Ep 487 After the Deal: How the Ultra-Wealthy Invest After Selling Their Business
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Hi there, and welcome back to another edition of Built to Sell Radio, the podcast designed to help you punch above your weight in a negotiation to sell your company.

I'm the executive producer, Colin Morgan, and on today's After The Deal show, we explore what happens when work becomes a choice, not a requirement. Today's episode is all about what ultra high net worth entrepreneurs do with their money after selling a business and the mistakes that can wipe out a fortune. Michael Sonnenfeld sold two companies before the age of 43, making him wealthy beyond his expectations.

But he quickly realized that the skills that made him a great entrepreneur didn't translate into smart investing. That hard-earned lesson led him to create Tiger21, an exclusive peer network for people with at least $20 million in investable assets. And in today's episode, you're going to discover the biggest investing mistake entrepreneurs make after selling, why angel investing is more of a hobby than a strategy for building wealth.

How the ultra-wealthy structure their portfolios to protect capital. What sticker shock really means after an exit. The hidden emotional challenges of living off your capital. If you've ever wondered what happens after the big payday, this episode will give you a rare glimpse into the world of the ultra-wealthy. Without further ado, here is Michael Sonnenfeld. ♪

Michael Sonnenfeld, welcome to Built to Sell Radio. Thanks for having me. Great to be here. I've heard your name many, many times, and so I'm excited to actually have a chance to chat with you. Tell me the origin story of Tiger 21. How did this thing come about?

So I was lucky enough at the age of 31 to have my first liquidity event. I had built with my partner the largest commercial renovation in the United States. And it was kind of a fairy tale story. We bought it for almost nothing. It was all debt, very little equity, and sold it for over $100 million. So on a return on equity, it was pretty great. And I found myself at 31

being a post event or post sale entrepreneur, but I'd never heard of anything called wealth preservation. It wasn't even a concept for me. And

So when you're 31 and have made a lot of money, you're dangerous. And I assumed if I did it once, it would be easy doing it more times. So instead of thinking about a well-diversified portfolio, I figured, let me just throw a few more chips on the table and they'll all turn out just as successfully as the first. And

the reality of the competitive world affected me much more deeply the second time than the first time. And so I had invested in a company, if you know what Zillow is today, where people look up, I essentially created

the precursor to Zillow, but our customer set were the professional brokers who could look up a location. And it was before the internet. You can think of those two things, not retail, pre-internet. And when the Iraq war occurred, it had an economic impact and our customer base, the brokers imploded. And so I wrote off

the entire investment. It was a very painful thing. And at that point, the investment was maybe a quarter of my net worth. So big, but not devastating. And then I had to figure out what to do next. The one thing that I remember, many entrepreneurs have seen this

I actually could create a construct where if everything bad going on happened simultaneously, I could lose a much bigger portion of my net worth. It was a fear fantasy, but every entrepreneur has it. And it didn't come to pass. I lost that one chunk of money, so to speak, in five years of my life. And so I went back into the real estate business, not the real estate information business.

and had a second success even bigger than the first. I built a firm called EMS, E-M-M-E-S. It means truth in Hebrew, and my initials are M-S and Michael Sonnenfeld. And we acquired 20 million feet of distressed properties during the savings and loan crisis. And to short circuit it at age 43, I had my second liquidity event even bigger than the first.

But this time I said, I don't want to be stupid like the first time. I want to learn how smart people, after they have a liquidity event,

preserve their capital while they prudently grow it instead of risk it and being facing the risk of going back to go and starting all over again. And so I had been in an organization called Vistage. Many people listening are either in EO or YPO or Vistage. Vistage and YPO were focused on CEOs,

of a certain size. And when you graduate, meaning you sell your business,

those lucky few at the high end become potentially members of Tiger 21. But at that point, there was no Tiger 21. So I took six people who were in my Vistage group that had been meeting every year. I had been in it for eight years and said, we've all sold our businesses. Let's learn from one another what you do after you sell your business to either start another one or preserve your capital.

Ultimately, we realized we wanted to think about legacy, philanthropy, the whole life after a sale. When do you start a new business? What do you do with your kids? And so the roots were in 25 years ago, I attracted six of my fellow Vistage members to start a

What then became Tiger 21. Tiger is an acronym for the investment group for enhanced results in the 21st century. And frankly, we thought that what this was about was taking proverbially supermen and superwomen who had been really successful and helping them grapple with the issues of post liquidity, which if you haven't had that...

wonderful event. Everybody wants to be in that, but if you're in that position, it's a real challenge. It's testing skills and perceptions and knowledge that you didn't have. And that was really the roots of Tiger. I wanted to surround myself with people who were as smart or smarter than me, had a better

perspective on how you invest the proceeds of a sale wisely without risking it all all over again. And I understand today you've got fairly, in fact, very stringent criteria for allowing someone to come into Tiger 21. What is the current criteria?

So obviously, our marketplace is for people who have a net worth of between $20 million and $1 billion. And by accomplishment, the last statistics show that our total membership, we have 1,600 members, aggregates about $200 billion to about 135%

million per member. So the average, the numeric average is about 135 million per member. But the most number of members are in the 50 to 70 million dollar range, balanced by many people who have

much more than 135 million. But that's really the only, that's the beginning. We have something called the five Cs, which has to do with the character and the ability for people to have not only the net worth, but the focus and be willing to show up when they're needed.

So it's really we're more interested in the character of our members. They have to have absolute. We do background checks because people are sharing confidential information. So obviously, confidentiality is one of the five C's as well. And each of these.

Forgive me for interrupting, but I think you might have just lost some of my members and my listeners. And so I want to go back. Sure. Because most of my listeners would not have anywhere near, what did you say, $50 to $70 million. $20 million to a billion. Many of them would be aspiring for that number.

but not be anywhere close to it today. I think it's fair to say that they would, if they were successful in building the business that they're building, sell it, they would get to the bottom end of that range maybe. So what is the minimum criteria? I know the five Cs exist, but do you have to have $20 million of investable assets to become a member? You do, but what the lessons...

that our members have are applicable to anybody on the entrepreneurial journey. The same issues that we have focused on and learned and honed over the last

20 years, 25 years can be a real guide and signpost for people who are in the entrepreneurial journey thinking, how long do I stay in it? When is it time to go? What should I be thinking about? And so what we find is by sharing our story, people who are in the middle of building businesses

get a much better perspective. We've recently started recruiting what we call pre-liquidity members so that they can prepare for the eventual sale. It doesn't matter whether your business is worth $2 million or $20 million or $200 million. You should be doing tax planning. You should be thinking about what life after the sale is about. You should be thinking about how it's going to affect your family and your

your life afterwards. So these are really quite applicable insights to anybody along the entrepreneurial journey. Well, let's talk about that. So let's imagine we're talking to an entrepreneur who is building a business, $5 million in revenue, $1 million of EBITDA. Has this started to think about their end game and starting to think, well, maybe, you know, maybe in the next three, five years I'm going to sell.

What should that owner be thinking about? Well, the most important two things about an entrepreneur is to imagine where the business is in its life cycle and where the entrepreneur is in his or her life cycle. Because obviously, if the business is a young business and has huge upside,

If you're 80 years old, you might not want to hang around to see the upside. But if you're 40 years old, you might want to consider owning it for 10 or 20 years. So this notion of each person knowing where they are in their own personal life cycle and knowing where the business is likely in its life cycle, some businesses, you

you know, peak out. They reach a plateau and for whatever reason, the skills of the owner or the marketplace doesn't allow them to keep scaling. Some people would say that's spinning their wheels to keep going with that business, although it may provide enough income that

that the owner wants to keep going down that road. So I would say really understanding the marketplace, it's obviously competition and how the future activity, but where is the business in the curve of its future potential would be a good thing. And what about the owner who

who's got a lifestyle business, who again, 5 million in revenue, a million dollars in EBITDA, it's flat year over year, but he or she's paying for the cars and the boats and the trips and everything's being run through the company and things are good. And they, you know, they see the prospect of selling for three, four or five times EBITDA. It's like, why would I ever do that? This thing's a cash cow. This is my gravy train. I'm good.

Well, that's my point about understanding these two factors. One of the things that we talk a lot about is something called sticker shock. And what sticker shot is about is just the person you're talking about. They have a business that might be worth $5 million.

After the $5 million of gains, unless they had QSBS tax exemption, they likely are going to pay a third of that or more in capital gains taxes. That leaves them $3.5 million. And notwithstanding that the market is down this year, if you invested it

the most you could expect to sustainably earn is 5 or 10 percent. Let's say it's 5 percent if you're putting it into bonds. Five percent on $3.5 million is an awful lot less than a million dollars. If you keep the business going,

You have a million dollars and some tax benefits of owning the business versus the sticker shock that your income will go down dramatically if you just sell the business at a low multiple, pay the taxes, and then think about what interest is. So a lot of people don't go through that calculation. And when they're faced with that calculation, you know, 5% of

$3.5 million is, what is it, $175,000. So you were making $1 million a year owning a business and then you sell it and all of a sudden you're making $175,000 and you say, I can't even pay for that vacation that I had before or the second house or I can't even make a charitable contribution.

So one of the most important things is obviously some businesses, because of the nature of the business, will sell at a low multiple. Other businesses will sell at a high multiple. A high multiple business is more likely to be able to replace the income you're earning on an after-tax basis than a low multiple business. And you better know which one you're in before you start thinking about it.

Well, let's talk about another scenario where I just got off the podcast with Christy. She built an orange theory set of franchises and she was on paper really successful. I mean, even a margins, I think they were like 40% margins. I mean, this was a successful juggernaut business.

yet she was cash poor. Every time she made any money, she bought another, you know, another franchise. She built out another franchise. So she on paper was making all kinds of money, but it was a thirsty, very, very hungry business. And so kind of woke up at age 40, 45, two young kids thinking, holy moly, like I,

I'm all in. I've got all these lease commitments. I'm basically negative, you know, not negative net worth, but I'm certainly negative cash flow. Yet on paper, I'm worth all this money. What should she be thinking about? Just what you're talking about. If, you know, some businesses to grow,

require a lot of capital. A few very lucky businesses generate capital as they grow. In other words, an insurance company that has premiums that you can invest has more capital the more it grows, whereas more cash the more it grows.

But most businesses, as they grow, need money to fund receivables and capital expenses and inventory. And so you better know what kind of business you're in because growth has two sides. Growth is both an ally and an enemy. And if you haven't figured out which is the dominant factor in your particular business, you probably shouldn't make a decision until you do.

Okay, so certainly understanding where you are on the life cycle personally, as well as where your business is on the life cycle is important to really reconcile and think about pre. Are there other practical, like if I was in a portfolio defense meeting with you, I realize they're much larger businesses. But if I was in that meeting, what would other entrepreneurs poke holes at?

in order to get me to think about if I was pre-liquidity event. The inherent risks in the business, when you think about the inherent risks in a business, there's new forms of competition. So if you owned a call center, as an example, where you had a couple hundred people answering phones,

All of a sudden today with AI, you can replace 700 people with a desktop computer and it's a better service to the customer. So you see literally, I think it's tens of thousands, if not hundreds of thousands of people going out of business or being let go because the call center that they operated at is going to be replaced by a simple desktop computer.

So technology is a place where people really fool themselves if they're not on top of the technology that is either going to wipe out or enhance the business that they're in. Obviously, if you're the person who has the AI technology and you don't have the legacy assets of the call centers, you're the person that's going to put the call centers out of business and you might have a bright future. So assessing risk

is one thing. The other thing is that

Inevitably, people's personal circumstances tend to either support or limit what they can put into a business. Sometimes you have a spouse that wants to have more time with you or travel more often or spend more money on going to the movies and going out to dinner or whatever it might be or would like you not to have so much money tied up in your house.

that you can't leave it in your business and let the business grow. The one thing that's overwhelmingly clear with the most successful entrepreneurs is on average, they've had to delay gratification for decades as they sacrifice for their business and build extraordinary value. There's something called a marshmallow test. The marshmallow test was done at Stanford University

with three-year-olds about 50 years ago. They put 23-year-olds around a table and put a marshmallow in front of each of the kids. And the instructor said, "I'm going to be back in 20 minutes. Anybody who still has their marshmallow, I'm going to give them two marshmallows." Well, of the 20 kids, I forget the exact number, but probably 17 or 18 of them couldn't wait the 20 minutes they ate the marshmallow. And one or two or three kids

had the fortitude to wait and they got two marshmallows. Apparently, that marshmallow test, they tracked those kids for the next 30 or 40 years. That simple marshmallow test is the single best predictor of future success of any emotional test ever devised because it's all about delayed gratification. And when I wrote my book on entrepreneurs, it became clear that-

delayed gratification. If you're not prepared to delay it and you don't know how to do it, it's tough to be an entrepreneur that's building a real business for the long term. I'd say, you know, one other thing that's a big lesson about entrepreneurs is

because it's a universal lesson, is to figure out if you have any mentors. Most entrepreneurs can't, many entrepreneurs are kind of lone rangers for whatever reason, but some lucky few figure out how to build a community or a single mentor who has the ability to help them. And my research has shown that if you take 100 people from any industry,

and line them up from least to most successful.

by any reasonable standard. So if you're a doctor, it might be articles published. And if you're a writer, it might be books published. And if you're a financier, it might be how much money you made. But whatever the most reasonable way to measure successes, if you line those 100 people up, the 50 on the side that are most successful will overwhelmingly have had mentors and the 50 who have

the least successful will overwhelmingly have excuses for why they don't have mentors. It's just kind of a universal truth.

Well said. So think about the network. You know, Tim Ferriss is a big fan of saying you're the average of the five people you hang around with most. I'm not sure where he got it from, but that idea of having mentors, having a mastermind group that you're part of, et cetera, thinking about where you are in the life stage, et cetera. That's super helpful. And of course, sticker shock for sure. What do you see happening?

When people have the liquidity event, I'd love to kind of zero in on the next 12 months. So, you know, the check clears and on Built to Sell Radio, we often hear about like, where were you when you saw the check clear? Like, were you refreshing your bank or on your phone? Like, you know, it's a fun little thing to hear people's stories about when they saw the zeros in their bank account. Take me through that to the next, you know, 12 months on. So that one year period.

What are you seeing in terms of

what people do during that time? What are the mistakes? What are the best practices? - Well, obviously it depends how much money you get out of the sale relative to your current cash needs. Because if you end up with a million dollars from a sale and your lifestyle is $300,000 a year, you better start figuring out what to do pretty darn quick because the money isn't gonna last long. But assuming that

It's kind of a, I'll say, a liquidity event that is a life changing liquidity event in terms of its dollars, whatever the scale is that you have. The first is to realize that on average, the skills that allowed you to be a great entrepreneur predispose you to be a mediocre investor.

They're two completely different skill sets. And very few people, if you're not either an entrepreneur or an investor, look at them as if they're the same. It's kind of like we think of snow as that white stuff that comes down from the sky, but Eskimos have nine different varieties of snow that they know.

And the life of an entrepreneur is radically different from the life of an investor. An entrepreneur tends to be very focused on a single opportunity. No investor can afford to focus all his resources on a single opportunity because if it goes south, they're left with nothing.

investors, good investors know how to diversify prudently, not diversify. You don't need 200 investments or 100 investments. But if you only have one or two, you could really have a systemic risk that could put you out of business. The entrepreneurs tend to be much more intuitive. Another way of thinking about it is entrepreneurs tend, particularly successful entrepreneurs,

tend to get in a groove of some natural sweet spot. If you're a great salesman or saleswoman, you're going to have a sales company to maximize your success. If you're a great designer, you're going to have an architectural firm. But the point is that

You can't design the investing world in the same way. The investment world requires diversification across lots of platforms. So the biggest two mistakes that people make right before and after selling is they don't adequately do the tax planning leading up to the selling. So they tend to either

still have a business in their estate instead of possibly in their children's estate. And they don't set it up in a way to do that. And there's sometimes some charitable things you could do to save a lot of money. It's all about what I call tax and estate planning. But assuming the sale is over and maybe you've been lucky enough to plan it exquisitely, just to give you an idea, by the way, I was just involved in a transaction with

where if I hadn't done efficient planning,

I would have been left with one-third as much as I was, even though of the three times as much, so to speak, one-third of it was in a foundation and two-thirds of it were in my kids' names. But we ended up with three times the resources, even though arguably a third of those resources are now charitable. So if you ended up with $18

after estate and income and capital gains tax or

$52, would you rather have $52 even if a third of it was in a charitable foundation or would you rather have $18? I'd rather have $52 than $18. And that's how sometimes planning works. But my point is that after the sale,

The biggest mistake that members tend to make is overconfidence. And the reason they have overconfidence is the marketplace has just told them what a genius they are. They sold this business that they might have started with almost nothing, and they created millions of dollars of value. They must be a genius. Well, in the small, inefficient world of entrepreneurial companies,

they may have found a niche. But once you have capital to invest, you're competing with the world's best investors across every platform. So you have very little inherent advantage in the capital markets where you may have had a lot of advantage as a small-time entrepreneur. If you were a paper cup manufacturer, you might know more about paper cups than just about anybody else. But if you sold it for $5 or $50 million,

Now you are putting money in where there's trillions of dollars competing with you for every investor. It's hard to have an edge. So the thing that we do is we say, go slowly. Don't think you know as much as you think you do. And Malcolm Gladwell wrote a book about 10,000 hours, that it takes 10,000 hours to really master anything. And amazingly enough, we find that at about the fifth year mark,

after people have sold their businesses, when they really start hitting their stride as reasonably competent investors. But obviously, for every hundred really smart people who are investors, one or two of them is going to outperform all the rest for a reason, and many of them will underperform. So humility and realizing what people's capacity is, is probably the most important mistake because otherwise,

You have rookie mistakes, you invest too much, and you lose money before you know it. And it's like, if it took you 20 years to make that sale, you can give up the last five years in a heartbeat if you make a bad investment. So go slowly and have a little humility about what you know and don't know. Obviously, anonymizing. Can you tell a story of someone who thought they knew more than they did and

it didn't well i'll tell a story of a member who was in our group uh this is about 20 years ago maybe a little less than 20 years ago 17 years ago and you know they said i have um i have 80 of my portfolio in a fund that nobody had heard of called madoff and the group hadn't heard of madoff

But the group said, as it turns out, I had. I was in the group. I ran a fund at the time, and Madoff was one of my investments. But I had the discipline to have 14 positions, which meant each position had a 7% allocation. And we were generally making 10% a year. So even if I lost 100% of one position, I didn't lose the whole year's earnings. But the group just instinctively said, I don't care who Madoff is. We don't never heard of Madoff.

You can't, as an investor, put all your eggs in one basket. And here's the reason why. Unexpected things happen and you don't know. And sure enough, a month later, Madoff blew up. But during that month, that member had left the group because he didn't think he had anything to learn from Tiger 21. He thought he had it all.

wired by having 80% of his money in Tiger, in Madoff. So that's a simple example. But I know that after my liquidity event, when I made an investment, I made an investment that was, to me, I was embarrassed that I was only giving this fund manager 10% of what I had made.

But today, I would never even invest that much in a new fund that I didn't know that much about.

you know, when you make a lot of money, you kind of have a big ego about it and you want to appear like a strong investor. And somebody says, let's say you made $20 million, you should put $2 million into this fund. And you figure, well, it's only $2 million. But maybe you should have only put $1 million because you should have had a diversified portfolio or half a million dollars. So you can get caught up in that. But I guess the other

The other thing is that statistically, there's not a lot of evidence that if you have one success

that you're going to have two successes. It's kind of like a bell curve that the number of people who have two successes is an awful lot smaller than the number of people that have one success. And the number of people who have three successes is even smaller again. And some people think it might be a power law and some people think it may be a bell curve. It doesn't much matter. The point is,

that when people are successful with their first sale, they tend to be overconfident about their own abilities and not fully appreciate how lucky they've been. Obviously luck tends to favor those who are willing to work hard and prepare to take the risk. So luck is an important part, but people tend to be overconfident and that's the biggest issue. Is it hard for you to get that message across when you've personally been so successful?

Like you, Michael, you've shared two stories on this pod of you having spectacular success before the age of 40. Forgive me for saying this. We're looking at each other. I dare say you're a few years past 40 now. I'll be 70 in October. And you've had other successes since then. You shared the one where you had the third, third, third, and then you had Tiger 21, which is this wonderful company that if you sold it, I'm sure would be worth many, many, many millions of dollars. Here you are saying be humble, but...

But when we're looking at you, we're like, that guy's like a success. He can do it over and over and over again. Yeah, I don't know. I don't know anything about sports. It's not my particular focus. But anybody who thinks they could match the skills of the person they see on TV is only kidding themselves. We all have to look at...

ourselves in the mirror at two in the morning and say, Who am I? And if you're not honest with yourself, you can't make any decision about your future with the right chances of success.

What about angel investing? Because a lot of entrepreneurs sell, they've got some money, they look at the stock market and kind of go, oh, that's kind of boring. You know, to get my six, seven, 8% a year. I'm going to, I'm- Did you say, I didn't understand. Did you say lottery investing? I said, I said angel investing. I thought I heard lottery investing. No, I said angel. Angel investing is great, but it's not investing. It's a hobby.

And I think the the

The evidence will show that, of course, there are some great companies that came to market through angel investing. And there are some angel investors who have unique talents not to get caught up in the churn and the fashion and to ferret out a few good investments. But by and large, the biggest issue with angel investing

is it's being priced by amateurs. So you're like lambs being led to slaughter. The companies that have angel investors, one of the reasons they have angel investors instead of institutional investors is the institutions know how to better manage the risk of a startup and therefore would value it at less.

So they go to angel investors who get caught up with the interesting nature of the business or the product that they're creating or the service, but they don't know how to price risk. And what you find is angel investing is a lot like friends and family investing. What you find is when somebody's starting a business and they go to a friend or a family,

the friend or a family member doesn't care much about the price. They don't care whether the pre-money value is a million or $10 million because they say, you know, if this is successful, I'm going to make money. And if it's not successful, I'm going to lose my money anyway. So what's the difference about the price? Well, that might be true on a single investment, but if you're making tens or dozens or hundreds of investments,

you better know something about the pricing of the investments because many angel investments are overpriced and it's like paying twice as much for a lottery ticket as its mathematical value is. Okay, so no to angel investing. No, I didn't say no. I wouldn't say no. What I would say is people need to have humility and understand their own limitations.

Many people have made dramatic amounts of money as angel investors. Some of them, it was by pure luck, but some of them really had an edge. They honed an edge. Getting an edge in any kind of investing takes a huge amount of skill and a huge amount of perspective and a huge amount of humility. We can fool ourselves into having an edge, but the few investors that really do can really make a lot of money.

Super helpful. I just literally the week prior to this dropping, I interviewed Rick and Royce, the two professors at Harvard who have really pioneered this idea behind entrepreneurship through acquisition on the back of their book, How to Buy a Small Business.

I guess I'd be curious to know, I guess it's a close cousin to angel investing where a cashed out founder uses some of their wealth to buy a business. What are your thoughts? What have you seen among your members about buying another business versus starting another? There's a fundamental asymmetry between the seller of a small business and the buyer of a small business.

goes to what I said before about understanding not only where the business is in its life cycle, but where the owner is in their life cycle. And typically, you have a business owner who might have been growing a business for 20 or 25 years, and they're just sick and tired. They're exhausted or they're ready to retire.

So that business's value is driven more by the owner's life cycle than the business's life cycle. And a good buyer of small businesses will take advantage of that. They'll realize that they can underbid for the business relative to its inherent value because, number one, it's an illiquid, imperfect business.

market, but that the seller really is a motivated seller. They, God forbid, might have a disease and they have to an illness or they just might be tired. They've just had enough. So obviously, some businesses promote themselves and the buyer overpays for it. But generically, when the seller is an individual who's above 60 years of age or 70 years of age,

doesn't limit it to that. And the buyer is a professional buyer who can really assess the risks. There's an asymmetric benefit

to the buyer because once the process gets underway, the company is in play. The seller is already thinking about the vacation he's going to go on or she's going to go on with their family. And before you know it, you might lose 10 or 20 or even 50% of the value just to get the deal done.

And to go back to our recently cashed out founder who's trying to figure out what to do with the rest of their life. Let's imagine he or she is in their 40s. They've got a chunk of cash and they're looking at, OK, I'm

Let's say they've got 10 million bucks and they're like, okay, I could put that in the stock market and get seven, eight, nine points a year. Unless you lose 14 points in the first three months of the year. Yep. And they're looking at that as an option and saying, okay, that's one option, but what would I do with my life?

another option they're looking at is angel investing and we've sort of gone down that road. But another option is like either starting another business or buying a business. Right. I'd just be curious to know from your experience with the members you've seen, what's the hit rate on starting versus buying another business given they've got capital? That's a great, great question. I'd like to answer it this way. Most successful investors

entrepreneurs or investing entrepreneurs or entrepreneurial investors, use whatever term you want, learn how to scale and repeat a business. They find, I buy one, I develop a warehouse, I sold it or I populated it. Oh, I know how to do a warehouse, let me do a second warehouse, let me do a third. So much of American entrepreneurial or global entrepreneurial success

is in businesses that are scale and repeat or repeat and scale. That's how you own one bakery and you have five bakeries. You own one brokerage firm, you have five brokerage firms. That takes a certain discipline and skill set.

There's a smaller number of entrepreneurs, I happen to fit into this category, where you might only have four or five or six really, might only have one, but in my case, four or five or six significant deals in your life.

But you can't draw a string between any two of them. Each is completely different. I was in the real estate development business. And what does that have to do with Tiger? What does it have to do with buying distressed debt and on and on and on? And my point is, when you are able to have these kind of one-off ideas,

Sometimes you can form that kind of business with very small amounts of money and make a lot of money. And if you can do it more than once, it adds up to a career. So I'm obviously far from the wealthiest man in America. There's hundreds, if not thousands of people who are much more successful than me. But if you look at my successes,

Each one is completely different than the other because that's the way my mind works. I get bored with what I did last time and I want the challenge of doing something new. Well, the point is, I'm a great person to give a million dollars to and say start a business. But if you gave me a 100 million dollars, I'd probably waste it because that's not my skill. So when you sell your business,

you often think you want to take a big chunk of that to buy the next business. And of course, sometimes it works out and it's all in the details. There's no hard and fast rule. But the thing that I'm most amazed by is how few people, even at scale, realize you can take a small amount of money

And if you have the right set of skills, you can turn it into a very large amount of money because we have the kind of economy where a good idea can raise capital, a good idea can borrow capital. A track record is important. Of course, your reputation and your integrity is important. But the essential point that I'm making is that

Most people who sell businesses falsely assume that even though they started their business with nothing and turned it into a very valuable franchise, the next time around, they have to use a lot of capital to buy into the next business. And I spend a lot of time trying to convince people if they really have the bug to go do another business.

Think about how to put in the least amount of capital and have it work out well. It's easier said than done, of course, but it's a real eye opener when you look at some businesses that were started with small amounts of capital and grew to very large businesses. What's the perfect amount of money? How high is up? There is no perfect amount of money. There's been studies

that show that except under $100,000 or something, you can ask people who are worth $100,000 or $100 million how much more they want, or a billion, and almost universally it's 20% more. It's quite amazing. Everybody, the psychologists would say that you're anchoring on your own situation. Most people tend to anchor on their own situation. So,

Most people want more because it's within the nature of the human spirit to reach for more. But if you're worth $100 million, you might want to be worth $120 or maybe $200, but a billion is out of your aspiration. If you're worth $1 million, maybe the magic is in $2 million or $5 million, but you'd never get to $100 million.

And at each of these levels, you know, there's an interesting phenomenon that is quite remarkable. If you think about most people you know,

They act and think as if their money is more valuable than their time. You see people driving across straight lines to save a dollar on a gallon of gasoline. In the old days, people would buy cigarettes across state lines because it was cheaper. They didn't value their time. And there's a lot of things. Somebody goes from New York to San Diego.

They can get a cheaper ticket if they stop in Kansas City and switch planes. But I'm not stopping in Kansas City because my time is valuable. I need a direct flight. So the question is, another way of asking the question I think you were asking is, at what point is your time more valuable than your money?

And it obviously is at a different point for just about everybody. Different people do that. So there's no simple answer. Interestingly enough, in the tiger community, this may sound very aspirational. The number, believe it or not, is something like $100 million. At above $100 million,

People are flying private because their time becomes so valuable that if you want to go from point A to point B and you went by commercial air, it might take nine hours because you have to go two stops. But if you can fly in 45 minutes, how much is your time worth an hour? And at every scale, people do it at numbers much lower.

You have to become kind of a guru to have a million dollars and say my time is still more valuable than my money. I'd rather spend time with my kids or spend time with my children or give up something. But at every level, people should be really thinking about

a goal which says, when would my time be more valuable than my money? Spending time with family, loved one, kids, pursuing hobbies, philanthropy, doing good in the world. When are those things more valuable than the cost? And when am I willing to spend a little more to get that time or get that opportunity or give it? And so I don't think there's any perfect amount.

But I think it would be really good to think about when is your time more valuable than your money. And practically, you gave a great example. I've got to fly New York to LA and stopping nine hours, et cetera. How would one go about starting to make those decisions when time is worth more than money? So there's, yeah, look, there's been many studies about small entrepreneurial businesses

And it turns out, I don't know if it's still true, but this was true when I was in business school. When they looked at thousands of businesses, the owners were underachieving from an economic standpoint. The money they were making either valued the capital they had in the business at zero or the money they were making

valued their time at zero and it gave them a return on their capital. So it's an unusual thing in a business, but small single business owners very often can't achieve levels of performance that both pays them for their time and the return on capital. So one of the things that we do at Tiger, I often do is I ask somebody, what's the value of your time per hour?

because most entrepreneurs don't think about the value of their time per hour. And simply put, if somebody has a, I'll make this just a, I don't know if it's the right way to think about it, but if you're worth $5 million, you might think you can make a half a million dollars a year. But if you're paying your assistant $50,000 per year,

intuitively your time is worth about 10 times what your assistant's worth, my time is worth. Well, if your assistant can do something in an hour,

that takes you a half an hour to do, which is the better use of time. It's a lot better use of time for your assistant to do the job in an hour because your time is worth 10 times as much in terms of the business. I'm not talking about people's worth. I'm just talking about when you have to assume tasks. So most entrepreneurs don't think that way. They don't really think, what's my time worth?

But I spend a lot of time thinking about what's my time worth because when I'm traveling or I have a choice to do something or I can give up something to be able to have dinner with one of my kids or my wife or family or whatever, I just want to have a kind of sense of when is it economically reasonable to do that. And if entrepreneurs thought a little bit more about the value of their time and then saw

whether given the value of their time, is the business making enough to justify their time and the return on capital? It's a real eye opener for a lot of entrepreneurs. You've got such a unique lens into 1600 of these very, very wealthy people, average net worth 200 million or whatever you said. Just an enormous amount of money, but probably one of the

only people that has a lens into these folks. What is the quirkiest thing, the most unusual thing, the most surprising thing they spend money on? Well, there's a lot of studies. Our community is primarily first generation wealth creators. That's very different than inheritors of wealth. You could have two people of the same net worth

One who grew up with wealth and inherited it and the other who made it from scratch. And those two people, you couldn't recognize them as being from the same species. They have such because when you grow up with wealth,

you tend to learn to be more understated. So your clothes might be a better quality, but you might not have a large closet full. It's quality over quantity. When you grow up with nothing, sometimes you have not so much with entrepreneurs, but if you look at movie stars and other things, a lot of flash.

first-generation wealth creators. They grew up so poor that they just want to surround themselves with glitz and flash and fancy cars and fancy suits. And you see so many first-generation wealth creators, not in businesses, more in the arts and sports. And the reason is, by the way, that when you're an entrepreneur building a business, that requires real dedication and real discipline.

You don't have a God-given gift of a voice or an arm that all you have to do is exercise it to make money. You really have to sacrifice for decades. So when you can make the tens and hundreds of millions of dollars that movie stars and rock stars and basketball stars can make,

They tend to not value money as much as people who have to spend 20 and 30 years do it. You hear all these stories of football players that made millions of dollars but are broke by 40. Same with movie stars and all of the arts, because what makes them successful is

is a God given gift and they don't realize it. Whereas most entrepreneurs don't have God given gifts. They have disciplines, hard work and ideas, failure and success, and they have to slog it through. And unless they're really disciplined. So there's a huge difference between

money depending on how you make it and whether you really had to work hard for it or not. And by the way, when I say that, if you look at somebody like Madonna or any great artist, there's huge discipline. I'm not minimizing that.

But you still see so many of people in the sports entertainment worlds that have squandered the millions and millions of dollars that they've made by the time they're 40 or 50 years old. And you don't see that in the entrepreneurial world, people who've sacrificed for 20 or 30 years. So what's the most odd behavior when you have first generation wealth creators? They're uncomfortable. They still might be flying coach instead of first class or but they're

But there often is one thing that they pick that's very quiet that they don't want to flash. So I've been in meetings where somebody is wearing a suit that's off the rack. They came in a taxi instead of a limousine. They flew coach, but they're wearing a $100,000 watch because that's the one thing that they splurged on. Or somebody else...

still lives in a modest house and flies coach, but they're wearing a Brioni suit because that's the thing they splurged on. When you create significant wealth

from very modest means, very often the disciplined people allow themselves to pick one thing that somehow resonates with them beyond belief. It could be a car. You might be driving, I don't know whether it's a Rolls Royce or a Maserati or whatever it is. But other than that, but you might still be in a, you might have a car that's worth more than your house. You see that kind of stuff.

One of the things that I've heard among our guests who have sold a company consistently is how hard it is for them to live off their capital. Yeah. So they are- That's the sticker shock that I was talking about. Yeah. And in some cases, it may be not necessarily that- What's the word I'm looking for? It may not be-

An obvious thing, it may be just almost like a weird idiosyncrasy. Like they could have many millions of dollars on any spreadsheet they would have enough to sort of live for the rest of their life. But they still struggle with, quote, living off their capital. They've spent 20, 30 years always building, building, building, building, building. And they all of a sudden say they're trying to take a breath at 60 or 70 and they just can't be comfortable living off their capital.

When you say comfortable living off their capital,

You don't mean that they're capital constrained. You mean emotionally it's difficult to move off there. Emotionally. Correct. Sure. Correct. You know, you see that in any community, in any type of world where they've had to have limitations imposed on them for any reason. You know, somebody getting out of jail. I'm just using that as people from the Holocaust, people who grew up desperately poor who just can't enjoy something. It's just...

the habit forming nature of disciplines. In the case of the entrepreneur, what's forming the habit is you can't be a successful entrepreneur on average unless you're willing to be really disciplined and have delayed gratification. So once you have that success,

For so many years, you were flying coach and telling yourself that first class was a waste of money, that now that you can afford it, you can't justify it. My partner used to have a sign on his night table that said, fly first class. If you don't, your kids will. Great, great example. Are Tiger 21 members happy? Yeah.

My wife's grandmother used to say, rich or poor, it's good to have money. And my point is that Tiger 21 members, it's within the human condition to always want more. I would say Tiger members are not

much happier than any other cohort because it's the desire to achieve and the ambition that stays with you even after you sell a business that propels you to keep going and doing new things. But obviously, to the extent that one achieves wealth, certain things that make other people unhappy might affect you less.

But having that perspective is very difficult because the minute you're no longer worrying about your next sale,

You might be worrying about your kids or you might be worrying about the next house or you might be worrying about the markets. One of the things that people don't realize is when you have significant wealth that anybody who sells a business, doesn't matter again whether it's $5 million, $50 million or $500 million, is now you have assets that you protect.

that you become worried about. So if you were-- no matter how wealthy you are in the last 90 days, you'd be looking at the market and saying, oh my god, where is this going? And you wouldn't be too happy if you were fully invested. You'd be worried and nervous about the market. So there's something in the human nature that no sooner do you solve one problem than you're worrying about the next. But in terms of fulfilling--

Money is kind of a false trap, but there's no question that people who've enjoyed success have the opportunity for a kind of self-confidence and an achievement level that many people aspire to. And it's nice to have that kind of confidence. You know, I was talking to a family member a few days ago about a struggling business, and I don't know anything about that business.

So I was wondering, could I offer any advice? And they were thinking about closing down the business. And at the time, I really couldn't. But then a couple of days later, I realized I did have some advice, which is if you're thinking about closing down a business,

Don't have a long exit plan because if you have a long exit plan that's based on a lot of assumptions, very often those assumptions don't pan out. So the minute you've realized that you have to close down a business, do it with all speed

as possible as humanly as possible and and as genuinely humanely as possible but speed is warranted because nothing goes according to plan and if you have an intricate plan it often doesn't work out and my point is i had some satisfaction that i've actually had enough experience to have seen when

intricate planning that are built on levels of assumptions based one on the other don't work out. So it was one of those cases where I'm going to be 70 this year. I said, maybe I do have some accumulated wisdom that can help somebody facing a problem like that. And I'm not sure if I'm happy, but I was gratified that I could share some wisdom from at least my experience.

Fully well understanding, it may not be applicable to the situation, but at least it's a reference point I could be helpful with. Yeah, for sure. I was, you know, to go back to your point about

not always creating happiness, but creating a set of new challenges. I interviewed a guy named James Ashford about eight weeks ago and he relayed a great story. He said, like, I grew up poor. And so my kids, you know, like when I was a little kid, I went to the local school and that was where we, like, there was no option. I was going. Right. And then, you know, when we first had kids, he's like, they went to the local school because I had no options. And then I suddenly sold my business for many millions of dollars and

And all of a sudden they had a choice and it created friction with his spouse because they were now trying to figure out

they're thinking around money and how they thought about wealth and educating their kids. - It's the crisis. If you pull into a parking lot and there's one spot, you're taking it. If you pull into a parking lot and there's 30 spots, you can go into paroxysms of confusion about, should I park near the staircase or near the exit or do I wanna walk and on and on and on. And I think that when we think about Tiger

everybody would say, you know, those are problems I'd like to have. But with wealth opens up some new issues that sometimes people don't normally think about. And that doesn't mean you're not lucky to have them, but there's still problems that have to be dealt with and skill sets and knowledge bases that need to be brought to bear. You know, most people in America, if they think about going out to dinner at night,

the cost of the dinner or how fancy the dinner is,

is a consideration. So you're not going to go out to the fancy French restaurant two nights in a row. They might have pizza the second night. Well, for your listeners, most of them are not worrying about what the cost of the dinner is. So now they have to say, do I really want two French dinners in a row? Is that what I want? It's not about money. And with every issue, children, schools, vacations, homes,

travel, jewelry, you know, everything you're going to do is going to have choices. And some of those choices are going to be difficult and trying to do them reasonably and keep things in check is a whole different kettle of fish. How do you avoid screwing up your kids?

That's the number one question that Tiger members ask. We used to think the primary purpose for Tiger was to help people invest their capital. But if you listen to the conversations, there's a lot more emphasis on avoiding screwing up the kids. And I think the only answer I can say is the following.

The issue isn't whether you have money or not. It's whether your kids feel that they've grown up in an environment of unconditional love. Many parents are so tied up in their work that their kids really don't feel the confidence that comes from growing up in a house with unconditional love and knowing that no matter what happens, they'll be supported by their family and that their family is there to sacrifice for their well-being.

Doesn't matter how many zeros you have. If your kids grow up with a sense of unconditional love, they're going to fulfill their best potential. And if they feel like they're on a treadmill where they have to produce just to get your attention, they're going to do all sorts of crazy stuff to themselves and to the family that probably won't work out that well.

Sage words of wisdom, as have all of your words today. I'm super grateful for you taking the time, Michael. I know you're a busy guy and I think you've really given our listeners a ton of wisdom and things to think about both before they exit along with during the years that follow. So thank you for spending the time with me. Thanks so much. This was a lot of fun. Appreciate your interest.

Yeah. And Michael, where can people learn about you, Tiger? Where would you point people? www.tiger21.com. These days, if you go to any AI assistant and ask any question, you'll get an answer. So anything you're interested in, I don't know why you'd be interested in me, but if you were, just put my name into perplexity or chat GPT and half the stuff for sure is likely to be true.

We'll put Michael's coordinates and the Tiger 21 website all in the show notes of Built to Sell. Michael, thanks for doing this. Thanks so much.

And there you have it for today's episode between Michael and John. For show notes, including links to everything referenced in today's podcast with Michael, you can visit his episode page over at builttosell.com. And if you enjoyed this episode, first hit that subscribe button wherever you're listening to today's show. And if you want to help support this podcast, I'd encourage you to leave a rating and review. Also, as a reminder to watch this full video interview, you can head over to our YouTube channel at Built to Sell.

If you know of someone who'd be a great fit to be a guest right here on the podcast, you can nominate them by heading over to builttosell.com slash nominate. You can dare nominate yourself or someone else to be a guest right here on the show with John. Special thanks to Dennis Labataglia for handling today's audio engineering. And thank you to our community of certified value builders who help us bring our message to you. Our advisors are experts in helping you build the value of your company. To get in touch with an advisor or learn how to become one yourself, visit

head over to valuebuilder.com. I'm Colin Morgan, and I look forward to talking to you again next week.