Ep 149: Will Fry on the Small Business Succession Crisis & New Opportunities in the AI Age

There's a lot of doom and gloom on the internet, but there's no jobs, AI speak all the jobs.

It's completely false.

How is AI impacting small businesses?

These service businesses are the last businesses to be impacted.

These businesses will only go up and value.

There's a lot of people think of AI and they think of false cutting.

That's not the right lens to look at small businesses.

How can we leverage AI to reduce the amount of monotonous work that you're doing

and reallocate to something that generates revenue?

There's a huge opportunity for young people to capitalize from this wave.

We're literally creating millionaires on Main Street.

Will Fry is CEO and founder of American Operator.

This is one of the most exciting areas of our economy in the coming years.

We have trillions of dollars of transactions because baby boomers are retiring,

able to buy these businesses at three or four times cash flow.

The government actually helps people become owners and American operator wants to help.

Ten to thousands people become new owners.

It's a great area to invest in.

I'm personally investing a lot into this area.

And I'm really excited to hear from Will how AI, how innovation,

how everything going on is going to transform this area of the small business economy.

A lot of young people are wondering what should their job be in the AI era?

You don't need as many people joining law firms.

You don't need as many analysts at banks or at McKinsey.

You know what? We need a lot more owners in the American economy.

We need millions more owners over two million businesses that have to be sold.

The people need to run.

If you're a smart young person, you should look into this area.

Welcome to American Optimists.

Happy to have with us Will Fry, the CEO of American Operator.

Yes. Thanks for having me, Joe.

Will, you are empowering a huge number of people to become owners.

You're helping support owners that really focus on the small business ecosystem,

big part of our economy.

Let's start with your background a little bit first though.

You grew up in a small town in New Atlanta.

Yeah.

Drew and I share that.

Grew up in Greenville, North Carolina.

It's time about 70,000 people, a bunch of tobacco fields,

baseball fields and small businesses.

tobacco fields, baseball fields and small businesses.

I love it.

What small businesses do you remember from your childhood?

Like what stands out to you?

I mean, so the stallings family owned a portal job.

Business.

And so for the local state college East Carolina University,

anytime there is a baseball game, football game,

you'd see the stallings, poor johns out there.

And they made a good living doing it,

Holland waste and bringing around poor johns.

I love it.

Give me one other one.

Zia, poor johns, what else do you remember?

I mean, so my mom owned a small family medicine practice.

There's obviously that in the community.

There's roofing kitchen, repair and appliance.

We have a good family for in-hounds, a family farm.

So do a lot of soybeans, tobacco.

Small business with kitchen, repair and appliance.

These days, do people still repair things?

So it's largely commercial oriented.

Oh, okay.

So coming into it.

Yeah, so big, if you have like a big one.

Like industrial, industrial, industrial, industrial, yeah.

You got to, you obviously got to repair

these things when they break.

Yeah.

I love it.

So you went on, you went to Penn and then Wharton.

Yeah, for business.

That's correct.

Yeah.

Good business school.

So how do you become an entrepreneur after this?

So I actually started in high school.

I love building things.

At the time, it was electronic kits,

like 360 and one.

And then the app store came out when I was in middle school.

Through electronic kits, what does that mean?

So you could essentially build like little motorized cars.

You essentially buy those that come with like diodes,

transistors, the whole nine yards.

You figure out how to wire them up.

No one really wants to buy the piece of crap that you built,

but you build it and you share your friends.

And so did that throughout, throughout middle school.

And then the app store came out.

And then that was kind of the aha moment of you

have all of your friends who have their parents credit card

wired up to the app store and you could build software

and people would pay you nine cents to download your app.

What was one of the silly apps you built?

I built obviously a version of Pong that's kind of like the intro to it.

I then built a number of apps for,

I wanted this like competition for the EPA.

You could essentially see the emissions in the local town.

So I thought that was kind of cool.

So it was like captain planet missions?

Exactly.

Yeah, it was like gamified.

You can kind of like play around.

So that pick up trash or do that.

Yeah, you could see like the kind of what the water levels were

and what was in the water.

It's a good idea rather than just like searching for

Pokemon's in your town.

Why not do something useful?

That was the goal.

It was like could you build an app that kids would like to use

that gives them a little bit of education

and hopefully also doesn't indoctrinate them.

And I think we were successful.

We won't award doing it.

So did that throughout high school

and then went up to pen for undergrad?

I love it.

And so you came from this like entrepreneurial kind of background

and a lot of small businesses around you.

Like what did you realize?

There's something like a mission here

that mattered for small businesses.

There's a crisis brewing.

Yeah, so it was actually a trip back home

after graduating from college.

A bunch of our family friends were going through

what I would now call succession planning

or lack of succession planning.

So in Greenville, you know, you graduate from high school

almost everyone flees.

They go to Raleigh, Charlotte, Wilmington.

They don't want to be in Greenville.

And so the default exit plan

for all of those small businesses

that I was mentioning earlier is no longer there.

You can't just give it to your kids.

Your kids, your kids, your kids are doing some other

high-power job.

They don't want to come run your kitchen repair business.

Exactly.

And these are the same businesses that growing up.

They would sponsor the veterans they prayed.

Their signs run the back of the baseball field

as low league sponsors.

So it's very clear that they're like an integral part

of the community.

And the people who ran those businesses

were also leaders in the community.

So when hurricanes come through East and North Carolina,

it's those businesses that are showing up to help.

Often it's kind of like the first responders.

And so I knew how important it was to the communities

that these businesses stay on

and stay on in a way where there's local ownership.

And these businesses would often have

employees.

So there's a solution then to help the most responsible

employees become owners.

So that's all that's always an option.

Today at American Opera, I'd say around a third of the time,

we're backing an internal successor.

Maybe someone who's a VP, a general manager,

a crew lead, help them become an owner.

Two-thirds of the time, they may not have that person internally.

Maybe they don't have someone who has a risk tolerance

or the all-in nature of what it really takes to become an owner.

And so we'll bring in a net new operator

to take the torch forward.

I love this as a career path for more people right now.

I have a lot of friends telling me,

Joe, there's all this AI stuff you guys are doing.

It's kind of disrupt everything.

There's going to be all these people who are white collar

and they're not going to be able to get jobs.

And it seems to me like there's like hundreds of thousands

as a million businesses, how many businesses

there's millions of businesses,

how many businesses you have to be sold over the next decade

based on, it's called the Silver tsunami, right?

Based on all these baby boomers.

At some point, they've got to retire or die.

Yeah, so someone else has to run it.

Like, how many businesses is this?

Yeah, so if you kind of think broad picture,

you have 33 million businesses in the US.

You shrink that into six million having employees.

So those are the businesses that we focus on.

Of those six million, roughly 2.1 are owned by baby boomers.

One more than a third of these six million small businesses.

And the problem is if you go around,

there's a lot of survey data on this,

around 48% actually have a plan

for what they're going to do with the business.

And so that's a huge amount of businesses

that are at risk, more importantly.

So over a million businesses are at risk.

They don't even know what they're going to do.

Correct.

And there's livelihoods tied up in that.

Obviously, there are a ton of employees.

There's over six million employees tied to that

kind of sector of the market.

And then what I often talk to to leaders

at the kind of municipal and state level

is that's your tax base.

And you don't want that shutting down.

You also don't want out of state buyers

coming in consolidating.

All that money is getting funneled

out of those communities and out of your state.

I love it.

And you know, we recently had Kelly Leffler

on the podcast to come out before this one comes out.

And so she's running a small business

association, the SBA for America.

America actually spends a lot of money

helping people become owners.

What role are you playing alongside

what they're doing?

Sure.

Yeah, the SBA is a phenomenal organization.

If you chat with anyone who is not from the US,

the SBA is one of the prize jewels

that they're very, very jealous of.

In other countries,

there are not zero subsidy taxpayer programs

or essentially stimulating the GDP

and stipulating job creation and new business starts.

So they're really, really helpful.

Where we come in is if you think about

you're an owner and you're going to retirement.

Today, you kind of have two options.

You can decide to close your doors

or you could sell to an out of state buyer

and you see more and more of this in the news

where private equity funds are raising money

and coming and kind of capitalizing.

This is what everyone assumes.

Whenever they see me,

I've obviously been successful in other areas.

If I start talking about small business,

they're like, oh, it must be a private equity thing

and this is obviously not,

and I'm an investor in America who operated with you.

This obviously not the goal is not to be PE.

I mean, PE is obviously not bad in some cases,

but how is it different than what PE would do?

Yeah, so we're capitalists.

We're not anti-private equity,

but we do want to build an alternative for owners

who want to keep their businesses alive in their communities.

And so what we offer them is kind of the best of both worlds

where we bring in committed capital

from investors like you and some of our credit partners

to allow that owner to walk away and go into retirement.

We'll also bring in a net new operator

who ultimately will be the majority owner of that business.

And so they earn into the majority.

So they start off with some ownership

and then we help them earn into the majority

as we get paid out and then it's their business.

Exactly, and we're literally creating millionaires

on Main Street and to kind of give you some quick math,

one of the transactions that we can talk about

that's been highlighted is one called Greenway.

And so the operator that we back there

as a guy named Anthony,

he's a former combat controller

and the Air Force had double majored

in undergrad at the University of Arizona.

He before partnering with us

was running a smaller painting contractor in Arizona

made about 300, 400 K top lines.

He was taking home around 75 K.

We've now parachuted it in as the operator

for Greenway painting, which is based in Jackson, Wyoming.

Our friends at Fox News recently did a piece on it.

And the really cool part there is he's drawing

around 100 K base salary today.

And he has 10% ownership in a business

that's worth $2 million.

Over time, we're working with him to grow that business.

And as he goes from 10% to 70%,

assuming the business doesn't grow at all,

all of a sudden he has $1.4 million of equity

in a cash flowing business

that's been around for decades,

will be around for decades to come.

And we believe that by partnering with him

and some of the resources that we've got out

of the American operator,

we can really help him grow that

and make that number even bigger.

So hopefully he even owns millions of dollars

of this business.

Suddenly you're making a big success story

before he was kind of stock doing something

that wasn't going to be big.

Now all of a sudden he's a big business.

Exactly, we're able to take folks

who are very high capacity.

They have grit, they have merit

and leapfrog them in their ownership career.

I love it, I love it.

So small businesses,

like what's the context in history in America?

I think you know, our founding fathers

a lot of them were small business owners.

Yeah, we think of like George Washington or John Adams

or John Hancock ran house of Hancock

to big import export.

You obviously have been Franklin

who amongst thousands of things

that he did in his life, one of them was,

you know, run a very famous printing shop.

And so it's been instilled that there's this idea

you can come to this country,

you can build a better life for yourself

that you're rewarded for the value

create for your neighbors and those are your patrons.

And it's really this ownership mentality

that you see throughout the American dream, right?

Like we're very focused on it in small businesses.

You see the same thing in home ownership.

You see in other areas of the American life

and we really want to celebrate that ownership mentality.

It does seem like really core to America,

to our towns in America to,

I mean, frankly, too,

there's a lot of people who are on the side of liberty

in America, guys, if you feel like.

And obviously there's people who work with you

who are on all political sides,

but I'd imagine they tend to be more pro-capitalism,

more pro-operative.

Yes.

We work with folks from all over the political spectrum,

I would say everyone is pro-America.

I've yet to meet a business owner

who doesn't want this country to succeed.

And we take that seriously.

And I think one of the cool stats

is Gallup runs a poll every year

on the top institutions of Americans trust.

Small business has been number one since the poll started.

It is 44% higher than Congress, obviously.

It's also 22% higher than the health care system.

And it is remain number one.

And I think then you ask yourself, why is that?

And it's because no matter what the political slogan is

behind the counter, you're treated with respect.

They want to deliver value to you.

They care how you're excited.

They have to care about the people around them

in their community.

They have to, otherwise they're out, 100%.

So it's a good alignment.

And it's at least lies people.

They do love America, love our system.

I feel like there's two big trends will right now

in the business world in general.

We're talking about one of the big trends

is this $10 trillion worth of these businesses

that have to be sold.

Cause baby boomers are retiring or passing away.

There's just two million that they own.

So that's a massive trend.

The other big trend which you spend all my time talking about

is AI.

And AI is just changing what's possible in a lot of ways.

I'm very optimistic about it.

A lot of people have a lot of fear around it.

Like how do they intersect?

How is AI impacting small business?

What does it mean for them and for what you're doing?

Yeah.

I'll preface it by this is a hard business to build

and not every investor is interested in it

and told about a year ago.

And so we're lucky to have met allies

like you who took a bet on us early.

I would say right now we're at a very interesting thing

where we're the perfect AI hedge

but we also have a ton of upside from AI.

And what I mean by that is that if you look at kind of

the anthropic spider chart,

these service businesses are the last businesses

to be impacted.

If someone's got it for now,

if someone's gonna come and fix your toilet

it's gonna be a huge might not fix that.

Yeah, not yet.

Optimus Prime is not running around

inside your home fixing your toilet just yet.

And so we're at a very interesting time

where these businesses will only go up and value

they're critical for the economy to function

and they do everything from protect our supply chain.

There's a lot of metal fabricators that we work with

all the way to making sure that you're getting food,

the food distributors and manufacturers

and then the service businesses.

So on one hand, these things are kind of hedged

from a lot of the current AI disruption.

On the other hand, isn't it easier to run a business

with AI?

100%.

And that's an area that we've been investing a lot

in the past couple of quarters.

My mental framework for it is a lot of people think

of AI and they think of cost cutting.

And they're like, oh, we can really optimize our P&L.

We can use AI, automate all these jobs, cut costs.

That's not the right lens to look at small businesses.

And it's not right for really one reason,

which is that most of the folks in the back office

of a small business are wearing multiple hats.

If Susie does payroll, route planning, HR

and you automate one of those jobs,

you're not coming to Susie and saying congrats,

you just got a 33% discount on your payroll.

She's gonna walk out the door and tell you're crazy.

So what really it is is it's a revenue growth story.

What you have to do is work with your employees

and small businesses, figure out, hey,

how can we leverage AI to reduce the amount

of monotonous work that you're doing

and then help you identify, okay, what's the best way

for you to take that time and reallocate

to something that generates revenue?

I love this.

I think this is a really key point

that a lot of people miss is that there's a lot of things

that we wish we could do, we wish we could work on,

wish we could build, they're not getting done.

If you go to a small town, like there's lots of things

you could see, there's fences that are not fixed,

there's all sorts of things that are broken,

there's all sorts of things in the business

that aren't necessarily able to be gotten to.

If you have more time, you could do more output, right?

Exactly, and we see it, right?

So to give you some concrete examples

on the painting business we own,

there wasn't very much of an outbound sales motion there.

It was largely word of mouth,

which is both kind of benefit.

You have some amount of moat there.

Also a con, you don't really have the levers

to grow quickly.

We've been able to essentially reconfigure

cloud co-work to do an outbound sales motion

to property managers in the area,

increase the number of bids out on a weekly basis

and win rate.

On another one, we're working with a second generation

food manufacturer, really cool peanut business

owners also.

Peanut business, what's that mean?

What's a peanut business?

Yes, so storage, washing and carver.

Yes, so they blister peanuts,

and most of the grocery stores that you're probably worth.

They blister, right?

So they get peanuts, they put them in these large vats

where they boil them, they fill them with water,

they then fry them, so the peanuts have blisters on them

to then coat them in a lot of different ingredients

so they can flavor barbecue peanuts, ranch peanuts.

What have you?

You're very good at saying this word.

I'm very worried about saying it on the air, exactly.

I mean, now we have unlimited nuts, right?

And so this business, they obviously don't have

a graphic design part of their team.

It's been around since the 60s.

The family has been in central PA for seven generations,

actually, which is insane.

But recently, one of the employees there

has really gotten on the AI train.

They can now do really cool social media marketing

so they can build kind of a direct-to-consumer peanut dynasty

in addition to the B2B, and so it's really cool

to see these businesses that historically have been very offline,

if you will, adopt AI,

and they can really hit the ground running,

sometimes faster than the businesses

that have been more AI-naked.

So I mean, it feels like, instead of going to law school,

for example, or instead of a master's degree in sociology,

I don't know, should more young people just be saying,

I'm gonna go take over and try to learn

how to run a small business?

Yes, I think it's really important for them

to have time in the trenches working with humans.

I think that takes time.

And I think a lot of the things that are happening

at Texas State, technical college, other areas

to essentially get you the domain expertise

about a certain industry, and then get you as much

apprenticeship or time in the trenches with them,

then you're willing to go learn it, basically.

You do, you do.

And I would say the owners are very discerning

of someone who's full of shit.

If you don't know what you're talking about,

if you don't have a grit, if you haven't gotten

or under your fingernails, they're gonna sniff that out

very quickly.

The customers are gonna sniff that out quickly,

the employees will, so on and so forth.

And so I think there's a huge opportunity

for young people to capitalize from this wave,

but I am always hesitant of the folks

who are kind of leaving corporate America

and thinking, oh, you know, I know so much more.

It's not a get rich, it's not a get rich quit scheme.

It's a have a vocation, have a career where you work hard,

but if you do work hard, you can run these things

and you can't make a lot of money, be very successful.

Tons of money, you would be surprised.

I mean, these things take some of the businesses

that we've worked with just in the past couple of weeks.

They're spitting off millions of dollars in cash flow.

Normally most of the family is drawing a W2 from the business,

even if they're not necessarily working.

And then you have, you know, their whole fleet

of family vehicles on it as well.

There's no shortage of cash flow here

if you know how to run a good business.

You have to have the persistence and the grit, as you say.

And so it feels like there's literally like millions

of young people could be doing this path.

There should be a lot of our smart young people

if they're, instead of like the white collar professional,

this is where they go.

How do we, is this a cultural shift we need?

Like how do we teach more people about this opportunity?

Because I think a lot of people,

like they culturally see like,

oh, I'm gonna be a tech founder.

I'm gonna run something in a bank in New York.

I'm gonna be doing these like giant deals at the hedge fund.

They're, like most people culturally don't think about,

oh, I'm gonna go work hard and like have a business.

It shoots off a couple of million dollars a year for me.

Like, sure.

But what do we need to do to shift this?

My mental model is two things.

One, you need role models in a PR campaign

to make people aware of this.

Mike Row has done a phenomenal job

of doing that for the trades.

And I know your friends with Cody Sanchez,

she's done a good job of doing it for small businesses as well.

We need more allies like that, getting the word out.

That success is not just going to a four year college,

getting a liberal arts degree

and then working in management consultant.

There are other areas for you to really build a great life.

These are the real areas of America.

In some ways, it feels like the actual business is like,

so you're actually like,

they're serving the community, doing the hard work,

making sure that electricity gets fixed,

the toilet gets fixed, the fence gets painted, right?

It's a crisis here, right?

Like in Texas, we're short, 50,000 trades workers.

We want to win this AI war against China.

We have no shot of doing that if we cannot build the data centers.

The data centers require the plumbers,

the electricians, the general contractors,

the HVAC technicians, so and so forth.

So I'll say it's critical that we attract more people in.

I think the second piece of the problem is, okay,

let's say that you solve the PR campaign,

how do you get on ramps to get folks in the saddle

as soon as possible?

Right now, we have a lot of occupational licensing

that stands in the way of hard working Americans,

being able to work in these industries

in a short time frame.

We definitely have to fix licensing.

Arizona did a great job where they'd take any other,

phenomenal, there's other things trying to lower barriers.

Like if someone is a young person, maybe they're in high school,

they'd be someone listening,

has someone they know in high school, doesn't know what path

they should be taking, like how would you direct them?

Would you go to a vocational school first?

What do you do to kind of build skills

and come work in this area?

Yes, I would say start by just starting to intern

at small businesses in your community.

There's a lot of doom and gloom on the internet,

on some of the legacy media outlets as well,

that there's no jobs, AI's taking all the jobs.

That may be true in corporate America,

it's completely false on Main Street.

32% of current owners have openings today

that's up to points from last month.

And so there's a lot of optimism on Main Street,

we need smart people there.

The number one problem is not actually the cost of labor,

it's the quality of labor.

And so to the degree that we can get smart people

interning and doing apprenticeships,

I would say that's the thing one.

Once you've identified the type of industry

or job that you're interested in,

then I would think long and hard

over whether a four year degree is the best way to get there,

or if you'd save yourself a lot of money

and go into some of these really great trade schools

that we have in our country.

And I really like what you said there,

because I think it's the point that's true

that everyone ignores.

It's not about, it's not about that there's not jobs,

that there's not actually enough quality people willing

to work with the right culture or the right diligence

at these jobs.

32% of these businesses you're seeing,

32% of millions of businesses have a job opening,

but they can't find someone who's willing to come

and just work hard and show up on time.

And I think we need cultures that are functional

where people are willing to work.

Yes, we need incentives to drive that

from the educational system.

Well, if you tell someone they're a victim

and that they're not going to be successful,

they should just go find a way to get a free house

and whatever, victim wages and that they're not sucks.

But if you tell someone you have to figure it out

and be diligent and if you're diligent,

you're going to succeed in this country,

then they're going to go work.

There's a difference between trauma and life.

And I think a lot of people say

they've gone through a lot of trauma

and they've just gone through life.

Yeah, stop being whimp, basically.

Exactly.

I like that thing.

We got, there's some certain like,

it's courage, but it's like grit,

and it's just like being,

I mean, not that it's a gender specific,

but it's being a man, right?

Yeah, exactly.

It's like, stand up and just figure it out.

Just getcha done.

It's how the country is built.

It's how all these owners build their businesses as well.

I love it.

Yeah, I was, we have the founders of cognition

who are also just on recently

and these are guys are like building

some of the coolest AI tools

and making it really easy to build things.

You see small business owners

like actually building things in AI themselves

with caught or cognition or anything else.

Are they actually creating tools for themselves?

I would say at the owner level, not so often.

One pattern that we have seen to kind of get back

to young folks entering

is that we're very pro reviving the American dream.

That's our mission.

We're pro small business ownership.

You don't have to buy a business for us to be happy

and for us to root for you.

If you decide that buying is not the right path

and you want to start one,

we'll be there rooting you along.

And we've seen a lot of folks leave Silicon Valley

and start new small businesses.

So start from scratch using AI

and absolutely clean up shop in their towns.

I know one guy who was previously working at Bird,

he then left, he has started a pool cleaning business.

He cleans pools throughout Los Angeles.

He has some of the coolest AI automations.

One of them just the kind of tease is he has this AI

that joins all the local neighborhood Facebook groups

and posts a post from him that says,

hi, me and my wife just moving to your neighborhood.

I'm a local small business owner.

If you have a pool, I would love to clean it.

Thank you for allowing me to make ends meet

and build a happy family here.

So there's that type of like hacking.

I love it.

I just got this message works and to your best.

And it is interesting is a lot of the AI outreach right now

that works and might get to be too spammy

and too much.

Yeah.

There's an ARB right now.

There's an ARB capture.

Yeah, right now if you're willing to be,

it's be agentic yourself.

Right.

Exactly.

There's an ARB.

So let's step back.

American operator, take us through the challenges

with business owners preparing to sell their business.

Like a lot of people end up shutting things down.

They probably could have made some real money on

because they couldn't figure out what to do.

So like, why is it hard to sell?

Yeah, it starts by the reality that it's typically

the first and last time that you're selling a business.

And it is very opaque how the process works.

Scary is a lot of your life is in this thing

and you're trying to sell it.

And you probably care a lot about the community

and how it serves them too.

You care a ton about the community.

You know, one of the kind of smart-ass quips

that we hear often from retiring owners

is part of the reason I've been married for 40 years.

I work 40 hours a week.

They're very afraid of what comes next as well.

This has been their identity.

They've been Joe the plumber or Joe the auto shop guy

when they pass the torch or shut down the business, who am I?

And so one of the things that we've been able to do there

is advisor program that is really credit to you

to coming up with where we take a lot of current

and retired owners who have really succeeded

in their industries and we redeploy them

at American operator helping us pick the best businesses

to work with, pick the best operators to back

and then ultimately guide those businesses on.

So let's say, kind of getting...

So it's talking there for a second.

So you actually take these people

who've done this their whole lives.

They're ready to sell it.

Then you kind of give them something else to do

to advise and mentor others

because maybe they still want to work some.

They still want to run this business anymore.

But now all of a sudden they're working with you.

They actually can get upside and things are helping.

Yeah, so they co-invest into the different small businesses

that we partner with.

We also cut them in a little bit of a sweetener

on the equity side so they have skin in the game.

We believe that's really important.

You should get the upside and the downside of your advice.

If you're giving bad advice, you shouldn't benefit.

And so we think that's important

for creating an ownership mentality with them.

And they have worked wonders.

Collectively, they generate over $1.8 billion in revenue

for the small businesses that they've owned.

They've employed over 1,000 employees

at the businesses that they've owned.

They help our team see around corners.

I always tell our team, never kid yourself

that you're an expert in these different industries.

That is not our job.

Our job is to effectuate this massive wealth transfer

to make sure that small businesses are around

for the generations.

But you want the person who's been doing it for 30 years

to be actually showing people what to do.

100%.

Yep.

And they understand, hey, what are these soft qualities

and an operator that would allow them to win?

To kind of go back and pick on Anthony,

when we were selecting the best operator for Greenway,

we had Matt Carlson, the advisor there

on to help us figure out, okay, we have these three

in the short list, who's the one we should back?

And he gave us a thought experiment

that is actually quite helpful, which is,

let's say that you were in New York.

Your wife was home alone at your house

and the painting contractor had to come over.

Who would you feel comfortable

with this painting contractor being home alone

in your house, in your state's way?

He's like, that's the type of interviewing

that you need to do.

Do they seem high character?

What are instances of them having to make

really tough decisions around ethics and values?

Contractive, are they?

Exactly.

Contractive, they are as well.

I don't know if that's a good idea.

Yeah, I'm like, wait a second.

And so they really help us both select the business

and the operator and then they've worked wonders,

post-close, everything from giving really great advice

to opening their networks to help drive more sales,

connect with discounted vendors, so on and so forth.

And take us through a little more of some of these details.

So for example, why is it challenging

for an auto-shop manager to take over a business?

Like it just seems to me like,

oh, it should be straight forward.

Like are there certain nuances to these things?

There are.

The way that I look at it is if an individual

wants to take over a business,

they better be a unicorn.

And they better be a unicorn for three reasons.

They need to sit in this Venn diagram of one,

they know how to buy a business.

Very few of the people, the men and women

who have worked on Main Street,

are leverage finance experts.

Yeah, they're not working on Wall Street,

doing multiple jobs.

These are their first time probably in their life ever.

Exactly.

And it's non-trivial, you need to get it right,

you need to have the diligence,

you need to understand the deal structure,

and so that's the thing number one.

And you help a lot of people.

Exactly.

The second thing is they need to be able

to have access to capital.

So the work that Kelly and the SBA are doing is phenomenal,

but you just can't go to the SBA with no money down.

You need to have capital.

Yeah, you can't just get to a home,

and it's kind of buying a house,

you can then give you a great loan,

but you still have to have.

You have to down payment, right?

And we have an affordability crisis in the US.

If you've been working as a general manager at an auto shop,

say, and you've been making 120K,

you have two kids, you have a family of four total.

It's expensive.

It's expensive, you don't have much for savings.

And then the third piece,

you have to have really great industry expertise.

You have to understand the job

that you're taking on as an owner.

And so what we do as American operators,

we come and we say,

hey, allow us to handle the transaction piece.

We're going to underwrite the deal.

We're going to come up with all the financing.

We're going to find a really great advisor

to help vet the business and vet you

and serve as an ongoing mentor.

And that allows us to really focus

on the people who are great operators.

And that's why it's called American operator.

This is not American leverage finance, bro.

We really care about folks who understand

how to run these businesses and how to lead them.

And it allows us to back the people who are the best

to lead and not the best to buy.

Do you want them to at least put in something

usually to have some skin in the game?

I guess that's really good if they get,

I mean, even if they haven't saved much,

they should probably save something.

Exactly, yeah.

So there's always a co-invest requirement.

We make it material to them.

It may not be material to the larger deal.

It's on the smallest end only it's around $15,000.

It scales up based on the size of the business

and kind of the background of the operator.

And then the second thing is we make them personally

guarantee the debt.

We don't do that for the collateral coverage.

Oftentimes these people don't have a lot of assets,

but we want to have a filter for someone

who is going to take this as seriously as we are.

This is their thing, they are focused on it.

They're gonna fight for it.

100% and as part of that personal guarantee,

you need to have a conversation with your spouse.

It has to be a family all-in decision.

This is not something to take lightly.

Of course, this is all-in for your guys' lives.

This is gonna be the way you're gonna build millions of wealth

and build legacy.

Exactly.

Explain how operate to own works.

I understand how these financial structures work.

Sure.

I do 100 or 100 deals.

For people who haven't heard this before,

so they're coming in, they might have only put $15,000 down.

But after doing well for several years,

they might own a majority of the business.

How does that work?

Exactly, yeah.

So at close, the operators that we back,

they will be able to draw a base salary.

They'll have healthcare benefits

and they'll have a 10% ownership stake in the business.

To kind of use simple numbers,

let's say it's a $2 million business,

that 10% ownership stake is worth 200k,

assuming no debt on the business.

Over time, we increase the amount of ownership they get

based on the profitability of the business.

And so each year, we're giving them,

anywhere between 20 to 50% of the profits,

we're giving them that amount in additional equity.

And they get that, in the way that this works,

it has effectively tax-free, right?

Exactly.

Because because you're building equity,

you're not taking the cash out,

which is a really important part

of how our tax system works.

Is that if you're not taking money out,

you can actually build equity over time,

without without paying taxes.

Exactly.

So it's taxable if they choose to take a distribution

from the business, but we're allowing them

to really accrue equity in the underlying business.

It's kind of a core of the American system

that you can accrue things in an ill-equated way.

That's how we all build wealth.

Exactly.

And so as they build up that ownership,

it typically takes around five to seven years

to become a majority owner using that formula.

It accelerates once we've repaid the debt on the business.

So maybe you're just getting another two to five points

of equity for the first handful of years.

Once we've used the profits from the business

to repaid the debt,

then you're getting five to 10 points of equity a year

until you hit 70%.

Let's stop and say that.

So basically in order to buy the business,

you had to take some debt.

So the debt has to be repaid first.

You're building your ownership more slowly

while that's being repaid.

Once the debt's being repaid,

all of there's like tons of extra money available now

to like help you build a lot more ownership.

And that's really great.

Because now by the time they take over this business,

as a majority owner, the debt's gone as well.

Exactly.

And the training wheels have kind of come off.

The debt has been repaid.

They now own a majority of the business.

And hopefully if we've done our jobs right

and they've done their jobs right,

it's no longer $2 million business.

It's a three and a half or $4 million business.

Or even bigger if they're crushing it.

Yep.

And how do you make money from that?

So you're like, what part of the stack are you

and how's American operator making money?

Yeah.

So at close, we own 90% of the business.

Any year that we make distributions from the business

and that's a joint decision between us,

the operator and the advisor,

we get our per-row to share the business.

And so oftentimes we're buying these

at anywhere from four to five times multiples.

And so there's a lot of cash roll

that's getting spit off from those businesses.

At the beginning, a good amount of it needs to go to repay

the debt.

But then you really have this kind of cash flowing machine.

And then it's up to us as a team,

us being the operator, the advisor,

and American operator of, okay,

we generated a million dollars in profit.

What amount of that do we want to reinvest in growth?

What amount of that do we want to make distributions

to the shareholders?

I love it.

And as they're buying more equity out of that profit,

you're getting some of your earnings.

And so you can end up getting a great IRR for yourself too.

Yes, yes.

And as they go up to 70%, we then hold on to 30%.

And we're really looking to be long-term partners

and owners on main street business.

So American operator, as you scale this up,

is gonna hopefully own 30% of a lot of these great businesses,

hopefully thousands of them, or 10,000,

tens of thousands around the economy.

That's a great asset.

What do you do?

You take that public, we can't talk about that, I don't know.

That's the goal.

We want to have a world where everyday Americans

can have a stake in main street.

Today, they can't.

These are the businesses that they patron,

that they go to, that they work for.

They should have the ability to have a stake

in the American dream there.

We think that's important.

It's also very helpful for us.

These individuals,

those are ones who know the small business owners,

they know the best operators.

They can be really great referral partners and allies for us.

And so our goal is as soon as we can create a mechanism

to get into the public money.

I love it.

So this is great investing.

And right now, these businesses are trading.

They're much cheaper effectively to buy.

They're trading at small multiples of cash.

Like a typical public company,

it could even trade a 30 or 40 or 50 times earnings.

Yes.

Or your beloved volunteer even higher than that.

You know, it's a great company.

It's a great company.

You get a premium for being really cool.

So I don't know what to tell you.

But I'm mostly carp, not me, of course.

I'm not running anymore and I'm shahme and everyone else there.

No, but no, it's funny,

because these things trade crazy multiples

for the public markets.

And you're buying stuff off three, four, five, six times.

So it seems like it's going to be a really interesting thing

to invest in for people to have exposure to a bunch of these.

Exactly.

I know we'll come more, more valuable

as you have this kind of flight from software in certain areas.

You have this really interesting AI hedge.

This is the last frontier.

But at the same time, you have this opportunity to like,

OK, can we go and accelerate growth here?

I mean, AI definitely help these things.

For sure, you make it much easier around the business.

It's really interesting, too, because as a private equity

play, it'd be tougher, because you

don't have the local owner, any more local community person.

Now you have a local owner who knows your owner,

a community who's all in on this for their family.

But then you have that time, 10,000.

That's pretty compelling.

Exactly.

Yes.

And to the degree that we can make sure

as many of these live on the hands of folks who

live in those communities who get a bed

thinking about the business, wake up,

think about the business, it'll be better for their customers,

better for them employees, and better for those towns.

I love this.

Will we start this podcast, American Optimist,

to push back on cynicism and pessimism we

see in our country?

What's the best case for an optimistic future

for mainstream America?

I would say just go out on mainstream.

I mean, it's optimistic from day one.

If you look out there, the past 25 years,

two out of every three jobs have

been created from small businesses.

I believe that in the next decade,

they'll rise to four out of five, five out of six jobs.

It's a huge job creation engine.

You have a bunch of men and women who aren't in the limelight.

They're not going on Forbes 30 under 30 and then getting

thrown in prison.

But they are creating wealth for themselves.

They're creating their version of the American dream.

They're great role models for the young folks in this country.

And I would say that if you kind of take the long view here,

the biggest thing that we need to do is just get the word out.

So we get more folks entering mainstream,

entering small businesses, and the rest will take care of itself.

I love it.

If there are folks listening who are interested in selling

or buying a business, what should they do?

Go to americanoperator.com.

Our team would love to meet you here,

store it and see how we can work together.

Americanoperator.com.

Thank you, Will.

Thanks for joining us.

Thanks for having me, Joe.