TIM CALISE | From Leveling the Field Podcast

· Podcast Episodes
Patience is a strategy. There's no harm in taking shelter from the storm

Tim Calise is a business mentor, podcast host, serial entrepreneur, husband, father and avid Formula One fan. He shares his journey of investing and his experience of raising over $325 million before the age of 25. Tim talks about his early fascination with numbers, money and investing, and how his entrepreneurial spirit helped to grow a hedge fund in the early 2000s (pre-GFC). He explains the decision to liquidate the fund in 2007 due to the uncertainty of the mortgage defaults and the importance of listening to the market. We discuss the merits of long-term investing vs short-term trading, and the advantages individual investors have over professional money managers.

We chat about the importance of understanding expectations, developing a long-term investment strategy, and how to cope with the stress associated with the stock market. We explore how to use compounding returns to our advantage, why it's important to cut losses quickly, and how to manage our own portfolios. We also touch on the greater volatility in the stock market today and how a profit downgrade can result in a much more significant downward movement than in the past.

Tim shares strategies for building wealth outside of traditional investments. He emphasizes skill building and reinvesting in the beginning, and then investing in passive income sources like ETFs and real estate. He also touches on understanding both sides of the investment table, from the business owner and the investor, and why it's important to look at the team behind the numbers. Lastly, he explains why many privately held businesses have a low value and why laundromats (h/t to Codie Sanchez) are popular investments.

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0:00:01 - Chloe

Stocks for Beginners. Phil Muscatello and Finpods are authorized reps of Money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

0:00:13 - Tim

One recommendation I have for any retail investor non-professional investor would be just to think about what industry is, what sectors you believe will be the right places to be over your chosen timeframe. And if your timeframe is less than being measured in years, I would also give pause to, especially in this environment, whether the action of investing is the right thing in the first place.

0:00:37 - Phil

Hi and welcome back to Stocks for Beginners. I'm Phil Muscatello. Imagine raising over $325 million before the age of 25, then voluntarily giving it all back before the 2008 stock market crash. My guest today did just that, and it's always good to learn from others' mistakes before we make them ourselves. Hello, tim.

0:00:57 - Tim

Hi Phil. Thank you for having me on the show, looking forward to the conversation.

0:01:01 - Phil

And thank you very much for coming on. Tim Calise is a finance expert, podcast host, serial entrepreneur, husband, father and avid Formula One fan. He's a business coach, investor and advisor to over 15 privately held businesses with annual revenues from $250,000 to $10 million plus. But let's go back in time. What were you thinking as a 10 year old? Carrying a briefcase to school?

0:01:26 - Tim

Yeah, Phil. So I was. To the great delight of my two sisters, the cool kid who carried the briefcase to middle school meetings Was it Tim, was it little Timmy Calise with his valise.

It exactly was it was. So you know, I grew up in an environment where my dad was in professional services, so he was the type to put the suit and tie on in the morning, take the train to work. And so from a very early age I recall simply emulating what I saw around me. And as a young student I remember distinctly I always loved math. I was great with numbers, money and investing always, even at an early age, kind of fascinated me, and so I guess you know what do they say, you know you got to look the part. I guess I took that and embraced it even from a very early age.

0:02:12 - Phil

And what was in the case? Was it just your mom's packed?

0:02:15 - Tim

lunch, packed lunch and probably some, you know, basic math homework and a few pens.

0:02:22 - Phil

That's great. So, moving forward to age 23, you managed to raise $325 million for a hedge fund. Tell us about that experience.

0:02:31 - Tim

Yeah, so a hedge fund, this is not to date myself back in the early kind of 2002, 2004 timeframe is really when I started really getting into kind of the investing community and trying to understand kind of what my part would be in that story. And so 2002 to 2004, I actually worked at a very large brokerage firm and at that time I was dealing with high net worth individuals and you know, pushing paper and answering phones and getting coffee and all those fun things you do in the beginning of your professional career. But I quite frankly got to a point where I needed to commit to the path of being a broker and I asked myself, you know, could I see myself doing this for 5, 10, 20 more years? And I quite frankly, just couldn't do it. I was always entrepreneurial, I always liked kind of potentially taking the harder path, and so at that time the alternative investment community was really catching fire and it was kind of the go-go time of alternative investing and folks raising their own funds.

And so I took a risk and joined a very, very small fund and for those that aren't familiar, you know, the metric you use is assets under management, because that's what you get paid on and we had, you know, less than a million dollars, which meant our annual fees were, you know, somewhere in the neighborhood of $15,000 or $20,000, which was not very much, and but I thought it was an interesting idea to kind of carve out a unique proposition inside of the investing community. And so, from 2004 to the middle part of 2007, we raised over $325 million. As with most things, it was not a linear ascent. It was really hard to get that boulder rolling in the beginning, you know, $50,000, $25,000, $100,000 at a time. But then, once we started to get to momentum, you know, we were able to get multimillion and in some cases, 50 to $100 million allocations. And it was a great story, it was a great time and it taught me a lot about the investing community, the different types of investors that are out there and their specific goals.

0:04:33 - Phil

And what kind of investments was that money invested in?

0:04:36 - Tim

Yeah, so we were a long short equity hedge fund, so we basically were able to be like a mutual fund, but we also had the ability to bet against, you know, stock prices as well.

0:04:46 - Phil

At the same time, and so what happened in prior to our eight? What happened to all those funds? How did they disappear?

0:04:51 - Tim

Yeah. So once we got to, kind of the middle of 2007, and I'm based in the United States, and so at that time, this is when the Fed was coming out and saying you know, interest rates were low and the beginning of the mortgage defaults started to show their head in the spring of 2007. And Ben Bernanke, the then Fed chair, famously came on, went on the record and said you know, alt, a mortgage defaults were going to remain contained, or some version thereof, which there was no, no chance of it happening. It was the tsunami wave had already started building and there was no stopping it right. So we, quite frankly, by the middle of 2007, realized that the thing that had allowed us or enabled us to be successful over the prior three or four years, quite frankly, the strategy just didn't work and we needed to make a decision as to say, do we, you know, change our stripes and adapt, or do we stick to our knitting, stay on our lane and stick with what we know works?

And so October of 2007 called all of our investors together, we had a conference call and we laid out our case for why the market was disconnected at that time and the potential ramifications of that. But we gave them two options. We said, you know, we don't feel it appropriate. We both have a moral and a fiduciary obligation to do the right thing. We didn't feel it appropriate to change our stripes at that point.

And so we said we're going to go to cash, we're going to sell all of our investments, because we thought there was going to be a reset that was going to take place, but we had wanted to have the right to reinvest when we felt it appropriate and we would charge no fees during that time. That was option A, or option B was they can take their capital and reinvest it elsewhere with other managers. And the majority of folks said you know, we're in the business of being invested, thank you, but no, thank you, we will take our money and go elsewhere. And so, december 31st of 2007, we basically liquidated the fund, effectively wired out or released over $350 million of capital that had been hard earned, and then, about six months later, the firm's operations up and then I moved on to newer chapters of my life. But yeah, it was an incredible opportunity at the time.

0:06:56 - Phil

That's an incredible story, I have to say. I think it speaks to the notion that you really have to be learning something new from the market every day, because the market doesn't stay, still does it. It's always changing.

0:07:09 - Tim

That's absolutely right. And there's the famous saying and I might be paraphrasing you know that the market can stay wrong longer than you can stay liquid, and I think that's a great reminder of no matter how much you think, you know and how confident you feel, there are some cases where the market dynamics simply will prevent your thesis from coming to fruition. And it doesn't necessarily mean you're incorrect in the long term, but it can be very painful in that interim period before, kind of the rest of the world catches on to what you might believe to be the case.

0:07:40 - Phil

Thank you. It's true, isn't it? And I'm just writing a blog post at the moment about hope and how people depend on hope. So much about that. The market will confirm their market thesis, as opposed to you. Just have to listen to the market, don't you?

0:07:53 - Tim

Yeah, especially when you're a professional investor and you're raising or managing money on behalf of other folks, for better or for worse. It is very much of a dynamic of what have you done for me recently, the idea of kind of there are investment vehicles with what are termed lockups or things like that that say your capital will be here for five to ten years, like private equity. But in the liquid markets you don't see that very often and the mechanisms that investors have to take their capital back if they feel like you're not treating it in the way that the investor believes it should be treated. It does keep you on your toes. I think it not to go too far down the rabbit hole of kind of investing strategies, but I think sometimes that short term thinking can actually be to the detriment of many investors, because time is actually obviously a very critical factor. You're thinking about the types of returns, the profile, risk returns, things like that, but when you stake a claim as being a professional money manager, it comes with the territory.

0:08:56 - Phil

It's one of the advantages for individual investors that they're not beholden to clients who are demanding profits all of the time. You can sit back and be patient, can't you?

0:09:06 - Tim

As with most things, it really comes down to expectations. So one of the things that I learned and I wish I was probably smarter, I just happened to be in the right place at the right time which was our strategy was defined as effectively. To use a baseball analogy, we said we're going to hit a lot of singles. Now there are highly more speculative, more trading based or leveraged funds out there, or strategies out there that say we're going to swing for the fences and we might be down 50% one year and we might be up 300% the next year.

What I learned in the institutional community consistency matters. It's like restaurants you can have great food, you can have quick serve restaurant, mcdonald's or otherwise. What matters most is that you meet the expectations of the customer, and so if investors believe that you are going to hit a lot of singles and they start to see you taking more risk, whether you're right or wrong is almost irrelevant. It just shows that you are straying from your thesis. And so I think for everyone, both personally and professionally, understanding your point of view, understanding the type of criteria that you're going to use to manage and I do this in my own portfolio today I am both my own manager and my own customer and I have to be really cognizant that and to your point of moment I go. Phil, you know the idea of kind of timing. If I'm wrong, I have to admit I'm wrong and move on. But I am much more of a capital preservation person today than I am a you know, someone who puts all their chips in the middle and hopes I could get them back.

0:10:46 - Phil

And to stretch the baseball analogy, you don't have to swing at every ball, do you now?

0:10:50 - Tim

spot on. Yeah, exactly right, and I think that is you've touched on something that I think is a critical lesson and a learning that we could all take from which is, especially for our own portfolios as folks, that who are treating their own capital obviously has their own patience is a strategy, you know, opting out just as much as electing not to do something versus doing something. They're both actions. There is no harm or foul for, you know kind of sheltering in potentially dangerous or prevailing market climates, which may be difficult. So, you know, obviously very appropriate today, this is, you know, kind of the fall. You know October 2023, lots of storm clouds brewing potentially, and you know a lot of different opinions of how this is going to manifest itself in the next quarters to come. But you know, I'm typically a risk reduction type investor rather than hope, as you mentioned before. Hope is not a strategy and a lot of people have lost a lot of money just hoping things will be different.

0:11:48 - Phil

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0:13:04 - Tim

I think it's a very important initiative, because I think, for those that have not been around a few cycles, a very basic concept, which I think is wildly misunderstood, because the words are used interchangeably, although they are very different is trading versus investing.

I have heard more times than I care to admit the idea that buying Bitcoin is a sound investment.

Trading and investing is very, very different, and it highlights something that is, I think, very, very important to understand, which is the role of time.

Turning a trade into an investment is usually related to the lack of being able to admit that you're wrong and you use time to hopefully unwind some of the mistakes that you have made. The best traders out there it's not that they win more often than anyone else they cut their losses better than others and they live to fight another day and to enter into a different trade and things like that, and so I think, for the retail investor us managing our own portfolios I skew towards taking a very clear having an investment thesis, not a trading thesis, because, especially now, with the speed in which things change and information is available and the climate is constantly shifting, you have to almost pay attention to it all the time, and most of us don't have the knowledge, access, capability etc. To be able to do that, and so I encourage more people to think about use compounding as the eighth wonder of the world. Use it to your advantage and don't succumb to the siren song of trying to do short-term trading.

0:14:51 - Phil

The path to success there is riddled with a lot of bodies which have tried something similar and unfortunately found out the hard way, and it's something that I've noticed, tim, is that these days, when there's a profit downgrade in the past, if someone had a not a terrible profit downgrade, but it was a profit downgrade nonetheless that maybe, maybe a 2% to 3% downward movement these days is going to be more like 10 or 20%. The volatility just seems to be so much greater.

0:15:18 - Tim

Yeah, and I think that's a reflection of. Ultimately, the stock market is a waiting machine, and I think it is something that is trading versus investing. If you take a 40-year time horizon, that 5%, that 10% is almost statistically irrelevant in the long term. But in the short term, what the market is doing is trying to digest or understand the various opinions that are out there in the marketplace, and so, as with most things, if you zoom in on the chart, I have no idea what's going to happen today or tomorrow or the next day. But I know with some high degree of confidence that some of these bellwether Apple will most likely be a decent investment over the next 20 years, et cetera, et cetera. So I think we succumb to the idea that short-term gains somehow, added together, equal some kind of magical return stream, when in reality I read a study this was probably 15 years ago and it still holds true something along the lines of 70% of investment returns can be attributed to the sector in which you invest and of the, and another 20%, I believe it is, or even less is, attributed to the individual stock selection. So what I take from that is we spend a lot of time thinking about names.

Which individual company should I invest in? The fact that you're in the right ballpark you're going to get 70% of the way there. What that helps us to do, I think collectively, is just to make some judgments on where we see the world going. So would utilities be a better place to be versus technology? At a broad scale, interest rates matter and things like that. I couldn't tell you within each of those which names are best positioned at a given point, just because I don't have the time to invest in understanding those things. So one recommendation I would have for any retail investor non-professional investor would be just to think about what industries, what sectors you believe will be the right places to be over your chosen timeframe. And if your timeframe is less than being measured in years, I would also give pause to, especially in this environment, whether the action of investing is the right thing in the first place.

0:17:45 - Phil

That's really interesting looking at sectors before looking at individual companies. I mean, that's something I'd like to take away from this episode that the idea of broad sector-based allocation is something to consider before even putting a dollar into the market. Is that the way you look at it with your own personal portfolio?

0:18:03 - Tim

Yeah, I do, because my quote-unquote full-time job is I look at private companies as well as advise entrepreneurs in service industries up to about $10 million a year in revenue. And those are all private companies, privately held companies. So the way I look at things in general is to understand that. Or one thing I've learned is that simplicity is on the other side of complexity. And if you imply that to investing, I think I look at it from a perspective of how simple can I make this per unit of attention that I give it. So for my own portfolio, if I'm going to invest in publicly traded equities, I'm taking a long horizon 10 years plus. So then that gives me a little bit of the simplicity says I don't have to worry about buying it at $100 or $98. I just take that as it's a cost of doing business. But above and beyond that, what I do is I look at on a quarterly or semiannual basis what's going on in the broader world and do I feel like the mix that I have right now is properly reflective of where I believe the world is going Now.

Every once in a while you will get my own NVIDIA as an example. I bought a number of years ago. The AI boom which came upon us relatively quickly, starting November of last year, has been very good to that company. Now you could say there are others that have not fared as well, and so individual stock selection there was important. I will agree with that. However, for me to understand which individual company to own might have required tens, if not hundreds, of hours of research, and instead I have other ways to monetize my time. So I think for most people, making the process of investing as simple as possible, I think, will take a lot of the stigma or confusion out of the process, and that's what I am to do personally in opportunities that I have to counsel others.

0:20:04 - Phil

Are you more of an individual company kind of guy, an individual stock kind of guy, or do you look at ETFs and mutuals as well?

0:20:12 - Tim

I actually like ETFs quite a lot. I have three kids and each of them have portfolios that we've started to put together for them, and those are all allocated to ETFs, simply because the thing I am trying to expose them to is not individual selection, it is simply the value of time. So they are young enough now that in 20 years the number will be bigger than it is today. I feel fairly confident about that.

Taking individual positions from a fiduciary perspective I don't believe is the right thing to do. And then even personally, of my portfolio right now, three quarters of it would be ETF exposure and about a quarter of it would be individual names, and that's simply either from legacy positions that I've held that I have gains in, that I don't want on a tax basis doesn't make sense to sell, or things that I felt very strongly. Somebody gave me the advice once, which was buy stocks in things that you understand and things that you use, and so I've owned Apple, for example, for close to 20 years now. That's simply because I bought an iPod 20 years ago and had a Mac and all of those types of things. So I think it's a reflection of I just look at things that I own and whether I believe they will have continued staying power in the marketplace and pricing power, etc.

0:21:29 - Phil

So one of the things about being in markets is understanding and dealing and living with risk. Do you have any tips for balancing risk and rewards in stock investments as I mentioned a few minutes ago.

0:21:40 - Tim

I believe that one of, if not the most important things to understand is your timeframe, because if you think about risk risk In most cases that I've seen when it has gone wrong is the misalignment of expectations on what the return profile can look like. So, for example, there are many healthy companies. There's a famous story, I believe, of Jeff Bezos talking about how Amazon stock was not the company in vice versa. So when the stock was down 80%, it didn't mean the quality of the company had deteriorated by 80%. It was simply a dislocation between outside perspective and the way people were pricing the company and things like that. And there are great companies that still draw down.

I don't think any company is impenetrable to market forces, which is why, over the course of time, those are smoothed out simply by extending your timeframe. So I'm a big believer that if you can't risk your capital for I use 10 years personally just because, especially now, I don't know what's going to happen. I'm much more risk aware and risk averse at the moment, but I try to follow that old saying of be fearful when others are greedy and greedy when others are fearful. I think there's something very true in that statement and that speaks to just how much cash I have versus invested capital, and so I try to just limit it in those ways.

0:23:08 - Phil

I think it was Warren Buffett during the 08 crash that just kept on saying what was it buy? American companies? I think he just said it as simply as that.

0:23:18 - Tim

Yeah, but exactly right. And there's the idea of if you think of market cycles, they look. If you draw kind of a midline, there are times where you're above the line and times where you're below the line, and on a quarterly basis. If you can try to understand where we are on that curve, if you will, or that isolation that will tell you when you're at the peak, that is when you should start to sell. When you're in the trough, you should start to buy, and everything in between is just different versions and understanding what those parameters are. Maybe it's 100% invested, down to 20% invested, or what have you. That's how I look at it. So I look at risk, not at the individual company level or even the sector level. It's just this term called dry powder, which is how much money do you have on the sidelines that you can deploy? I manage my dry powder. That is the metric that I use to moderate my risk out in the marketplace.

0:24:17 - Phil

So tell us about strategies for building wealth outside of traditional investments. This is an area that you've moved into.

0:24:23 - Tim

Tell us a bit more about that, tim, yeah, so for most folks, the way to build wealth in the beginning is to have high value skills that you can effectively earn active income to then set aside and start to build other streams of income, whether that be real estate, equities, etc. So for anyone who's just starting out, I would reinvest all of my available capital in skill building. First, up until you I mean in most parts of the country you can have a very nice life. Once you start to kind of, when you get to even 10 to $20,000 a month, you can have a great life with that. So that would kind of stop number one on the path.

After that you can only reinvest to a certain point. There's only so many courses you can take, so many masterminds you can be a part of, etc. Etc. Once your additional return on those things effectively goes to zero, that's when you should start to build a nest egg outside of your active income. And then I am just personally a big believer in the value of time, and real estate is a great place for that, and then ETFs as well. So if I was to do it all over again, that's exactly what I would do would reinvest in skills for myself, earn while I learn, and then start to build a set aside capital to then reinvest in things that I don't have to manage myself. So an ETF portfolio, and specifically multifamily real estate, is the only other place that I have exposure at the moment.

0:25:52 - Phil

And your current role is working with businesses and being a business owner. Has that made you a better investor or has being an investor made you better at understanding businesses and how they run?

0:26:02 - Tim

It's a great question. So my initial experience was as kind of a business founder. I've always liked the idea of being kind of entrepreneurial. I've always been entrepreneurial. What the investment exposure that I've had through my hedge fund experience and my own personal investing, I think has given me the ability to understand both perspectives. If you're sitting on the two sides of a proverbial table, one being the business owner side and the other being the investor, I now can kind of wait both of those perspectives. So I help lots of private companies raise capital also initially, or follow on rounds. I've helped a number of companies exit and so one thing I think has been informed. That process has been informed by my experience as an investor, because I quite frankly just know what to look for and I know what they're looking at, and so in the beginning it was investor kind of first, but that experience has allowed me to be a better coach, consultant, investor guide, mentor for the private companies that I had the great chance to work with.

0:27:05 - Phil

When you're assessing a company, that's very tempting just to look at the numbers, isn't it? But then it's really about the teams behind those numbers as well. I mean, it's almost as important, really, isn't it? And I think that's something that investors should really be aware of and be looking at is have you got a really good team on your side working for you?

0:27:23 - Tim

Absolutely. I mean even basic, what I would call kind of basic knowledge and understanding that being an investor gives you. Take a concept like an earnings multiple If you've never invested before, that concept might be quite foreign to you, but as a private business owner, the multiple on which you can monetize your hard work, it matters quite a lot. It matters a lot in the planning of timing. It matters quite a bit in understanding the different types of investors that are out there strategic versus purely financial. I look at that experience that I've had earlier in my career and these are the concepts that I bring to these conversations is to say it's not just raising a dollar, it's under which conditions, what are the terms and who are we talking to. Because it all matters and having that experience, certainly the quality of the team is a risk factor. There are lots of privately held businesses that are effectively duct taped together by the founder. The second that you sell that business and you think you're not going to go with it. You are intimately attached to that business.

I was in the fitness industry for quite a long time, and Jim's in particular. You look at okay, I made $100,000 for my gym this year. I also am the CEO, I'm the head trainer and I do all the sales. So I made $100,000, I did a Google search and it says that my gym is worth 4x what I made last year. Okay, I have a $400,000 asset. I'm going to go sell it and almost in 90% of cases, the next part of that is okay.

Well, now I need to hire someone to replace you. So I need a sales manager, so your $100,000 becomes, you know, $50,000. And then I need someone to operate and be a trainer. So, really, you didn't make $100,000. You as an owner, you as an operator, made $100,000. You as an owner, made zero. The business is effectively worthless. That is the reality. That is why the average privately held company, I believe, in the United States, the average sales price is something like $19,000, under a million dollars of EBITDA. And it's just because those businesses are, by and large, effectively worthless because they're so intertwined with the owner operator.

0:29:42 - Phil

That's interesting because you hear about businesses and one of the fashions that you see on social media is about laundromats that so many people are buying laundromats because they think it's one of those. Businesses can be hands free, and I guess that's what the dream is is to have a business that's like that, that doesn't depend on the management team or the founder or the owner.

0:30:01 - Tim

Yeah, I mean from an investor perspective. Laundromats are effectively it's the old adage that coin operated laundry comes, is out in the marketplace. For a reason, I think the question and someone who I know Cody Sanchez is her name. She's a phenomenal investor and she's kind of spearheading them.

0:30:19 - Phil

She's been on the podcast. Oh, actually okay.

0:30:23 - Tim

Cody's in Austin, where I live for a little while, so obviously has done a phenomenal job talking about kind of old school industries that are quite attractive, especially now for investors, and she speaks a lot to building a team and has debunked, I think, the idea that a lot of people have, which is, when we're coming up through the school system in general, I think we're indoctrinated with the idea that we have to be able to solve all problems, and I think a great company and a very valuable company is one that sufficiently covers all the five core functions.

But it doesn't always have to be with one person, and so I have personally taken the approach of building a team of people with different complimentary skill sets that I can then apply to different businesses. So if I was to do investing again, I would spend more time trying to find people who I see the world similarly, in similar fashion, but also we have complimentary skill sets. So I'm an operator, I'd love to have a marketing person, I'd love to have a sales person, etc. I'm trying to build teams around these concepts because I think that's where the real value can actually be unlocked.

0:31:31 - Phil

I've noticed that with many tech companies and software as a service companies that the founders are often someone who's good with the technology or in the coding and the nerdy side of things and the other person is the marketing promoter side of things. Do you see that as one of those complimentary pairings?

0:31:47 - Tim

Oh, absolutely. In the beginning you have to have someone who's in charge of promotion and you need to have someone who's in charge of product, and each of those people need to wake up in the morning thinking about their domain within the business. Once you get to a sufficient size, then the next thing that's usually stripped out is finance, hr and operations delivery things like that. It's actually interesting. I think one of the most important and critical roles in an operating business today is an automation expert. I had the great fortune working with Alex Hormozzi and Layla Hormozzi over at Jim Launch. It was part of the executive team there, a very, very successful couple and now owners of acquisitioncom.

One of the most important people in our organization was the person who was in charge of tying all of our systems together. That one individual was probably worth 10 people. In software development, there's this idea of a 10X developer. He was the 10X operator because we cut down on all the manual stuff that most people are used to doing, and he was unbelievable at it, and so I would recommend anyone who's able to bring on someone like that. That is an allocation that is worth its weight in gold. If you can find someone who can, they'll pay for themselves many, many, many times over, and that's the type of business that an investor would be happy to step into, because you've already wrung out a lot of that operational risk.

0:33:14 - Phil

So we've been skirting around it, but tell us specifically about the work that you do now, Tim. Yeah.

0:33:19 - Tim

So over the last two decades I've realized that my zone of genius is around building companies that are product-led, and I think, especially in this environment where marketing and attention has become the most important thing I think we've lost sight of. A company is not just what you see on Instagram or TikTok in six seconds. A company is, and the purpose of starting a company is not just to have this veneer of marketing. It's to actually deliver a valuable product or service to a core audience. And so I work with service-based businesses specifically around recurring revenue so membership, subscriptions, et cetera in companies that are typically between 500,000 a year and 3 million a year in revenue, and our whole idea is to use product as a way to grow those companies to 5 to 10 million, and then from there the needs of the business change and they turns into people, systems and things like that.

But I fundamentally believe in two things, which is relationship-based commerce I think is more important now than ever and that a great product will take away and solve a lot of the problems that people try to overcome with better marketing.

If your product is remarkable, it will carry you much further than you might imagine.

Have you got an example of a company that you could share with us. Yeah, so I'm working with a home healthcare business right now that does about $2 million a year. I've been working with them for a hair under a year now and we'll probably clear four, four and a half million dollars this year simply by improving the way that we attract new customers, and we've implemented a three-tiered pricing structure product structure to capture the different types of buyers that they were getting, that they were trying to shoehorn into one product. That would be a great example. I'm also working with a technology product in real estate helping real estate agents effectively fend off the attack of big tech that is threatening their way of life and putting the real estate agent in the center of a structured referral engine in their market to be in control of their own world. So it's not just a transactional agent but much more of a relationship-based, trusted professional in their marketplace, and so I just fundamentally believe in the idea of having a complete offering rather than just selling something to someone one time.

0:35:50 - Phil

Are you like a mini McKenzie where you're management?

0:35:53 - Tim

consulting it takes a bunch of different form. I think a lot of the larger consulting companies that are out there have playbooks that they run, so it looks very much like many of them will kind of apply similar principles over and over again and they're somewhat cookie cutter. And the thing that is problematic in my opinion of most consultants is they are not attached to the outcome. My engagements are all performance-driven. They're all performance-based, so if I give you advice and it doesn't yield an outcome, I effectively don't get paid. And so this is how I have been able to combine my vision for helping entrepreneurs as a trusted number two coach, consultant, etc. But also starting to build a portfolio of private companies that I have both an ownership stake in and a vested interest in improving the value of the overall company. I am a co-owner alongside my clients, which puts me in direct alignment with their outcome as well, instead of just being here for a paycheck.

0:36:53 - Phil

Okay, so we're both big fans of Formula One. Do you have any? I love a tortured analogy, and do you have any metaphors that might be arising out of Formula One that can be applied to investing and or business?

0:37:05 - Tim

There are many, but as an avid race car fan, you know I've used the analogy many times. A lot of people talk about kind of a business in the form of kind of an engine and a team in the form of an engine. How much output can we get things like that? And I think the more important question is to focus on the transmission. It's not about energy and volume, it's about how much horsepower can you get to the wheels, because that's actually what moves things forward right, and so I think that analogy in business is one that I use quite a lot, because many companies find themselves in high output, low efficiency states, and so we work a lot on actually reducing the amount of reps on the engine and actually trying to translate more of that energy to the wheels. That's a general business analogy, I think, for Formula One in general.

I just love the idea that, for those that are unfamiliar, you know, there's a cost structure.

There are rules and regulations on the types of cars that you can build and how they have to conform to certain things, but the imaginations of these car designers and we're talking about, you know, cutting edge tech it is just inspiring around this, and for me, my takeaway is, even if there are quote unquote rules of the game, if you can use the rules to your advantage and understand them so intimately that you know where the opportunities are.

I mean, you're talking about a sport that can be separated in hundreds, if not thousands, of a second per lap. The tolerances are very small, I think, in business. So often we get worked up about you know, I need to find, you know, this huge leap forward and things like that Just every day. Get 1% better, find the one thing that you can work on, know what the rules are so that you can bend them to your will, and I think that would serve a lot of people very, very well. You know, above and beyond, the idea of you can always sell sponsorships, which is how most of those cars are financed. So raving fans, I think is a really interesting one. Formula one is one of the few sports that is on a parabolic rise right now across the world, especially here in the United States of popularity we see recently.

0:39:16 - Phil

Thanks to Netflix.

0:39:17 - Tim

Yeah, exactly right. But you're seeing, you know famous, a lot of famous folks starting to. You know, recently Alpine, which is one of the kind of mid-pack, lower tier teams, just got, got an investment from a number of Hollywood actors and what have you? I think that idea of having something interesting that can attract raging fans, if your company and most of the times it's customers, if your customers become such raging fans of yours that they want to help you succeed, it will take a lot of the pressure off all of the other things which, again, product is the center of that, in my opinion.

0:39:55 - Phil

So, tim Khalees, tell us about your podcast and all the other channels where listeners can find you.

0:39:59 - Tim

Yeah, so I have a podcast called Leveling the Field with Tim Khalees on Apple and Spotify, and then I am at timkhaleescom that's T-I-M-C-A-L-I-S-Ecom, as well as Instagram. I monitor my own DMs and LinkedIn as well. So here, as a listener of the show, if there's anything I can do to help your audience, please shoot me a note on Instagram, sfb, so Stocks for Beginners, and I'll give you a special gift to hopefully help you on your journey.

0:40:32 - Phil

That's great. Thank you very much. So we'll put all of those links in the blog post and the episode notes so people can find you a little bit more easily as well. Tim, it's been great meeting you and having you on the podcast today. Thanks, guys, thank you for having me. I appreciate it.

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