Podcast episode Summary

☀️ Quick Takes

Is this Podcast episode Clickbait?

1-Sentence-Summary

Favorite Quote from the Author

“if you own one business and something bad happens somebody steals from you or you know something happens that can cause that to all fall apart well if 99% of your net worth which a lot of people who are entrepreneurs that's the way they're set up 90% of their net worth is in that one business like by having a portfolio of businesses and having a diversified set of things that you build through a holdco you can avoid some of the risk that normal entrepreneurs have”

💨 tl;dr

Starting a holding company (holdco) is about owning multiple businesses without direct management. It requires understanding your passions, significant ownership stakes, and careful legal structuring. The journey is gradual, focusing on long-term wealth, and allows for strategic diversification and risk mitigation. Networking and learning from mistakes are key to success.

💡 Key Ideas

• Hold coing is about owning multiple businesses without running them directly; it's a different approach from traditional entrepreneurship.
• Understanding personal passions is key to crafting a holdco that reflects one's mission.
• A holdco can have significant ownership stakes (30%-80%) in its businesses, offering controlling interest compared to typical investors.
• Types of holdcos include rollups, platform businesses, and pure holdcos like Berkshire Hathaway, each serving different strategies and structures.
• Establishing a holdco requires careful legal structuring and a team of advisors; simplicity often works better than complexity.
• The journey to building a holdco is gradual and focuses on long-term wealth rather than quick exits.
• Current trends make starting businesses cheaper and easier, with many entrepreneurs creating holdcos to manage low-capex ventures.
• Holdcos allow for strategic diversification, risk mitigation, and financial advantages, like tax savings across multiple businesses.
• Centralization in holding companies can vary; more homogeneous assets allow for greater operational centralization.
• Individual suitability for the holdco model varies; it's important to find a structure that aligns with personal goals and happiness.
• Building a successful project first is crucial before expanding into a holdco; reinvesting profits helps create an ecosystem.
• Networking and learning opportunities, like conferences, are beneficial for aspiring holdco operators.

🎓 Lessons Learnt

• Understand Your Passion: Know what drives you before starting a hold co, aligning your business with your mission to live your best life.

• Learn from Mistakes: Acknowledge that mistakes will happen; use them as learning opportunities as you build your holding company.

• Surround Yourself with Advisers: Having the right people around is crucial for success in managing a holding company.

• Ownership Matters: Aim for a significant ownership stake (30% or more) in businesses for real influence and control, rather than being a passive investor.

• Diverse Business Types: You can include various asset classes in your holding company, like tech startups and real estate, giving you flexibility.

• Craft a Lifestyle Business: Ensure your holding company aligns with your passions and lifestyle rather than dictating it.

• Consult Professionals: Always run your business plans by your attorney and tax advisor to ensure everything is set up correctly.

• Enjoy the Process: Building your portfolio should be meaningful and fun; find joy in working with inspiring people.

• Leverage Technology: Use existing platforms to lower startup costs and simplify tech setups, making it easier to launch a business.

• Diversify Your Portfolio: A mix of businesses can shield you from risks tied to any single venture, creating financial resilience.

• Balance Cyclicality: Mix businesses to stabilize performance against external factors that could impact one venture.

• Flexibility in Structure: A combination of centralized and decentralized operations can be beneficial; find what works best for your situation.

• Build One Successful Business First: Start with a profitable project before expanding into a holding company, laying a solid foundation.

🌚 Conclusion

Building a holdco can be rewarding if it aligns with your lifestyle and passions. Start with one successful business, surround yourself with the right advisors, and enjoy the process. Flexibility in structure and leveraging technology can enhance your success in managing diverse ventures.

In-Depth

All Key Ideas

Understanding Hold Coing

• I describe hold coing as you own multiple businesses and you don't run any of them.
• It's important to understand what drives your passion and how to craft a business that reflects that mission.
• The hold co strategy is different from traditional entrepreneurship where one owns and runs a single business.
• There are different types of hold cos, and it's possible to put your own holdco together.
• Mistakes in hold coing can be common, and it's a learning experience.
• The importance of having the right advisers around the table when starting a hold co.
• Personal holding companies differ from larger corporate holding companies like Berkshire Hathaway.

Holding Company Characteristics

• The scale of a holding company can be measured by the number of employees it has, as mentioned with 600 people working across businesses.
• A holding company (holdco) has significant ownership stakes (30% to 80%) in its businesses, providing a controlling interest or substantial influence, unlike a venture capitalist or angel investor.
• Holding companies can encompass a variety of business types and asset classes, including tech startups, agency services, and real estate assets.

Insights on Holding Companies

• A holding company allows individuals to craft a business world that serves their lifestyle and passions.
• The joy of holding companies comes from creativity and supporting others rather than managing daily operations.
• Personal fulfillment in business can come from helping others grow and succeed rather than just focusing on profits.
• Different people have different motivations; some thrive in detail-oriented roles while others seek creative freedom.

Types of Business Structures

• A rollup is a portfolio of similar businesses, like non-ferrous foundries, that provides commoditized services in a local area.
• A platform-type business groups multiple categories around a single idea, like community, where entities win together.
• A pure holdco, like Berkshire Hathaway, owns diverse businesses without a unifying theme, focusing on management and coordination.
• A holdco can provide advantages like corporate shield, easier management, and maintaining ownership across entities.
• Structuring a holdco involves decisions about LLCs, C Corps, or pass-through entities based on desired outcomes and cash flow management.
• It's recommended to consult a lawyer for proper legal structuring of businesses within a holdco.

Establishing a Holding Company

• Establishing a holding company involves complex structuring and requires a team of advisors, including a lawyer, CPA, and tax advisor.
• Most people tend to overcomplicate the setup of a holding company; simplicity can be an effective approach.
• The journey to creating a holding company is usually gradual and can be a long-term wealth-building strategy rather than an immediate goal.
• The venture capital (VC) process is lengthy, often requiring years of ongoing work on deals before seeing exits.

Business Insights

• It's not just like start a company sell that company; you're building up a portfolio of things over time and letting them compound.
• Designing for a successful business shouldn’t come at the cost of having a successful life.
• As a hold co operator, you can do asymmetric bets; investing a small amount can lead to high returns.
• The cost of starting technology-enabled businesses has dramatically decreased, making incubation more cost-effective.
• You can create new businesses alongside acquiring them for more leverage in a holding company structure.

Trends in Entrepreneurship

• Starting a business today is significantly cheaper due to advancements like AWS and Shopify, allowing for low-capex ventures.
• The rise of mobile apps and distribution through platforms like TikTok has made it easier for young entrepreneurs to build profitable businesses quickly.
• People are increasingly creating holding companies (holdcos) to manage a portfolio of low-capex businesses.
• Some entrepreneurs access outside capital to build their holdco, which can enhance their ability to acquire and grow businesses.
• There's a spectrum of capital requirement in businesses, with some needing personal capital and others leveraging external funding for growth.

Benefits of a Holdco

• The holdco can buy equity in deals and become partners, enhancing attractiveness to lenders.
• With a diversified holdings of businesses, banks feel more comfortable financing new acquisitions without needing additional capital injection.
• Drawing down on a line of credit can provide an unfair advantage for incubating new ventures, despite the drawbacks of taking on debt.
• Managing investor relationships takes significant time and energy, making solo operations sometimes more appealing.
• A holdco can offer tax savings through offsetting active and passive earnings and losses across a portfolio of businesses.

Advantages of Holding Companies

• There's a financial advantage to hiring in Canada due to currency exchange rates, providing a 39% discount.
• A holding company (Hold Co) can increase resilience and risk avoidance by diversifying investments across multiple businesses.
• Entrepreneurs often have most of their net worth tied to a single business, which poses risks that can be mitigated by a diversified portfolio.
• Hold Co allows for strategic balancing of businesses to avoid cyclicality, such as pairing weather-dependent businesses with more stable ones.
• The level of centralization in a Hold Co should depend on the asset type, with opportunities for centralized functions like HR and marketing in franchise operations.

Centralization and Holding Companies

• The more homogeneous the assets, the more you can centralize operations; decentralized structures push activities to individual portfolio companies.
• Different holding companies, like Berkshire Hathaway, have varying levels of centralization based on their asset types.
• Centralization can lead to effective management in certain cases, as seen in franchises and with centralized functions like HR and finance.
• The structure of a holding company can be a spectrum, ranging from mostly decentralized with some centralized functions to the opposite.
• Not everyone is suited for a holding company model; it requires specific skills and a mindset that embraces less direct control.
• The holding company lifestyle can be fulfilling for some, but it's not for everyone; individual happiness should guide the choice.

Building Successful Projects and Holding Companies

• Building one successful project is essential before expanding into a holding company.
• The process involves acquiring other businesses and reinvesting profits to create an ecosystem.
• A conference on wealth building through holding companies is planned in Utah, focusing on a lifestyle approach to hold co-ing.
• The speaker promotes networking and learning opportunities at the conference, highlighting its intimate setting.

All Lessons Learnt

Tips for Starting a Holding Company

• Understand your passion before starting a hold co: You need to know what drives you and how to align your business with that mission to live your best life.
• Learn from mistakes in hold coing: Acknowledge that there will be mistakes, and it's important to learn from them as you build your holding company.
• Surround yourself with the right advisers: Having the right people around the table is crucial for success in managing a holding company.
• Explore the hold co strategy as an option: It's important to expose yourself to different entrepreneurial strategies, like hold coing, and determine if it's the right fit for you.
• Community-based products can outperform others: Starting with an audience and building a community can lead to better product success.

Key Benefits of Being a Holdco Operator

• Ownership Matters: Being a holdco operator means having a significant ownership stake in businesses (30% or more), which allows for real influence and control, unlike being a passive investor.
• Diverse Business Types: You have the freedom to include various types of businesses and asset classes in your holding company, such as tech startups, agencies, and real estate.
• Focus on Real Ownership: It's essential to own assets directly (like real estate) rather than just being an investor in someone else's fund, which gives you actual control and accountability.

Business and Lifestyle Insights

• Craft a business that serves your lifestyle: When starting a holding company, ensure it aligns with your passions and allows you to live your best life, rather than letting the business dictate your lifestyle.
• Find joy in creativity and helping others: If you're not fulfilled in a single business, explore opportunities where you can be creative and support others, like helping CEOs grow in their roles.
• Recognize what drives you: Understand your personal passion and mission before diving into holding companies or entrepreneurship. This clarity will help you build a portfolio that reflects your goals.
• Dissatisfaction can lead to new paths: Feeling bored or unfulfilled in your current role can be a signal to explore other avenues, like creating a holding company, where you can thrive creatively.

Steps for Setting Up a Holding Company

• Talk to a lawyer.
• Structure based on outcomes.
• Avoid unnecessary complexity.
• Different entities serve different purposes.

Steps for Setting Up a Holding Company

• Talk to a lawyer and tax adviser
• Build an All-Star team
• Keep it simple
• Plan long-term
• Understand the VC lifecycle

Business Ownership Tips

• Have a Plan: Figure out what you want out of owning multiple businesses and design your organizational structure accordingly.
• Consult Professionals: Run your business plans by your attorney and tax advisor to ensure everything is set up correctly.
• Prioritize Happiness: Design your business for a successful life, not just a successful business, to avoid creating a life that you hate.
• Enjoy the Process: Find joy in building your portfolio and working with inspiring CEOs; it should feel meaningful and fun.
• Embrace Asymmetric Bets: Invest in new businesses where the potential return far outweighs the initial investment, making it a lower-risk opportunity.
• Leverage Technology: Utilize existing platforms and tools to lower the cost of starting a business, especially in tech-enabled sectors.

Business Insights

• Startup Costs are Lower Now: It’s cheaper than ever to start a business thanks to services like AWS and platforms that simplify tech setups, allowing you to launch for just a few thousand dollars instead of millions.
• Distribution is Key: To make your business successful, figuring out how to create distribution is crucial. If you can tap into distribution channels effectively, your business could really take off.
• Low Capex Business Models are Viable: Building a portfolio of low capital requirement businesses can be a smart strategy. You can bootstrap these types of businesses using personal capital without needing significant external funding.
• Access to Capital Can Accelerate Growth: For those needing more capital, getting outside funding can help acquire businesses and build a portfolio, as seen with companies like Enduring Ventures.
• Leveraging Personal Holdings: You can leverage your personal holdings to access more capital, which can then be used to acquire additional businesses within your holding company structure.

Lessons Learnt

• Holdcos can enhance borrowing capabilities.
• Managing investor relationships is time-consuming.
• Holdcos can provide tax efficiency.
• Consider global talent, especially from Canada.

Business Management Strategies

• Diversify Your Portfolio: By having a portfolio of businesses through a holding company, you can avoid the risks associated with relying on a single business for your net worth. This helps create a more resilient financial situation.
• Balance Cyclicality: If one business is affected by external factors (like weather), having a mix of businesses that are not dependent on the same factors can help stabilize your overall performance.
• Centralization Depends on Asset Type: The level of centralization in managing multiple businesses should align with the type of assets you own. For example, centralizing HR and marketing for similar franchises can improve efficiency and reduce costs.
• Risk Management: A holding company can help mitigate risks associated with regulatory changes, tax law changes, and technological shifts by spreading investments across different sectors or businesses.

Business Structure Considerations

• Centralization vs. Decentralization: Depending on the type of assets you have, you may want to centralize or decentralize operations. Centralization can streamline processes, but some assets may benefit from a more decentralized approach.
• Play to Your Strengths: Build a business structure that aligns with your strengths and weaknesses. If you're not good at certain operational tasks, don't force yourself into roles that don’t suit you.
• Personal Preference Matters: Not everyone is suited for a holding company structure. It requires a specific mindset and set of skills, so it's essential to evaluate if it fits your lifestyle and career goals.
• Flexibility in Structure: It’s okay to have a mix of centralized and decentralized operations. Finding a balance that works for your specific situation can be beneficial.
• Happiness in Business: Choose a business model that makes you happy. If the holding company approach doesn’t resonate with you, it’s fine to pursue what does make you fulfilled.

Business Development Tips

• Build one successful business first before starting a holding company. This means you need at least one profitable project to create a foundation for expanding into multiple businesses.
• Consider reinvesting profits into new opportunities. Once you have a successful business, using profits to acquire or invest in additional projects can help build your ecosystem.
• Don't feel pressured to start a holding company from day one. You can develop your entrepreneurial journey step-by-step, beginning with a single business.