In this episode of the Investor Mindset Podcast, host Steven Pesavento sits down with Scott Clary to explore his journey from a risk-averse upbringing to taking bold risks in the tech industry. Scott shares how growing up with parents who worked in stable, pension-backed jobs influenced his drive to create a different path. He dives into the world of startups, discusses the concept of extreme ownership, and reveals how he strategically built and invested in businesses with a unique edge. Scott provides insights on leveraging earned secrets, building relationships, and developing an insider's perspective to excel in tech and beyond.
Key Takeaways
Resources Mentioned
Interested in connecting with other like-minded individuals? Then join our VonFinch Private Capital Network. Learn more at http://www.vonfinch.com/invest.
About our Guest:
Scott Clary is a serial entrepreneur, sales and marketing expert, and host of the "Success Story Podcast." Known for his high-energy style and practical insights, Scott has worked with a variety of startups, helping them scale and achieve success through his deep understanding of sales and marketing strategies. He's also a tech investor with a keen eye for companies with unique value propositions. In addition to his business ventures, Scott shares his journey and insights on his popular podcast, where he interviews high-profile guests and explores what it takes to achieve success.
Are you looking for High-Performance Business & Mindset Coaching? Schedule a call now and see how we can be of service to you. http://www.investormindset.com/discover
00;00;01;07 - 00;00;09;27
Steven Pesavento
Welcome back to the Investor Mindset podcast. I'm your host Stephen Vento, and today I have Scott Cleary in the studio. How are you doing today, Scott?
00;00;09;29 - 00;00;13;06
Scott Clary
Hey, Steve, how's it going? Nice to nice to be here. Thanks for having me on.
00;00;13;09 - 00;00;31;18
Steven Pesavento
Yeah. It's good to see you, man. You're doing some really cool things. You've got a huge podcast. You've been able to get some incredible partnerships with it. You've interviewed some amazing people in your building businesses. So we're going to talk a little bit about building businesses and being an investor. And kind of the difference between the two. We're getting some other stuff on your story as well.
00;00;31;25 - 00;00;42;14
Steven Pesavento
But before we get into all that, let's start at the very beginning. What influences or events from your childhood shaped who you are today?
00;00;42;16 - 00;01;07;15
Scott Clary
I would say that I wanted to end up in the exact opposite position as my parents. Funny enough, and not because they ended up in a bad position, but because they were very safe and they were very risk averse. And they all. My dad worked for the government and my mom worked for university. She took some time off from work when she had me and my brother, but they had pension set up until the day that they die.
00;01;07;17 - 00;01;37;01
Scott Clary
which was something that I don't think a lot of us were even aware used to exist. The defined the defined contribution or the defined benefit pension. And that was something that if I wasn't going to get access to that kind of safety and security after I stopped working, I realized very quickly that I had to make enough money to put into a little bucket so that when I stopped working, I could take out whatever 80,090 thousand, $100,000, until the day that I died.
00;01;37;01 - 00;02;02;00
Scott Clary
And I started to realize that that ended up being quite a bit of money. That was hard to save when you consider inflation and cost of living and home prices in Toronto, which are not much better than other major cities in the US. So in my mind it was I'm not going to get a pension. and working for a mediocre salary is probably not going to make me the money that I need to make to truly retire comfortably.
00;02;02;03 - 00;02;32;18
Scott Clary
So it was let me try and be a little bit riskier in my career choices, at least early on, and see if something works out. And if it doesn't, then fine. I can, you know, default to the the type of career that I kind of know from my for my childhood. So I would say that was probably the one thing that pushed me towards tech and working in startups and consistently trying to not be complacent and not be comfortable and move into the next thing and move into the next company.
00;02;32;21 - 00;02;43;01
Scott Clary
and I made jumps very quickly. but that was probably it. It was, it was fear of how do I want to live my life from 65 to 100?
00;02;43;04 - 00;03;06;14
Steven Pesavento
Yeah. It's so fascinating because I see this often where high achievers grew up in kind of either a very rocky environment or very safe environment. And they took a look at what they were seeing around them and they made a decision, hey, I'm going to go a different path because I know this is always available, but instead I'm going to go out and try to find my own way, whether that's in a career or entrepreneurship.
00;03;06;15 - 00;03;28;23
Steven Pesavento
I know you did both, but let's let's talk a little bit about kind of the entrepreneurial journey you've bought, or you've built and operate a number of businesses. You've invested in some businesses. You've been both an operator and investor. Talk to me a little bit about what your journey looked like and what was what is the business that you that you run today.
00;03;28;25 - 00;03;58;10
Scott Clary
So the journey was is the journey was very clear. I never went into sort of public service or more safe positions. I always worked in tech, even for someone. when you work in tech, then you start to, I guess, become aware of opportunities and earlier stage tech and to really move your career forward, you're not necessarily going to get the fastest career progression by working for even a fortune 500 or a fortune 1000.
00;03;58;12 - 00;04;15;13
Scott Clary
So you start to try and jump to earlier stage companies to move a little bit quicker, maybe get a better role, maybe get at the point I didn't realize, but you could get equity. you can make a little bit more money by jumping ship and moving to something. and which is it kind of sucks, but that's the reality.
00;04;15;13 - 00;04;29;01
Scott Clary
You're playing a game with your career, and I think that the days of working for a company for 15, 20, 30 plus years are gone. So I think you have to be strategic if you're going to get the most out of the time when you're working anyways, moved from very large. Yeah. I couldn't.
00;04;29;01 - 00;04;29;08
Steven Pesavento
Agree.
00;04;29;08 - 00;04;43;28
Scott Clary
More. I was going to say so. Yeah, I mean it is what it is. It's it sucks for an employer, which is also why I'm a strong advocate for if you are an employer and you're hiring somebody, enter into a period of time contract with them. Could it be two years, three years, whatever. You know where they want to go.
00;04;44;02 - 00;05;01;03
Scott Clary
You know the commitment they can give your company so that at the end of the day, you're not disappointed with that hire and you've both mutually committed to the the goals of that individual. So you're not asking to stay there for ten years. You're not you're not fooling yourself. You're saying, give me three years of your life to get to here, and and I'll help you get to where you want to go next.
00;05;01;08 - 00;05;08;09
Scott Clary
This is a way, I think, that leaders should hire and operate now. because it's more in line with how employees think through their careers.
00;05;08;11 - 00;05;35;20
Steven Pesavento
Well, it's tough because when you're running a small organization, you, you, you know, they're making a bet on you, you're making a bet on them. You're investing a lot. And when people leave in a small organization, it does make a big impact. But there is the reality that a lot of people are job hopping. And so if you can create incentive plans or expectations up front where, hey, this is the kind of benefit you get if you're loyal and you stick around and this is, you know, the metrics we need you to hit.
00;05;35;22 - 00;05;47;10
Steven Pesavento
And we of course, want you to be able to go above it. These are the kind of results you get if you're up front with people and you show them the vision, a lot of people are willing to, you know, to jump in with you and go on the ride.
00;05;47;13 - 00;06;10;05
Scott Clary
Yeah, I would say that. I would say that's exactly what you should do. And it hurts more when you aren't expecting somebody to leave, because then you have a gap in your workforce and you're pushing that work on to someone else, and then that other person's life sucks a little bit more. So I would just say, like, the way that I navigated my career is the way that a lot of people navigate their careers, even more so than when I was still working for someone.
00;06;10;12 - 00;06;33;20
Scott Clary
So I would say, just understand that as a leader or a founder or a CEO or whatever, or hiring anybody anyways. So move to a smaller company. that company was acquired by a private equity firm for, large eight figure exit. That was private, but that I didn't have equity in that company. But that company showed me the power of ownership and equity and what that could actually translate to in my career.
00;06;33;20 - 00;06;52;17
Scott Clary
Right. If I had a piece of something, when you go through that exit event, well, then that could be a nice payday. Super high risk as well, because not every company gets acquired for a significant amount. but that was sort of like a light bulb moment for me. It was okay. it's easier to work in large companies.
00;06;52;17 - 00;07;14;18
Scott Clary
It's harder and way more high risk to work in smaller companies. But if I play my cards right and I trust my own expertise and I can go into a company and execute on ABC XYZ, because at this point I wasn't a more senior sales and marketing executive. maybe I can actually have an impact on helping them get from where I joined them to where they're going to go to a potentially an exit.
00;07;14;18 - 00;07;29;22
Scott Clary
If I have a piece of that, then that's great. So this is like the concept of switching from employee to equity owner. did a whole bunch of consulting taking fractional equity in companies. but that was very difficult because startups don't have a lot of money to pay you. so it's a lot of it's a lot of sweat equity.
00;07;29;22 - 00;07;33;17
Scott Clary
Yeah. and and pardon the pun, but then,
00;07;33;19 - 00;07;59;09
Steven Pesavento
I think there's pause here. There's really like two really important things I think to underline here is, yeah, this concept of you're thinking like an investor. You're thinking like an owner. When it came to going out and finding the job, at first you're going out, you're taking a little bit more risk, but you're getting an opportunity to build skills and knowledge and more importantly, to have a higher level role in a smaller company where you can learn and grow much faster.
00;07;59;11 - 00;08;23;15
Steven Pesavento
But you're giving up maybe some of the security and potentially some of that front, front end compensation, but in return, you're gaining those skills. And then in some instances you can get that equity. And I think it's a really valuable thing to recognize because there's so many small companies, whether it's a startup or just a boutique firm, where you can go in and have that strong upside.
00;08;23;15 - 00;08;38;24
Steven Pesavento
If you're really a top performer. Those kind of organizations are not good. If you want to just kind of sit back, kick back and not really like drive things forward because you're going to miss that opportunity that you could if you're just sitting back at a big corporate company.
00;08;38;26 - 00;09;04;22
Scott Clary
Yeah. Like I think that one idea or one thought that has really resonated with me across my entire career is extreme ownership like ownership of your situation, your condition, your your, you know, your bank balance, everything. Your health, like it massive extreme ownership. So I don't like I don't put a lot of not trust. What's the word expectation on anyone else to improve my life situation.
00;09;04;24 - 00;09;29;01
Scott Clary
So if I want more and not saying you have to, you don't have to want more. if you want to optimize for ideal life and you're comfortable with the income that you're currently earning, there's a lot of easier ways to do it than to work in a startup. But I knew again, I had my North Star since I was like 16 years old of I need to make X amount of dollars to be comfortable, so that's on me.
00;09;29;03 - 00;09;50;09
Scott Clary
So you got to put yourself in these positions where that's attainable. So I think that that's what that sort of pushed my migration into these higher risk companies, where you're starting to think like an investor with your time. Right? Yeah. It's not investor so much with your money, but it's investor with your time, which, if done right, then eventually gives you the opportunity to be an investor with your own money.
00;09;50;12 - 00;10;21;28
Steven Pesavento
I think one of the things a lot of people overlook in the tech industry, in particular, because I started my career in management consulting and then worked in tact in the startup world, was, you know, very ingratiated in that space and VCs. What was fascinating to me as I left was recognizing how much risk people are taking when they're joining a startup, even if it does have ten, 15, 20 employees, because a lot of startups don't make money, they're really focused on getting market share, and it's all based on that next founding, funding round.
00;10;22;04 - 00;10;54;10
Steven Pesavento
And so I think a lot of people don't recognize how much risk they're taking in exchange for that potential upside, because most startups don't turn into that big payday. But if you can be intelligent and really understand the industry, the market, where the players and get in with an organization and a set of founders that really do have the backing to turn that into something great, it can be a phenomenal way to be able to make, you know, a big payday at some point in the future.
00;10;54;12 - 00;11;14;03
Scott Clary
Well, my investing strategy is very similar to how I align with companies. So what's the value add? What like I see where the companies that now I see what they're doing and what success they've achieved so far with the strategy they've deployed. What are the things that I know? What are the levers that I can pull that can take it to the next level?
00;11;14;05 - 00;11;32;26
Scott Clary
So if I see that they're doing everything that I already know and they're sort of like they've been in the market for X period of time and they've already done the playbook and most companies haven't, but say they have. Well, maybe I wouldn't align with them professionally. Maybe I wouldn't invest because I don't see an opportunity for growth that I know I don't have that unfair, unique advantage that I can deploy into that company.
00;11;32;29 - 00;11;52;22
Scott Clary
So again, at the time, I was not thinking this through so thoroughly, but this is just naturally what made sense to me. So worked with a whole bunch of startups, found one in particular that I was like, okay, this company's been in the market for ten years now. co-founders are a product and technically, like technically oriented. They're not sales and marketing people.
00;11;52;28 - 00;12;12;23
Scott Clary
Let me take my years of experience in sales and marketing, deploy it to a great product that has some semblance of product market fit and really like pour like gas on the fire. And that was the last company which was a broadcast software company. It was called Swift. we sold that at the tail end of covet. So that was that was the play really.
00;12;12;26 - 00;12;29;14
Scott Clary
and that's the same play that I did. I didn't put money into that company. I put my expertise into that company. Right. But that's the same play that I do now when I invest in companies or when I choose to spend my time doing anything. Because you asked another question like, what are you doing now? What's your company now?
00;12;29;16 - 00;12;49;07
Scott Clary
Well, we can talk about it. and part of its podcast, part of its, private members community. And then I also do, again, some angel investing and private equity investing, but, it's all the same concept. It's like, what's the thesis? What's the idea? What's my unfair advantage and unfair advantage to be knowledge? It could be skill set.
00;12;49;07 - 00;13;09;02
Scott Clary
It could be network it. There's a whole bunch of different unfair advantages you bring to an opportunity. But that's how I evaluate any opportunity, be it new company, investment, whatever. If I don't know it and I can't improve it and I can't value add to it in some capacity, why would I be doing it? Leave it to someone else who knows this.
00;13;09;04 - 00;13;31;01
Steven Pesavento
Yeah, I think it's a really important thing to point out because, you know, I call it being an insider. So like becoming an inside investor, whether you're the insider yourself or you're connected to people who are insiders and they have those unique relationships or network, or skill sets or knowledge, whatever that is, that's going to lead to a higher rate of return with less risk.
00;13;31;03 - 00;13;53;11
Steven Pesavento
What I think is super valuable, that I think a lot of people, when they are stepping into the world of investing, whether it's time, money, relationships, any of those things that they're using as the currency is they overlook the fact that there is phenomenal ways to add value to an organization that is beyond the dollars that are being invested.
00;13;53;11 - 00;14;12;29
Steven Pesavento
So you you just explained how you have skills and knowledge and you were able to get a piece of that company, help them grow and as a result, get a big payout. the same thing is true when you're writing a check. If you can go in and write a large check. But you can also bring skills, knowledge, relationships, any of those things to the table.
00;14;13;01 - 00;14;23;23
Steven Pesavento
It can allow you to earn, you know, additional points or percentage of of equity or participation that can be a real game changer if you're willing to think creatively.
00;14;23;25 - 00;14;48;07
Scott Clary
Yeah, I think that the concept of this insider advantage, Peter, I think it's Peter Thiel that originally coined the phrase earned secret, when he looks for who to invest in, and I'm going to show you why that just doesn't apply to writing checks, but that earn Secret is an entrepreneur who's lived in an industry for a period of time.
00;14;48;10 - 00;15;08;06
Scott Clary
and they know something that no one else knows. That's the statistically the highest hit rate success rate of entrepreneur. Somebody who has an earned secret, who's lived in an industry till they're like 40 and they see an issue in the industry, and then they build a product or service to solve the pain point or the issue they've experienced over their lifetime in the industry.
00;15;08;12 - 00;15;31;04
Scott Clary
That is the most successful statistics have proven this out. Entrepreneur versus what we think of what an entrepreneur is, which is like a Stanford grad that dropped out or a Stanford drop. Excuse me. So that earn secret applies to what Peter Thiel and what and I just literally interviewed, Chris Dixon from Andreessen Horowitz. and he heads up all the crypto division.
00;15;31;05 - 00;16;02;26
Scott Clary
He's the guy who basically stood up there, crypto division. And this is also how they this is also how they invest. They look for people who have earned secrets in whatever product they're building. So that's from an investor looking at an entrepreneur. But the concept is very similar. If you are a sales and marketing operator or a product operator or anything that can mine, it's usually sales and marketing or product or the product includes technology.
00;16;02;26 - 00;16;28;17
Scott Clary
Those things can radically change the trajectory of a business if executed on properly. If you have earned secret or experience in those categories and as a fractional operator, you go in and you apply that and you become a repeat fractional or full time CXO, and you help companies explode that way, or you're, you're an investor and you, you have that secret sauce.
00;16;28;17 - 00;16;45;21
Scott Clary
And this is what large VC firms and funds now do. They have operational partners that go in. And you can you can deploy that secret sauce and that earn secret in that earned expertise to that particular investment opportunity. I mean, then it just risks everything, right?
00;16;45;24 - 00;17;07;10
Steven Pesavento
Well, it's figuring out where your unfair advantage is because like a great example is in our business and on the real estate side, we met a group, you know, a, high nine figure, low ten figure, family that has a lot of experience, but they don't do exactly what we do. But what they bring to the table is they can write very, very large checks.
00;17;07;16 - 00;17;28;03
Steven Pesavento
And by having them involved, just being able to talk about it, that adds a ton of credibility and trust to the organization. So not only are they going to get a great return on their investment, but they also are going to get additional other benefits. And so just by figuring out what is it that you have that somebody else doesn't, and how can you be of value?
00;17;28;10 - 00;17;50;11
Steven Pesavento
You know, that family in particular by being an anchor, is able to then get bring in other anchors and get additional, participation that a normal investor wouldn't because most people don't have what they have, i.e. the track record, the name, the relationships and all those kind of things. And so you just have to think to yourself, what is it that I have that other people don't?
00;17;50;11 - 00;17;56;18
Steven Pesavento
And how can I go and find the right places to, to make those, those connections?
00;17;56;20 - 00;18;13;15
Scott Clary
I would ask you something because I've seen this in real estate as well, because I'm not from real estate. Now, I'm trying to figure this game out. so when you invest in real estate, do you focus on a certain state or a certain type of real estate, like, I mean, type of real estate is obvious, but do you hear even more.
00;18;13;18 - 00;18;37;07
Steven Pesavento
And to so I think I think one of the biggest mistakes people make is that they're not insiders when they start. So when someone first begins make being an investor, it's like going into a new industry without any relevant skills. Obviously, everyone has a set of relevant skills, but they don't know those little insider things. And so, for example, in the Colorado market, we know it very detailed down to the street.
00;18;37;07 - 00;18;58;07
Steven Pesavento
So we know where the government's making investments. We know where big companies are making investments. We know what a property's worth, you know, without even necessarily needing to run the numbers. Just because we understand details at that level so we can move fast. Like this morning I went looked at a property and we're going to have an offer out by the end of the day, hopefully beating everyone else.
00;18;58;07 - 00;19;20;12
Steven Pesavento
That's got to come in from out of state or whatever it is to try to compete. And then, you know, we invest in other markets with a different strategy because we're able to then apply that strategy that works in that market. And so being niche is extremely valuable. If we were just doing general real estate in Denver, we would have a tough time if we were trying to buy 300 unit buildings in Denver.
00;19;20;19 - 00;19;39;07
Steven Pesavento
We're competing against New York and law firms, and despite us being able to do that in the past, the market today we're getting the biggest return on investment by buying 50 to 100 unit buildings, things we normally wouldn't look at. But we have an advantage locally that others don't. And so it's it's the same thing is what you're talking about.
00;19;39;07 - 00;19;45;25
Steven Pesavento
You know, in the business world this is just, you know, another type of, of asset. And you got to have that insider knowledge.
00;19;45;28 - 00;20;04;15
Scott Clary
I was going to say, I think that, like what you're what you do and how you deploy capital and how you buy, it's very similar to to my closest friends who are the most successful in real estate. I have a very close friend who only does Ohio, and he's now. And now he lives in South Florida. But I've asked him many times, like, why don't you why don't you develop?
00;20;04;15 - 00;20;32;15
Scott Clary
He's like, I don't know. So Florida, I know Ohio, and I know how long it takes to get this permit and to do that and do this and this person and this office in this city. And it's just it's so it's interesting because what this lesson is, is that you should specialize to the point where you know this thing better than anyone else, and you actually don't diversify when you start, you actually specialize in and what you are the subject matter expert in.
00;20;32;15 - 00;21;03;25
Scott Clary
And I think that even in my investments, you were asking me about that the things that I've lost money on are things that I don't understand and the things that are still running because I, I lost a lot of money in angel investment, which is a really high risk pre-seed like five, 15, $20,000 checks. And then I take those same checks and do smaller private equity investments in cash flowing companies in categories like CPG, like SAS, that I know, and those are still running and those are still operational.
00;21;04;01 - 00;21;24;25
Scott Clary
And I can understand the opportunity. I can understand if the founders full of shit, I can understand if when I'm doing due diligence, they're showing me, like the back end to their Facebook ads, if it makes sense, if the numbers make sense, if they were, like, doing something funny with the numbers to try and make it seem better than it is.
00;21;24;28 - 00;21;39;04
Scott Clary
you know, the, the, the character LTV ratios, the Roas on ads sets, like I can see and I can understand this stuff more than somebody that was a real estate person trying to go acquire a small consumer goods company, CPG company.
00;21;39;07 - 00;22;01;24
Steven Pesavento
Yeah, I think it's really yeah, it's really valuable to recognize that diversification is really good for preserving wealth, and concentration is really good at creating wealth. Like if you run a business, majority of your wealth is going to be in your business because it's something you control. And at a certain point in time, it's going to make sense to then diversify into other strategies.
00;22;01;24 - 00;22;20;18
Steven Pesavento
And the only time you should do that is when you find people who you trust and but you still have to have a certain amount of knowledge to know whether they're talking, you know, a good game or whether they really can play, which is a challenge a lot of people have. And it's one of the difficult things, I think, in the real estate spaces.
00;22;20;20 - 00;22;41;07
Steven Pesavento
I definitely am a big proponent and believer in real estate. But when somebody comes to me and they say, hey, should I invest in this deal? I don't even care about the deal per se. Of course I do. But what I care about is who's operating it, what's their background track record? What are they, what have they done, and how are they going to do it, and what's the structure?
00;22;41;09 - 00;22;57;28
Steven Pesavento
And the interesting thing is when people are first coming into, you know, investment, they oh, this is exciting. But the people who are running it, just like in a founder run company, is the most important thing next to, you know, what is the strategy and is it going to work.
00;22;58;01 - 00;23;16;29
Scott Clary
Like my my strategy for overcoming that hurdle is quite simple. So I'll put money into thing. And this is not something that I learned leaving a company. I've I've lost quite a bit of money learning this lesson. because another thing people don't realize is just because you've made some money, you become a good investor. If you good operate like it's not the case.
00;23;17;02 - 00;23;39;21
Scott Clary
And maybe this comes intuitively for people, but it wasn't for me. but then I stopped focusing on stuff that I didn't know, only put money into stuff that I do know. And for anything that I wanted to put money into that I didn't know. I would build relationships with people that were experts in that thing, but I wouldn't put money or go into a deal with somebody else until I've probably known them for about a year and a half year.
00;23;39;21 - 00;24;06;07
Scott Clary
And a half, two years, three years. Gone to a wedding, gone to a birthday party like, I their friends. Like, I don't put money into deals with people that are outside of what I know who are not friends. It's very rare for me. I'm not an institutional investor, right? I'm a casual investor. So maybe this is not doable for some of the audience, but I think enough people listening to this are probably not professional investors.
00;24;06;09 - 00;24;24;05
Scott Clary
And they're like, okay, I want to get into real estate. Okay. We'll start with investing in what you spent your whole career doing and make some friends who are real estate investors and just spend time with them and don't don't become friends with them, become friends with them because they've been successful in real estate. That's great. But become friends of them because they're good people.
00;24;24;08 - 00;24;38;04
Scott Clary
You like them, you start to get to know them. You start to get their circle of friends, get to know their circle of friends. And over time, if you want to do a real estate deal, you know how to do that real estate deal with. It's it's. Yeah, I.
00;24;38;06 - 00;25;03;10
Steven Pesavento
That's I think it's, I think it's a super valuable thought. It's a very, very conservative strategy. But what I'd add on to it is if you build those really close friendships with people who are experts and have expertise in that specific space and niche, they are going to have people that they can refer you to that they trust, and because you trust them, that's going to help get you one step closer to then being able to make a smart decision.
00;25;03;18 - 00;25;25;20
Steven Pesavento
So what I'm curious, Scott, you've been both on the investing side. You've been on the operating side. From your perspective, how do you or what have you seen that's different between the way that owners or operators think versus the way that an investor thinks? When looking at a business?
00;25;25;23 - 00;25;46;00
Scott Clary
Well, I think that this is not a hard and fast rule, but sometimes owners do not look at an exit strategy, which I think is incorrect. I think a lot of and this will this will decrease as the business grows, because there will be more systems and operations and people in place that will help guide you forward.
00;25;46;02 - 00;26;18;03
Scott Clary
But I think in like the sub 10,000,050 employee category, I think a lot of businesses are driven by just the owners, pure hard work and a little bit of ability to manage an insane amount of chaos and beyond 5 to $10 million, you really have to start thinking about firing yourself as the owner from most of the jobs that you're doing, building systems and processes and and hiring people that can actually grow and scale.
00;26;18;05 - 00;26;40;24
Scott Clary
Because you cannot you can't just hustle your way to a significant size business, and you also have to start thinking about at that point, or you should start. You don't have to. You should. If you want any kind of work life balance or enjoyment in life, you should start thinking about, how do I how do I build a business that is able to be acquired without me working in the office every single day?
00;26;40;24 - 00;26;58;08
Scott Clary
So an investor immediately already thinks that going in, because that's the only way they get their money back. If they can buy a business, it isn't completely contingent on the founder or what's known as key man syndrome or key man problem. Right. so that's the way a investor always has to think. There always has to be some sort of return in the future.
00;26;58;08 - 00;27;31;14
Scott Clary
And no investor wants to turn into an operator. ever. So that would be the one thing that investors, that investors look at when they're acquiring a business that maybe an owner hasn't thought of yet. However, eventually an owner will have to think of that. and it's not just something they should be thinking about. If they want to sell, it's something they should be thinking about, firing themselves from all the jobs they're doing so that they can truly achieve a massive scale, because that's the only way to really get to any significant size.
00;27;31;14 - 00;27;43;09
Scott Clary
But around 10 million to 50 employees is when most businesses start to break. When, when when this when the just the hard work from the founder is no longer a sustainable business strategy?
00;27;43;11 - 00;28;07;06
Steven Pesavento
Yeah, it's such a good point because a lot of owners, you know, they had to do the work to create the business and get it where it needed to go. Yeah, but there's a whole nother level to operating a business as it grows. And a private equity company doesn't want the owner to stay involved. I mean, sometimes they do, but most of the time they're looking to buy a business that is, you know, batteries included.
00;28;07;06 - 00;28;08;08
Steven Pesavento
It's ready to go.
00;28;08;09 - 00;28;26;09
Scott Clary
It's going to what they don't want. They definitely don't want. This happened in the first company. that I was a part of that was acquired by private equity. I'm sure the owner personally accounted for about 50% of the company's sales every single year through relationships he's built over the past ten years. Yeah, that's not it's not good.
00;28;26;09 - 00;28;28;13
Steven Pesavento
Huge discount for that. Yeah. For sure.
00;28;28;15 - 00;28;48;22
Scott Clary
Yeah. Yeah. Because that. What if he wants to retire? What if he wants to take a step back? Okay, well, he's working. He's working 80 hours a week right now. So how is that? How is that a purchasable business. So part of the process am being acquired because I was part of it was it was bringing in somebody leads sales and marketing, bringing in, operations, like a CEO.
00;28;48;22 - 00;29;08;11
Scott Clary
So VP sales and marketing, SEO like basically getting people to take over all the stuff he was doing, which was he was a sales and marketing CEO, founder. He loved selling to customers. And he and he really cared about these relationships. that's great. But you got to know when you have that, you have to be self-aware enough to say, listen, this is not sustainable.
00;29;08;18 - 00;29;25;07
Scott Clary
I can't I don't want to be doing this for the rest of my life. I have I want to have a life. I want to travel. I want, you know, be at my kid's graduation, whatever it is. and also, I want to eventually sell. So I think that's something you I believe you should be thinking this way from when you start a business.
00;29;25;14 - 00;29;50;20
Scott Clary
But this is not something a first time entrepreneur would think of. It's usually something a second time entrepreneur would think of because they realize the shit show they that they went through the first time to get a business ready for, for exit. And that also includes, like, not treating your finances like it's a family business, like actually like doing the doing all the things properly, which seems silly, but I mean, you've you've looked at deals.
00;29;50;20 - 00;30;06;15
Scott Clary
I'm sure that are very messy that that someone's treating it like it's literally a family business where, you know, their cousin has like a business debit card and they're buying shit. and they're just like, well, why? They're not an employee. They're not on the books. Like, you have to tighten this up and there's different ways to structure it.
00;30;06;15 - 00;30;19;21
Scott Clary
So you can still achieve all the things that you want to achieve in terms of how much money you're taking out of the business, what you're spending money on. But just it has to be, like a tightly knit package so that it can be sold. But that same package can also be scaled.
00;30;19;23 - 00;30;46;10
Steven Pesavento
Yeah. I mean, they call that in the industry, add backs. When you're buying a business. So you can't always you can't always trust them. So there's always going to be a discount for that. so obviously you know on the real estate side, you know, we're creating a 15 to 20% return or a 20 to 30% average annual return when we're buying growth focused assets, when you're investing yourself into private equity, you're adding your skill set.
00;30;46;10 - 00;31;10;20
Steven Pesavento
You're adding additional value. What type of return profile or multiple is common in the type of private equity that you're looking at in particular? And I know it's different across kind of as companies grow and and and different industries. But I'm curious from your perspective, what have you seen as far as the kind of rate of return investors are looking for or that you're personally expecting when when investing in PE?
00;31;10;23 - 00;31;36;09
Scott Clary
When I'm when I'm investing in PE, the returns are very similar to what you're proposing. plus there's dividends paid out obviously, because we want to be profitable. so that's, that's really the goal. If somebody is promising you more than that. I think that they may not have. I like if a business does exceptionally well and it hit some sort of growth curve and blows up overnight, that's fine.
00;31;36;09 - 00;31;57;11
Scott Clary
But I would never really promise that. And I actually tend to stay away from deals that are promising more than 12 to 15%. Yeah, I just I just don't think it's responsible. So I would, I would like to I would love that. But I've been more I've been burned more on deals that promise those types of returns versus the ones that are 12 to 15% plus I pay dividends.
00;31;57;13 - 00;32;06;14
Scott Clary
because there is some margin left over, at the end of the Or there's some there's some profit left over the end of the year. Then somebody who's 20% and like fizzles out in a year and a half.
00;32;06;17 - 00;32;36;16
Steven Pesavento
So I think that's that's a really important thing to to point out because, you know, different deals, different structures are going to offer a different return to the investor. But people who are who are buying things and they're expecting and projecting a very high rate of return, unless they've done it over and over and over again in that exact same niche, and they know exactly what they're doing, they have an exact plan, and they're still setting lower expectations than they create.
00;32;36;19 - 00;33;06;08
Steven Pesavento
It can be a red flag for sure, because for my perspective, PE has a little bit more risk than real estate. less less risk than venture capital. so it's a nice in-between place. And what I've seen as always, you know, somewhere in that 15 to 20% return, including the dividends, including the, appreciation. And then when a deal goes really well, you know, it's, you know, 50 to 100% more than that.
00;33;06;11 - 00;33;41;01
Scott Clary
Correct. The difference being in in venture capital or angel investing, I mean, you probably have like a depends on the firm like a over a 50% failure rate where things go to zero. So I mean yes, you can have even even and even in venture capital unless you are doing a seed round and most people don't have the capital to participate in, like, even a series A, which is now pushing $10 million, or B or C or D, which is just an astronomical amount of money.
00;33;41;04 - 00;34;03;28
Scott Clary
unless you're doing a seed round, which is I don't have the stats in front of me, but I'm sure 80 to 90% failure rate more maybe. you're probably not going to be expecting more than 20% like an around. I don't think I used to have a chart of it. I wish I could, I probably should have pulled that up, but in a round, I don't think they're even expecting more than 20 x.
00;34;04;00 - 00;34;23;22
Steven Pesavento
This is what boggles. This is what boggles my mind. You know, I've I've done some angel investing mostly. I've looked at it for fun. I, I'm, I actually look at angel investing as gambling and I'm going to put my chips in. But the I really don't gamble and, but when I go to the casino I'm going to put my 50 or $100 out.
00;34;23;22 - 00;35;00;03
Steven Pesavento
And I don't expect to get it back. But it will be kind of fun to go along for the ride and, and play. And, you know, as a result, I invested early in space. Ax and Momentus and or a ring and a bunch of these other interesting companies. but what blows my mind is how much risk there is versus the return that's being projected or is realized because, you know, coming from real estate, I don't have the opportunity to triple or quadruple or these money, I might double it, I might triple it, but it's probably not going to be higher than that unless there's some crazy thing that happens.
00;35;00;05 - 00;35;06;29
Steven Pesavento
But in the venture capital world, all it takes is one of those deals going 1020 acts.
00;35;07;01 - 00;35;33;13
Scott Clary
That makes 100 fail. To me. It could be ridiculous, right? But but that's the issue that I have with venture capital because venture capital is not a popular investment vehicle because it's it's a safe investment vehicle. It's popular because it's sexy, it's sexy. That's it. And and like, you could make the same argument for crypto. Yeah. Like it's just a very sexy investment vehicle.
00;35;33;13 - 00;35;55;16
Scott Clary
And there's hype around it and there's there's headlines around it and and people are becoming I mean crypto more so than even VC. like people are becoming, you know, millionaires, worth tens of millions overnight in this in crypto. So you you buy into the hype and you're like, well, why can't I be one of these people?
00;35;55;18 - 00;36;09;03
Scott Clary
Yeah. Or you think you're smarter than you are, which is a thing that people have an issue with do and you have some success. And then you're like, well, I'm sure I could be an angel investor. I've made money. How hard could it be?
00;36;09;05 - 00;36;33;12
Steven Pesavento
This is where it's that. It's the irony because I get it. It is sexy. That's why I invested in those companies, because their name brand, they're cool. I use some of the products. I really respect the founders, etc. but I know because I'm looking at it rationally and logically. I know that I'm making that tiny little bet like five, ten, 25 grand, not huge.
00;36;33;14 - 00;37;01;21
Steven Pesavento
But in real estate it's the same thing. You buy a 300 unit, you know, five year old or brand new multifamily building. You're going to get like, five, 6%, maybe 8% return, maybe ten. It's not very, very high, but it's sexy. It's much easier to sell versus a big part of what our business is focused on is buying, you know, buildings that don't look good, making them look good, selling them.
00;37;01;23 - 00;37;24;18
Steven Pesavento
And we make big money on that. But it's ironic because if investors were really being rational, they would choose to invest in that type of a strategy over something that's sexy. But, you know, everyone gets kind of pulled into this trophy type asset where they can say, hey, I own this big building or I own space or whatever it is.
00;37;24;20 - 00;37;42;21
Scott Clary
All I mean, so I see again, I just referencing the one friend I know that does a lot of real estate in Ohio, and he's buying homes for, I'm sure he has over 100 properties right now. So he's not buying, you know, he's not buying, massive properties, but he's cash flowing pretty well. And he has a tight team and he does well for himself.
00;37;42;21 - 00;38;04;28
Scott Clary
And, and he's buying homes that are like 25,000, 30,000, $40,000 homes. And he's fixing them up. And I'm like, it's not sexy at all because I see I see his Instagram and he's like walking through them. The houses are shit. And there's like literally shit on the floor. I'm sure in some cases, and it's just like, it's not.
00;38;05;00 - 00;38;29;03
Scott Clary
But he's, as an investor, wildly more successful than many people that just sit on their ass and go to angel list and put money in some new tech stock, and even Angel list is more vetted than just, you know, shooting from the hip and and taking pitches from people on LinkedIn for the next, tech startup and putting into putting in ten, 15, $20,000 into a founder that you've never heard of before with no track record.
00;38;29;03 - 00;38;52;28
Scott Clary
So, I mean, humans are humans. Emotions drive, unfortunately, a lot of our choices and then we justify those emotions with logic is as flawed as our logic is. so I think education is the answer. Education and understanding of different opportunities, especially people that are not, like like the people that didn't go into finance and didn't understand investing from a earlier age or a younger age.
00;38;53;01 - 00;39;12;07
Scott Clary
It's just like, don't be naive. Don't be so myopic in in your in your thinking, like you think about the work it took you to be successful at your craft or your job. Why would making money in another format be any different, put the same amount of work and respect into that particular thing and that thing being investing, right, and learn about it.
00;39;12;07 - 00;39;25;01
Scott Clary
You didn't become a successful CEO or founder or, sales executive or marketing executive in two years. It took you ten, 20, 30 years. So don't be naive. Yeah.
00;39;25;03 - 00;39;35;22
Steven Pesavento
Well, two, two last questions before we wrap up today. Scott, tell me, what was the biggest mistake or lesson that you learned while investing?
00;39;35;25 - 00;40;07;13
Scott Clary
Sort of touched on it. very briefly. I have to say it's it's investing in things that I don't know anything about just because it seems like a sexy, fun opportunity. Like all my mistakes happened in not all my mistakes. Most of mistakes happen in angel investing. less so in NPE. angel investing was more me, like, sort of just acting on my own and trying to put money into things I didn't understand or I thought I understood, but they were not industries that I grew up in.
00;40;07;13 - 00;40;31;28
Scott Clary
So just because you know, like I came my whole career as B2B enterprise, SaaS, like, that's actually what I know. And then you can niche down even further and say, well, I know telco and I know broadcast. I know video and streaming tech. Those are the companies that I helped build. but I would say that just because there's nuances to B2B, enterprise, SaaS or other SaaS or consumer SaaS.
00;40;32;01 - 00;40;52;29
Scott Clary
So a lot of it was ego and just thinking, if I had success in one field, I could translate that success into understanding another field and put my money in, make my money grow. I think that's I think that's a fallacy. I think that when we talk about specializing, people don't even understand how important it is to niche down in like, a particular thing, that even an adjacent thing can throw a curveball that you're not aware of.
00;40;53;02 - 00;41;00;22
Scott Clary
So that would be my biggest issue. It was ego and thinking that I knew more than I did, putting money into things that I no business putting money into.
00;41;00;24 - 00;41;07;15
Steven Pesavento
Yeah. Before I get to the last question, Scott, tell people where they can follow you or, listen to your show.
00;41;07;17 - 00;41;26;19
Scott Clary
Yeah. So, have an awesome podcast, kind of like this one, where we have conversations very much like this. So it's called success Story. you can get that anywhere you download your podcasts or social. Super easy. It's all at Scott de Clary. so if you want to follow me there, you can connect with me. I'm pretty much active anywhere and everywhere.
00;41;26;22 - 00;41;46;19
Steven Pesavento
Amazing. Well, this has been a lot of fun as we kind of wrap up, Scott, for the folks who are listening and they're thinking to themselves, hey, I'm really interested in getting involved in private equity or angel or real estate, but they just feel like they know what to do, but they haven't taken that first step. What advice do you have for them?
00;41;46;21 - 00;42;08;23
Scott Clary
I would say start with a fund first and invest your money through somebody that has a track record, significant track record, just so you understand the process. so you don't have to do everything yourself to begin with. And, and just like, try and pay attention to first of all, be an autodidact, be a self-taught individual. And you go watch YouTube videos, listen to podcasts.
00;42;08;23 - 00;42;32;13
Scott Clary
You can get a majority the information there. But when you start to put your money into something, I would say start with a fund or start with somebody else you trust or a close friend trust and has had success with and has a track record with before you do your own thing, even for a few years. Like I think it's just a smart move because again, if you were, for example, trying to learn how to I don't take a product to market.
00;42;32;16 - 00;42;53;13
Scott Clary
You'd probably work for a company first before you start your own company. That's usually a good pathway and increases the odds of success. So I think that that's the the same path that you should follow. If you're trying to learn how to invest in a new thing that you don't have experience in, and you don't have to do it for like ten years, but do it for like a year or two at least.
00;42;53;16 - 00;43;03;23
Steven Pesavento
Well, that's such good advice. And, it was really amazing having John Scott. We'll have to do it again real soon. Thanks all for listening and we'll see you on the next episode.