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Kind: captions Language: en what was the original fee and what was the requirements um the original organization 20 years ago started with people who had created net worths of between 10 million and 100 million and very quickly the top end exploded with success uh so it grew to a billion dollars and more recently we’ve realized that our focus is on members between 20 million and a billion and what i was going to say is the main difference between vistage and ypo and tiger 21 is the average net worth of vistage and ypo members is probably maybe a tenth of that or fifth of that of tiger r [Music] how long ago uh did you start the company uh about 21 or 22 years ago at this point what was the original idea it’s really a simple idea if you’re an incredibly successful entrepreneur could be building a business for 10 years 20 years 30 years and then you sell the business you think that it’s the magic moment when you sell it but actually what happens is the day after you sell it you have a lot of money but you might be alone you might might have an assistant but you don’t have a thousand employees you don’t have anybody laughing at your jokes anymore you might even have to get your own coffee and everybody around you thinks that you’re wealthy and successful but you’ve lost the platform that allowed you to feel successful and all of a sudden you’re back at a new point and the number one challenge that you have is to be a wealth preserver so you don’t lose what you’ve made except that you don’t know anything about preserving wealth what you are is a great entrepreneur or a great leader or a great manager and you’re good at inspiring troops but you don’t have any troops anymore so you have this dramatic shift and it turns out that what it takes to be a great entrepreneur might qualify you to be a mediocre investor when you’re an entrepreneur you focus on a single opportunity you’re highly emotional about it you you give it everything you can when you’re an investor you have to be more dispassionate you have to have a diversified portfolio and you have to have you have to be unemotional about it so the sum of it all is that there’s a little understood transition which a few very lucky very successful people get to go through and we wanted to study that which is what we’ve done over the last 21 years to help people in that transition uh get through it and on to a better place when you originally started the business what was the uh like what was the product was it like ypo where it was a monthly group meetup what was it sure so you mentioned ypo which is a fantastic organization there’s another similar organization called vistage and they both are for ceos uh if those are the great colleges we’re the one great graduate school and so we have a lot of ypo members that graduate into uh tiger 21 and a lot of vistage members that graduate into tiger 21 uh and just to give you an idea the uh the v last time i looked both vistage and uh ypl have about fifty thousand members globally it might be sixty now i’ve lost time vistage has fifty thousand members and ypo each oh oh okay yeah that’s about thirty thousand each i think could be a little more i haven’t looked in a company’s company oh these are huge businesses sure because vistage charges like 50 grand a year right or what i think i think i think vistage is around 15 000 or 18 i don’t have the exact number could be 20. ypo doesn’t have a single price because depending on whether you go on the trips and there’s different people pay different amounts but the big difference between those two which are great organizations is ypo is self-facilitated by its members whereas vistage and also tiger 21 our groups are led by professionals we we have over 100 groups around the globe now and so we have a cadre of over 40 professional chairs might be 60 excuse me 60 professional chairs that we’ve trained exquisitely to lead these incredible groups but the bottom line is that those are the two great organizations for ceos and business owners and when you decide as a rule for life that you want to get off of the merry-go-round for whatever reason uh the next decision point is best uh focused on with peers that you’ll find in tiger 21. so basically the original premise and you can tell me if that’s still the premises you um you have a uh a small group of peers i don’t know how big the group is you can tell me it’s 12 to 15 people so 12 to 15 people and you meet of some type of cadence like four or some weeks monthly full day and you have a coach or what do you call your coaches facilitators they’re the chair you have a chair who leads these discussions and what’s the original fee so it grew to a billion dollars and um more recently we’ve realized that our focus is on members between 20 million and a billion and what i was going to say is the main difference between that or fifth of that of tiger are if you do the math we have 140 billion dollars under management we don’t manage it our members manage it by themselves we’re not a money manager but collectively uh we have about uh 12 a little under 1200 members so it’s a little over 100 million dollars per member that’s crazy and what’s the price now the membership is about 33 000 a year that’s that’s we we try and have a kind of one price so the only thing you pay is a single membership fee uh unless you come to the annual meeting there’s lots of other events that are included but because there’s hotels and all that kind of stuff if you come to the annual meeting there’s an additional charge of a couple grand so i uh i i can’t do the math in my head but like that’s like over 100 million in revenue so these are like no no so it’s about a thousand it’s very it’s a very simple business model it’s about 1200 people that are paying a little more than 30 000 so it’s about 35 or 40 million dollars oh i think you said 12 and uh and that’s what it costs to run that’s crazy and what’s crazy is 20 10 today is a lot it’s a significant amount of money 20 years ago 10 million was obviously a significant more than it is now how do you how did you find your first folks so i was in a vistage group uh which had about 15 members and in a dramatically weird coincidence in 1998 uh six of us sold five or six of us sold our businesses we were all in that vistage group because we were business owners trying to be better managers owners ceos and uh we love the group and so after our businesses were sold we didn’t want to leave the group but we found over about a six-month period we were going to meetings trying to figure out how to make your cfo and your sales team and your production more efficient but we didn’t have that anymore we were just business we had sold our businesses so i frankly uh said wow i’d like to be spending time with peers but what i want to be learning is how they’re going through this transition of becoming a wealth manager and how they can help each other be more successful managing through that transition and that was the roots of tiger 21. what was your first business my first business the one sorry the one that you sold the first business that i sold i developed something called the harborside financial center with a partner we were 50 50 partners i was 25. he was 57 it was the largest commercial renovation in the country at the time we bought a rundown warehouse that had been the largest building in the world in 1929 when it was built eclipsed a few years later by the pentagon but it was an industrial warehouse on the waterfront in jersey city directly across from the world trade center and i had the idea literally when i was 17 because i worked there when i was 17 that it was just 3000 feet from wall street and what was happening is that was in the age of large computer centers and so you had all the downtown wall street firms building computer centers and if they didn’t want to be in manhattan they would go to a far away campus on a suburban you know somewhere in suburbia and people felt like they weren’t in suburbia they felt they were in siberia it was too far from the mother ship and i had the idea that if you could put some of those computer centers into this huge industrial warehouse it would be five minutes from the parent under the hudson through the path train and in three minutes you could get back to whatever the parent company’s parent was and that was sort of the original insight that this old industrial building had floor loads and and ceiling heights that would accommodate raised floors for computer centers and the weights that you needed the weight loads the floor loads and uh that was basically the idea and that’s the thing that you sold before but yeah i sold that uh when i was 30. then i did another business that was basically a real estate merchant bank that acquired a lot of distressed real estate when the real estate market crashed in the late 80s i don’t know if you remember that the stock market crashed in 87 the real estate market followed and so i was able to acquire a couple hundred properties from banks that had gone under and the federal government had taken over and when i sold that business in 1998 i said i don’t want to have to go back to work uh i want to know how to preserve money how do people who’ve sold their business how did they think about what they’re going to do so that they don’t take stupid risks and find out they’ve lost it all has uh building tiger 21 you you kind of was tired 21 supposed to be a a business earlier it’s actually it’s been a labor of love for me but you know oddly was it able to create more wealth than the other things no it’s uh it’s it’s it hasn’t at all uh basically for 20 years i put every penny back into tiger of revenue because i wanted to hire some of the best people in the world and the best teams and and get it right but there’s a lot of inherent value in it there’s no question because uh we have extraordinary members and the value of our franchise has to do with our members and the team we’ve put together uh was incredible but i i realized that in order to scale the business to fulfill its potential i needed more senior help and in order to attract that senior help i needed people who were interested in equity so having a private equity partner made it easier to to attract world-class talent who would uh own part of the equity you’re kind of in an interesting position which is like you know or you work with a significant amount of wealthy people and you have like some interesting insights where what have you seen are kind of like the levels of wealth that someone where like they see changes in their life like so many things i could give you one number or another but it’s really a state of mind you know you you have people who are retired and they get x dollars and then you have other people who are retired and they get 10x dollars and yet the one who’s achieving or receiving the lower amount might be more evolved and emotionally balanced because of meditation or work they’ve done you know the most interesting thing is there’s endless studies that show that up to that whether you ask people who earn seventy thousand seven hundred thousand or seven million dollars a year how much more do you have to earn to be happy and the number is something like 20 no matter where you are the average person just needs just a little more to be happy which tells you about the unfilled nature of human ambition i’ve read a bunch of stuff like that and if well the way that i remembered it and i could be wrong it was like 2x so it was like maybe it was for net worth so like if your net worth is a million you’re like well i would feel a lot better if it were two but then they talked to people who was a hundred most people would say like man if you have a hundred liquid like it’s gonna be a little bit hard to screw up but even they were like yeah but if i had 200 i think i would finally feel more comfortable you know the fact is that wherever you are you have the illusion that if you had a little more it would make your life a little easier but sometimes if you have a little more it’s a burden because now you have to manage it and when you say it’s a burden what i mean is intellectually you have to work harder to make sense of it and in that sense it is a burden it’s like a job it’s just it’s just in the nature of things that the grass always seems greener on the other side and and that’s part of why i say a lot of this is just a mindset and there’s another part which is really important as well you know it doesn’t matter whether we’re talking about 3 million or 30 million if you take somebody if you take two people who’ve worth three or 30 million and one had been worth 50 million and lost 20 and now there were 30 and another had been worth 20 million and made 10 and is now worth 30. those two people are worth 30 million you could use the example with 3 million as well but the person who got to 30 million by losing 20 feels absolutely devastated and the person who got to 30 million by making another 10 feels generally quite positive or proud of themselves it’s the same 30 million so it’s a lot of things that are specific to the individual that uh generates the psychology there was that one article that came out that’s total nonsense it came out years ago it said like you don’t get significantly happier after a certain amount and the amount they said was crazy it was seventy thousand dollars a year but of course this was like 15 years ago and i thought that was crazy i’m like i don’t think that’s true all right and i was like i do think there is like a number where it’s like all right maybe like there’s like a threshold here where you could definitely continue to get happy but like there’s a baseline and um i always thought i’m like i think you will always want more money today maybe like if you have if you’re in like the 10 or 15 range liquid i’m like maybe there’s like all right maybe life won’t change significantly more after that because like you know like that’s you could screw that up but like you got to kind of screw up majorly and but i don’t know that’s kind of what i always thought the 70 000 is a number that shows up in literature meaning um below 70 000 every increment that you get closer to it if you’re earning 30 000 and you get to 50 50 to 60 anything up to 70 000 increments have dramatic increases because it’s just kind of obvious it’s basic needs you need to put a roof over your head you need to put square meals on the table you might need a car and it’s 70 000 you can pretty much afford most of those things not in the lap of luxury but you can afford those things below it it’s really really tough uh so that’s kind of it might be 90 000 today with inflation but it’s somewhere in then i don’t mean to trivialize the difference between 70 and 90. but everything above that um you know for every level that you have you can just spend more and create the same sense of being overextended if you’re not disciplined and it’s the rare person who generates excess uh capital and doesn’t change their lifestyle so no matter how much they have they keep spending more because if you can keep that gap of not needing what you have that gives you a cushion uh that’s rare and really uh something remarkable for those who have it have you met people who have done that who have been let’s say worth hundreds of millions of dollars but still live like uh don’t even live nearly like that well you know the most classic example would be uh warren buffett who still lives in a 30 or 50 or 100 000 home that he bought in the midwest where he lives in omaha you know it’s really hard to have one person comment on another person’s health you wonder what’s all that money for but now he’s given half of it or something to charity and there’s tremendous benefit uh gained from the money he’s given to charity but you know it’s one thing to live within your means that’s responsible it’s another thing to be so disconnected between your wealth and what you’re living that there’s something going on inside you know i’ll leave it to the shrinks to figure it out but it’s kind of hard to understand why a person who might be working 60 70 80 hours a week as if uh there’s no tomorrow and then they might be worth a certain amount of money but they’re living on 100th of it as if they had a hundredth less you know they had one percent of the wealth that they do what are they hiding from there’s lots of answers they’re all dependent on different people most of the people i hang out with so i’m 32 years old i started an internet company my co-host sean is a little older a year or two older than me also started an internet company and the majority of our friends are in like the late 20s early 40s age and like all mostly except for a few in the internet and so like i run in this like very like internet young circle and the vibe that i get from tiger is that it’s a little bit older and more like traditional businesses or maybe finance or real estate who have kind of knocked it out the park um is is is tiger 21 mostly am i am i categorizing it correctly or do you guys actually have like a lot of you know only because of only because of how we’ve grown and when you have uh you know 1150 or 60 members um the answer is the average age has uh fallen over the history from the high 50s to the low 50s but in order for it to do that given that a lot of people stayed most of our new members are in their 30s and 40s so we have a lot of internet folks but the reason they’re joining tiger as opposed to something else is when they’re sitting around they’re not just sitting with internet folks they’re sitting with people who have you know real real estate experience and experience running businesses uh you know in the uh in the in the world that isn’t just from the internet and the reason we’re so excited to have uh folks that are in the crypto space or the internet space is precisely because they’re understanding these new technologies that are going to transform the world in a way that many of our members wouldn’t otherwise so it’s this combination that makes uh some of our meetings so electric have you noticed the difference between like let’s just say group a is like these people who are made their money on the internet made their money in only like three or eight years uh all selling just internet stuff so you know like not real stuff that you can touch versus let’s say like the small business owner who like scaled something over 20 or 30 years and then eventually sold it or made cash flow along the way versus the tech person who was probably poor for a long time and then suddenly boom they’re not have because they sold their business and they weren’t ever profitable but have you noticed a difference in those people’s attitude or the problems they have well they’re probably you know as many differences as there are people but there’s some fundamental truths that i think you’re pointing at you know um when i went to business school at uh mit 40 some years ago you know if you were doing a marketing exercise they’d say come up with a product that you could sell to a thousand people and today if you go to stamford to a marketing course they say come up with a service you could sell to a billion people literally a billion people that’s what facebook does and some of the other major social media so scaling is not just a difference in size we have a dramatically more frictionless economy the nature of internet and technology allows businesses to scale that’s why we have unicorns today but we almost never did in the past so when you think about life expectations people who started out 30 or 40 years ago had an expectation that they’d be they’d have to put their nose to the grindstone for 30 years before they’d hit a payday uh not all of them but some of them and of course there are many different types of wealth i distinguish between people who are workers versus people who have some kind of god-given talent a singer a basketball player an actor a rapper these are people not who are building businesses but have god-given talents that of course they have to work hard to hone those talents but it’s very different when your wealth is created from your own talent than when you have to scrimp and save you know to make a payroll and and get everything done but then if you compare that to people who are creating wealth today first of all they can do it in three to five years you have unicorns in you know three to five years or uh not much longer and so one of the big differences is that if you were 58 20 years ago and you sold your business you probably were retiring because you spent 30 years doing something and that was your first sale but today if you sell you might be 30 or 35 or 38 you’re not retiring you’re going on to the next thing so the i think the biggest difference is this kind of expectation of what a life looks like you know a generation ago a really successful entrepreneur had one or maybe two serial successes today a successful entrepreneur could have three four or five or multiples because he or she has figured out how to manage a couple at the same time elon musk is not the only person who has multiple businesses he’s certainly the most visible but it’s much more creature of today it happened in the past but just much less so when i was selling my business i would talk to some bankers and i would talk to some friends and advisors and a nice amount were like yeah sell it and get paid and like you know you don’t have to worry about money anymore and that’s wonderful and then the other group of people that were like uh man starting something that works is really really really hard a lot of people sell a business and want to start it again and they don’t realize like you know like there’s some luck involved and it’s just actually really really challenging and sometimes you get confident you think oh i can just do it again and so if you don’t have to sell it never sell it and i’ve lately fallen in the category of like if you don’t have a lot of money sell a company if you if that means that you’re like financially secure but then after that oftentimes try not to sell anything ever like to see if you can just like run it or get it to run it on its own or hire people because it’s quite hard to get getting something going it’s such a pain in the butt do you fall do you tend to when you’re talking to your members do you what do you think most like which of those categories do you think is actually a little bit more true or more common and uh i think you’re on to something really important and it’s kind of like all of the above one of the biggest learnings is that most people who sell their first business have no idea that it feels like having the rug pulled out from underneath you because you see a big dollar amount and and you’re so focused on the sale that it’s the everything else that’s kind of the shock and uh the most important one is the momentum or the platform that you don’t even realize how valuable it is so you know one of the things we really talk about is before you sell you really have to think about not just the pros but the cons and and particularly in an environment like today forget that the markets are down this year in a low interest rate environment when you sell you know a typical industrial building obviously uh you’re talking about um other other types of metrics but it used to be a typical meat and potatoes business would sell for seven or eight times earnings and you know if you take a business that was making i’ll use an example three million dollars and you sold it for 20 million dollars and you paid the taxes now you have 16 million but if you buy bonds at 2 percent you’re now making 320 000 on that same capital that was generating 3 million dollars before you’ve lost 90 percent of your earning power and we call that sticker shock and 90 i would say the vast majority of people who sell their first business go through sticker shock because they haven’t really thought through that the passive earnings on the profits of the sale will generate dramatically less income than the business itself did now of course the positive is that when you get when you sell that business you don’t have all the risks of that business and maybe the business had risks that could put it out of business so a good sale allows you to take chips off the table and that has a lot of benefits but i think you’re really you know you’re on to the central issue around selling businesses because particularly if you hold on to the business you don’t have a tax liability i’m not against taxes in general i’m just saying that it eats into some of the value whereas if you continue to own the business the full value is working to make the business larger and larger so when you’re thinking about risk um i think the greatest service that we do is help some of our members think about the things they hadn’t thought about when they’re thinking about selling like what well just what we’re talking about this sticker shock this this sense of do you really want to lose the platform uh that you have and will you have enough capital because we’ve had many examples of people who think when they sell the business it’s going to be easy street but when they don’t realize the loss of income that occurs when you’re taking dollars from a sale and putting it into passive assets or worse in order to generate income like they had before they take risks they don’t understand in investments because investing can be a lot harder you know when you own a business it’s kind of like being on a dog track a dog track you have a fence to your left and a fence to your right somebody shoots a gun behind you and you can only go forward you know if you’re a paper clip manufacturer or you sell rocks or frankly even an internet service you have one direction you want to be the master of whatever your business is and that’s really hard but intellectually when you’re an investor how can any one person understand all the markets and if you’re starting out with no fundamental understanding of the markets because you’ve just been running a business one of the real shocks is most people think the hard part is making the money and then once you have the money you’re on easy street but from an intellectual challenge point of view many of our members find the challenge of managing the wealth that they’ve created is actually intellectually more challenging than the business because the business might have come naturally to them they might have had an idea and they just pursued it to its uh good ends when i sold i mean i didn’t know it this was only a year a year and a half ago or a year and a couple months ago i didn’t know anything like i i mean i knew nothing like i didn’t know like when people said that they’re going to short a stock i was like i don’t know what shorting means and they say they’re gonna go log i’m like don’t know what that means and so uh like it was and people like you know friends and family were like well what are you gonna do with your money and i’m like i don’t i don’t know anything like i i i think people are surprised that your ability to earn is not often correlated with your ability to like invest uh just the opposite that’s that’s what i’m trying to say you can be a great entrepreneur and a really lousy investor and you know just to give an expectation for uh people who might be listening how long do you think it takes to go from being a successful entrepreneur that is a mediocre investor where you were a year ago how long do you think it takes till you have sort of a modicum of confidence that you know what you’re doing as an investor i mean years i don’t know i mean i’ve been studying it now for a year and a half and i feel like i don’t know much five years five years yeah that’s and that’s if you’re really working at it what i just did was put so i are you familiar with hubspot sure so they’re the ones who bought it so i own hubspot stock and then the rest was just mostly a vanguard total index fund and some real estate and real estate funds what uh with your folks what do you what’s like the asset allocation of like uh uh what you’ve seen what’s like a fairly successful sure so yeah i want to be really we’re not an investment advisor but i do track the asset allocation of our members and can simply report on it which is yeah you guys put out this annual report that’s awesome i love that so the the asset allocation very roughly is uh traditionally real estate has been king with about twenty eight percent of the assets maybe twenty seven uh is that a good uh primary residence no generally not um it’s it’s mostly investment real estate and does that mean they own it or they’re in a ring it could be they’re in a reit more likely they either own a building or they own a limited partnership in a real estate fund of some sort second would be public equity um about 26 20 anywhere between 24 and that’s so much lower than i thought exactly and private equity and this is unique to the tiger community uh our private equity has for the last couple years been more than public equity it’s now a little neck and neck but private equity is around 21 to 24 and what’s so remarkable is if you take those three numbers the private equity public equity and real estate it adds up to 70 plus percent those are the risk on assets so our members are relatively long-term bullish on investments even when they think we’re going into a recession they still are over 70 percent invested in when i say risk on assets that’s what the you know the investors say are assets that are risky and have to do with business-like qualities then a fixed income until you know now is at a historic low point about seven seven percent it was as high as 12 or 14 in prior years uh and crypto and gold creeping up one or two percent assets each cash at uh 12 our members cash has stayed relatively fixed over a long period of time the biggest it typically fluctuates between 11 and 13 but in the um pandemic march of uh 2020 it spiked to 20 which statistically is off the charts that’s how concerned our members are but generally in the 12 ranges is uh what our members are looking at in cash what do they love about real estate so much i mean and uh it’s the gift it’s the gift that keeps on giving and first of all they’re terrific tax attributes of real estate because of depreciation you know when most people think of an investment asset and they buy a company that company is subject to competitive forces every single day it’s why most operating businesses don’t lend themselves to multi-generational families of course there are exceptions and some very important ones but real estate is a much more tolerant asset for multi-generation or or if you own certain uh natural resources you know if you own uh timberlands those are good to pass from generation to generation because when you own a great piece of real estate you know the joke is your child can be let’s say less than brilliant and still know how to collect the rent and even in your own lifestyle if you own a great piece of real estate the tenants have to pay the rent even when you’re playing golf but when you’re running a complicated technology company or something else you got to be out there and working every day your team has to be really really good and i’m not in any way suggesting real estate it takes a different kind of unique smarts it’s not an easy game but it’s very different one way to think about it is if you took the whole economy i don’t know if you remember the dewey decimal system of libraries but if you broke the economy into all of its sectors and one of those sectors was real estate and nine other sectors medical and education everything else high spec high tech aerospace etc if you took those nine other categories real estate is more different than those other nine than any of the other nine are to each other because of this durability this multi-generational capacity of real estate we always make a joke that people they get offended about this but i’m like it’s kind of a compliment we always say that real estate has the highest number of dumb rich people uh and that was kind of like a fox in other words they may not people who have the same intellectual pursuits that you are right but they can go and smell an opportunity and sniff out where there’s a problem in a way that most other business owners don’t and that’s why i say it’s very deceptive because they’re a breed apart but that’s become a little less so in the last generation because as real estate became more securitized with different types of ownership and debt that went to wall street it became more of a wall street game so it’s a little more today a wall street game than it was 20 years ago yeah and the the the kind of the strategy that my wife and i had was let’s just try to get somewhat wealthy with tech stuff and have that continue to make cash flow and you know selling companies and pile a lot of it into real estate because that’s something because like with my business we had to send an email every day but if gmail changed like it could go out of business a building that i own i could lose a fair amount of money on it but like there’s it’s still a thing that someone will purchase even if it’s at a huge loss but it’s not gonna go to zero whereas my company it definitely could like if i owned a conference business and a pandemic hit like which i did uh like it went it literally made zero dollars whereas this land that i own that i’m looking at right now like that’s probably not gonna go to zero none of these things are as simple as we’d like i think you’re making some really excellent points but if you owned retail or movie theaters uh or airports in the pandemic that went to zero too if you had any leverage on it so it’s not that realistic being hyperbolic but like you know i understand yeah i totally get it it’s not that it’s without risk but as an asset category it’s a long dated asset i can’t find this client info have you heard of hubspot hubspot is a crm platform so it shares its data across every application every team can stay aligned no out-of-sync spreadsheets are dueling databases hubspot grow better one more thing about the selling and uh selling versus not selling because you have a way bigger sample size a do you regret selling your companies and b the thing about selling like let’s say that you sell a business and you make 30 million you pay taxes now you’re left with 20. to make 20 million like you could build a business for 5 or 10 years sell it and make that to make 20 million after to make 20 million from cash flow annual cash and that’s really freaking hard like you gotta i mean your taxes are higher because it’s income versus capital gains but and you i mean it’s just like it just seems like selling a business is probably the e the easier of the two and it’s still not easier it’s still not easy it’s the easier the tomb to to accumulate like your first bit would you agree with that or no well it it’s it’s the problem is that it’s better to think of it as a shift in risk because when you made the decision to sell for 30 million the example you just gave what you’ve done is you’ve taken a lot of risk on the table so the chance of losing that 30 million now goes down radically it’s much less once you’ve turned it into cash but the chance of getting to 60 million might have gone down also because you lost the engine of growth so it’s you know do you want to sleep well or do you want to eat well are you long-term greedy or short-term greedy but there’s no question that when you sell your business in my opinion more often than not it’s it’s not number dependent it’s risk dependent you want to take risk off the table you don’t want to you don’t want to have the risk just as you said of losing your business anymore so you can take your chips off the table and diversify it over a number of investments but it’s going to be much harder if the business was a well-functioning growing business to get to that you’ve you’ve increased the hurdle rate before you can get to that next level of 60 or 80 or 100 million dollars do you regret selling your two things um and tiger um or so you didn’t sell it first of all i’m still the chairman and majority owner of tiger but it’s run as if i’m 50 50 partners and tiger would be a great example um i’m 66 the when i sold tiger the risk that i was most concerned about because i’m a cancer survivor is longevity and sustainability if something happened to me so our board said i was the number one risk and because i love this business i said well how do i how do i do how do i reduce that risk well the first thing is i bring in a co-owner and the second is we bring in a world-class ceo and in order to bring in that world-class ceo i needed to bring in a co-owner so tiger is immeasurably stronger today from a team point of view and an ownership and a resilience point of view it is still my legacy i’m the founder it was my idea but i never went into it for money and i’m not sure that i would have done any better on my own i think i think the the diversity of ownership and uh the addition of a team that we built into a world-class team is just dramatically different than i could have created on my own so i have no regrets whatsoever uh with tiger and um with the other businesses it was interesting i sold my first project that i mentioned to you when i was 30. what did you can you say what you sold it source so we have contacts i mean it was uh it was a project that i was a partner in but the project got sold for over 100 million dollars and the and that was in 1987. that was pretty life-changing i’d imagine uh totally life-changing um but the point is that what i remember is not so much the dollar amount what i remember is it was heralded as the most successful real estate project in metropolitan history in terms of financial return uh but but it took me a couple years to kind of find myself again because i went from being one of the top hundred developers in the country i also had the advantage i had a partner the project was my idea but selling was his idea and he never would have got into that project if he hadn’t been my partner and i never would have sold it if i hadn’t been his partner and we sold at the end at that point a hundred percent 99 of what we were worth was tied up in that project and if somebody had got hurt or killed in construction you know it could have it could have wiped us out and so we sold and we closed in january of 87 and in october 87 the market crashed and real estate followed after that and we had been one of the top 100 developers and we might have been one of five developers in the whole country that had lots of capital and no buildings to weigh us down with the problems from the market crash so that gave us an extraordinary opportunity to get back in at the bottom and i did that by creating a company that bought distressed real estate from banks and went on to buy close to a billion dollars of what became a billion dollars of assets wow when when people one of the surprising things when i kind of started when when i sold was i had never heard of this thing called an asset-backed loan which is like basically one example of that is when rich people buy a home you’ll hear that they bought like a five or ten million dollar home in cash and oftentimes what that really means is they’re using this thing called an asset backed loan so basically if you have a stock portfolio of 10 million dollars and it’s like in a vanguard index fund or some basic thing like that you can borrow like 60 or 75 percent of that at a given a very very low interest rate as low as one percent um what was uh what were some some what are some surprising things that people who come into money after selling their company that they that they see and you’re like like when i when my banker told me about that i was like are you kidding me this is like this is how people do it this is amazing what are some other things that kind of fit in that category so i’m sorry but i would never do that most tiger members yeah most tiger members wouldn’t for two reasons one uh i don’t have any debt i wouldn’t want any debt it debt can be very corrosive at exactly the wrong time you know the market has just gone down for people who are levered they could have been wiped out if you want to be here for the long term and preserve wealth i would argue you want as little debt as possible i’m not suggesting that’s a good idea no no no no no i don’t understand it’s an interesting option that people have like needs to pay taxes sure but the other the other part of it is that one percent can be illusory because the rate can go up if it’s a floating rate and if you have a spike in interest rates and you made assumptions that you were borrowing at that low interest rate and then it goes up you can really wreak havoc with your balance sheet so i uh one of the things that most tiger members enjoy when they reach a level of wealth is the ability not to have debt hanging over them now having said that who are the best managers of debt well private equity firms and real estate is the place where most debt is so people who’ve spent a career managing debt understand the power of it but they just understand that at some point you want to reduce risk and take chips off the table i think the other thing is something you said before not everybody fully appreciates why they became successful because for every person who had a plan somebody else was lucky let’s say doesn’t mean that they didn’t have a plan but fundamentally they’re lucky and it’s just a statistical thing the the number of people who’ve had two successes is dramatically smaller than the number of people it’s a bell curve of who’s had one success and for people to have three and four successes gets down into the you know one in a thousand entrepreneurs or something and i think that um many people systematically overestimate their own skills when they’ve been successful and there’s a real comeuppance that after they sell their first successful business they assume they’ll be successful in the next one and they get their clock handed to them as i did when i was 30. it was a very painful lesson but it was the most valuable lesson well i uh sold this amazing project uh when i was 30 and then i started a business in the real estate information this is before the internet you know pretty much what zillow is today where you can look up any house and get a price on it we created a business that was a precursor to zillow before there was an internet it was so much of your net worth from the previous thing did you invest into this new thing oh i probably risked somewhere between 20 on the order at 25 something like that and so one of the biggest one of the biggest um learnings is when you sell a business you know many people think they’re great investors because when they own a business if they make an investment they have to talk about it at a cocktail party and if they lose in money on an investment it gets swept under the carpet because the business itself is profitable so it covers up those losses so many people who’ve been successful entrepreneurs don’t realize how poorly they are as investors because they’ve never been battle tested without the benefit of the company providing you know the fill if you make a mistake so i think i think the one of the biggest mistakes that people who sell business make and it’s what you said before is that they’re uh that they assume they can do it again and again and only a portion of people who’ve been successful once are going to be successful twice we’re talking about earning money what about spending money uh like something that i ask myself is i’m quite frugal and i say like i don’t want to buy this this and this because it costs too much money and i just don’t it just it and some stuff like owning um you know a lot of like objects in my home it kind of just stresses me out because i feel like i got to take care of it but then there’s other things like flying nicely or staying at fancy hotels where i was like i don’t want to spend money on that and then i was like well you know what that actually makes me happier like this is fun for me i should spend because that i feel like you know about the marshmallow test yeah about uh um delayed gratification yeah delayed gratification so should i tell it for your life it’s a very famous uh very famous test that was done at stamford uh in the i think 50s or early 60s and you know they put a table of 12 three-year-olds or four-year-olds out and they put one marshmallow in front of each of the kids and they said look i’m going to step out of the room if you don’t touch the marshmallow while i’m gone when i come back i’m going to give you another marshmallow and only one or two of the kids could wait for the person 20 minutes to come back they just had to eat the marshmallow in front of them those one or two could handle delayed gratification and it turns out that they tracked many kids who went through this and the very few who could delay gratification were more successful in school more successful in life and more successful in business by various measures over the next 30 to 50 years of their life it’s a remarkable study and it has to do with what i was saying before when you’re an entrepreneur as apparently you were you had to delay gratification because you were putting money into your business you couldn’t you couldn’t do all the things others who were making a lot less but didn’t have a business we’re doing and delayed gratification the discipline of delayed gratification is at the core of uh entrepreneurial success but frankly when you’re a movie star or a rock star or a baseball pitcher or a basketball player delayed gratification isn’t so much at the core of your success because you don’t need to scrimp and save you need to practice and be well so when people sell you know there’s a syndrome where somebody’s been very successful but they’ve been delaying gratification so long that they only open up one step at a time they still are driving a chevy they still are wearing a certain kind of suit they’re wearing a timex watch but they go on a great vacation or they go on a mediocre vacation but they’re wearing a really expensive watch you find when people have sold their business they open up slowly because they want to they want to be smart and they don’t want to waste and they have to find that new balance but you know we have a rule at tiger which i think is the most important rule it’s called the two percent rule if you’ve been lucky enough to sell a business one gauge you can think about is if you’re solely uh living on the investments in your portfolio if you can live on two percent of your assets or less then you’re in a safety zone and obviously some people have the good fortune to earn a lot more than two or three or four percent on their assets so they can live on a little more but once you start living on more than two percent you’re actually starting to stress the ability to preserve capital and my guess is if you if you went to a whole bunch of 25 year old kids and said you know if you inherited a million dollars how much could you spend a year and preserve the money you’d be shocked a lot of kids would say i don’t know a hundred thousand or two hundred thousand a year it’s twenty thousand a year and uh that learning is really fabulous uh there’s this um funny cool subreddit subreddit a reddit a forum that i go to and it’s called fat fire you know you know what fire is like fires like financially independent retired early fat [ __ ] typically fires like people who want to save like a million dollars and live off like 50 000 a year fat fires people who want to like earn a huge you know a much larger amount and live somewhat lavishly and on that subreddit the number is like three percent so it’s a little bit higher than two percent but like three percent i think there was this thing called the trinity study and they said like four percent frankly i think that sometimes is too high but like i i i kind of buy in the three percent range and uh anyway there’s this one book have you ever heard this guy named felix dennis no i don’t think so he’s amazing he’s kind of he’s dead now but he’s kind of like a combination of mick jagger and richard branson so he was this he was this british entrepreneur and he was kind of flamboyant like richard branson and like did a bunch of stuff but he was like mick jagger and that he was like kind of a degenerate like he loved drugs and hookers and he was like he wrote about like his escapades when he got older he was like i had a drug problem and i was never married so i was just like sleeping around and so he’s kind of like a fun guy to read about but he’s got this book called uh how to get rich it’s kind of poorly titled in a way that it’s like embarrassing to talk about but it’s quite a good book and he was like he he eventually founded micro warehouse which was a publicly traded company but he also started maxim magazine he was a publisher so he made all of his money in magazines and he was like so i’m going to die soon because i’ve got cancer and i’ll die with like a 600 million net worth but if i could do it all over again my goal would have been to make 20 or 30 million dollars by the age of 35 and not focus on money making ever again and only focus on uh like the people i cared about but like a boxer who’s punk uh punch drunk i went back into the ring every time because i was addicted to it even though it it didn’t always bring me the most amount of fulfillment and happiness i just want to share three reactions to that the first is there was a band leader from the late 60s or early 70s who was being interviewed a few years ago and the announcer said you know you were the first band to make a million dollars a month no band had ever made that much money what’d you do with all that money you guys must be rich he said well we spent about 70 percent on wine women and drugs and wasted all the rest but the thing is the uh the thing with mick jagger is what you don’t see is he like works out six hours a day he uh he he eats a food regimen that’s like second to none and here’s a guy who’s maybe keith was a better example yeah well that’s important because even with richard branson with with his whatever your persona is you know he knows how to lever uh from a marketing point of view he puts like nothing into a business and others invest around his name so his risk is very low these are these are people who are real geniuses at what they do but the thing that the thing that you didn’t mention is philanthropy like how does people create meaning i i think that people who’ve created a certain amount of wealth and then say a higher percentage of what i’m going to make i’m going to give back to causes that i believe in and try and make the world a better place i think that’s a really important way to get meaning so that guy who made 600 and said i should have just made 30 maybe he should have just been a little more philanthropic and and looked around the world and said i can make an impact in a positive way have you heard of this book called you got a ton of books behind you so maybe you have it looks like you read a lot there’s this book called um dying with zero it’s by this hedge fund guy named bill perkins and i’ve just started reading it but it sounds like the premise of the book is basically uh spend like if you’re going to give instead of giving away money when you’re dead like give your kids the money now so if they want to buy a home or do something like maybe you can enjoy it together if you want to leave money to a certain cause just give it now because you’ll be able to see you’ll be able to see it and you can all get a little more joy out of that sure that was the biggest debate you know for many years warren buffett said i’m leaving a big foundation when i die he said because i’m growing my capital so quickly that by leaving it in my portfolio i’ll leave so much more and bill gates made the argument with him yes but what’s the value of a life saved today versus a life only saved 30 years from now when you die and some things aren’t financial calculations so the point that you’re making is there’s a lot of value to being philanthropic both with your time and your money earlier on and not just uh later on and i think one of the things that is really important is many entrepreneurs have a lot more than money they have skills and insights and contacts that they can lever philanthropically so i do believe uh in being as active as possible uh to make climate is my number one issue and so i’m involved in climate both politically philanthropically and in the way i invest and that’s given me a lot of feeling at least of i’m doing as much as i can well last two questions first um the interesting thing about this your business tiger 21 is from an outside it seems like the it seems like the vast majority of the value is your like eight or ten person or 15 person your group which means i would think that there’s a lot of pressure or not pressure but there’s a lot of faith that the facilitator like you need that facilitator to be good and if your facilitator stinks and that could potentially ruin the experience so which almost is like your business is almost decentralized or like it you know customers will have drastically different experiences potentially regardless of what’s happening at hq how are you how do you make sure your facilitators are good and are providing a valuable experience so i think what you’re searching for is kind of a classic example of would you rather own 300 gas stations or one oil refinery if they’re both worth the same amount of money well the answer is obvious on that one i think which is what multiple i mean it’s like you don’t want you don’t want you don’t want uh all your you don’t want one big ass customer you would be nice to have a hundred more that are equal but the fact is if you have 300 gas stations that have all the same label on them the same name you have a brand exposure that if something bad happens in one of them it could affect uh people’s demand for the other so our only asset is our people both our team our chairs that facilitate the groups and our members and we spend we have like a private university we spend fortunes of time screening the facilitators and then providing lots of opportunities for the facilitators to learn from one another our facilitators come in from all we call them chairs of the groups they come in from all over the world to learn best practices from each other and we track all of the relevant metrics to see which groups are performing well which groups are not performing well and of course the most important thing is we have zero tolerance uh anything less than high integrity and maintenance of confidence if somebody if a member or a chair ever violated that they would be out in a second so i’d say that maybe uh besides the core asset uh being our team and our members the thing we protect the most is our brand by being really true to what what it stands for and i don’t think we’ve ever compromised on trying to put members first that’s that’s kind of what we’re about i’m a member first all most of the value that i’ve gotten out of being a member of tiger has been being a member uh the fact that i’ve owned today a little more than half the business is almost irrelevant to the value that i’ve gotten by being a member and all the opportunities that i share with all the other members that come my way as a member well you’re awesome the reason i wanted to talk to you was because i’ve uh i know of tiger i’ve thought about joining i’ve got friends that are part of it and i love the business model my business was was tangentially related but not quite the same thing it was community based and i hadn’t read or seen too many interviews with you and so i’m happy that we got to talk because uh i wanted to kind of explore this but you’re you’re you’re uh you’re cool as hell i appreciate you taking the time this is awesome thanks so much for having me and if you if people wanna do you use twitter or anything if people wanna find you do you wanna point them anywhere um i’m on linkedin i don’t use twitter i don’t i i i don’t use facebook um but i’m available through linkedin and uh it’s kind of easy it’s michael.sonnenfield.tiger21.com hell yeah thank you man i appreciate it thank you