Codie Sanchez is an Austin-based entrepreneur, investor, and influencer. She is the founder of Contrarian Thinking, a media platform that teaches investing and financial independence.
Codie has amassed a following of over 800,000 on TikTok, 200,000 on Instagram, and 110,000 email subscribers. She recently launched a venture fund, Contrarian Thinking Capital, which raised $2.2M in two days.
Before becoming an entrepreneur, Codie worked as a private equity partner on Wall Street. Two of these firms included Goldman Sachs and State Street.
In this interview, Codie Sanchez discusses her journey from Wall Street to entrepreneurship. She also recounts how she built her social media following and offers advice for aspiring entrepreneurs.
Can you tell us about the first business you acquired and how you funded it?
Codie Sanchez: The very first business I bought was in the financial space. It was an asset management firm in another country down south in Latin America. We wanted to do business there. However, the only way to do that was to have a JV and acquire half of that company. The government required you to have a local presence and so we went after it.
We funded it through a mixture of cash and profit sharing on a go-forward basis a.k.a. seller financing. It was a brutal deal to get done but ended up being hugely profitable.
What are ways for investors to recapitalize after buying the first business so that they can grow their portfolio? Do you need a lot of your own capital for multiple acquisitions?
CS: There are many avenues in which you can look at deals utilizing OPM (Other People’s Money). I often recommend using a strategy like revenue share or profit share. This has allowed me to make acquisitions with zero of my own money.
What happens in a revenue share deal is I am taking control of a company that is in trouble or having financial problems. The company is considered a distressed asset. As a result, I am able to take control without putting any of my own money down.
I then pay the sellers out of the new profits that I generate in the business. There are so many small struggling businesses that have enormous potential if you manage them well, so this is a serious option to consider.
A more simple deal structure is seller financing. This simply means that rather than getting a loan from a bank to acquire a business, the seller is essentially acting as the bank. You would give them a down payment at the close of the transaction. That amount can be negotiated. You then pay them monthly installments over the next two to five years just as you would make loan payments to a bank. This allows you to acquire a company without having much cash of your own and without having to go through the process of bank financing. The majority of businesses are actually acquired through seller financing.
Lastly, everybody should look at options for SBA loans. They have been pivotal in helping me acquire businesses.
Does potential appreciation play a role in your acquisition decisions…or do you primarily focus on cash flow?
CS: You want to see both metrics at play, but a property or business that cashflows with an opportunity for appreciation can be a solid investment overall. A great example of capitalizing on both metrics is a business that includes real estate in the transaction, such as a car wash or laundromat.
The number one priority is doing my due diligence to ensure the business is profitable and that I will be able to add value organically without relying on appreciation to recoup my investment.
Then I ask if this is a repeatable model — cars or clothes get dirty and must be cleaned again and again — and as recession-proof as possible — always a need to clean. If the deal includes land, then I evaluate it separately. I consider if I think that part of the deal is good and will appreciate. Critical to look at both separately.
This means that a) I am profitable on Day One and b) if appreciation does not happen, I am still protected by cashflow as long as the business is healthy.
How does Codie Sanchez stay on top of her businesses located in other cities or states?
CS: You need to have solid operators in place and take advantage of the plethora of technology tools at your disposal.
A deeply experienced operator in the space would be adept at managing the day-to-day operations of your business. You need to identify an operator who can meet the revenue and profit metrics that you have set for the business and do it at a cost that allows you to still meet your own target earnings as the business owner.
Incorporating the appropriate tech stack is also paramount to operating any business, no matter the location.
I use specific tools to help with team communication, financial planning, marketing tasks, and even hiring. This helps me stay organized on daily operations and affords me the time to focus on big-picture development. Otherwise, you’re just buying a ton of jobs… nobody wants that! You can find a list of our recommended tools at Contrarian Thinking.
What is one of the best pieces of money advice that you have for those under 30?
CS: One of the best ways to create more money is to grow upwards along the wealth tripod. There are three legs to this tripod.
- Time: Where most start out, I have the time but haven’t yet acquired the expertise or money.
- Expertise: I have spent the time to develop the skills and expertise to act.
- Money: I have utilized my time and expertise to get to this level where I now have money to invest.
Time is the lowest lever point. You spend more time finding the deals and working through the paces until you get to the expertise lever. Then you trade off your acquired expertise for money. The top lever is you have more money to give and invest in abundance.
Use your time to find and vet the deal, do the due diligence, then find someone who has the expertise and someone who has money to invest, or both.
You leverage others’ expertise or money with your time and you all get a stake in the business. As that business makes you money and can repeat a similar strategy to find a new deal, however, you can use someone else’s time to increase your cash flow.
