The Private Equity Playbook Most Small Business Owners Never Get Access To

Codie Sanchez (0:02)

In those 1,600 businesses we've analyzed, you want to know how many were overpriced?

Zero. There was not a single one.

Rachel Warren (0:16)

That was Cody Sanchez, former Wall Street investor and author of Own or Be Owned, on what she found after analyzing over 1,000 small businesses up close.

I'm Motley Fool analyst Rachel Moran.

Cody has spent years helping business owners diagnose and fix what's actually broken. And she has the data to show what separates the businesses that make real money from the ones that slowly grind their owners into the ground. In this conversation, we get into why the playbook designed for billion-dollar Silicon Valley startups is actively hurting small business owners, what private equity knows about running profitable companies that most founders never learn, and what the $650 billion wave of PE capital moving into Main Street means for the businesses being acquired and the owners who are completely unprepared for it. We hope you enjoy. Welcome back to Motley Fool Conversations. I'm Motley Fool analyst Rachel Warren. Today, I'm delighted to welcome my guest who is completely flipping the script on how ordinary Americans think about building wealth. Cody Sanchez is a former Wall Street investor, a venture capital allocator, and the founder and CEO of Contrarian Thinking, one of the fastest growing investment media and business advisory platforms in the world. Cody is already a New York Times bestselling author for her foundational work Main Street Millionaire, but she's now back with her new book Own or Be Owned, Build a Business So Good It Doesn't Need You. That officially hits shelves on September 18th. Cody, welcome to the show.

Codie Sanchez (1:36)

Thank you for having me.

Rachel Warren (1:37)

I want to start by just diving right into your book. I mean, the core thesis of Own or Be Owned, it really introduces a sharp distinction between running a business and merely replacing a traditional salary with a more demanding job. So talk us through the core themes of your book, what led you to write it.

Codie Sanchez (1:53)

Well, we've now helped about 1,621 business owners over the course of at least a year grow their businesses more profitably. And the reason that we did that was to try to figure out why is it that we all sort of feel like as business owners, it's really hard, it's usually not very profitable, and even when we're winning, there's all of this sort of misery that goes around with business ownership. And this is sort of a thing that we've all heard many, many times, you know, like I left nine to five to work at 24-seven.

And what I've realized is that private equity, for instance, does not run businesses like this. They can have a portfolio of hundreds of businesses, those businesses can be profitable, consistent, and why is that? And the first reason you might think is because they have a lot of capital, and so they can just have a lot of money to burn, but they actually have to cash flow the business. And so the reason I wrote the book is I was a private equity investor for years, and I just thought, man, normal small businesses don't have these same systems and processes. And so instead, they run off of gut and sort of what everybody else, all of their competitors are doing, who also don't have a system or a process that is consistently run. And the idea is, can we take private equity systems that have been proven to make businesses profitable and cash flowing for decades and apply them to normal small businesses without having to take part of their company when we do it? And that is what owner be owned is. It's a system I wish I had back when I thought it was really miserable to run one business, too.

Rachel Warren (3:20)

Talk us through some of those systems. You're speaking with a small business owner, their business is not profitable, they're trying to scale. What tends to be the issue there? And then what are the solutions that your system presents?

Codie Sanchez (3:31)

You know, there's nothing new under the sun, except that in small business, it's like common sense. And then as I jokingly say with my team, it works so well, we never do it again. And I think in business, that is a lot of businesses. And so we have something called the 12 profit levers. And this is a mixture of all the things I learned in private equity and running 1600 small businesses through the system and realizing, wait a second, almost every business has one profit lever in your business where right now you don't realize it, but you're bleeding money or leaving money on the table. And the first three, like if I was to look at your business right now, I can almost guarantee one of these three things is holding you back from being as profitable as you want to be. And the first one is actually quite easy. You don't have to get another customer. You don't have to spend another dollar. It's just your pricing is probably wrong. This is not that sexy to talk about. Everybody wants to talk about leads and sales and offers. Okay, fine. If you're an incredible salesperson, do that. But for most small businesses, they're underpriced 30 to 300 percent. In those 1,600 businesses we've analyzed, you want to know how many were overpriced?