied up inside of businesses and assets. And so if we just say, okay, baby boomers, we wait for you to die, we take over your houses, we take over your cars, what will we be left with? Well, not the $68 trillion number, because a lot of their wealth is tied up in small businesses. And so we only need to look to Japan to realize how real this is. So Japan's a fascinating case because in Japan, they're like maybe 10 to 15 years ahead of us. And you can see that Japan has the same issue we have. They have an older demographic population than us. So they have a lot of baby boomers times, you know, two or three. And they have a slowing younger population from a growth rate perspective. And they have no immigration. They really don't allow immigration in Japan to meaningful numbers. And so they have this generation of business owners who are literally shutting down their businesses. And you can read about it. It's in the Wall Street Journal. And it's. It's been such a detrimental force in the economy that the government created a task force to essentially help pair baby boomers who want to sell their business for $0, just transfer the assets basically to the younger generation. Meaning that they have grants, they have systems and processes, they have making agencies. They funded M and A agencies because they realize if they don't do that, 1 in 10 jobs in Japan is tied up in those small businesses owned by the baby boomers. And so that would be almost great depression level of unemployment if those businesses just disappear. And so it's really, it's kind of scary on a macro level to think about it that big and that we could have this huge looming wealth transfer that could go sideways. But on the other hand, if you think about it opportunistically, there are so many small business owners that are baby boomers that don't even realize their businesses has a value. And a lot of them might think the value is much higher than it is or should be. And a lot of them might not even think to sell the business. They think to just shut it down. That's what happens with most small businesses. Like, only 1 in 11 small businesses inside of a year will sell on average. Whoa. And so if we know that, then we have to realize that there's this big, huge supply issue that's sitting out there. And, and at this point, people go, oddly, nobody's ever handed me a business before. Where are these business? Oh, there's just profitable businesses running all around. Well, I'm not saying it's not work. You have to know how to look for them. You know, we call it the, our. Our version of the reticular activating system, right? So, you know, when you activate your reticular activating system, it's basically your brain saying, I need to care about this thing. So I always use example, like when you go buy a Porsche before you bought the Porsche, you don't really notice Porsches anywhere. You buy the Porsche. All of a sudden, every motherfucker in LA has got a Porsche. What happened? Everybody bought them on the same day? No, your brain just said, oh, Porsches are important to our survival because we're paying a bunch of attention to them now. We're going to see it everywhere. And, and so if we can turn people's brains onto that. What we found in the 3,000 students we've taught to do m A is then they start to see deals where they didn't before. It's kind of start to see the matrix, right? And so you, you all of a sudden are talking to your buddy and his dad. His dad's like, yeah, you know, got to go do the plowing business again, man. It's tired. You know, I can't believe been doing this for 60 years. And you're like, yeah, well, does Brian, buddy, do you want to take over the business now? I'm a lawyer. I'm happy. I don't want to Run that, huh? Have you ever thought about how you're going to transition that business and all of a sudden you just see them and you start to have meaningful conversations that allow for what we used to have in this country, which was a business, an apprentice and a transition. Instead we replaced that with a business and private equity ipoing or closing down, and we allowed the institutions to get in the middle. And I think we should push back

[Tom Bilyeu]

on that more with Cody Sanchez after this.

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[Tom Bilyeu]

We're back. Let's dive right in. Okay. I can't stop myself from talking about this, which is I think that everything moves in these cycles and it is very hard for us to avoid the sort of boom bust of it all. Because what happens is getting into finance right now is a g way to make a ton of money. Like if you've got the brain power to pull it off, go into finance, you can get obscenely wealthy, even just working for somebody else, eventually it's going to stop working. But it works right now. So this, there's something really, really difficult to deal with happening right now. You said something earlier that I think is important to now bring forward in what you're saying now, which is if you can, if you're not going to be best in class, then hey, go buy a mom and pop shop, run that, whatever. No one is going to believe that they're not capable of becoming best in class. At least that's listening to a podcast like this. So how do you help people either get their feet back on the ground, be realistic, assess the situation as it actually is. Yeah. How do you get them to navigate that self identification part of this?

[Cody Sanchez]

Yeah. Well, one, I would say let's, let's, let's bifurcate two things, let's cut them in half. A lot of times people start a business because they want to make money, right? So they are like, I want to start a advertising agency. Why? Is it because your life mission is to create an advertising agency? Is it because you can't sleep for the want of this advertising agency to be in existence is it because you think you are so uniquely skilled at it that you want to spend the rest of your life on this mission. If that's true, go do it. Go do the startup. Thank God that you exist. We need people like you in the world that are crazy psychopaths willing to do the startup grind. Right? You and I have both been there. You cannot win long term in being a startup, in my opinion. And. But in this environment where there are more businesses that have been created than ever before, so it's easier to start a business than it's ever been, it's harder to have a profitable business. There's what's called the four valleys of death, which is like, you know, before you make your first dollar, before you make your first million, after you make your first million, until 10 and from 10 to, to 100. And so at those points, most businesses die. So if you can't sleep for the want of the business, go do it. But if what you really want is I want cash flow and freedom, then you should look at it numerically. What is cash? Cash is numbers. So now you should be saying, okay, where do I have the highest likelihood of success? Because yeah, maybe I'm a smart and I'm better than everybody else and I'm elite. Okay, incredible. You still want to be smart in the games that you play, right? So I would much rather, even though I think I'm quite smart and clever, I would much rather go and compete against my local handyman in my region, go compete against my local landscaping business, then compete against Jeff Bezos. I am going to pick the game in which I have a higher likelihood of winning against my competitor. And I'm also going to pick the game in which most of my competitors make money. And so where do most people not make money? Startups. That's why there's big VCs that have to fund them all the time. Why are small, boring trade businesses easy or interesting? Because nobody funds them. Nobody's giving plumbers and landscapers etc money to start. They can't even get a loan. So what does that tell you? That means that the first dollar that you invest in that business has to come back to you pretty quick, otherwise you're not going to continue to run that business. Those services businesses end up being profitable pretty quickly. So you already know that. And then how could I really de risk my ability to win up front? Then I can create an empire later if I want to. But if I just want to win faster, what would make more sense? The average startup costs you somewhere from 20,000 to a hundred thousand dollars to start averages is not that useful. It's probably less if you looked at the median, but let's just leave it. I'd say so a couple tens of thousands of dollars at least. The average startup isn't profitable for the first three years. So you pay for the privilege of eventually potentially making money. And then once you do hit profitability, the average founder of a business makes during that first 10 year cycle about $40,000 a year, which is great, but maybe not for that much risk. Now if you could go to a business that was already making money, so already has already is profitable and has been profitable for the last three, six or 10 years, you walk into something that has already beat that startup curve and has a higher prediction or a higher likelihood of continuing to make money because it has historically. And that somehow we got sold a big lie that because things are old they're outdated and they're not no longer relevant. Actually the biggest risk to a human is when they're a newborn. That is when you are most vulnerable. Not when you're a teenager. Right. The biggest risk to a business is not when you're a teenager, when you've already existed. You know how to feed yourself, you know how to dress yourself, AKA profitable business. Not when you're a baby, I mean and, and instead when you're a baby. And so that's how I think about the two. Like yes, you can be elite, but pick the game that you have a higher likelihood of playing.

[Tom Bilyeu]

Okay. So what does somebody have to be good at in order to pull off buying a business? Because I think most people can imagine running the business.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

What they don't understand is what they're going to have to be good at to find buy the business.

[Cody Sanchez]

Yeah. Well, we teach 10 steps to buying a business. So basically what I did is I worked in private equity and asset management investing for a long time and I was like what are, what are like the bare minimum things you have to know in order to steal the private equity guys homework who buy businesses all the time. That's what they do for a living. And what I realized is there's not that much difference between doing a hundred million dollar deal and $1 million deal or doing a million dollar deal and a $10,000 deal. It kind of has the same steps and the steps basically go like this. One, you got to realize that there's an opportunity. Cool. Two, you've got to figure out what a good deal looks like for you. We call that deal clarity. Some People call that creating their deal box. Three, you've got to figure out how to find a business to buy that's called origination. Four, you've got to figure out how are you going to finance that bad boy, how are you going to make money, how are you going to get money in order to buy the business? Most of us don't have to do that. How are you going to sell the owner on why you, Tom, should be the one to buy this business? How are you going to due diligence the business to make sure that you actually want to buy it and you believe the things they're telling you? How are you going to negotiate the deal in order to get the best deal possible? How are you going to structure it and put together the documents? Because Wall Street Gate kept that from us for so long. Then finally, how are you going to close the business? So what does like the last segment look like? So you transfer everything correctly. Kind of like when you go buy a house and you the mortgage docs and you go to escrow and all of that stuff. Very similar for buying a business. And then what is, what's your first 90 days? And you're going to look like running the business. And so when you put together that framework, you can see just like anything in life, it's not that you don't have the money to do it. It's not that you can't do it. Most likely it's that you don't know how. You have a knowledge gap, not a resource gap. And so the book is, is trying to say, hey, this doesn't have to be as big as and scary as maybe you think. If you could buy a business just using your expertise, what if you could buy a business just using your time? What if you could buy a really small business to start the first time like a $5,000 business? And then once you figure out how to do it at $5,000, you can scale up, scale up, scale up just like you would in buying a house. So that's what we're trying to teach people is can we make it more democratic and can we help you really think about what you might want to buy or own or buy a part of or own a part of, because if we can get your own your first deal to be good, then you're more likely to do more deals.

[Tom Bilyeu]

All right, what you just said is awesome. It was not the answer to the question that I asked. So what I'm trying to figure out is what do people have to be good at? Because people Die in the face of tactics all the time. So I have a university and the one thing that I see all the time is if I lead with, hey, here are the tactics you're going to learn. I get people to sign up, but if I actually tell them the thing that they, they actually need to do, they don't sign up. Now here's what I'm going to say is the answer to the question. You tell me if you think I'm crazy.

[Cody Sanchez]

Okay, let's do it.

[Tom Bilyeu]

If you want to buy a business, you have to do all the things you just said, but the thing that you have to be good at before you can even get there, you have to have balls.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

So you've got to have a high risk tolerance. So even if you're buying something small, you're going to put your life on hold, you're going to get into this thing. You are almost certainly going to get in way over your head. You have to have an ability to learn. You're going into something. Unless you're already a master in that space, you're going to have to learn about this thing. There is a methodology to learning. You have to have a willingness to suffer. This is going to be hard for sure. And most people should go work for somebody else. So don't own the plumbing business. Be a plumber for somebody who owns the plumbing business because they're going to have to deal with making sure that we make payroll and all of that. And so just by way of being honest with yourself, you have to have an ability to convince people, if nothing else, you have to go and convince that person that they should sell to you. If we're talking about a no money down thing, this is going to be, hey, dear person, I know that you spent your whole life building this thing up. I'm not gonna buy the money. I'm not gonna buy this thing for money outright, but you can trust that I'm gonna buy it out over time with earnings from the business. So you have to be able to convince them that you're the person to be able to do this. And above all of that, you have to have a belief in yourself like you actually have to you. You can't be trembling as you take that step forward as you walk into the business. And so did I miss anything on that list? Like, if you were to think about the people that have gone through your program that absolutely murder it, is that what they all have in common or is there something else?

[Cody Sanchez]

Well, no, I think they all have that in common. But they're still scared. You know, I think, you know, pros know that you do it scared. They just understand what is a true fear. Like what is an acute reasonable fear and what is a influenced fear? Somebody else puts it inside of you. Or what is a future state fear? So like something that could be but maybe is not so reasonable. And so if an acute fear might be, I'm buying a business and it's a million dollar business and I'm putting my life savings into this business and I've never done a deal before and my house is on the line. Acute fear. You should be scared about doing that. Please don't do that until you're a really good deal maker. You want, you don't want to put your entire life on the line. An influenced fear might be somebody pain, but you've never done this before. There's no way you can. You shouldn't do that. Why don't you just stay employed? Employed by somebody else. That's somebody else influencing you and implanting a fear in you. And then a future state fear is like, what happens if this happens and this happens and you're not really, actually you're not modeling the problem and seeing like how reasonable or likely is that to happen. You're just stuck in the future and not in a current state. And so I think the only thing that I would add to what you have is you're exactly right. If you're going to do anything, there's never any risk in education. So like you learning the thing and becoming a deal maker and learning how to do deals, I've never had anybody go, God, I wish I didn't know how to do that. I wish I didn't understand what equity meant. I wish that I didn't understand how to do the distributing deal versus a normal deal. I wish that when my boss came to me to negotiate my salary, I didn't take it three steps further because I realized the game of negotiations, nobody's ever said that to me. They're not like, God, I wish I didn't have that knowledge. Now where's the risk, the implementation, the doing of the thing? So we have to get people to obsess with the part up front, which is, can we get you to learn as much as humanly possible, not only about how to do it, but about who you are and what you want. Because when you know what you want and you know what you're capable of and you know how to do it, then you really decrease the risk. And let me give you an example like, you know, I had a guy buy one of our newsletter businesses back in the day for $8,000. It was, like, not really a lot of money for him at all. He already ran a newsletter business. This newsletter business was a marketing business. It was basically a glorified list, and he integrated it right into his company. He felt no fear on that. That transaction. He had never bought a business before. But why did he feel no fear? He already knew newsletters. He was running it already. He had a little model that was like, I think that we can sell 3% of all users on this list. So I can make my money back in 30 days, because at $8,000 with our purchase price, this is going to make all the sense in the world. And then the deal was small enough where he's like, if I lose $8,000, I'd be annoyed at that, but it's not going to bankrupt me. And so can we get them in this sphere where they know themselves, they know how to learn, and they know how to do a deal? So I guess the only part that you missed is you need to know yourself. Like, you need to be honest about what you want, not even what you're capable of. Because I think more people, Most people are more capable than they think. But one thing I see people do sideways sometimes is they're like, cody runs Laundromats and buys Laundromats. I'm going to buy a Laundromat. That's called Mimetic Desire. Right. That's you saying, Cody's life looks cool and she started with Laundromats. So I should start with a Laundromat, as opposed to taking a little bit of time, which we call the deal clarity worksheet and walking through. What do I want? How much money do I want to make? How much risk do I want to take? Where should it be based? Like, what am I willing to do? What am I not willing to do? What's the outcome that would be worth the work? And if you do that, then your risk decreases substantially on doing a deal. But skip that. Just go buy a business after you listen to this podcast with Tom and I and say, Cody said that I could and not really know yourself and don't follow tools and. And resources and don't know thyself. Yeah, you'll probably regret it. You shouldn't do that, in my opinion. Yeah.

[Tom Bilyeu]

What's harder? Figuring out how to do the deal and getting that done or running the actual business? We're taking a quick break, but trust me, what's Coming up next with Cody Sanchez is worth sticking around for. All right, we're back. Let's get into it.

[Cody Sanchez]

I think most entrepreneurship is like. It's like war. It's like long periods of boredom punctuated by extreme periods of fear and misery. Right? And so entrepreneurs.

[Tom Bilyeu]

If I could get people to believe you, their lives would be a lot better.

[Cody Sanchez]

You know, it's. It's. I also heard Emma Groff. Grand. Emma Grange, whatever. The woman who runs a bunch of the Kardashians businesses, she talked about something that I loved, which is true. In entrepreneurship, it's called the rule of thirds. Typically, you think about that in, like, cameras. You know, how do you place something on a. On a field? But in business, she said a mentor told her that when she was. When she was younger. A third of the time in business, you're going to be great. Like, you're gonna be like, I'm the CEO. Like, this is so fun. Get me a coffee. You know, whatever, like, gets you off. You'll. It'll be amazing. You'll be really proud of yourself. You'll be doing work that matter, and you'll stretch yourself to a point that you're like, I didn't know I was capable of this. Great. A third of the time, you'll be stretched but neutral. You'll be like, all right, this is work. It's. You know, I'm going. I'm kind of neutral on it, but, like, slightly uncomfortable. And then another third of the time, you will be miserable, and you will be like, oh, my God, I can't figure this out. This is going to be a nightmare. I probably will become a massive failure, and everybody will hate me. And as long as you realize that those thirds exist, then I think it's a lot easier to get through it, because when you're in a great period, you go, okay, awesome. But, like, I know it's not going to last forever. And when you're in a neutral period, you're like, okay, cool. And when you're in the miserable period, you're like, please, God, finish. But I do know that another period is coming, and so that always makes me feel better, at least.

[Tom Bilyeu]

Yeah, this too shall pass. I have said that to myself a million times. Also, when things are going well, like, don't get too complacent here, because this too shall pass.

[Cody Sanchez]

Pass. And it always does, doesn't it?

[Tom Bilyeu]

It always does, even the miserable stuff. But it's interesting. So I think that people really do break. I think that most people will emotionally break, and that Success is a game of resilience. How long can you stay in the game? And if you're really getting better and you stay in it long enough, you'll be fine. Let me ask you so.

[Cody Sanchez]

But can I add one thing?

[Tom Bilyeu]

Yeah, please.

[Cody Sanchez]

I do think that you're right though. Like. Like, I don't think that everybody has to go be an entrepreneur and a founder of a business. I think it's a really fair point. Like my. The people who work for me, for instance, why do they come and work for me? It's not that they couldn't go become entrepreneurs. Many of them have been entre entrepreneurs before and run businesses. But they come because they think or they know that they can get equity and upside in my businesses eventually. And they see a path for them to get in skin in the game. And simultaneously they're like, God, I did that thing before and I don't want to go be the person in charge 100%. And if that's somebody listening, I think there's two types of humans. There are types of humans that are like, I want the risk, I want to be in charge and I want to try my hand against the universe. Let's go. Right. And then there's another person that's like, I just don't want to work in this job anymore and I'm kind of miserable and I wish I had more control over my fate, but I'm not sure I want to fully dive into in maybe ever or at least right now. And for that second type of person, it is perfectly okay to learn deal making and figure out how to get part of a company or part of the risk, or transfer some of your salary and earnings into a company that you get ownership for instead of taking straight up compensation. But not be the person where the buck stops with you. You can just take less of the risk, but take some of it. The only thing I'll add though is you can't get ownership without some risk. There has to be risk if you're going to become an owner. And so I think you're very right on that point.

[Tom Bilyeu]

All right, so going back to the idea of deal making versus running the business, do those skills dovetail or is that just general intelligence?

[Cody Sanchez]

They dovetail, I think, because nobody taught us. I mean, I was breaking this down with somebody yesterday. Nobody taught us the language of money like they taught us. It's like, you know how most people in the US speak Spanish? Like kind of. Yeah, like that much. Right. They're like, donde esta albano? You Know, like. But, like, if you were to go deeper and say, like, let's talk about the meaning of life in Spanish, oh, nobody's gonna be able to do it. Right.

[Tom Bilyeu]

See?

[Cody Sanchez]

And so because of that, we. We train for Spanish, but we never actually implement, utilize, and integrate Spanish. And so we can't actually speak the language, even though we might be able to understand pieces of it all over the place. I think it's the same with money. So we understand budgets, maybe we understand savings. We maybe understand investing in the stock market. We might understand salary. Like, what should I earn broadly? But I mean, God, some of the best entrepreneurs I know don't even know how do I structure a deal? Like, what does it mean? What are the levers that I can use price and terms, and inside of those price and terms in order to get a percentage of ownership. Like, that is not taught. That is taught in private equity. And I mean, it's not in private equity and finance. And that's about it. Maybe if you're like, if you have a VC startup, you learn a little bit of it because you're giving away the equity. So you learn it in reverse. But for the most part, nobody learns that. And because we don't learn that, we can never actually manipulate money at the highest level. And so I think they dovetail, and we've got to learn this language of money. So we have a whole port point basically talking about structuring, which most people would think is boring. Like, why would I want to learn how to structure a deal? What does that matter? Well, I give the example of, like, all right, if I'm on a stage, sometimes I'll pick somebody out of the audience, and I'll say, like, who here owns a bit like business? And then somebody will raise their hand. I'll go, okay, how much revenue does your business do a year? They'll be like $10 million. I'm like, awesome, I'd love to buy your business for a billion dollars. Would you take that deal? And they're like, yeah, where do I sign? I'm like, cool, right here. But you didn't look at the structure and the terms, which tell me that I am going to pay you a dollar a day until I pay off the billion dollars. Is that a good deal now or a bad deal? It's a bad deal. And structuring is all about that, right? It's like, hey, dude, I remember one time my attorney didn't catch a deal deal where what was the exact terms? It was. They missed gross profit instead of net Profit, the average person does not know the difference and, and the average person can't actually calculate that. So gross profit. So I ended up having to pay out a partner on a gross profit basis, which means basically revenue, like basically top line revenue to simplify.

[Tom Bilyeu]

Yeah.

[Cody Sanchez]

Instead of, of the actual money we took in hand. Now that could have bankrupted me if that was the only deal that I did. And so if we can learn these terms, we actually make money more money by doing the same thing we're doing right now. Because you would know, you know, if you read the book or if, if you obsessed with finance, you would know, oh, I don't want to structure a profit share deal because if I had to structure a profit share deal, then Tom could, could run all of his outfits in the business and take all of the profits out of the business. And when he pays me a percentage of profit, it's much lower. I want to try to do a revenue share deal because I want a percentage of top line revenue, the whole every dollar the company brings in. And if you don't know these terms, it's hard for you to actually do deals very similar to healthcare. I think it's like what they did to us in healthcare there, they're like organic asterisks. There's no definition for organic in the u. S. Healthcare system for, for food. So it's like, all right, what does organic mean? Grass fed. Well, that must be better because that means the bulls out in the field right now. Have you ever seen the thing with the cows in a row and they're just spewing a machine with grass at them and they're in all their own. It's actually not better. So it's like if we understand the words real meaning, that's where the money is and that's what we're trying to kind of like pull the curtain back on for people.

[Tom Bilyeu]

How can somebody watching this go, okay, wait a second. Either I'm going to be good at the deal side or I'm going to be good at the laundromat side. How do you help them bridge that? Or shut me down and show me that this really is one in the same. But it feels more like I'm going to look into, well, certainly you, it's obvious, you know, that you can scale just by being so good at dealing with. But I have a feeling if I look into your audience, your students, excuse me, I'm going to see the same thing that they're going to be good at. Either the deal or the running of the business. And it's really about bringing those two people together.

[Cody Sanchez]

Yeah, it's a good point. So my point before is not that deal making and running a business is similar. It's that if you do a partial deal and. Or you run the entire business, that's. Or you buy the entire business, that's similar. So it's basically. My point was basically you don't have to be good at running a business to do a deal deal. Facts just don't buy the whole thing. So if I was unclear on that, I want to make sure that's, that's clear now. You're totally right. There's. It's kind of like EOs, how they talk about in business a lot of times.

[Tom Bilyeu]

Entrepreneurial operating system.

[Cody Sanchez]

Correct. It's, you know, it's kind of like in business often they talk about having a visionary, right. Somebody who comes up with the crazy ideas. You, you know, what do we do next? Yeah, I want to do this. It's going to be magical. And then you have your integrator, the person who goes chill Tom, like, like, what's the budget on that? What are we going to do next? Here's, here's the timeline. Here's the follow up. It's a little rare in business to have both crazy ideas, big vision and ability to execute on the vision. And I do think in some ways I got lucky. I have a little bit of both of those. I definitely air more towards the hey, big ideas. But I'm also pretty maniacal on the details. And I think you could say, like, who would be best at this? Elon. Right, right. He's like crazy about details.

[Tom Bilyeu]

Don't say, yeah, I can't believe that people hate on that guy. It makes me want to crawl through the YouTube screen and bite somebody.

[Cody Sanchez]

It's like, no, I don't want that in my mouth.

[Tom Bilyeu]

You know, buys his, his politics. What he's done is unreal. Unreal. Anyway.

[Cody Sanchez]

Yeah, well, I, I think my soapbox. No, like a, if, if probably a measure of your bank account is whether you like Elon or not. Like if you don't like Elon Musk, I bet your bank account's not very big.

[Tom Bilyeu]

Or some big, big boys with bees

[Cody Sanchez]

after their well, or you have an ulterior motive.

[Tom Bilyeu]

There you go. Because they're, they're getting in squabbles now over politics for sure.

[Cody Sanchez]

Yeah, that's. Those are status games at that point. But if, if, you know, if you're not on Elon's level and you don't like him. That's okay to not like him as a personality, but to not respect what he has accomplished or at least want to learn from it, even if you hate the guy going, oh, by the way, he built three multi billion dollar businesses simultaneously that had never been created before. Like, I probably, I could learn something from him. You know, actually, a funny story, we had a member of one of our teams, we have a podcast too, you know, the Big Deal podcast. And on it I had a billionaire friend of mine, Joe Lonsdale, who built Palantir. And what was funny is we had a vendor that worked on the podcast. And about like three days before we had Joe on, the vendor reached out to my head of content and was like, the thing is, I don't feel morally right working on this podcast, and so you can give me anything else, but I'm going to opt out on that. And, and I hope you respect my moral compass on that or something like that. And, and at first I was like kind of categorically baffled because this was a business podcast. We weren't talking about Joe's politics, we weren't talking about Joe's background. We were literally talking about, how do you build. He's built five multi billion dollar businesses. I want to learn how he did that so that I could, even if I hated the guy, I want to, I want to steal his homework, of course. Wow. You could only learn from somebody you like what a limited worldview that would be. But the second thing that I thought was fascinating, I was like, the point of podcasts and all this media that we do is to beat up ideas. You know, it's, it's to see what ideas stand the test of time. And if you can't do that, you can't be on my team. Team. And so we said, you know, with all due respect and not a ton of it, you're fired. And no, I don't appreciate your moral compass at all. I think that you have a very limited world view and I think it's very sad for you. And if you only ever can talk to people that you 100 agree with, you'll never have any friends. And, oh, by the way, you'll never become intelligent because nobody will push back on your ideas. And so if, if you have an opportunity to talk to somebody you hate, it's a beautiful opportunity because you can understand why. Why do you do this? That doesn't make any sense to me. And then you can become better. But yeah, I don't understand people who don't like Elon. Either.

[Tom Bilyeu]

It's madness. So you brought up Elon. He's the best at balancing the two, which I think is really important for people that don't understand, give them a primer. So you're able to do both big ideas, set the vision, but you're also able to get into the details. Talk about that. That certainly by default, personality. I am a big idea person, but I found that my progress in business was held back until I could get in the oper of it all.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

Why does the integrator matter? What exactly are they doing?

[Cody Sanchez]

Yeah. Well, a couple of things you can do to figure out, can I run a business? Likely. And do I have. What it takes is there's tons of personality tests out there. So I think a few times. It's interesting for you to take something like a Colby test, which we have a lot of our people who work at our companies run through, and it basically shows you, you know, fast action. How fast are you to move on things? Which is a pretty high indicator of a. Of a visionary. I never like that word because it feels sort of weird. It's like I just sit up here too. Yeah. Yeah.

[Tom Bilyeu]

If there was a countervailing cool name for the integrator, I'd be okay with it. But like, you.

[Cody Sanchez]

Right?

[Tom Bilyeu]

It does.

[Cody Sanchez]

Yeah. It's like a visionary and that guy. You know, it's weird because you really can't have one without the other. You have to be both. So they're. They're pretty equal. Maybe the only difference with the visionary is that they take risk like that, again, is, I think, how money is made. But. So you can take a Colby test and you can find out how fast. Action. Action. Are you versus detail oriented?

[Tom Bilyeu]

And do you think an operator is just detail oriented?

[Cody Sanchez]

No, it's like a. It's a spectrum. And so you have to be. There's four pillars that are in it. Not that I think that this test is perfect or any of them are, but part of it is attention to detail, and part of it is a finalization of execution. So, like, how do you take something all the way to completion? And visionaries also typically have a less likelihood to be attention to detail and a less likelihood to follow execution. And I think most businesses and people's bank accounts die at the altar of 80% done, you know, and. And it's not actually that you guys don't start. It's not that it's not a good idea. It's that you don't finish. And that's why you're poor and and so if we can change that, then we can be successful in business. So you have to ask yourself, am I really good at taking risk, coming up with ideas, understanding complex structures, or by and large, am I really good at finishing things, doing what I said I was going to do and paying attention to the details. Details. And wherever you fall as an entrepreneur, I think the biggest mistakes we usually make is we hire somebody like us because we hire people we like. And my business has started to change when I hired somebody, not because I liked them, but because they had the opposite skill set, set of mine. They loved to do the things that I hated to do. And because of that we worked well. And so that's what I would ask yourself first is which one are you? And then whatever you don't have, you're going to either have to really compensate for that, that or you go find somebody to go on the journey with.

[Tom Bilyeu]

How long do you think this opportunity is going to play out? So we've got this $68 trillion trapped baby boomers. You're teaching people as fast as you can how to do the deal structure, how to get in, how to be an operator. But this is a limited window. So. Yeah, what, how quickly do people need to, to get in this.

[Cody Sanchez]

Yeah. Well, let's think about it this way, way since. So if you think this is an interesting idea, very categorically by 2030, we think a large majority of the $68 trillion in wealth will have been transferred or in some way destroy. Destroyed.

[Tom Bilyeu]

You could push, that's like five years.

[Cody Sanchez]

You could push that to 2035. And the way that we calculate that is basically boomy baby boomers to retirement age to degradation of business. When businesses start to plateau due to length of existence and you know, no new things added to the business complacency. Because you know, the only thing we know for sure, if your business isn't growing, it's stagnating, which means it's going to move into decay. And so retirement age, degradation of businesses and then the average lifespan in the US and so I think it is eminent, very, very eminent. I think this is the next 10 years we have to figure this out. And it's just math. Like how many 85 year olds are really coherent and can handle the game of business or like it anymore? Not very many. And so if we don't transfer before that, then I think that's not great. And simultaneously, how many 75 year olds are still moving their business forward or is the business starting to decay? And so we want to catch it before that period where we can sort of, we can continue and maybe even grow it. So the, it is eminent. And the, the, the second part about that that is, that is very, very true is, you know, private equity is the other alternative. So if we don't do something, will all 68 trillion get wiped away? No, but wealth will continue to get more and more concentrated.

[Tom Bilyeu]

All right, talk to me about that. I'm literally writing in all caps right now. BlackRock.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

So why not, why not just let BlackRock gobble it up, man?

[Cody Sanchez]

Yeah, I mean we basically have, have, we have a situation which BlackRock in 20o. Gosh. I should look at the exact number. I think it was in 2000, but check me on the Internet. Owned. So private equity in 2000 owned about 4% of U.S. businesses last year, meaning

[Tom Bilyeu]

stock market or everything.

[Cody Sanchez]

Private, Private businesses last year, 20%.

[Tom Bilyeu]

Woof.

[Cody Sanchez]

And that is accelerating. We're seeing more private equity funds continue. We're seeing increased fundraising levels. We're seeing, seen more companies get owned by the few. And it's actually really, really scary because if you look at the food market like there are 11 companies that we buy things from. Procter and Gamble, Kellogg's, we actually think that we have like 200 companies or 300 companies we buy things from. We don't. We have 11. And if you look at all the brands that they own, you realize, oh wow, this is why policy actually really matters in the food industry. Because 11 people control anything you put in or on your business body. Whoa, that's a little scary. And then you might go, well, maybe that's just the food industry. Then you'd be wrong. Because if you were to look at the S&P 500, you have four companies that own 40% of the S&P 500, our biggest companies in the world. And that is the, the Black Rocks and the Vanguards of the world. And I used to work at Vanguard, so. And my biggest competitor used to be BlackRock. I played with these guys all day. I have met with the CEOs of Vanguard and back in the day I met with the founder of Vanguard. And these people are not, not evil people. We are incentive aligned little chimpanzees that do things according to whether we get zapped or whether we get a treat. It's kind of how humans work. The problem is the incentives are really skewed. So if you went to Bill McNabb, right, the CEO of Vanguard, and you had asked him, which they did publicly, you can see his response. People would Say right now, well, those companies, BlackRock and Vanguard and the like, they don't actually own everything because they're passive index investors. Right.

[Tom Bilyeu]

I was literally just going to ask for clarification on this.

[Cody Sanchez]

Right. So they would say, no, no, it's not up to us. We just buy whatever is in the stock market and we don't have any influence on it.

[Tom Bilyeu]

On your behalf. A lot of times on your behalf, you go and give money to Vanguard. You go give.

[Cody Sanchez]

Exactly. Black and oh, by the way, we're Vanguard and we're very nice and kind and so we just lower your fees. They actually have an incredible economic structure separately. But that, that's, that's their mantra. Right. You know, Bogle was famous for driving the same car continuously all of his life. He's very Warren Buffett esque. Right.

[Tom Bilyeu]

I don't know why people love that so much.

[Cody Sanchez]

But yes, I know. Yeah, I'd rather know who you are for real.

[Tom Bilyeu]

That really may be who he is. But anyway, I won't yet.

[Cody Sanchez]

Okay. So the point is they say, hey, we just buy these passively, it's not up to us. And when I was in the industry, I sort of, I believed that a lot. But then Bill McNabb came out and said something he shouldn't, which is people think that we're passive and we're not. We absolutely talk to these companies about things like, like ESG and things like corporate governance.

[Tom Bilyeu]

Right?

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

All right, so this is his whole shtick. So I'm going to lay out what I think Black Rock and Vanguard do. You tell me if I've gotten this all correctly. So they're taking your money, boys and girls, and they are buying stock in these companies. And I think BlackRock owns more than 80% of the S&P 500. I'm pretty sure that's an accurate stat. Somebody should check me.

[Cody Sanchez]

I don't think it's accurate.

[Tom Bilyeu]

Drop it in the comments. When I heard about it, I was freaked out. In fact, we're looking it up right now.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

So we'll report back shortly.

[Cody Sanchez]

They might own 80% of the. Well, no, they would own 100%.

[Tom Bilyeu]

Meaning that the. All of the people in the world that own the shares own it through this very small number of companies.

[Cody Sanchez]

Yeah, I think it's 40% is the right number for the four.

[Tom Bilyeu]

What you're getting at, let's find BlackRock is one of the big three passive index funds managers that controls the largest share of at least 40% of the US companies. Companies. But 88 of the S P 500. Yeah, I, I thought that was correct.

[Cody Sanchez]

You're right.

[Tom Bilyeu]

So that's more terrifying. Yeah. By a long shot. And so what they do is because most people that can hear my voice right now don't think about the fact that they own four shares here, five shares there, they just have their passive index fund.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

And that blackrock there was a law passed, I forget when that says, oh, whoever's aggregating these can aggregate their holders from a voting perspective.

[Cody Sanchez]

Correct.

[Tom Bilyeu]

And so they're voting on your behalf because you don't think about it, you probably don't even care. But then that concentrates to your point about policy, that concentrates these decisions in a tiny number of hands. Vivek started a firm to compete against these guys, basically saying, hey, we're going to vote on a pure fiduciary lane. So like them, we're going to aggregate and vote on your behalf half. But we're going to do it based on what is going to return the most capital to shareholders instead of things like esg, which may or may not yield returns.

[Cody Sanchez]

Yep.

[Tom Bilyeu]

Utterly fascinating. This is one. You and I were talking about this before we started rolling. My obsession is I'm trying to make my brain the ultimate prediction engine.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

To do that, I have to understand how the world actually works. And man, when you start peeling back the layers on things like how BlackRock works, works, it's scary. And they, I will assume that they're lovely people.

[Cody Sanchez]

Yeah.

[Tom Bilyeu]

For better or worse, I'll make that assumption. That doesn't mean that when changes like that get centralized that it yields a good outcome. Even when you have good intention, people. And this goes back to Abraham Lincoln and his whole idea of a team of rivals. You have to want tension between ideas in order to get somewhere. Well, you actually mentioned that earlier, earlier said you're never going to get smart if you're morally turning people off because they're not going to sharpen your own thinking.

[Cody Sanchez]

That's right.

[Tom Bilyeu]

Which I agree with. Very aggressive.

[Cody Sanchez]

No, I mean, I think, you know, what you pulled up is so interesting. I also used to work at Vanguard. That was the very first company that I worked for when I got into finance. And I remember that we, for a period, they do like every single time a company votes on something important within them. So let's say for instance, a big public company, Amazon, that we own part of at Vanguard, has a big change that they need to make. Well, it's called proxy voting. So like basically Vanguard would go out and say, hey, we're going to vote on your behalf. I'm your proxy. And they might have to pull a number of their shareholders in order to get XYZ done. And if you have one type of fund, then the shareholders have to have a message sent to them. And if you have another type of structure, they don't. And they are allowed to be your fiduciary. Well, it's not even called the fiduciary. They are allowed to act on your behalf. And I think the problem is exactly what you said. These big guys now can put their finger on the scale very easily for every single company. And what does that look like? Well, if blackrock meets with you and they say, hey, will you meet with our active management team? Active management means they're choosing to invest in, I don't know, pick a public company out there in Walmart or in Amazon. So BlackRock comes and meets with you and they. And you know that BlackRock has the ability to move your company stock more than anybody else does. Does. Right. And they can move your company's stock because of the passive things that they have, the, the stocks that they invest in regardless. But they want you to meet with their active team, and their active team says something, wants you to do something, etc. Is Amazon or Walmart going to say no to something that maybe an even an active part of BlackRock wants? Because it's not the direct passive component? I don't know. And there are all these rules in place where you're not allowed to put your finger on the scale, you're not allowed to do X and Y and Z, except if you are a shareholder holder, in which case you are actually allowed to put your finger on the scale. And that's what they've become. So I think that is really, really scary. But the part that we don't talk about as much is, you know, if you were to compare the founder of BlackRock's wealth versus the founder of Blackstone's wealth, who's wealthier? The founder of Blackstone. In fact, we could maybe you could pull up the numbers so we can see the. The numbers. Exactly. But Black Stone is worth like 10x what the black Rock founder is. Why does nobody talk about Blackstone? Because they're private. They don't have to disclose everything. They don't have to have public listings. They're not responsible to go and speak as often with the SEC and finra, which are the registering agencies for, for public companies by and large. And so they are actually unregulated, buying everything. And and that's really interesting because this is like the shadow influence that's even above and beyond black. BlackRock in some cases. And so what I'm concerned about is. There we go. So Schwarzman, that's the. That's the CEO of Blackstone, is worth 41 billion. Now go check out BlackRock 1.2 billion. So I'm sorry, not 10x.

[Tom Bilyeu]

Yeah, well, so also, though, that could be tied to just quantity of ownership and things like that.

[Cody Sanchez]

But, well, well, Schwarzman was actually part owner in BlackRock, because why are Blackstone and Black Rock so closely named? I was gonna say split.

[Tom Bilyeu]

It's basically the private and public. Public sectors. Although, no, you said that BlackRock does some private ownership now.

[Cody Sanchez]

They do private ownership as well. They do houses as well. You kind of, you know, these asset management firms gobble up everything. In fact, like, you know, I'm buddies with some of the people who run Andreessen Horowitz, but if you go and look at what happened to them, they registered as an asset management firm, not a venture capital firm, because they were also spreading their purview of what they do. And so my point is, again, these people are not bad. I. I mean, I have dear friends who work at Vanguard, State street, blackrock and Blackstone, and some of them run the. The companies. And. And I'm still quite close with them. But, man, should any of us own 40% of the company, the country's companies, and 80% of the S&P 500? No, that doesn't seem like a good idea. Not even me? Not you. And so I think it's maybe me. You're like, I'm willing to try. I just don't think it's right. That's why we don't go out anymore and try to buy all of the individual companies out there. That's why I talk about it so much in the book and I teach other people to do it because. Because I looked at some of these guys and was like, have you ever been inside of a company that you just can tell is owned by a private equity? Like, they just strip away kind of like all the extra things that were the soul of that company. And even big conglomerates, like, you walk into a Starbucks and you're like, this place sucks. You know, it's dirty. They don't know your name. They get your order wrong. You know, they're mad you're there half the time. That's not the third home or the third room or whatever they used to call it, the third space, you know, it's. It doesn't feel anything like home anymore.

[Tom Bilyeu]

All right, that's it for part one with Cody Sanchez. But do not miss part two coming up tomorrow. Until then, my friends, be legendary.

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