Passive Investing for Financial Freedom, with Spencer Hilligoss

Are you looking for financial freedom through passive income? That sounds like a dream for most of us, and today we’re going to learn the steps to start making that dream a reality, with Spencer Hilligoss, the CEO and co-founder, Madison Investing

This episode of Deal Closers is hosted by Izach Porter, brought to you by WebsiteClosers.com, and is produced by Earfluence.

Transcript

Spencer Hilligoss – 00:00:03:

 

The part that I wish someone, if I could go back in time and like, figuratively grab myself by the shoulders and like shake myself and say, “dude, there’s just a different way to do this. There’s a different way to think about building a financial mode around your family so you can take informed risks entrepreneurially”. There’s so many things that go into building a successful business. And no one knows if they were to have a seven figure liquidity event, that they’re going to jump right back into it, pour all that seven figures into that building of that business. No one’s to say it’s going to go the same way the second time.

 

Izach Porter – 00:00:43:

 

All right, you’re listening to The Deal Closers Podcast brought to you by WebsiteClosers.com, a show about how to build your ecommerce business to be profitable, scalable, and one day even sellable. Today’s guest is Spencer Hilligoss, founder of Madison Investing, and he is on a mission to help busy, successful professionals invest passively and secure their most valuable asset time. Spencer has a wealth of knowledge to share about establishing processes to make your business run without you. And creating an escape hatch from the daily grind. So if you’re looking for financial freedom, you’ll want to pay attention to this one. Spencer, welcome to the Deal Closers Podcast. Thanks for being here, man.

 

Spencer – 00:01:26:

 

Izach, honored to be here. Wonderful way to start the day over here.

 

Izach – 00:01:29:

 

Cool. All right, so you are on the West Coast, correct?

 

Spencer – 00:01:33:

 

I am based in the Bay Area, California.

 

Izach – 00:01:36:

 

Maybe just tell us a bit about your journey and kind of like what inspired you to start Madison Investing.

 

Spencer – 00:01:44:

 

Yeah, you know, and so for some fun context, you know, this may seem out of the blue, but I think it would couch it well. So my family and I, including our two young kids, you know, my Co-founder is my wife, Jennifer Morimoto. We all just came back from a six week trip to Portugal living in another country for the first time. It was a big experiment. And I bring that up because I mean, we never done anything like that before, Izach. Never would have been possible in my prior careers. Certainly wouldn’t have been possible in the first couple of years of our own business. So now-

 

Izach – 00:02:12:

 

How long were you there?

 

Spencer – 00:02:14:

 

We were there for about six weeks.

 

Izach – 00:02:16:

 

Okay, very cool. I spent six weeks in Spain last summer with my family. Yeah, it’s not kind of the same thing. You know, this, uh, this career is some one that I can do from anywhere. Yeah, that was a great experience. What part of Portugal were you in?

 

Spencer – 00:02:31:

 

We were based, our home base was in Sintra. So, you know, not too far from Lisbon.

 

Izach – 00:02:37:

 

Yeah. Okay. 

 

Spencer – 00:02:38:

 

Yeah. 

 

Izach – 00:02:39:

 

And do you guys travel around a lot or how was the experience?

 

Spencer – 00:02:42:

 

It was pretty amazing, you know, but I will say that the first question we get back when we come back to our neighborhood, we’re talking to other parents at school, talking to our investors in our investing club, and they say, “how was your vacation?” And I say, “well, this was a little different because as we’ll get into here in a moment, Izach, because you can probably relate to, I mean, we were still working”. So the key difference being, you know, when you take a vacation, I think back to when I was working 80 hours a week in tech companies over 13 years, a vacation was a vacation because I was grinding it out and I needed that decompressed fully. On a trip like this, we were working Zoom calls at seven o’clock at night sometimes part time. Taking kids to school during the day, doing some day trips out to Lisbon, going and staying in Porto for a long weekend. You know, like it was an adventure, but it was also frankly, the best kind of challenge, and that’s one that we willingly went into, I don’t know about your experience in Spain last summer, which is amazing, but finding a balance of what it means to be, I guess the cool way you’d say this now is the digital nomad. You know, trying to run operations for something lean, run it remote, lean on partnerships that are boots on the ground back on things that have physical hard assets, because we work in real estate and in large apartment communities, self storage, et cetera. So we have to lean on those processes. We have to learn and adapt as we go. We have to sit there and say, “well, can we go and take X amount of time? Where do we have Y amount of workload?” Right. Stacked up and thankfully we came back in one piece. It was a wonderful experience. Not going to say sit here and say it was all rainbows and unicorns, right? I mean, there was moments where it was like, “hmm. we have to get on that zoom call and it’s going to be a little bit later than we’d rather do it”. It’s going to be like after the kids go to bed in that Portugal time. So-

 

Izach – 00:04:29:

 

Especially for you because you’re nine hours ahead there, right? From  West Coast.

 

Spencer – 00:04:33:

 

Yeah, and it’s a whole day. And so, you know, I think it’s such a powerful and also insightful experience to share with you right out the gates with folks, because this is years, it takes years to get to the point of being able to like let go a bit more and being able to do that kind of stuff remotely. And so, um, what a journey to get there. So hopefully looking forward to another one next summer too.

 

Izach – 00:04:55:

 

Yeah, well, awesome. Way to manifest the outcome that you wanted there. And maybe that’s a good kind of lead into the kind of my next question is, you know, a lot of the business owners that I work with find it really hard to get away from their businesses and have them run smoothly without them overseeing the businesses. Now with technology companies and e-commerce businesses, my clients generally are geographically unrestrained. They can move around, but they’re in the day-to-day operations a lot. What are some of the key steps an owner can take to begin the process of building a business so it operates independently?

 

Spencer – 00:05:36:

 

Yeah, and happy to go into it. I think just for context too, before I go in further would be, When I started this business, I was year 10 into a 13-year tech career. I was doing the building myself 4:00 a.m. to 6:00 a.m. Before I went in, the job before the job, and the e-commerce company owners can relate to what it means to grind. But I bring that up because one of the fundamental things I took away from being in tech and building operations teams and groups for financial tech companies or fintech companies. Was that, these brilliant leaders I was surrounded by, people IQs off the charts way smarter than I am, but I learned from them, was that frame working things, is everything. It’s everything. And by frameworking, it sounds abstract, but to make it concrete, is that building a process, building a new offering, building something that’s going to be require a lot of decisions, good decisions made quickly. Means you can break that thing down into a framework. And it’s not just putting it down in writing, which you certainly have to do. I want to go build a new process. If I want to go launch a new offering, new product, then I’m certainly going to have to be specific and write stuff down on paper, but it’s even simpler than that and harder to accomplish. It comes down to how do I make great decisions quickly, consistently and put that thing down on paper in a framework so I can make really smart decisions well. And so if I were to look back on those first couple of years of grinding in out to build our business and doing everything myself. The first steps were fundamentals. I mean, basically saying, “I’m going to do this process for only as long as I need to”. To understand it. To write it down. To use these new tools that are available now, to use Loom videos, to use recording tools, to process out the stuff that I then am going to hand between another person. Hopefully, I’m taking my time to select, but you can use outsourced, you can use employees as well. You can hire employees, you can hire a VA. But that’s really where it comes down to is getting your hands deep into it. And that’s what I did, 4:00 a.m., 6:00 a.m., before I went to my day job to lead teams of other people. And we’re talking up through 2016 through 2019, still working a full-time job. Then breaking it down process by process, mapping it out and then handing it off and also partnerships. You know-

 

Izach – 00:07:51:

 

Let’s dig into that framework concept a little bit more. So when you’re, when you’re talking about framework, how do you conceptualize a framework, maybe, maybe, and maybe give us an example if you can of. Like some framework that you build out at Madison. Are you mentally conceptualizing it? Then you’re, you’re, or you actually, you’re doing the work and then you’re, you’re kind of figuring out how do I summarize this for somebody else to be able to do? What does that look like for you?

 

Spencer – 00:08:17:

 

Yeah, I’m very, very keen on keeping it simple. Whenever I can. And so this is going to sound obscenely simple for a lot of the people listening, right? Go back to the core questions of who, what, where, when. Like starting with what am I solving for here? And I’ll give you an example that’s tangible from our business right now, Izach. Like for example, we run an investing club. There’s hundreds of people from across the country, including quite a few folks that run tech businesses and even e-commerce businesses, some that have exited e-commerce businesses that invest with us. And as I look across, well, what are the most important decisions that they trust us with? They trust us to be able to find really incredible people who offer offerings, who offer investments, right? So I can’t always be thinking from scratch, where should we be investing? Where should they be evaluating? Like is it a great market in North Carolina? Is it with a asset class like multifamily apartments? And I don’t want to bore people with the real estate stuff if they don’t want to nerd out on that. They’re keeping it high level enough. Where is the asset we want to invest in? Who is going to be running the business plan behind that? How are they going to be executing that business plan? And why are they doing it? Like what’s the big desired outcome and financial outcomes that they’re looking to solve for? Drop that into a spreadsheet. And then apply it against what they’re trying to go and what we are trying to go and build. And so that’s specific to our business, but it is the simple framework that’s the same one I would have used if we’re trying to hire for a senior level role in a tech company is what is this person going to be doing? Scope the role. Why do we need them in the business? What is the budget scoped behind it? And map it all out. But some of that stuff, hiring senior roles, you have to still be involved in on yourself. But when it comes to business processes, if we’re trying to go and actually go into a new market, find a great investment opportunity and then be able to share that with our investing club, that is something that I did until I had to pull back further and then pull in other third parties to be able to work on that with me that we’ve brought in from, you know, VAs, virtual assistants and other folks who can actually map the processes out with us so that other team members can help scale that with me because we have to look at a lot of different deals. I can’t do every single one myself every single time.

 

Izach – 00:10:31:

 

Got it. Okay. I read your bio, I checked out your LinkedIn, and in a couple different places you talked about creating an escape hatch. And I wanted to just dig into that a little bit and find out what that means and how a business owner can go about starting to create that escape hatch.

 

Spencer – 00:10:57:

 

Yeah, I appreciate you grabbing on that. I mean, there’s two types I think of, and I’m relating to this back to when I was in the corporate world and the tech world building teams that way, as well as not just the intrapreneur, but the entrepreneur. I’m kind of building a side hustle to become the full hustle over years.

 

Izach – 00:11:11:

 

Yeah.

 

Spencer – 00:11:12:

 

The first one is really, frankly, a financial one. And I think that this is one that is incredibly overlooked. And we tend to, I unfortunately hear stories about this pretty often from our investors now, some of which are in very comparable e-commerce businesses. Some have exited them. And it comes down to, well… What are my options to go and take risk if I want to go scale, if I want to go push and grow my business? Am I depending on a single source of income from a day job in my household? And this was a question that I wrestled with. You know, Jennifer Morimoto and I, she’s my wife and my co-founder. We had two separate full-time careers for 13 years, totally different industries. And we thought we were absolutely crushing it by making great W-2 income over years, dumping money into a 401k until we max them out and somehow used to celebrate that. And I’m not saying they’re bad. 401ks play a role. But ultimately life comes at you. And it limits your ability to execute if suddenly, God forbid, something health wise hits you or something job wise, job loss wise hits you. And there’s a lot of that in this market right now. So folks who are building a new side hustle, if I could go back in time and look at my journey when I was going through that. I was so tempted to quit my full-time job and just go all in to cut, you know, pull the rip cord. And say, I’m going to dive off that financial clip and then walk away from my W-2 income. But I waited two to three years and phased it out until we had replaced at least 70% of my own income to build that escape hatch, as it were, in a safer, more responsible way by generating income streams outside of my day job. And also, frankly, for a lot of the entrepreneurs that I encounter now within our group, they are still at risk with some of their household financial stability because of that. And they haven’t thought about, well, I’m dumping all my money into my business. I’m scaling it up as fast as I can. But they haven’t paused to think about how do I go and actually build some form of other escape hatch from my business, whether that’s like the way they allocate their own capital, not just putting 100% of it pouring it back into their own entrepreneurship. Building something, some redundancy, to create some income streams. And that’s what we did. You know, we ended up adding at least over a dozen income streams, and now over time between investing, consulting, side hustle stuff, to create the option of an escape hatch. That’s the financial track.

 

Izach – 00:13:31:

 

So the escape hatch for you was how do you get out of the corporate white collar job and go full-time into entrepreneurism. And you created these other streams of income to give yourself financial stability to be able to make that transition.

 

Spencer – 00:13:49:

 

Correct. That’s right.

 

Izach – 00:13:50:

 

Okay. That makes a lot of sense. And then both you and your wife, did you both transition at the same time out of corporate America careers or when you started Madison Investments?

 

Spencer – 00:14:03:

 

You know, we phased that out too. I was not intending to leave in October 2019 when I left. We were going to hold on longer. But the work got so busy on the side hustle that had to become the full hustle. I was going to serve our investors to the best of my ability. So I had to do it. That was five months before COVID. That was not part of the plan. You know, that was before the quiet quitting trend became cool. Uh, at that point, Jennifer, it would be another two years before she ended up leaving her daytime or her full-time job. And that was by design, you know, like we were sitting there going, it would be so much more, I mean, frankly, fun, albeit challenging if she quit hers and then we just both go all in the business. 

 

Izach – 00:14:44:

 

So you said you built you built a dozen income streams. What did that look like for you? What were the types of income streams that you were building? Were they all real estate based or?

 

Spencer – 00:14:54:

 

It was a mix. You know, it was a mix, but I would say that the it was a mix of rental real estate. Bought some properties and rentals, bought them in our local market, bought some long distance out of state. The economics on how that goes very widely. We learned a lot along the way, you know, but there’s also some just really cool niche other stuff that we’ve deployed our own capital into on the passive side, but it’s a blend of passive and active. And I think that that’s at a highest level, Izach, the part that I wish someone, if I could go back in time and like, figuratively grab myself by the shoulders and like shake my, shake myself and say, “dude, there’s just a different way to do this. There’s a different way to think about building a financial mode around your family so you can take informed risks entrepreneurially”. And so rental real estate, some other niche, like private equity investing stuff that generates cashflow distributions on a monthly or quarterly basis, but also this consulting work, and that comes in from both Jennifer and myself. So it really is a mix of all those things.

 

Izach – 00:15:56:

 

Got you. I think it’s interesting because a lot of my clients and the customers I work with who are buying e-commerce or tech businesses also have real estate investments. And I think it’s, you know, and this is just anecdotally my observation is that a lot of tech entrepreneurs will take their excess cashflow and invest in real estate. And I think there’s an interesting kind of risk offset there because you’ve got this, you know, technology based asset light cash flow machine that’s an e-commerce business, right? They’re essentially all intellectual property based, very low human capital required for most of them, maybe one or two employees. And then you earn money there and then you can invest in real estate, which is a traditional very secure asset. So it’s an interesting way to diversify risk for investors as a combination of real estate and technology companies. And I’ve just seen it again and again and again where, as I’m talking to people, they’re like, “oh yeah, I invest in tech companies and real estate”. I started investing in real estate and now I want to buy an e-commerce business. I don’t know what’s behind that other than I think it’s a good diversification mix. You’re kind of thinking about asset allocation. It’s kind of a good way to do it if you don’t want to be split between stocks and bonds and kind of traditional 401k assets like you were talking about.

 

Spencer – 00:17:24:

 

Yeah, I mean, just real quick add to that too is quite literally the profile that I’m seeing more and more is the e-commerce person or a equitable business in terms of how much cash like done right. Absolutely cash cow in a good way type of business, your point. And then they just reallocate because not just because of diversification, but because they look at it like it is a stable with very long, big long-term potential upside. Um, of course, if you’re like an angel investor and you’re looking for multiples of like 25 X, you know, 21, 2021 style evaluations for companies and stuff like that’s a different thing. I still like a lot of the real estate stuff because it’s the best kind of boring done right. But big upside is still very much possible. So when you see those folks in these e-commerce businesses that they built and they’re like, “well, they got to put it somewhere and make sure that they just know it’s going to be good”. You know, they know it’s going to be big and good and stable in years to come. Not even getting into the tax health way. It helps us on taxes and stuff. So, yeah.

 

Izach – 00:18:23:

 

Yeah. I think, I think we could probably have three episodes on this because another thing that comes up a lot Spencer with my clients who are selling their businesses is, Okay, and you know, the average age of my client is under 40. They make. Seven figures, mid seven figures, eight figure payday, right? Big liquidity event, sell their company. And the question is now what do we do?

 

Spencer – 00:18:48:

 

Right.

 

Izach – 00:18:49:

 

What do we, you know, what, what company do we start next? How should I invest this capital? How much should I reinvest in either buying or starting another business or brand? And should I be thinking about other types of assets to invest in? How often do you see that and how do you kind of address that concern when you’re working with your clients?

 

Spencer – 00:19:09:

 

This is by far the biggest challenge for folks who have won the battle, as it were, to your point, right? And unfortunately, I’ve heard these stories firsthand now. We have a handful of investors who have gone through the creation, the build and the disposition to sale a successful sale of their business. And they sit there and they wrestle with this question of like, “wow, that was really amazing, we just did it”. And they’re kind of riding the high. And they’re about to go and do what I would argue is one of the most risky. And I’m not going to say foolish cause these persons different, but I would say that a risky move of saying, “well, I’m just going to go do that again”. Cause like, I just showed everyone how I can do it well, but what they don’t think about and stop to your point, Izach is like, well, there’s so many things to go into building a successful business. And no one knows if they were to have a seven figure liquidity event that they’re going to jump right back into it, pour all that seven figures into that building of that business. No one’s to say it’s going to go the same way the second time, especially if they jump into a new space, which most of them have. And so the wiser ones, I would say, that have done that and failed at it, when they get to their second time building a business, they learn the hard way, which is I think I’m going to carve out some of that liquidity and go and diversify into something else, at least to give some kind of moat financially around their future. Some diversification, but there’s a mix of stories that are fun and educational to hear when they share them with me, but I’m also sitting there going, man, that time that you exited a business and then dropped a bunch of money into a next endeavor that didn’t go as well is a pretty hard one to hear. But then, man, I just try to convey the learning that I get from those to the other investors that we work with. They fought the dragon, as it were, right? They built a business, so they should be extremely proud of it. But then when they’re sitting there with that big pile of money that they got after an exit, just pausing for a moment is a good idea. And just pausing and thinking about what do I want to do here long-term? Five, ten, fifteen-year time horizon wise.

 

Izach – 00:21:09:

 

Yeah, yeah, absolutely. So in your experience, what are some of the most common roadblocks or challenges that business owners face when they’re trying to transition into a more passive role in their business and then how, other than the framework idea that we talked about, how do you overcome that?

 

Spencer – 00:21:28:

 

I mean, the principle that I heard, or the quote that I heard many years ago, and I can’t give credit to the person that said this, but it was the idea of giving away all your Legos, you know, pretty popularized, and my kids love Legos, so it’s top of mind. Um. Ultimately letting go, passing on the ego.

 

Izach – 00:21:47:

 

I don’t know the Lego analogy.

 

Spencer – 00:21:50:

 

You haven’t heard that one yet? So it’s effectively basically saying, “when you’re the founder and you’re building all these processes yourselves, you know it better than anyone else”. And the hardest part is going to be saying, “you know what, I’m going to let this other person build with these same components, all the knowledge handoff, the tribal knowledge that you’ve acquired, the relationships that you need to make your introductions on, the way that you actually allocate the resources and tools within your business”. All these things, they can and will need to be operated and used by other smart people. And that’s really what it comes down to, is being able to go and say, “if you built up this beautiful structure of this company and all of those figurative Legos are populated by your knowledge, your resources, the tribal knowledge, the relationships, all those things that brought your business to where it is, got to find a way to hand that off and take the time”. And it doesn’t always feel fun to slow down, to go slow in order to go fast by handing off all this stuff to other people so that you can then take a backseat or some version of a backseat over the course of time. One of the best examples I’ve seen of this going well, this is actually a guy who was in that Portugal adventure with us. He runs a really cool business out of Southern California. He literally found his COO as like a frontline, basically like a frontline manager that he had hired years ago. And not everyone takes this long, but he literally was able to start taking a backseat only after about six or seven years of grooming this person to ultimately become the COO, the true COO of their, of his business. And now, his literally on the other side of the world. But he’s taken the time to mentor and coach to pass along the core knowledge for the strategic level work. To be able to also coach and groom on the management level work because that person needs their COO managing the people. The people facing work is the one that has the heaviest overhead. That is a blessing in the curse of people management and leadership at large. It’s incredibly fulfilling. It’s the most fulfilling type of work. It’s also just as more, it’s the hardest kind of work in my opinion. It’s hardest, most fulfilling on both sides. So putting that person in place who’s actually going to be a legitimate COO takes blood, sweat and tears over the course of years. And the story that I was sharing right there was from a guy who was with us in Portugal as well. So there’s thousands of examples of that. And more and more now, I think you hear people talking about the value of hiring a great COO. You can ultimately be groomed to take over the operations of that business unless you want to run super lean and figure out a more tech enabled business. And for e-commerce, that is possible. It just depends on the infrastructure that they set up.

 

Izach – 00:24:32:

 

Yeah, there’s certainly a groundswell going on right now in AI-based automations for e-commerce and tech companies. So we’re seeing a lot of big transition to a lot of work being outsourced into, you know, like fiver and upwork and kind of other countries with, with technically capable workforce and VA is coming out of the Philippines. And now I’m seeing a lot of people really just fully automating processes. But it’s still not leadership. I think what you’re talking about is like, if you want to really fully remove yourself from a business, you need someone who’s a visionary leader and a manager. There’s still there’s still got there’s at least at this point. The vast majority of the companies that I’m working with still have to have a real person running and making, running the company and making decisions. You can automate some of these processes. You can, you know, you can, you can automate funnels and you can do, there’s a lot of automations available now, but they’re not, so at least currently, I’m not aware of automated processes that could replace like a COO type level of responsibility. So, but I think the other message that you were saying there is you have to be willing to take the time to invest in that person to get them to the place where you can step away from the business. And so at some point you’re probably, it’s probably a double workload, right? Because you’re running the company and you’re mentoring and grooming, but you’re doing it. You’re investing your time in that case to get the return on your time investment in the future.

 

Spencer – 00:26:01:

 

Yeah, spot on. I mean, you hit this really accurately, I think, which is the double work component is a little off-putting sounding. I mean, it’s very off-putting sounding. For a person who’s already overloaded, the last thing any of us want is to go and say, let’s hire this amazing person and basically say, “oh, wow, I’m going to have to work twice as much just to get you to the point of positive ROI back into this business”. And it’s going to take minimum, like for a person at that level, like minimum six months. I mean, we’re talking, it’s a long, long haul. If you truly are setting something up to take a step back and you still have human driven inputs that go into it, you know, and then to your point until, uh, until we’re closer to like, you know, the AGI and we got, you know, you know, full blown AI and, and, you know, potential that I can’t forecast here. No crystal balls on that. Um, I think that’s still going to be very, every real part of many people’s businesses if they want to take a really big step back.

 

Izach – 00:26:53:

 

For sure. And then, then the question becomes, you know, how do you protect your investment in that person? You know, how do you incentivize and kind of, you know, whether it’s kind of like the golden handcuffs analogy, or, you know, whether you make them an equity partner, or you give them some type of really good variable comp plan. But, you know, if you’re making this big time investment in the person you think is going to be able to run your business and help you step away.

 

Spencer – 00:27:18:

 

Yes.

 

Izach – 00:27:19:

 

How do you make sure that they’re happy, motivated, successful, and not going to leave.

 

Spencer – 00:27:26:

 

Yeah, oh my gosh. Now that’s its own show, right? I mean, I do think that there’s a different example of someone who has done this, I think effectively, that I know really well, I know both of them really well, but the hiring CEO and the COO. And he’s approached it from every of all of those facets you just mentioned. He actually didn’t skimp on any of them. It was like, make him a partner, you know, bring in this potential future COO, make him a partner. Also share, that means sharing of equity, right? In addition to… For a person who could be a potential fit for like a true COO, if it’s someone’s business, what I’ve seen that is successful more often than not, is hiring an incredible, like, you know, not someone who’s brand new necessarily to the working world, but like a person who is truly like hungry, incredibly high horsepower and like ready to come in and learn, but also, I mean, frankly is willing to take a bit of payment in the form of visibility, in form of building out their own network. And so as strange as that might sound, just to be more specific, If someone has built a company and they’re in a CEO role, they’ve probably built a network. They’ve probably got visibility. They’ve probably got an awesome media platform like you’ve built here. So it’s like they’ve got resources and they’ve got leverage in the form of a network. All of these things are compelling and interesting. And frankly, like worth compensation, like equivalent to compensation in a lot of ways for a person who wants to step into like a COO seat, because they could be sitting there going, I don’t want to go launch a podcast. I don’t want to go create a YouTube platform. I don’t want to go. So they’ll, they also look at that as some version of value in compensation to themselves, all of which come into the mentorship package, not just equity compensation, not just high cash compensation, you know, like all those things matter, of course, as table stakes, but just wanted to call that out. Like there’s so many ways that someone can benefit and then they can grow into that role over the course of quarters and months, you know, years.

 

Izach – 00:29:21:

 

Yeah, interesting. Interesting. And they also have to be able to perceive access to that network and infrastructure as value to themselves too. So who understands that that can provide them leverage and value going forward.

 

Spencer – 00:29:37:

 

Right. And there’s some assumptions there that the CEO has already built something that they can provide as value, not just compensation, cash, not just equity and not just the mentorship, but anything else like industry expertise, relationships, introductions, et cetera, all those things.

 

Izach – 00:29:51:

 

Yeah. So you gave the example of your friend that hired the COO that was in Portugal with you and that was, I think, a great success story. He trained that person over a period of months, but what was like maybe more fundamentally, like why would, why was that successful? What kinds of things do in that example that kind of made that a successful transition process for him to kind of be able to step away from the day-to-day operations of the business.

 

Spencer – 00:30:21:

 

Yeah, I think clear scoping of this is all going to sound like the mastering of the mundane, if you will, but these are core business things, right? Define the roles and the work that needs to get done. Like in this particular firm, they do tech talent recruiting. He had been doing a lot of that, hand that off, literally was showing how to do the job well at every possible level to the person he was then hiring. Role modeling success. Once each digestible bite of that was bitten off, as it were, documenting it, making sure that the person was then doing it themselves. That applied not only at the individual level, the individual work, IC level, not to get too corporate here and IC, individual contributor work versus manager work. Do the work stuff. Role modeling all of it and then writing it down and then watching them do it and then what and coaching them on what they’re doing it right doing it wrong. Go over to the management level work. That’s where it really gets more hard. It gets more nuanced and tricky, but important is they’re going to need that person. He needed that person to then go hire to then go manage and bring other people in and then do the same thing he’s been doing. And this is really where the labor of love gets a bit more, you know, a little trickier, but it’s so worth it on that journey because he was able to do that. That’s why it took like seven or eight years for this one person. It doesn’t have to take that long by any means, but I will say, you know, this one friend who was able to go and do that with his own business, very effectively, very hands off because so much investment was made in that COO over the course of time. You’ve seen people do it though in, you know, a year and a half, two years as well. The other person that I know is like a fellow investor. He did that with his COO and it took about a year and a half after finding him. Long search, but when he found him, it took about a year and a half to ramp him up to that point.

 

Izach – 00:32:10:

 

Nice. What other advice do you have for somebody who’s just starting off in a business and forward thinking about where they want it to be? What are some of the important early steps that someone should take?

 

Spencer – 00:32:26:

 

Yeah, I mean, I’ll share at least two with you. You know, the first would be, in terms of there’s two eras, as it were, that I’ve experienced as an entrepreneur. I’ve heard this from others as well. There’s the eras of say yes to everything. And then the era of saying no to everything, almost everything in the early days of it. You’re going out there and you’re building rapidly, I would hope, many different connections. You’re networking like crazy. You’re building not only a reputation for yourself and your business and those connections with vendors, potential partners, with clients, et cetera. You need to say yes a lot. You need to take a lot of meetings. You need to make a lot of phone calls, a lot of emails. You have to say yes to things that may not pan out. Because you’re still learning what is the big opportunity here and how are you going to execute against it? At some point though, you’re going to start to protect your time. When you actually know what you’re building, like you have a clear vision as to what you’re solving for, you know the resources that you need, you’re going to have to start protecting your time and figuring out how to say no. Like, you know, one of my favorite business books of all time is Essentialism by Greg McKeown. Because it like basically arms me with five graceful ways to say no. You know, and we all have 24 hours in a day, whether we’re like the Pope or Oprah or the president, whatever. But that’s the difference typically is I think the people who can actually go and figure out how to protect their time and focus on that top priority. I mean, the only other thing.

 

Izach – 00:33:52:

 

What are a couple of graceful ways to say no?

 

Spencer – 00:33:56:

 

Easiest way is just to say, not yet.

 

Izach – 00:33:58:

 

Yeah.

 

Spencer – 00:33:59:

 

Right? It’s just someone reaches out and says, I’d love to be able to grab that coffee with you. Be like, “Hey, it would be I would really love to catch up as well. I can’t do it at this moment”. But how about we look at that in a month or two? You know? Easiest way. And the other ways I would just say would be like if someone is. Basically saying like, hey, I would really, really want to partner with you on this be like, cool, well, let’s figure out how we can go and refine like what that actually means right over time. And so there’s just a bunch of different ways. And the second one was the top of the top of the dome, but it’s not about saying a hard no. Because I would love to go grab coffees with people and learn about their story.

 

Izach – 00:34:35:

 

So my dad invited me for a cup of coffee right after the show and I’m like fucking slammed today. I think I’m just going to tell him like maybe a month or two and then I’m going to tell him that Spencer told me to say it.

 

Spencer – 00:34:48:

 

Okay, I mean for dad and then he’ll say who the hell is Spencer, right? He was a Spencer guy.

 

Izach – 00:34:54:

 

I’m just kidding. I’m just kidding dad.

 

Spencer – 00:34:59:

 

Parents are a special thing though, right? Yeah. He’ll get the cup of coffee

 

Izach – 00:35:03:

 

It’s so interesting that you say that because I don’t think I’ve ever heard it encapsulated in that kind of description of the era of yes and the era of no. When I started off with the brokerage, I was saying yes to everything, right? I was taking every meeting and just like you said, we would look at every single deal and try to get every engagement that we could to sell every company that was willing to try to sell their companies. And now, WebsiteClosers is where the largest e-commerce and tech business brokerage firm in the world. We probably say no to more deals than we say yes to because now we have a platform and we want quality listings, we want sellable listings, we try to set very realistic expectations. There are a lot of companies we talk to and It is kind of a let’s help you get to where you want to be. And maybe it’s six to 12 months of planning and kind of preparing the company to go to market. So it can be a success because we want to, when we launched company for Sals, we want the highest probability of success for our clients. So there has been a lot more saying no or saying not yet. And maybe I need to learn your other four ways, because that’s pretty much the only one I have at this point.

 

Spencer – 00:36:16:

 

Yeah. I mean, they’re not yet one. There’s so many wonderful versions. But man, that book, I’ve gone through that thing three times. What was the book?

 

Izach – 00:36:23:

 

What was the book at you?

 

Spencer – 00:36:24:

 

Essentialism. Essentialism. Essentialism by Greg McKeown.

 

Izach – 00:36:27:

 

Okay, I’ll check it out. Thanks. All right. So let me ask you, what kind of investment opportunities do you have at Madison right now? What’s going on that’s exciting in your world?

 

Spencer – 00:36:39:

 

Yeah, I mean, you know, what I have learned is that it’s best to focus and stick to what we know and know it well. I think that principle worked when I was leading teams in tech all the way out to now when we’re evaluating and investing alongside our investors. And things that I think are the best kind of boring, especially in 2023. I think a lot of folks are looking at the headlines and thinking, “wow, it’s looking pretty weird out there”. We don’t know which way is up. And I just stick to fundamentals, which is right now there are more discounts. Discounts are a good thing. When you’re going and trying to buy a 200 unit, 400 unit apartment building and you’re buying that in a different state with partners that are out there hunting for these types of deals. The benefit of being in a market that’s choppy is you actually get meaningful discounts. So when you’re on the buying side, that’s the kind of thing that gets me excited right now. You know, we’re actually working on one of those right now. So it’s apartment community in Texas. And so that’s representative of the types of things that we look at. We look at large apartment communities and we look at self-storage facilities. You talk about the best kind of boring. Americans love to buy stuff. Sometimes we don’t need it, but we need places to store that stuff. We need places to-

 

Izach – 00:37:54:

 

Cash flows on self storage is pretty interesting, yeah.

 

Spencer – 00:37:57:

 

Oh yeah. Oh yeah.

 

Izach – 00:37:59:

 

How concerned are you about the upcoming kind of fixed rate maturities in commercial real estate? Is that going to provide an opportunity for you on the buy side when these mortgages mature and they’ve got to refinance at two or three X kind of their current yield.? 

 

Spencer – 00:38:16:

 

Yeah, I mean, I appreciate you nerding out on the real estate stuff with me a little bit, Izach. I mean, the short answer would be hell yes. You know, the advantage even right now. Those are already starting to show up. And so this year to date, you know, we are now on our third opportunity. I mean, specifically talking about like multifamily, meaning large apartment communities, where the seller had to sell. And they’re selling now because their interest rate went from something like 3% to something like 7% plus within a matter of six months. That was not part of their business pro forma. That was not part of their financial forecast.

 

Izach – 00:38:55:

 

Totally changes the ROI for them.

 

Spencer – 00:38:57:

 

They can’t service the debt. And to make it relatable for folks who aren’t nerding out on real estate as much as me and Izach are, it basically means it’s like you buy a home. You know, if you get like a floating rate loan. And there was no way to cap that. And you can buy caps on your interest rate in these types of bigger deals. This sellers didn’t have caps. And so suddenly they’re like, wow, the property without this problem would be doing fine. Unfortunately, it’s now more money to pay for that loan every month than they ever thought they could have possibly imagined because interest rates just went up faster in the past 18 months than they have in the past 40 years.

 

Izach – 00:39:35:

 

That’s got to come out of the valuation for them, right? Because if you acquire the property, your cost of capital maybe is similar to what their refinance rate was. And that’s so there’s an inverse relationship between how much you can pay and how much debt you’ve got to carry or do you have just a different kind of structure overall that you’re using. You put more equity in than maybe they had.

 

Spencer – 00:39:57:

 

Yeah, that’s the thing is, I mean, even right now, you know, thankfully like part of our business being lean is like, we basically go out at Madison Investing. We put our own money in with some of these teams that are out there finding these deals. We do that as part of our vetting process on them. On the capital stack, though, it’s what you’re referring to, the answer is yes. I mean, lenders are lending less, so you can’t go in with as much of a bank loan. And so now, it’s just a couple more layers on that capital stack for the deals that actually pencil. Just fewer deals. But when they come, they’re great. And so that’s, that’s kind of the big difference is in 2021 in particular is to pick on the year of all years when it comes to peak valuations across so many industries,-

 

Izach – 00:40:36:

 

Including e-commerce and tech. That was, that was where we saw valuations peak, you know, and, and cost of capital was close to zero.

 

Spencer – 00:40:41:

 

Right. You know, and you know, the free money train was still rolling when it came to borrowing. And so all that to say now it just takes more creativity. And also you’re seeing some deals by the way, where it’s like, certain special tax treatments make a property very interesting. So like creative structuring of deals and just having good partners who are able to go and find those deals. Because, you know, years ago I made the decision in service of running a lean business that is more remote. I decided I wasn’t going to be the guy sitting in, the guy boots on the ground, driving neighborhoods. We’re going to find people who are excellent at that and then work with them on our deals. And so that’s what we do.

 

Izach – 00:41:21:

 

Awesome. So Spencer, how can our listeners connect with you?

 

Spencer – 00:41:25:

 

Yeah, they can reach out and go to madisoninvesting.com this our website. And just, you know, basically sign up for a newsletter, reach out to the server, called me if you like

 

Izach – 00:41:41:

 

That was Spencer Hilligoss, who you can find at madisoninvesting.com. Thanks everyone for listening to this episode of The Deal Closers Podcast brought to you by WebsiteClosers.com. If you like the show, be sure to rate us, write a review, press the follow button and share it with your network. And of course, if you’re looking for help selling your e-commerce or technology business, be sure to visit websiteclosers.com. This episode was edited and produced by Earfluence. I’m Izach Porter. Follow me on LinkedIn and we’ll see you next time on The Deal Closers Podcast.