Episode 709 | The 7 Greatest Investments of My Life

Rob Walling:
Welcome back to another episode of Startup For the Rest of Us. I’m your host, Rob Walling, and every week on this show, I talk about building an incredible life through startups. Usually, it’s bootstrapping and mostly bootstrapping. Sometime, I have venture-funded startups come on and talk about their experience. But realistically, it’s all about founders, humans that are trying to make a difference in their lives and the lives of the folks around them. Entrepreneurship has been the number one force in my life that has changed it for the better. It brought me from making $4 and 50 cents an hour at my first job and $17 an hour in my first job out of college to where I am today, in a position where finances are no longer a major concern in my life. And that feels like a very weird thing to say based on where I came from. 

So in today’s episode, I’m going to talk about building wealth, and specifically, I’m going to talk a bit about my story, the story of Sherry and I building wealth over the past 20-something years. And I’m going to talk about the activities we’ve done in order that have brought us the most wealth in our lives. And I realize that talking about money can be a taboo subject. I’ve never been someone to share my MRR and act like I’m building in public when in fact, I’m actually bragging in public. But I do think that many of us who are out to find freedom, purpose, and relationships, we need to find a way to make enough money to quit the day job or to augment our day job or at a certain point, to make enough money that we never have to work again. Because as much as most of us will say, “I don’t actually care about the money, I care about the freedom,” the money is the means to that end, the money is the means to get to freedom. 

Before we dive into that, you should check out, MicroConf Connect at microconfconnect.com. This is our online community and forum. We host it in Slack and we’re approaching 7,000 members. They’re bootstrapped and mostly bootstrapped SaaS founders. Recent conversations in Connect, including a debate about magic sign-in links, how long you should spend diving into a niche before deciding on the product offer, how to safeguard your product from misuse during free trials. At what point in your journey should you invest in a conference booth and more. It’s a vibrant and highly moderated community. Very high signal-to-noise if you’re looking to find and hang out with other misfits like you and I, head to Microconfconnect.com. 

Let’s dive in to a lesson on how to build wealth. And look, I could say how to get rich. That’s the gauche way of saying it, but I feel like there a way to talk about this topic tactfully and to talk about it respectfully and to talk about it frankly, with grace and thanks because if nothing else, I have an incredible amount of gratitude for what entrepreneurship has done in my life and the life of my family, and that’s why I want to share this with you today. So last week, I was on Twitter and I saw a tweet from Christopher cgimmer and he said, “My two greatest investments, number one, starting a business, number two, buying Bitcoin.” And that tweet reminded me of an essay, really a half-form blog post that I wrote a year, maybe two years ago. 

I thought of turning it into a tweet thread. I thought of posting it on the blog and just never did. But it was a reflection on the life that Sherry and I have built. And I started thinking through what are the ways that we lifted ourselves up from, I’ll say, humble beginnings. I won’t go into it too far, but between Sherry’s family and my family, we have convicted felons, we have drug addicts, we have folks who have been on food stamps, some folks who are still on food stamps. We’ve had people in and out of jail, we have alcoholics, we have a lot of stuff. And I’m not saying this to play the politician role of, oh, look at the humble beginnings we came from. But in all honesty, where we are today is a far cry from where we started. And the number one reason for that is entrepreneurship. 

Now, obviously you could say, well, Sherry and I would’ve been okay even without entrepreneurship, and maybe we would have, we were working salary jobs before I started companies, and could we have built a great life, just the two of us working hard as salaried employees? Of course we could have. So I don’t want to sit here and act like entrepreneurship is the only reason that we’re alive today and the only reason we own a home or anything like that, because salary employment and investing in the stock market was the path that we were taking, and we were doing fine. We were certainly middle class and doing well. 

But as we look at this list of things that allowed us to build wealth, you’ll notice that entrepreneurship is number one, spoiler. But a bunch of the other ones came because entrepreneurship made enough money that then we could take several bets on different things that we wouldn’t have been able to if we didn’t have that money in the bank. I’m going to be honest, I was actually a bit surprised as I ran through this list. I’d never really thought about it before and to look at which activity contributed cash in what order was pretty fascinating to me. 

So in this episode, I’m going to walk through seven wealth creators, and this is not investment advice. Think of it more as a story. The story of Sherry and I coming out of college with 100, $200 in a bank account and building what I feel like is a pretty successful life that I’m very grateful for. And there was a ton of hard work, nights and weekends constantly for several years. I don’t do that anymore, but there’s probably six, seven years of basically clocking nights and weekends to start companies on the side as I was trying to figure it out. There was definitely some skill that Sheri and I built up through putting in the hours or through going to the library or through being on the internet and studying and learning. And obviously, there’s some luck involved as there always is. 

In addition, this is not investment advice. This is just the way that we think about allocating our money. And this may or may not work for you or even be relevant. So with that, first item on the list is selling companies. And for the most part it’s selling companies that we started from scratch. Sometimes it was selling companies that I acquired. So HitTail was a SaaS app that I bought in 2011 for $30,000, and by the time I sold it in 2015, the total revenue it generated plus the exit amount was just over $1 million. And one might say $1 million, Rob? That doesn’t sound like that much money. To us at that point in our lives, it was the first moment that we had life-changing money, “life-changing money,” not never have to work again, money, but it changed the way that we went about our day to day. It was the first time I ever saw $100,000 in a bank account, was working on HitTail. 

HitTail was highly profitable. It had a 90% gross. No, it had about an 85, maybe 90% net profit margin, net profit because it was just me and a couple contractors. And one might say, “Well, you had $30,000 to buy HitTail. I don’t have $30,000.” Guess what? Three years prior, I didn’t have $30,000 either, but I built businesses like .NET Invoice, I wrote Start Small Stay Small. I had a portfolio of small products and I saved the money from those as well as consulting that I was doing a few years prior to get that 30,000. So I truly stair-stepped my way up over the course of, depending on how you count, it was either six years or 11 years to get to that point where I could acquire a SaaS app and grow it. And I had built the skills to do that and I’d put in a lot of hard work along the way to be able to do it. 

Prior to that, I had, at any given time, I had around a dozen. It was like between nine and 12 small products doing hundreds to single digit thousands per month. And I cobbled those together to make a full-time living. And it was a great lifestyle. I worked 12 hours, 16 hours a week. We had young kids, but I was always worried that I wasn’t going to have revenue or income the next month or the next year. And I was constantly thinking about, am I going to have to go back and get a job? Am I going to have to go back to consulting? And once you taste the freedom of not doing those things, you really don’t want to go back. I became unemployable pretty quickly. Now, moving from that life-changing to sunset money where you can just ride off into the sunset. Some people call it FU money. You could say it’s never have to work again, money, but that of course was selling Drip. 

And one might say, “But Rob, you invested 150,000 or $200,000 into getting Drip built. So when you sold it for millions of dollars, I can’t do that because I don’t have 150 or $200,000.” Guess what? I didn’t either three years prior, but I bought HitTail for $30,000 and grew HitTail, which was doing, it was around $2,000 a month at the time. I grew it to 30,000 MRR and socked that money away in a bank account, put it away, put it away, put it away. So I had money in a business bank account to where I could pull that out and build Drip. This is why I get a little infuriated when I see comments, I’ll see them on the YouTube channel, for example, where I talk about if you have an unfair advantage, if you have an audience or if you have a network or if you have money, then use it. And someone will post a comment with, well, if I was lucky enough to have an audience like you, I didn’t build my audience because I was lucky. I built my audience because I’d put in almost 20 years of hard work. 

And I know people who build it a lot faster than that, but however many years you put in, it’s not luck, it’s about putting in hard work and reaping the rewards. And so I can imagine someone listening to this and say, “Well, I don’t have $150,000 to build Drip. I don’t have $30,000 to build HitTail. I don’t have $11,000 to buy .Net Invoice,” which is what I bought it for back in ’05, ’06. I didn’t either until I did freelance work on the side in addition to my day job and saved up enough money to buy .Net Invoice, and then parlayed .Net Invoice into money in the bank to buy HitTail and then parlayed that. You know what I mean? It’s like it took us a long time. 

If you think about it, the typical startup journey you hear about these days, “typical,” I’ll put in quotes, people say, “Oh, in three years I quit my job. In a year, I quit my job. In five years I became a millionaire.” I started building and trying to launch software products really around probably 2002, 2003, and I had my first thousand dollars revenue month in ’05, ’06. Think of how long that is. That’s a lot of nights and weekends, and it’s not what you see on Twitter today. It took us a long time because we had no backstop. We did not have parents who would bail us out if we went to zero, if we lost our apartment, if we didn’t have money to pay for it, we couldn’t move in with anybody. Not having a backstop makes it really scary and it can make you risk averse, which is what we were because we had to show up for our jobs every day and trade dollars for hours because we had to make a rent payment because we had no backstop. 

And so I did a talk several years back called 11 Years to Overnight Success, where I started the timer at 2005, which is around the time I acquired .Net Invoice and ended it in 2016, which is when we sold Drip. And that was the moment where I never had to work again. And it took us 11 years to get to that point. Why did it take so long? Because I stair-stepped, because I did it carefully and because we did it in a pretty risk-averse fashion such that we would never lose the house. We didn’t put a bunch of money on credit cards, we didn’t take out a second mortgage to invest in our business. You might be more risk-averse. In fact, you might have a backstop if you have rich parents, if you have $200,000 in the bank that you’ve earned and saved or that someone gave you, that’s amazing. Then you can take bigger risks and you can do it a lot faster than we did. 

But we took one step in front of the other and put in hard work, luck and skill over years. And frankly at this point, decades. When I say think in years not months, what I actually mean is think in decades, not years, but that would be too painful to tell people when they’re first starting out. So that was number one, selling companies. And I realized I included running HitTail, meaning taking profit off of it. So I muddied the waters a little bit. But realistically, the number one driver of wealth building for us has been exiting companies. And the beauty about selling is, at least in the US, the tax laws are so favorable because they give you long-term capital gains in your tax rate is far less than if you draw profits out of a business. 

In addition, depending on how you’re growing and what the multiples are, you can often sell for 10 years worth of net profit or 15 years worth of net profit. So you dramatically accelerate the amount of cash you get today, and that allows you to make other bets that may pay off for you as we did in 2016. 

You may not want to hear it, but number two on our list is cryptocurrency. And I know some people are cringing. I’m not a crypto bro, I’m not a crypto maximalist, but when I started hearing about crypto in let’s say 2014 or ’15, I was intrigued by it, but much like investing, I didn’t want to spend any time focusing on it because I was busy being an entrepreneur and I wanted to focus on growing a company. But after selling Drip in 2016, we obviously had a large sum of cash and I wanted that to last the rest of our lives. And a very interesting side effect of having a large amount of money is that you can make larger than sensible bets on very risky things. 

So prior to that, we had made a few angel investments, and of course, that’s lower here on the list, but we’d made some angel investments in startups. And I started thinking of crypto as an angel investment and I told Sherry, it’s either going to 100x or it’s going to go to zero. So let’s put an amount of money into crypto to where it goes to zero, it doesn’t matter to us. And here’s the thing, it comes back to entrepreneurship because if we hadn’t sold Drip, then could we have put $1,000 into crypto? Yeah, probably. And do I think putting 1% of your net worth or 2% or some very small amount into risky bets is a good thing? I do personally. 

In fact, we have done it with angel investments and with cryptocurrencies. Do I think everyone should do it? I don’t know, it depends on your risk tolerance, but to me, I saw what [inaudible 00:14:55] calls asymmetric upside, which is, if this can potentially 100x, could I put $1,000, $10,000, $50,000 into it? Well, it depends on how much you’re worth, right? If your entire net worth is $50,000, that would be foolish to put 50,000 in. But if you literally have millions and millions of dollars sitting in a bank account, is it foolish to put tens of thousands into something that could potentially be worth millions someday? Maybe. So is it super risky? Of course. But over the course of, I think it was seven months, eight months, we basically dollar cost averaged less than 1% of our net worth. So it was tens of thousands of dollars into several cryptocurrencies. This is ETH, it was Bitcoin, I think it was Litecoin at the time. I think I picked three or four. 

And again, it was either going to 100x or it was going to go to zero. And when I say dollar cost averaging, what that means is instead of buying a big chunk all at once, you buy a small amount every day, every week, every hour, whatever it is to get up to your target allocation. And I genuinely wrote it off, expected that money never to come back. Much like any angel investment check we write, I don’t include that in our net worth anymore. I consider that it’s zero until it’s not. And one could say, “Well, you got a little lucky.” Yeah, probably also could have bought two years later when it crashed. Also, could have bought a couple years after that when it crashed. 

But if you dollar cost average in and you don’t put any more in than you can lose. It just didn’t seem that risky. I’m pretty risk averse person. I’ve never had a backstop. And so for context, we started buying ETH around, I think it was somewhere between six and $10, and Bitcoin was at 600 or so. And obviously, as of this writing, they’re at 3300 and 66,000 respectively. Which just feels bizarre, right? Crypto to me was just a mechanism. It was just a thing that could go up. I have no desire to persuade you to purchase it, right? And I’ve gotten into discussions where people will ask the usual question, well, why is it valuable? Why not just buy gold, isn’t it a bubble? And it’s like, I don’t know. I just view it as an angel investment. It’s a lens of opportunity. And again, never could have done this without having the exit. 

And the interesting part about this is within months, it started going up, I think it was six or eight months, it started going up so quickly that actually, it scared me because it went from tens of thousands up literally into the single digit millions, and it became almost… It was like a fear of liability about the volatility. And so we started dollar cost averaging out as much as we could. Back then it was actually hard to sell crypto. There were all these limits on exiting, and that was a good thing because I think we would’ve sold more than probably would’ve been wise. We were held in by these limits, and those limits allowed us to leave more in, that then of course grew over the following five, six years. I just don’t think we would’ve kept it that long. 

So I’ve appreciated how those limits probably went against the scarcity mindset of, oh no, it’s going to go down and we’re going to “lose” a bunch of money even though we’re still playing with house money. So in the subsequent years, we have definitely sold seven figures, obviously playing with house money plus, plus, taking chips off the table, but still have enough that if it continues to go up, that we ride that wave as well. So what’s the learning there? Is it everyone should buy crypto? Is it everyone should dollar-cost average into risky assets? I think it’s that making money creates opportunity and allows you to make bets on things that otherwise you never could have. And again, this is where it comes back to entrepreneurship. 

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Number three on this list is running profitable companies or owning profitable products. Some software, some knowledge products. So think of things like running HitTail, running my product portfolio back in the day. Dr. Sherry Walling, my wife runs Zen Founder, which is a very successful executive and start-up founder coaching practice zenfounder.com if you want to check that out. I had a micro agency back in the day. And of course, book sales, since we publish our own books, you can actually make decent money if you sell 20,000 copies like the SaaS Playbook has sold. There are no big hits in this one. This one is really number three on the list by virtue of how many years we’ve done them. 

Sherry has run Zen founder, I think since, I don’t know, maybe 2013, 2014, so a decade. And I ran HitTail for five years. It was highly profitable. The product portfolio was six, seven, eight years. Sherry’s written two books. I’ve written four books. Each of these things, we just have done them for a lot of years, so none of them was a breakaway, mad influx of cash, but each of these was either additive to our day jobs or it was a nice steady income stream to keep us going long enough to have some of the other big hits. 

Number four on the list is angel investing. And for a while, I’ll be honest, this was number two on the list, and this is mostly due to an angel investment that I was able to make in WP Engine. There are also a few startups we’ve invested in that have returned, I’ll say single digit multiples. So let’s say a 3x, a 4x, a 5x, which they’re nice, but they’re not the return that the WP Engine did. And we also have a couple that kick off dividends that again, are nice to haves, although we pay income tax on them. 

But realistically, the power law plays out here through my investments. Sharon and I have 20 plus angel investments on our own in addition to the ones through TinySeed. And when WP Engine had what I think was considered a private equity growth round in 2018 or ’19, we got bought out and that was enough money that we could pay cash for our next house, which we had to do because I didn’t have a job. I couldn’t get a loan because I didn’t have a job. Think about the irony of that. This was after selling Drip, but after having all this, but angel investing is another one that is 100x or go to zero. And any money that we’ve written, we’ve basically written off the moment we write the check. 

And again, someone might say, “Well, I can’t angel invest.” And it’s like, well, you got to make money first, right? We only were able to do it by building companies and having enough revenue that we had money in the bank that we could potentially invest. In addition, who invested in WP engine? Well, it was a handpicked list. It was oversubscribed. And Jason Cohen approached me and said, “If you want to invest, I’ll save money in the round for you.” Why did he do that? Because he had read my blog and he had read Start Small Stay Small, and he said, “I think you could advise me on virtual assistance and potentially email marketing and potentially SEO. These were things that he saw that I was knowledgeable in. 

So did I “earn” that? I don’t know. It was a combination of hard work because I put two to 400 hours into my blog every year between 2005 and 2011. A lot of times during lunch hours at my day job. When other people went out to lunch, I would go and I would write. So there was some hard work there. Was there luck? Absolutely. And was there skill? Yeah, it’s debatable, but that was the first angel check we ever wrote. In fact, we were not accredited investors. And so there’s a bit of luck there that he was willing to do what’s called a friends and family type situation. So I’m super grateful for Angel investing. 

Now, if we had never done angel investment, would we still be fine? Would we still be well off? Would we still have wealth? We would, but it’s that nice to have thing that allowed us to level up our standard of living. And to be honest, it’s just pretty fun. I love being involved in startups, as you can imagine, as my life’s mission is to multiply the number of independent self-sustaining startups in the world, and therefore, angel investing being number four on this list is apropos. 

Number five is salaried employment. This is working for other people. Both Sherry and I had many W-2 jobs in our lives. It’s the default. It’s what you do when you’re starting out, most of us. I kind of wished I was just a contractor freelancer when I started, but I was too risk-averse, and I wanted a steady paycheck to pay for that apartment that we lived in in Sacramento, California, where the rent was $720 a month for a two-bedroom place back in 2000. Nothing wrong with salaried employment. I learned so much. I really learned how to code as a salaried employer. I learned how to hire. I learned how to interview. I learned how to manage. 

I think folks who don’t have a salary job before they go out on our own are at a bit of a disadvantage if you haven’t learned those skills. So would I say you should get a salary job before going out on your own? I wouldn’t say that. Some people naturally can just do those things, are better at management, are better at hiring. They have the confidence, somehow they just figure it out. I was not one of those. I was very inexperienced. I was very timid. I was scared to do things like interview other people. I didn’t know how. And I learned those on the job and it made me a better entrepreneur once I decided to strike out on my own. 

Number six of seven is investing in what I’ll call typical investments like stocks, bonds, REITs, and so on. The challenge that we saw there was you need money to make money. You can put money away every month, which we were doing. Oh, hey, I’ll put $400 a month away, or $1000 a month at a certain point, or even $2,000 a month. And so in a year you save 6,000, 12,000, 24,000. And when you think about how much you actually need in the bank or in investments to retire, that’s a lot of years. There’s a reason you might have to work 40 or 50 years to get there. And so I quickly saw that although Sherry and I were making money, and we could afford a home in California, I saw that we were not going to get rich by saving. And that is something I think in the early days, again, 20, 25 years ago, I thought we could penny pinch or save our way into wealth. 

And some people might do that, but I didn’t see it as a path for us. And that was one of the motivations for starting companies. One, I wanted freedom, but also, I wanted an opportunity to be more in control of my income. And the idea that I needed more money to make money was frustrating to me because no matter how much I saved, it just didn’t grow fast enough. And by the time we were starting to make money, like real money from HitTail or Drip, we had saved up, I think it was around $350,000 in investments. And we were what? In our early to mid-30s. And so that’s not terrible, but that’s a lot of years and a lot of working to not have enough money to be able to retire on. 

These days, we are almost more in the barbell strategy. You can Google that if you haven’t heard of it. But we have, I’ll say, a traditionally small amount of money in typical investments like stock bonds and REITs, and we have more money in highly risky assets like a crypto, collectibles, startups and other alternative assets. And then we have a bigger chunk in extremely safe assets like cash or these days in the high interest rate environment in savings accounts or an equivalent that paying four or 5% on cash makes sense to do that. So I’m still a proponent of stocks, bonds, REITs and et cetera. We still have money in there, but it’s definitely become more of a background thing I’ll say, or just something. It’s an infrastructure thing of we put this money in and it’s great to watch it grow in your index funds, but it is not a major driver of wealth. It’s more of a way to maintain wealth or to grow wealth, but not to actually make wealth. 

And the seventh and for the most part, final thing that gave us any type of noticeable amount of money, obviously there are things like savings account interest over the years. Have we made single digit thousands? I’m not going to include stuff like that, but this is the last one that I think has made us tens of thousands or hundreds of thousands in lifetime wealth. And this was investing in real estate and it was in the early ‘2000s. We since have not bought a bunch of real estate. As I said, I have money in other things, and I know there are folks out there screaming at the microphone talking about the amazing tax write-offs. And I know there are tons of advantages to it, but it’s not something that we are presently in. 

The thing I was looking for was an edge. And so in the early ‘2000s in Los Angeles, we were buying up units and houses with two on a lots. And so we at one point had like seven units. And you could do this through leverage, right? I think it was three or four properties and seven total units. Many of them unpermitted as they are in LA. And you could do this through leverage because you could buy a half a million dollar or a $300,000 property with 5% down or something. And that cut both ways because when the market plummeted, of course, then you are losing a ton of money. But what I realized was that we had no edge, in that we had money and other people had more money and other people had inside deals and other people knew more about real estate than we did. And as such, I felt like I was the retail investor who was getting taken advantage of. And even though we owned these homes and there was some equity in them, we were really at the whim of the real estate market in LA. 

And as it started to crash in, it got soft in ’06, it started going down in ’07 or flatlining, and then in ’08 it started plummeting. We sold all of that because I didn’t want to be in debt, hundreds of thousands of dollars to the banks or have my properties foreclosed on. And it was something that that was the moment. If you think about that timing, that ’06, ’07, ’08, that was the moment that I had the realization of what is my edge? Well, my edge is I’m a software developer, I know how to write code. Is there a way that I can monetize that? Because not everyone can do that. And that’s when I realized, oh, if I learn to market and I know how to code, almost no one does that. And so that turns you into a pretty incredible force because if you can write copy and you can position products and you can do SEO, you can run ads, you can build something that people want and are willing to pay for, there are very few people that can do that. And that is where I realized I had the edge. 

And so at that point, we did sell the real estate that we had, and it sounds like we were real estate moguls or something. It’s like we were leveraged to the gills. And if in total we made 100,000, $200,000 over, it was many years of nights and weekends, as I was also doing software products. I was that guy that was trying to figure out the hustle. How do I raise our lot in life? How do we get out of working dollars for hours and making $30,000 a year, $50,000 a year, and actually get to a point where we have enough money that we can “make a difference,” right? That we have enough money that we can now make money by investing in typical investments or by dollar cost averaging into crypto. And that of course, led me to entrepreneurship, to software entrepreneurship and also writing books and all that. I just can’t underscore how much that changed mine and Sherry’s life. 

So to recap, seven ways that Sherry and I made life-changing wealth in our life, number one is selling companies. Number two is investing in crypto. It sounds so weird to say. Number three, running profitable companies. Four, angel investing. Five, salaried employment. Six, investing in typical investments like stocks, bonds, and REITs. And seven, investing in real estate specifically in the early ‘2000s. 

Hope you enjoyed this. It’s a bit of a story walk down memory lane, but also trying to pull out some learnings that I hope can help you as you move forward. And thanks to Christopher Gimmer for posting that tweet and reminding me of this thought process that I had a year or two ago so that I could revisit it here on this show. It’s been great being with you here today. If you keep listening every week, I’ll keep recording. This is Rob Walling signing off from episode 709.