042 - The Green Swan Why Start a Business When You Can Buy One

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Time Speaker Text Tags
0 - 56 Jonathan Mendonsa All right guys. Welcome back to the Choose FI radio podcast. In today's episode we're going to be interviewing the green swan. Now what I love about that moniker is in the past we've talked about the idea of a Black Swan which would be a very rare but extremely damaging or calamitous event. And in the personal finance world it would be a financial catastrophe. The opposite of that would be I guess the green Swan So that would be the predictable path to wealth which is what on this show we're all about. So we have the Green swan on the show today and we're really taking a fresh look at the idea of entrepreneurship and we're going be looking at it through the focus of actually instead of trying to start a business from scratch from the ground up or building one that's a side hustle actually purchasing an already existing business and reinvigorating it to become a passive income stream for you and your family down the road. So very excited to get a chance to do this today and to help me with this I have my co-host Brad and I also have J.W. from the green swan dot org. J.W. How are you doing today.
families, hustle, passiveincome
56 - 58 JW - the Green Swan Hey good. How are you guys doing.
58 - 67 Jonathan Mendonsa I am doing fantastic. We're excited to have you on today and to explore a little bit of your story I've been reading your content since the beginning of this year. How long have you been blogging for.
blogger
67 - 69 JW - the Green Swan It's been about a year and a half now that I started.
69 - 76 Jonathan Mendonsa And what was your initial lightbulb moment that made you decide. I think I'd like to start recording my thoughts on the WWw.
76 - 107 JW - the Green Swan Yeah yeah. That was not an easy decision I guess but I didn't really have a good perspective of how huge the personal finance and kind of fire blogosphere was. So when I jumped on to it it was kind of eye opening. But I knew there was a number of folks out there like Mr. Money Mustache and just all the financial Samurai and those types read all their stuff and just thought I just join the conversation a little bit and was kind of blown away with how big and also how great this community is it's just filled with great people.
107 - 112 Jonathan Mendonsa And how did you discover the fire community in general what was your gateway to the FI community.
112 - 154 JW - the Green Swan My Gateway was Mr. Money Mustache. The timing was spurred by our first kid my wife Lucy and I had our first kid. Three years ago and at that point I started looking into life insurance and digging into what it would cost. Well kind of our cost of living was what it would take to replace my income her income. You know in those tragedy kind of events and it kind of led into well how much do I need period to then retire like if both of us didn't have an income it just was a natural progression into that. And stumbling into the retire or you know retiring early and then the fire community.
lifeinsurance
154 - 166 Jonathan Mendonsa You know I think there's something very deep here that we should just highlight and it was your gateway to life was looking at what you would need in case of death. There's got to be an article in there somewhere.
166 - 169 JW - the Green Swan That's a great way to look at it. That's well said.
169 - 209 Brad Barrett And I think that's an interesting point in that when you actually get quotes for life insurance i know speaking from personal experience this was actually one of my kind of seminal moments as well. JW So it really is interesting you know you get this insurance agent come in and they start quoting Oh you need a $2 million policy. I mean that was what the guy told me and I did the exact same thing as you know which was look at what what would happen if I actually died and alright pay off the mortgage pay for college and we already have X number of dollars saved up. so I mean to imagine that I needed a 2 million dollar policy was pretty laughable. I'm curious what that agent. I mean did you speak with an agent or. Or did you just do it on your own.
college, lifeinsurance
209 - 247 JW - the Green Swan Yeah I didn't even make it to an agent. I was looking at those same considerations the mortgage college and some sort of estimate for what the kid would cost. You know there's those estimates put out by the U.S. government then just thinking through those added lifestyle costs of having a kid. And if it's five hundred thousand or $750000 or policy or something like that like well I don't think I'm necessarily the normal person out there that doesn't have any savings. I already have 500 to 750000 saved. You know why do I need this policy. And that was kind of my train of thought.
college, savings
247 - 255 Brad Barrett Yeah that's cool. That's the exact same conclusion I came to him. Yeah those numbers are quoted I think are basically exactly what we got per own policy so that's. Yes very interesting.
255 - 271 JW - the Green Swan So we ultimately sidestepped it. We have small policies provided by our employers that will basically just cover the cost of putting us into the ground. I guess it's kind of morbid but you know other than that I feel like we're kind of near FI and so are good to go.
271 - 277 Jonathan Mendonsa So we talked about what that thought process was how old were you when you discovered the FI community.
277 - 280 JW - the Green Swan I would put it around 27 ish.
280 - 299 Jonathan Mendonsa OK. And as a follow up question to that when you look back at your pre-FI Post FI you're comparing the two. Was there. Was it a 180 or when you look back your decisions through specifically high school college in those early 20s. Do you view those as stepping stones that made this goal very doable or did you have to make any drastic changes.
college
300 - 329 JW - the Green Swan No. No real drastic changes. It was sort of a perfect stepping stone along the path discovering fire. I just kind of tighten the screws a little bit more on just the lifestyle decisions. My wife and I we've always been kind of cost conscious frugal. We did a lot of the right things from that standpoint there was things we could have improved but we saved early. We weren't frivolous with our money. And so we were kind of on the natural progression right out of college.
college
329 - 345 Brad Barrett Alright JW So it sounds like you've been frugal since the beginning. But we are always looking for actionable tips. Do you have anything specifically with like college or anything. Right after you graduated house hacking and anything like that that you could pass along to the audience.
college, househacking
345 - 378 JW - the Green Swan Yeah I think the one perhaps unusual step in my journey was with college I went in with the mindset of wanting to get in and get out and then get out into the world making money. So I wanted to spend less time spending money in college and then get out into the world and make money as soon as I could so I went in with the mindset of graduating in three years. I took summer classes at community colleges to kind of get build up those extra credits and get it done on time. So that was the one kind of actionable tip I would I would throw out there and on my journey that helped me a lot.
college, mindset
378 - 398 Brad Barrett So you said mindset a couple of times and that's fascinating to me. Talk me through who you're a 17 year old kid at that point right when you've already made that decision. Hey I want to save on college I'm going to go to the community college like do you recollect put yourself back in your shoes then like Do you recollect how that even came up. Did you have role models. Did your parents talk about money.
college, mindset
398 - 445 JW - the Green Swan That's a great question. I Are you guys like to talk about second generation fire. I may have been kind of an incidental second generation fire without really realizing it but my dad was always there as a role model for me. And he passed on a lot of the tips and tricks that we talk about in the community today. He house had when he got out of college and he did a lot of things that helped kind of prepare me for that. In high school I was you know with guidance and advice and everything from my parents I took advanced courses to get college credits. I took CLEP tests to kind of get some of those extra credits so I went into college with boy a semester at least of college credits already and then took the extra step with the summer courses to push me over the edge. So. So yeah I think it is all about the mindset and I may fall into the second generation fire for you.
2ndgenfi, clep, college, mindset
445 - 477 Jonathan Mendonsa I love that we're addressing this idea of mindset because the typical mindset what I heard in my undergrad days was graduating college in four years is like leaving the party at 10:00. That is the normal perspective on how to approach college. It's all about the experience man. And you start from scratch if you're lucky and you're aggressive. Finally having paid off your student loans and now finally being broke or back to even at the age of 30. So I guess what I'm saying is as a broad generalization I think your approach makes way more sense especially for the FI community where we realize that time is precious.
college, college-loans, mindset
477 - 489 JW - the Green Swan Well I can tell you I didn't leave the party at 10. The nice thing about graduating early is you're out you're actually making money. I had a little bit more money to spend at the party for those last last couple of years so I turn that a little bit.
489 - 511 Jonathan Mendonsa Yeah nice pivot man well-played. OK so you've graduated college. Sounds like you're doing things you know generally right although maybe not as intentional easy as you could be at the age of 26 that's when you discover FI. Looking back I guess we all have a path that we've chosen. What was your path to actually achieving FI. Do you focus on tax optimization. Do you focus on increasing income. How did you tackle this game.
college, highincome, tax
511 - 603 JW - the Green Swan The Frugal the frugal life was kind of there from the beginning. But the way I have tackled it is more from the income side. I did a lot to boost my career to develop my career and that that came in going back to school to get an MBA. I had an older sibling that was a role model of mine in helping me develop my career. He's in a similar field as me and I know another thing that you guys have talked a lot about is parlaying relationships and partnerships and one of those things for me that has helped a lot is that relationship with my older brother. And so that relationship with my older brother one of the things we talked in the past we had talked a lot about was going into business together, developing a business buying a business and using that to help fuel our returns as well because small businesses have a special characteristic they're really hard to incorporate into your fire journey or your wealth building journey because it you know you need to have a manager is that you. But small businesses can be great because they can provide a much greater return than you would normally expect. kind of the risk return trade off there they are going to be more risky but they're going to get a better return. And so for me and my older brother was just how how can we incorporate that. How can we do that and finding the right opportunity took us a while but eventually we were. And just just last year a little over a year ago we we ended up me my older brother my two your brothers all went into business together.
career, frugality, relationships, smallbusiness
603 - 617 Brad Barrett So that's really cool. When did you first start having these conversations with your brother. I mean is this something that has been going on for years or. And I guess also is he familiar with the FI community. Have you guys talked about this. Is he a big saver as well.
617 - 663 JW - the Green Swan He's a big saver. I don't think he's as familiar with the fire community. You know for instance he doesn't know that I even have this blog but he's kind of a natural FI person just in the background. He is a saver he's made a lot of money in his career still does and definitely is FI. He's just chugging along. But what got us into the business. That's something that we have been talking about more or less just kind of off and on since we're both out of college. But something we had always joked about even as kids I remember going on vacation down to the golf and being on the beach. We're joking around talking about gosh how nice would it be to just own a hotel resort just right here on the beach. So I mean we even had small conversations like that as kids.
career, college
663 - 718 Jonathan Mendonsa You know what strikes me is how this story that we have tried to tell and that you're telling on your blog as well and it's focused on personal finance but how perfectly in parallel runs to just the entrepreneur story line and it reminds me so much of the Robert Kiyosaki book Rich Dad Poor Dad and which he describes this idea this cash flow quadrant and without breaking that down. The thing that strikes me is that while most of the world focuses on buying stuff which is a one way street your money leaves your pocket in exchange for just an item. The fi community the entrepreneur community. We focus on purchasing assets and we do this different ways with our focus on purchasing a portion of the economy by buying index funds or in your case and I think in the case of many other people that we'll be able to highlight in the future you start focusing on either building businesses from scratch or it sounds like in your case you're actually buying an existing business but not a franchise. You're not buying into a franchise you're actually buying an individual business.
indexfunds
718 - 743 JW - the Green Swan And Rich dad, Poor Dad was one of the initial books that I read out of college and it developed the idea in my mind of building multiple income streams so you have the one cornerstone kind of W2 that's easy but what what else can you do to layer on other income streams and going into business small business especially for me it's more or less on the side it's not part of my day to day. That adds another dimension.
college, smallbusiness
743 - 778 Jonathan Mendonsa Yeah I think it makes the game more interesting. All of us are going to at some point have the W-2 income begin to have that figured out. But the question is are you just going to stick with that and just focus on those 1 to 3 percent raises. You know in the end if you go back to our ESI episode clearly people have figured out how to leverage that into more. But is that the path you're going to choose or are you going to focus on instead of that building these multiple income streams and then just using finding other people that have done it. Finding role models of people that have done it and then positioning yourself to be able to get into that lane. And so I am curious you know as a follow up question how did you go about positioning yourself to be ready for this opportunity.
778 - 826 JW - the Green Swan Yeah it's over time and it's all about finding the right opportunity because that doesn't come easy. We looked at a number of businesses and it's just a matter of finding the right fit and you know the right purchase price really. So we saved money. Lucy and I saved money. My older brother saved money my younger brother saved money and so it was investing in our 401k IRAs was always part of the plan and it's that extra over the top that we put into our taxable savings. That was more or less our dry powder for these opportunities. And when that came last year for us it was a huge liquidation of that taxable savings investment account and sending the biggest wire I've ever sent before over to buy then this business.
401k, ira, savings, tax
826 - 828 Jonathan Mendonsa That's got to be an adrenaline rush.
828 - 840 JW - the Green Swan Yeah. You go into the bank and it's like geez what are they going to think when I'm asking to send this wire like you know what kind of questions am I going to get asked because it's just not a normal thing. I don't think.
840 - 870 Brad Barrett So. Talk me through if you don't mind like the actual process of researching businesses. So it sounds as if you guys were just interested in buying a business generally and you're just doing research and due diligence. So you have the whole world essentially of potential businesses like how did you cull it down. How did you do research and how did you feel confident that you know you could do that without an adviser or without someone to help you facilitate this purchase like you know. Talk me through the actual thought process of how this all worked.
870 - 940 JW - the Green Swan Yeah it sounds sounds complicated but it doesn't necessarily have to be too complicated. There is a lot of good resources out there. There's online brokers there's local regional brokers they are business brokers is kind of a concept that you know many people may not be aware of but just like real estate brokers. But you know there's business brokers out there and that's that's who we work through. And then the next step and kind of sifting through and finding the right one time and by location and geography and everything that we wanted the next step is the onsite due diligence so that would include me or one of my brothers going out to the business itself. And it's kind of a deep dive on financials on operations and next steps and equipment machinery just everything just kicking the tires. And that's part of the process. I mean it's like buying a home is tough because things can fall through sometimes if it doesn't work out or you don't find it or someone else gets to it first. Are a lot of the same things go into buying a business. And so it can just take time and that's that was the case for us.
940 - 957 Brad Barrett So how did you find that business broker that you felt you could trust. I think just actionable tip wise like where did you find your business broker. Were you limited to your own local city town metro area or did you go further afield. And how did you vet that person.
957 - 985 JW - the Green Swan I think we all completely found. I think the business broker that we all completely used to was an online one. And if I recall correctly it was Sunbelt. We looked at a number we weren't committed to any single business broker but we are searching all of them more or less. And so when we found the business we then contacted you know from the Sunbelt Web site and initiated the discussions and the diligence.
985 - 997 Jonathan Mendonsa Was there the industry or set of industries that you were particularly interested in because you had a comfort level with that or were you truly just looking for a series of numbers that met the math criteria that you were looking for.
997 - 1047 JW - the Green Swan There wasn't a tight framework for us. It would have been great if it was a business that was sort of easily understandable for us to run or manage or to have key operations folks as part of the business that were staying on that could kind of help us learn the ropes. I think that was the biggest key for us is we the collective of us brothers felt that we could run a business if we're kind of showed the ropes a little bit and then had key personnel kept with us to help us as well. And so that was that was more or less the biggest focus's transition of ownership and maintaining those operations than any key type of industry or business line. So a lot of it was numbers based and then operations based and transitioning the management over time.
1047 - 1087 Jonathan Mendonsa So I'm trying to imagine the scale that you walked into because you know it's very easy for me to imagine just coming up with an idea and it may work or it may not work but you start it you add an employee here or there it grows either organically or you have the surges. But to me that's a very stark contrast from having a business that's viable that's in place that clearly is spitting out some profits or at least has the potential to spit all profits. It's turnkey more or less and you're coming in and now you're acting. You're coming and you're looking at the team that's already in place and you're figuring out how can I optimize this further. How many people are on this team and of this business that you guys acquire is this 250 person operation is it a five person operation.
1087 - 1128 JW - the Green Swan Yeah. For us it is all about stepping in and how to optimize and then how to grow it. And a lot of that is adding staff off the top of my head. I'm not involved closely with the day to day. But I'm involved very regularly still with the business week to week. We started with I'd say roughly a dozen. And just the way this business went for us most of those have turned over and we've gone in more or less a lot of the kind of right folks I think to take it to the next step and we've added staff. It has grown but there is a little bit of a transition period for us. So it's it's probably like in a 20 employee kind of ballpark right now.
1128 - 1169 Brad Barrett So JW I'm just putting myself in the shoes of one of your employees. Right so I'm working at this company and all of a sudden ownership just shifts completely and there's this set of brothers coming in and naturally people are going to be nervous scared. What did you guys do from a cultural perspective to to allay those fears. And did you have conversations with each of your employees did you deal just like with the management that was in place like. Talk me through what that transition looks like because I think that's important for people not only looking to purchase businesses but employees as well when they when they see this kind of turnover in ownership.
1169 - 1206 JW - the Green Swan Yeah yeah that's that's a great great question. When we came in the business that we bought was somewhat of a turnaround it was actually a little bit more of a turnaround than we initially realized or expected. And so the way we came into it in meeting with the employees and a lot of this was my my younger brothers who who run the day to day is you know meeting with the employees are weighing the fears that yeah we're not we're not here to you know fire you we're here to do the exact opposite we want to put in steps and incentives and focus on growth.
1206 - 1258 Speaker And that was one of the keys for us it was the prior management was stale. I think a little bit not really overly focused on the business or the employees and I think we're more of a breath of fresh air and I think they quickly realize that as the employees they quickly realize that yeah you know we can do a lot better with this business with the right incentives they can get paid more. And you know we can all benefit when this business grows. And so that was the kind of culture that we wanted to put in place. You know you're you're either with us or you're not. And so that led to some turnover some folks you know it change isn't easy for everyone I think it's safe to say and it was getting the right people on board and then building this business together. And that was kind of the frame set that we went in with.
1258 - 1291 Brad Barrett Nice I like that a lot. And and just going back to the actual purchase. So usually you're going through this broker and they are X multiples of the purchase price is a multiple of let's say net income or some such and that just kind of like a background rate but did you guys look specifically for something that you could add value to and really see hopefully grow with significantly in the first couple of years and also like how did you know that you and your brothers could add value to this particular company or any of the companies you were looking at.
1291 - 1333 JW - the Green Swan Yeah exactly. We had a little bit of insight into the the kind of industry or the business in the local economy and kind of where our geographic footprint was the size and the demographics it was a growing community. So we felt like there was a lot of good pluses there for us to grow. And then with the help and insight from others already in the in the industry that we knew or were able to contact and build relationships with really kind of helped us build the framework to see where and what this business could become. So I think we have some aspirational goals. We haven't hit them it's only been a year. I think we've been treading water for a lot of time and I think we're starting to hit our stride at this point.
relationships
1333 - 1352 Jonathan Mendonsa So you guys are treading water you're breaking even and now you're moving into the positive you're moving into the green which is the color that I think you're a fan of. As am I. But I'm curious you know as an owner you obviously have lots of options with how you structure things. How did you choose to structure this and maybe even more specifically where do you guys go from here.
1352 - 1430 JW - the Green Swan Yeah. It's all about optimization as is everything with the Fire community. We've structured things specifically for us. Our business is structured as L.L.C. ownership and that provides a number of tax benefits to us individually and for the business. Small businesses generally have some pretty good tax advantages in being able to run and operate them. But the next step for us is now that we've moved into the great color of green is building that passive income and it doesn't stop with just this business this is not the end all be all for us it's the next step. And one of the things that we've been looking at in the last I'd say three months is how can we leverage this into our next acquisition. And we've been looking very closely and working really closely with a related business geographically close to us that we can buy. He's looking to sell it and work. We're actively negotiating with him as we speak just these last couple of weeks it's really picked up. So that's the next step for us is building the business organically and then also through Acworth you know further acquisitions and in optimizing it further doubling the passive income stream. And you know certainly with the background of having it structured legally as you know tax advantageous as possible.
passiveincome, smallbusiness, tax
1430 - 1486 Jonathan Mendonsa So I love that you being centered in the fi community tackling this problem and frankly you're bringing up an idea that we haven't really discussed on the show yet. Although obviously we see the value and we've touched on the idea of a side hustle. But typically the side hustle when when I think of it I'm thinking of starting something from scratch. I love that acquisition is a real possibility and if you take this kind of ultra optimizer stance a lot of the FI community intrinsically understand and apply that to any situation it changes the framework so it's been a goal of mine to start multiple income streams. And obviously I have put a lot of time and energy into building choose FI and that was a massive project for me over the last year and becoming the owner of a business gives you a chance to explore all these creative tax strategies that you just don't have access to as just a W-2 employee. And so really the story that you're telling is very compelling and I think it's going to present you with a lot of really cool options down the road.
hustle
1486 - 1566 JW - the Green Swan Yeah exactly and I couldn't have done this. You know it's tough for a lot of people just going in from scratch. I couldn't have done it without my brothers and my two younger brothers are the ones who are really running the day to day onsite in location etc and I can do it without without them I'm more or less just kind of. My contribution is more on the monetary and then just kind of on the side a little bit. So it is taking the side hustle putting it on steroids a little bit but not something that I can necessarily do by my at this stage still with an active W2 9:00 to 5:00 kind of busy job. But it's something that in the future like as you're saying as I reach FI as I maybe enter retirement become more and more involved and even something if you look down the road that second generation fire something that might my two kids can you know potentially even get into if you're looking really far down the road. I mean it could be their summer job it could be you know something that they grow into as well. So there's a lot to it. It can become a lot more. I think we're definitely just in the early stages. But it has the potential to be elaborate in many other different ways that everyone in the fi community really likes to talk about. And then even for myself it could be my part time gig in retirement you know working 10 to 20 hours or whatever I want.
2ndgenfi, hustle
1566 - 1626 Brad Barrett So you talked about passive income obviously and the potential to as you just stated kind of pick up more hours as you move out of a W2 job but you know talk me through like what is the ultimate goal like as I'm hearing you're purchasing a new company potentially and in a similar or related industry your two younger brothers work basically full time on this on this job on this company. Talk me through like what what does the path look like in the next. I don't know 10 years for the whole set of brothers. Is this a passive income play for all of you. Like do you fully anticipate your younger brothers to stay on as as the real day to day operations longterm are like. How does that work. And then I guess you know as a side question like How does the sibling dynamic work. It's such a loaded thing for many people to really work with their family and it's potentially fraught with a lot of dangers. Right. So it sounds like you guys are navigating this quite well. I'd love to just hear A your plan and B like how it works with the family.
passiveincome
1626 - 1783 JW - the Green Swan Yeah that's that's a great that's a great question and I don't think any of us four brothers are necessarily all on the same path or stage in life or anything like that. And it's been a fluid process for us for my two younger brothers. The future prospect for them is continued employment and their owners as well. But you know that's kind of the big thing for them. I don't know that we have necessarily an end goal in mind. I think a lot of folks if you just put it on a parallel track with real estate ownership You can either sell or you can just keep collecting that rent check. So I think we're still in the building phase. You know we're adding we're growing building the passive income and then it's you know do we keep running it and optimizing it or once it's fully optimized and kind of as big as we want and you know do we cash out sell it and do something else with that money then. I think that's a that's a question for down the road not something that we've ever really talked about in great depth or anything. And then for me individual a do I want my money kind of tied up in that business for the long term. Maybe but maybe I want it back some time maybe I want to live on that in retirement and that the potential for that is there as well. My brothers could buy me out for instance. So I think there's a number of different avenues that that could go and I think we're all just open and fluid to that recognizing that we're still in the early innings. And then I think the second part of your question there is how how we have brothers the whole relationship dynamic. I can tell you that that's been on the forefront of our minds. Our family has kind of had some history with that. My grandpa was in business with his brother and things kind of went sour and you know they never talked to each other again just it's a horrible deal. So we we've entered this with our eyes kind of wide open to that. We're very careful. I mean we've definitely had some very heated discussions. I think as a lot of business partners would but I think what's our benefit is we are brothers and at the end of the day we're still coming back together and you know talking about the awesome barbecue that we just fried up or you know whatever else afterwards so we can have reheated Frank discussions. And you know we're ultimately still brothers and we know that and we all have the best interests. Our collective interests at heart. So so far so good. The bottom line is though that we love running this business together the goal is that it can be something fun for us all to do together and kind of build and grow. And so that's that's the focus.
families, passiveincome, relationships
1783 - 1835 Brad Barrett That's great. And certainly with your grandfather while clearly that's a negative issue for the family as a whole or it has been at least that made you guys go into this like you said with eyes wide open and I think that's really important. And I'm also curious like do you have any tips for the audience who who may go into business with a family member or a good friend is there anything that you guys put into place. While it's all well and good to say hey we're brothers and at the end of the day we're all going to a barbecue and everything is going to be great. Right like that. But that sounds wonderful and I hear you and that is that is the bedrock part of the relationship right. Like do you guys like hire a lawyer and put into place like an operating agreement that might say like hey if I want to get cashed out some day. Here's what happened. Like did you guys go through those those steps just to safeguard yourself.
families, relationships
1835 - 1897 JW - the Green Swan Yeah. Yeah that's exactly right. We we went into it eyes wide open you know that's all good and dandy but up front I think we all need to be clear and open with each other on the expectations and we were. And then we built in a framework just like you said into the operating agreement that covered every situation basically that you can imagine like divorce for example if any one of us the three of us four brothers are married. So you know from an ownership standpoint what would happen if a divorce happen you know and we just spelled everything out. We agreed. We talked about it and then spelled it up. I wrote it up on paper just so that we had the framework. You know we're on the same page and can make it easy to navigate those situations if we need to. Same for me like if I or any one of us brothers wanted to exit or a bigger deal would be like one of my two younger brothers no longer want to be involved in the day to day they want to do something else. We spelled out a framework for how we can tackle those issues.
1897 - 1925 Brad Barrett That's fantastic. And yeah I would highly highly advise everyone in the audience thinking about going into business with family or friends to to really hear what J.W. is saying and make this. It's important. It's really essential to sit down and talk through all those eventualities at the beginning because the last thing you want to happen is eight years into the business someone wants to leave or something happens in their lives and now you're scrambling. So it's yeah it's really important life.
families
1925 - 1964 JW - the Green Swan Life changes. Exactly. And the issue of potential conflict arising is real. So I think people that would enter into business especially with family but just even with good friends or other relatives is recognizing that you know one is being that the key step in and then building a framework to handle that. And yeah being open and honest upfront and throughout communication is key. There's challenges though going in without realizing that and recognizing that is just being set up for failure. I think right from the beginning so there is there's hazards that can be avoided and should be avoided just upfront.
families
1964 - 2016 Jonathan Mendonsa So I want to frame this as the tradeoff. And I'm just going to read this the single paragraph you have here. The goal of this business so the expectation is to make outsized returns. And you wrote in this paragraph that you mean for the business value to grow well in excess of the 7 to 8 percent returns the S&P 500 generates over the long term and your personal goal and expectation is to double that around 15 percent annually. And while the industrial service businesses started off a little bit slower than expected. You've met or exceeded your budget in each of the last six months with continued momentum and it's been a very strong stable performer. So it's one of those situations where you're putting yourself out there a little bit more exposure but more risk more reward. And it's a calculated risk. Having said that I think this is the part of the story where we should probably talk about some of the unexpected joys of small business ownership. Do you want to take a few minutes and tell us about a few of the surprises that you had since you started this business.
indexfunds, smallbusiness
2016 - 2059 JW - the Green Swan Oh yeah. Yeah there's been some great I mean you can make up some of the stuff that we've experienced. It's it's blowing my mind really but I think that's part of the nature of the type of business. You know we do a lot of our employees are making the hourly wages in the mid teens or to the 20s. So it's somewhat of a blue collarish type job and we've definitely experienced lot of employee type issues and then just as there are just crazy instances one kind of just really dangerous one was one of our trucks and were in our parking lot the brakes the brake pads just stopped working. So fortunately the car wasn't going that fast and they were able to get it stopped but the brake pads just fell off the car.
2059 - 2060 Jonathan Mendonsa Holy crap.
2060 - 2079 JW - the Green Swan I mean it's just like those type of things that are just ridiculous that we have to deal with and then we had an employee that was intoxicated middle of the night got into a car crash everyone was safe and fine. But it was a hit and run and so it is with our car corporate truck.
2079 - 2080 Jonathan Mendonsa Not ideal.
2080 - 2150 JW - the Green Swan So it got like our truck got impounded and so we were without our truck for a while of course without that employee as well. A couple other instances where running a background check on a potential new hire. And it turned out that he was a sexual predator. So you run into complications trying to hire people for the most unexpected issues. So that didn't work out. And then the last one I'll kind of mention is we've even had employees stealing from us and we've caught on security cameras and then had to lay off. We noticed things were missing. So it's just the craziest things that I can't imagine why people think they could get away with some of this stuff. But you know it's nothing really is come super easy I think for a small business owner. You really have to put up with a lot and I give the credit again to my two younger brothers who deal with the brunt of it. And then you know kind of relay the message on to us and you just shake your head a little bit it's like oh boy. Well you know it's a matter of OK well you know the car is impounded. You know what can we do. What's what can we do to like get this back on track. What do we need to do to fix this and move forward.
smallbusiness
2150 - 2154 Jonathan Mendonsa You have to start by picking your jaw up off the floor and reattaching it.
2154 - 2177 JW - the Green Swan Yeah I told my wife that oh honey you won't believe this but one of our cars was involved in a hit and run and she was like oh no. Well did they catch the guy. Was like well you know honey it was actually us it was our guy. It wasn't the other guy you know. So yeah. Her jaw was on the floor too.
2177 - 2199 Jonathan Mendonsa But having said that you guys have put the time in and you feel at least at a personal level that you've had an impact on the culture of your business. You've improved the operations you can prove the numbers and you've started to develop these relationships with other related businesses and that in and of itself the fact that you now have this 12 track record of doing this is opening up some some new opportunities for you right.
relationships
2199 - 2229 JW - the Green Swan Yeah exactly. When you step outside the box and you challenge yourself and do things like this you're often rewarded with new opportunities and we've definitely seen a couple that have come across our path. We're hoping that this acquisition that's kind of in the works right now works out it will be a big endeavor for us. It will definitely challenge us a lot. Again financially and just operationally but it's it's all part of the plan it's all part of the growth plan. Building up what comes down to being a passive income stream for us all.
passiveincome
2229 - 2245 Brad Barrett So you mentioned the growth plan. I'm curious I guess a how you're funding this purchase of the new company is it coming out of business profits from the existing company. Are you and your older brother putting in the money for most of it. How does that work.
2245 - 2286 JW - the Green Swan Yeah. This new potential company is about our size a little bit bigger actually maybe about one and a half our size. So it's going to require a lot of money upfront again it would be another big check from me and my older brother even more than the initial one and then the other kind of gap to fill there is bank debt and the other part of it is hopefully relying on the selling owner to put seller financing in it. And so become kind of a debtor to us as well. So of bank that seller financing from the owner and then our capital more capital that we would then inject into the business as well.
debt
2286 - 2315 Brad Barrett And I guess my question B would be your long term FI path right. What is what does that look like for you. Do you have a sense of if this business acquisition goes well then I can transition out of my job in X number of years or like is your fire path related to these businesses or are you going to hit your Fi completely irrespective of what goes on and then this is passive income. Have you thought through how that works.
passiveincome
2315 - 2349 JW - the Green Swan Yeah I think my goal is is irrespective of how the business does. I'll probably hit FI in a handful of years maybe five or six years. My wife and I the business I don't know about the passive income stream or how that will be incorporated into FI but ideally we'll have that kind of on the side or as as icing on the cake to our you know taxable brokerage account and our retirement accounts that will then be the primary basis for our financial independence.
brokeragechoice, passiveincome, tax
2349 - 2370 Brad Barrett Okay. So as I'm hearing it you are calculating your fine number just completely separately. Right so you take your annual expenses you figure out whatever withdrawal rate whether it's 3 or 4 percent somewhere in that vicinity and you're going to have that in your investments between your 401k is and your types of investments et cetera. And you know that's your FI number. Am I hearing right.
401k, myfinumber
2370 - 2395 JW - the Green Swan Yeah that's exactly right. How the business incorporates that it is something that we can kind of decide down the road. But the business right now as it stands makes up maybe you know 25 percent of my net worth ballpark. So we're looking to build our retirement accounts to live on on the side. I guess probably simple. I mean it's down the road so we have time to decide things or you know may change but that's kind of the way we're looking at it.
networth
2395 - 2417 Brad Barrett That's very interesting. So yeah I mean that is like the most conservative FI plan I've ever heard. That's that's wonderful I mean that's almost a zero percent chance you're going to have any issues that you've hit FI just based on the general calculation and then have these businesses which are quote unquote on the side right are still bringing in money and are worth a significant amount. So I mean that's that's like a can't lose proposition.
2417 - 2439 JW - the Green Swan Yeah I mean the big the big picture is though those businesses will they actually kick out money and be passive income for me on the side or will we continue to invest reinvest that into the business by buying more businesses or just organic growth. So I don't necessarily want to rely on that as income. You know shoot the businesses could fail. So it is really conservative.
passiveincome
2439 - 2442 Jonathan Mendonsa But I but I think it does allow you to operate from a place of strength.
2442 - 2447 JW - the Green Swan It does. I think it it adds a lot of potential strengths to the overall picture.
2447 - 2466 Jonathan Mendonsa And I also think that that ends up helping your relationship with your brothers as well and I think in general partnerships that are operated from a place of strength tend to be more viable long term as opposed to operating from scarcity where everyone is trying to figure out where that next meal is going to come from or how to keep the lights on it tends to make you tend to make more irrational decisions which lead to more conflict.
relationships
2466 - 2505 JW - the Green Swan Yeah I would I would kind of envision the businesses look at that as it's own entity on its fire journey. I mean the business is in the early innings as I kind of said before. It's similar to you know the person on their FI journey right out of college. They don't really know where it's going to go and that's kind of how I view it. I don't really know where it's going to go or what it will become. It may be absolutely great glorious and like a huge nether passive income for me you know or it may take a lot longer to develop or you know not necessarily develop. So it will be interesting. What kind of watch it grow and develop. There's a lot of unknowns and unforeseen things that could come up down the road. But it's kind of on I'm kind of doing it on its own path.
college, passiveincome
2505 - 2584 Jonathan Mendonsa J.W. thank you so much for taking the time to share this story with us. What I love about it is that we're capturing this not from someone that has done this and been wildly successful but from the eyes of someone that's willing to stretch themself take action and try something new and we all get to benefit from this choice that you've made. This is a totally different look at entrepreneurship and many times in many cases we focus on the idea of just starting this multiple income stream or this passion project from scratch right. But you don't necessarily have to have the perfect idea in order to get into the business world. You can do what JW did and either just look for business to acquire on your own and then reinvigorate it or maybe bring in strategic alliances and partnerships that's kind of what Brad and I did and use your different skill sets and abilities to do something together. So this is just a remarkable look at how that comes together. And then long term what I love about it is Brad and I are planning on using this platform to share this information with you guys over the next several years minimum. So I imagine that J.W. is going to continue to gain traction with this and will be able to bring you back on the show maybe to talk about some of your other content when we're doing that. We're also going to be able to look at this project and continue to learn from what you're doing which is just a really really cool look at this overarching story.
2584 - 2598 JW - the Green Swan Yeah it is it is kind of us in the baby phase. So we've done a lot and kind of achieved a lot but it's not a huge like integral driver of our FI you know but it has the potential to be the contributor so.
2598 - 2607 Jonathan Mendonsa Absolutely man. I couldn't agree more and just really really excited for you. But before we let you go today we want to give you a chance to tackle the hot seat. Are you ready for this.
2607 - 2609 JW - the Green Swan Yes definitely ready for the hotseat let's do it.
2609 - 2642 Speaker In a world drowning in debt and rapid consumption. Trapped by the chains of lifestyle inflation. These questions highlight the secrets of those who are broken free. Welcome to the choose F-I hot seat.
2642 - 2644 JW - the Green Swan It gives me chills.
2644 - 2648 Jonathan Mendonsa Yes. Me too man me too.
2648 - 2652 Brad Barrett Nice. Right. So question number one is your favorite blog. That's not your own.
hotseat-blog
2652 - 2705 JW - the Green Swan I would list two blogs in this category. I really enjoy reading the financial samurai's website. He's a high finance guy. He talks about some more complicated and in-depth personal finance matters and has very in-depth and well-thought out articles I've just really enjoyed reading his side and plus I. He's one of the other few fellow bankers by trade out there that the blogosphere just like myself so I really enjoy his stuff. And then the other one I would throw out there is ESI money and I know you guys have had him on the podcast. He's he's a great role model for the fire community. He's done it right. Built his career. Well he's a family man has two kids. I think he just retired a year or so ago and he has some great stuff on his blog. I really especially like his his millionaire interview series. So he puts out some great stuff as well. I'd throw both of those blogs right in there at the top.
career
2705 - 2765 Jonathan Mendonsa Yeah. Sam's actually someone that's been on my radar and I was thinking in particular I know he's put some time and thought into crafting a strategy for negotiating a severance package which I feel like could be a really useful tool for someone that's planning their exit strategy. So I would love to bring him on the show at some point and then ESI AM A HUGE FAN. And I completely agree. I love his billionaire interviews and I also love all of his content on career hacking. I mean I know he did a post on it but he has way more on his blog about that topic that really deserves to be explored. So if you're in your career and you're looking for a way to optimize that path the income strategy. He has a roadmap to guide you beginning to end that process and he capped out being the president or CEO of a 100 million dollar company so you couldn't ask for someone better to give you that insight advice on how to climb that corporate ladder in the most efficient way possible and some of us are on that path so that those of you that are tackling this game that way. Spend some time on his blog you absolutely get value from it. Question number two your favorite article of all time.
career, hotseat-post
2765 - 2794 JW - the Green Swan I might throw a curveball to you on that one. I would actually go to a podcast. And not to toot your guys horn too much but I'd throw it out to one of your guys podcast back when you guys had. Yeah. Episode 18 and 18 R when you guys had go Curry cracker on. He really opened up my eyes to a lot of the tax hacks that you can employ before and leading into retirement. So that was really eye opening. Great great stuff.
tax
2794 - 2814 Jonathan Mendonsa Yeah my mind those are concepts that I had been aware of but those two episodes one just talking to go Curry cracker about a cemented it for me but then also doing that that case study that we did at 18 R where we walk through it like getting a chance to actually talk through that process was a total lightbulb moment for me as well. Yeah. Thanks for giving us a shout out on that one.
2814 - 2817 JW - the Green Swan Yes. It just really crystallized things for me. It was great.
2817 - 2821 Brad Barrett Nice and cool sir. Number three is your favorite life hack.
hotseat-lifehack
2821 - 2843 JW - the Green Swan I have a small one but a recent one that I picked up just a few months ago and that is listening to podcasts and audio books at two time speed. There's so many great podcasts and books that I like to read and listen to and being able to put them on 2x speed. Obviously it's it's a game changer from an efficiency standpoint. So that's been really helpful for me.
2843 - 2885 Brad Barrett Yeah and I also listen to podcasts in sped up time. I generally can't comprehend it at 2x speed but I move between like 1.6 and one point eight depending on the podcast and I'm listening to. So I think that's a really good life hack. It's funny when I do have our own podcast in one time speed. I listen to it I'm like oh my goodness do I really talk that slowly and like it. It's actually painful for me. So that aside to the audience I definitely would suggest like just start speeding it up a little bit. Even like 1.2 1.3 see what you can. What works for your own brain I guess and then see if you can spin it out because it allows you to get more in in less time which is a big win.
hotseat-lifehack
2885 - 2888 Jonathan Mendonsa Right. Question number four your biggest financial mistake.
hotseat-mistake
2888 - 2941 JW - the Green Swan We've kind of talked I guess a little bit about my journey and my wife and I's journey. We didn't make a whole lot of mistakes. I don't think it coming out of college and on our path. But mistakes can be things that we did wrong or things that we failed to do and I think one of the things that we failed to do or wish we could have incorporated into our journey was the house hacking I mentioned how my dad introduced me to the concept. He did it. He rented out a bedroom over top of his garage. It was a separate unit and it just made sense and it was something that I was aware of but just never found the opportunity to implement. We moved a couple of times after college and so it was we just never had the right situation and now that we have a family which we've kind of grown into you know wanting the lifestyle of our own house and it's something I wish we would have incorporated. It's a great hack.
college, families, hotseat-mistake, househacking
2941 - 2964 Jonathan Mendonsa Couldn't agree more. I think Brad and I both feel like we just missed that window and it's probably not ever going to happen for us at this point. But like I constantly talked to my younger siblings that are in this life stage where it might be feasible and I just think that is absolutely something that a second generation FI kid you know growing up in our community with the role models that we have this is a lever you should pull.
2ndgenfi
2964 - 2966 JW - the Green Swan Couldn't agree more all.
2966 - 2969 Brad Barrett Alright JW. Question number five the advice you would give your younger self.
2969 - 3002 JW - the Green Swan Yeah. That's a good one right out of college. I was what you'd call a tightwad. I had the tendency to I guess squeeze a nickel into the the buffalo pooped as the saying goes. But I focused on my frugal efforts I feel. in some of the wrong places and could have been a little bit better with that. And you know live live enjoy life but still focus frugally on the big picture items the big expenses for instance out of college I didn't have a roommate I lived by myself I rented a place by myself.
college
3002 - 3011 Jonathan Mendonsa J.W. I feel like we're like minds here I think. You're in THE RELUCTANT frugal category frugal is a means to an ends for you. Or am I on the same page.
3011 - 3014 JW - the Green Swan You're definitely on the same page. It's definitely a means to an end.
3014 - 3035 Jonathan Mendonsa And what I love about that framework is a lot of times you may find that the needle shifts for you as you adopt this mindset for a long enough period of time you see the freedom that allows you to claw back. You don't necessarily just go back to just blowing through everything your you're you've been forced to be intentional for a long enough period of time that it's hard to just suddenly switch out of that and start spending money left and right.
mindset
3035 - 3056 JW - the Green Swan Yeah exactly. And through our journey we've optimized things on our expense side along the way and now it's like we were at this point you look back it's like gosh we could have done that maybe a little bit better starting out. And you know that was you know focusing on the right places but you know you live and you learn.
3056 - 3063 Brad Barrett Alright and we have one quick bonus question for you. What was your favorite purchase that you made on Amazon.com in the last year.
hotseat-purchase
3063 - 3080 JW - the Green Swan All right. I'm going to go big on this one. And may may rub some of the frugalist a little bit the wrong way but a few months ago my wife and I bought a Roomba on Amazon an I Robot. So you know like one of those robots that roam around and vacuum your house.
frugalist
3080 - 3081 Brad Barrett Yeah yeah yeah.
3082 - 3129 JW - the Green Swan We we bought one of the higher. There's all sorts of models these days. We bought one of the higher end models is about 600 bucks so we threw down a big chunk of change on that one. But we absolutely love it and it's come with a number of side benefits that we wouldn't have imagined. For instance in our our little 3 year old now loves the clean up he'll clean up all his toys put them back where they go so that we can run the robot. And he loves to run over there and press the button and then watch the robot go. So it's been fun and it's provided the kind getting a little bit of our weekend life back from back vacuuming and live in a little bit more of the lifestyle we are wanting to move into.
3129 - 3169 Jonathan Mendonsa So funny. You know that's hilarious. We actually stare at that thing every single time we walk by a Costco. They do have it there. And every once in a while my wife usually when I've been like slacking off on my side of the housework will start mentioning that maybe we should consider getting a cleaning service to come in maybe once here in there. And inevitably when that conversation starts happening the room starts looking more attractive and I'm thinking to myself I really don't want to hire a cleaning service I really don't want to do it and I really don't want to clean more. So what's my next option. And I could just automate my life. So no movement on that one way or the other and probably it won't happen but I do understand the appeal. Let's be realistic. I just need to clean more.
3169 - 3173 JW - the Green Swan It took us a little while to get there as well but yeah we love it though.
3173 - 3212 Jonathan Mendonsa Alright JW. thanks for sharing the time in the studio with us today and giving us a chance to walk through your story. Lots of great stuff here and really opening up this this framework that we've been building this story that we've been developing and it just adds a new dimension to it. And we just appreciate you taking the time to talk with us today. Now before you go we do just want to take a second. We're sure that there's a lot of people that are going to want to check out your blog check out your content that you've been writing for the last year and a half. And also you just recently came out with something called the prowess score which there's been a fire lit around the blogosphere and a lot of people have been that have been developing their own prowess score. And I'm sure people are going to want to go check that out as well. How can people connect with you.
3212 - 3253 JW - the Green Swan Yeah. The best way to connect with me. I'm on Twitter at the green swan one hit up my Web site at the green swan dot org and you can even shoot me an email at the green swan one at gmail dot com and that's the numeric one the green swan 1 at gmail dot com. Those are the best ways to connect with me. And yeah the fire prowess score has kind of taken off in the last month or so. Rockstar finance future it and 25 other fire bloggers have joined the movement. So it's been it's been great. Lot of material there to read and incorporate hopefully and everyone's respective journeys toward fire.
blogger
3253 - 3262 Jonathan Mendonsa Yeah it certainly is its own topic in and of itself and we could have covered it today but there wasn't enough time to do both. So maybe you'd be willing to come back on the show and a future episode and we can unpack the prowess score.
3262 - 3271 JW - the Green Swan Absolutely. Would love to. And the pleasure has been all mine. Joining you guys on the podcast today. So thank you Brad and Jonathan for having me on.

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