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Rob LaBonne – 6th Gen Family Grocery Store and Self-Storage

Rob works in his family’s 6th generation grocery business, LaBonne’s Markets, and recently purchased a self-storage business.
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Episode Description

Rob LaBonne has been an entrepreneur his whole life. His early business pursuits include a small summer landscaping business, web development, and a tent rental business he owned for a brief period. He now works in his family’s 6th generation grocery business, LaBonne’s Markets, and recently purchased a self-storage business. Through our conversation we talk about the long history of his family’s business, stories and lessons his family has passed down to him, operating in the grocery industry and its razor thin margins, and why he loves jiu-jitsu.

Clips From This Episode

What value have you changed your mind about?

What's the best business you've seen?

What college class would you teach?

Hiring

Managing expenses

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Thanks, Rob, for joining us, looking forward to having you and talking about grocery stores and self-storage and some of the other small businesses you started when you were younger. All of these businesses are ones I haven’t talked about on the podcast. I’m excited to hear about those. We’d love to hear about your background generally and how you got to where you are today.

Yeah, man, thank you. I’m happy to be here. I just got to say, this is one of my new favorite podcast to listen to. I love all the guests you bring on. It’s like as soon as I finished listening to one, I’m researching their Twitter profile. It’s really exciting to be asked to be on here. Thank you for that. I’ll start with my background. I guess, if we go back to high school, my senior year of high school, a buddy and I started a landscape construction company. We just were doing it during the summer. We weren’t going to do it in the early spring or late fall because we were in school.

We’re like we can’t take out any mowing or anything. Let’s just do like landscape construction projects, mostly hardscapes, some softscapes, walkways, patios, retaining walls. We did all that. Called it Country Landscape Construction, and run that almost all the way through college. It was just a great way to use your hands and build things. I don’t think we paid any taxes back then. It was all cash, but a really fun way. We ended up hiring our buddies to come work for us, and a really fun experience. We did that.

Eventually, I was like, alright, I should probably try to get a more legit job, ended up getting an internship at Timex Group. I’m sure you’ve heard of Timex watches. Their headquarters is in the town right over from where I live and got an internship in their IT department, got to work on their global ERP team. ERP stands for enterprise resource planning. Bringing all of the enterprise functions together under one piece of software, at the Oracle at the time. That was fun. I didn’t really see myself there. I still had, I think, a semester left in college. I studied business in college.

I would say though, I learned way more from my miscellaneous side projects than I ever did in school. The first web project I ever tried to launch was this site called ufood.com. It was a website where students could go and see the local menus for all their local pizza shops and restaurants around. This was, I went to college 2007 to 2010 in New Haven, and there was no apps and stuff. I had a flip phone when I first went to college. I think when I graduated, I had a Blackberry. iPhones weren’t even that big yet.

This was a site where people could go and find the menus and see what to order and outsource building it to some overseas web development company. Anyways, it never took off. It was an awesome learning experience. I was a big fan of BMW. I used to buy and sell BMW M3s when I was in college. Back then, forums were huge, like internet forums. There, I noticed some guy, he was selling these custom t-shirts with this motor sport flag emblem on it. I was like, I could do that with water bottles. I had a custom water bottle made with this logo on it.

I made a website called motorsporbottle.com. I sold it to BMW enthusiasts through there, mostly through the forums. I ended up getting featured in the Roundel Magazine, which is put out by the BMW Car Club of America. That was a fun little experiment. I made a couple grand on it, basically trying to live like Tim Ferriss, four-hour workweek lifestyle. Just miscellaneous projects like that, a lot of fun. Then when I graduated college, I didn’t want to go back to the family business, which we’ll touch on shortly. My cousin, older cousin, at the time owned a tent rental company.

I thought it was a really cool little side business because he was just getting paid cash by all these people. He goes, “This guy know an hour away of selling his.” He goes, “You should buy it from him.” I ended up getting a business loan. It’s a small little $30,000 business loan. I went through the whole process and bought this tent rental company from this guy and built that up over the course of the summer and talk about sweaty work. You’re just working nights and weekends. Just after doing landscaping and stuff during the day, I’d go and set up tents at night, a lot of cash.

Most people would pay cash. That was fun. Built the business up, sold some of the equipment I didn’t need, had a nice website for. I established a good reputation. Then at the end of the summer, I’m like, I do not want to do this again. This is just a brutal work, like lugging these huge tents around on my back and these four-foot long metal stakes and hitting them into the ground with a huge sledgehammer. I ended up marketing the business for sale again, and a local police officer bought it from me. I think I made money all summer long on it.

I sold it for like 10 grand more than I paid. The reason I bought it is I knew the experience would introduce me to a lot of cool people. That’s exactly what happened. I set up a tent for this guy who owned a software company in New Haven. At the time, it was like the fastest growing software company in the state. They were still super small and scrappy. I guess he respected by hustling. I told him, I was like, “Yeah, I want to find a real job at some point.” He was like, “Why don’t you come work for me.” I started working for him doing some entry level marketing stuff.

At the time, they had this like god awful website, and ended up rebuilding his website, establishing their first Google pay-per-click campaign and all their social media presence and their whole online advertising structure. They went from no online advertising at the time to what I built through custom landing pages and Google pay-per-click being the number one source of their internal leads. That was a lot of fun. Did that for about a year-and-a-half. Then my father had just bought a fourth grocery store. This goes back to the family business now.

That’s when it made sense for me to come back to the family business. The family business is we have a chain of four grocery stores in Connecticut, the smallest one being around 10,000 square feet, the largest one being about 25,000 square feet. The current corporation was started in 1962 by my grandfather and great grandfather. They were partners in a small butcher shop at the time they were working for someone else’s butcher shop and they were going under and my grandfather tells a story. He remembers walking into the meat cooler.

My great grandfather had tears in his eyes. He was like, “We’re going under. We’re not going to have jobs.” My grandfather said, “Well, we’ve got our life insurance policies. Let’s just cash them in. There’s a place that we could rent on Main Street in Watertown. It was 900 square feet.” They rented it. They started Hy Labonne and Sons, Incorporated. They became known for their really high quality meats and butchering. They were in this one little corner of this building, grew and grew and grew, eventually took over the whole building, starts produce, some trips and stuff.

It became a little mini grocery store. Then in the ’80s, they ended up moving down the road to a full size, probably 15,000 square foot store. Since then, we’ve grown, we’ve shrunk. My father bought my grandfather out 11 years ago now. We currently have four stores, not the same four as when I started. We had a different fourth one that we ended up having to close, long story with that, we won’t get into. We bought a new fourth store in December of 2019, and a large part due to COVID. 2020 was our biggest year ever. We did over $50 million.

We have over 420 employees now. It’s a pretty serious business that started over 120 years ago, not the current corporation. Over 120 years ago, my great, great, great grandfather was selling meat from a horse-and-buggy. Every LaBonne male since then has been a butcher, even though the actual ownership skipped a generation before it started back up again.

Hey, just as a random question for you. If your great, great grandfather is selling me through a horse-and-buggy, with the refrigeration technology for that, how does he keep it cold while he’s walking around selling in the meat?

Back then, I don’t know if you’ve ever seen ice boxes. During the winter, they would have these rails that would go up to lakes and ponds. They would send people out with saws and they would saw big chunks of ice out in the lake. Then they would storm these ice boxes. There’s basically a barn filled with hay and stuff on the outside. They would insulate all this ice in these big blocks. It would stay as ice throughout the winter and they pull it out. That’s how they kept stuff refrigerated. He didn’t really sell meat from the horse-and-buggy. I think he delivered meat from his shop via horse-and-buggy. If you go to my Twitter page, you’ll see my header images, him with the horse-and-buggy in front of his shop. I think it’s Jewett City, Connecticut.

That’s awesome. What a cool story. Thinking about your early businesses, it seems like you went from hard, sweaty laborious business to IT website software, and then you went back and forth, and settled somewhere in the middle. Is there some key learnings you pulled from each side of those businesses as you went along?

Yeah. I’m a really curious person. Also, the reason why I went to the sweaty work, the landscaping stuff is I was like, wait, I could make way more money working for myself doing this hard manual labor than I ever could working for minimum wage at the grocery store. Because I had no special skills at the time. I was going to be paid anything special as a high school student. I only worked in the grocery stores for a couple years growing up. Then I spent my time doing my own thing because I can make 30 bucks an hour. That was a homerun.

I also really enjoyed building things. I think back to those summers of the different projects, I love the project type workflow where you’re hustling for the next job and like, alright, we get the job. Then once you build up enough of a book of business, you can step back and not have to be out hunting all the time. You could focus on what you’re building. The summers always seemed longer, because you could break them up in your head to like, oh, that was so and so’s project where we built this wall. Then over here, we did this walkway. It’s just really fun work.

I think back on it fondly, even though it was very hard work. I’d say since then, working for the software company really taught me a lot. They gave me a lot of freedom to just go and figure things out. I didn’t have any special web skills besides just being curious and having the flexibility to research it and figure out how to do things on my own and knowing what they were doing currently wasn’t great. I would just figure things out and get it done. Studied business management, it’s essentially meaningless.

I would never recommend anybody to study business management in college. Get a specific degree if you’re going to do that. Even marketing, that’s for the most part useless. I’d say get a finance degree, accounting degree. It’s very specific. I would never recommend anybody going general like I did. I knew I would figure it out. That’s why I did that. In terms of going back and forth, I would say it was a part of just learning my lesson as to scalability, doing the landscaping thing, the temporal thing. It was very tangible. You got paid. You got some handy cash.

It was exciting. Then I would sit back and think, man, I’m really just trading my time for money for the most part. I didn’t really have it outsourced. As I learned more about businesses and business models and types of revenue structures, I wised up a bit. Then they had the opportunity to come back to the family business, which was a large business and a large business running in a very old fashioned way. I came in and modernized all of our back office processes from payroll to accounting to in store or workflow point of sale systems. Now we’re doing eCommerce. That’s been my specialty, is like the systems guy. Let’s make this better, create the railway for things to run on, and then step out of the way, and go on the next project.

Yeah. I know in the earlier call of ours, you talked about the margins within a grocery store business are pretty darn low, much lower than even I suspected. That forces you to become a really efficient operator and manage your systems really well. What kinds of systems did you start to refine and implement? Obviously, the accounting and some of the back office you just mentioned. Can you walk us through maybe one or two examples of a system that you made a little bit more efficient?

A lot of it was driven due just to saving money. A good example is we were outsourcing our shelf tag printing in a grocery store, unless you have a digital shelf tags, which cost a fortune to purchase, then you have to buy batteries for them. Almost all grocery stores, even the best ones out there still use printed shelf tags. We were outsourcing this to our wholesaler. I think it was costing us like 20 grand a year, something like that. I was like, alright, where is this information coming from that we’re printing? Can we do it in-house?

I ended up finding this program called FileMaker. Believe it or not, Apple owns them. It’s this little database tools like a WYSIWYG database tool. You get to build an application in essentially a drag and drop interface feature on scripts. You’re on layouts for how you want to view the data. You can clean up data with it. I would pull in our weekly sale file, which may have 1000 items in it that we need to print shelf tags for, format the UPCs properly, the size, run calculations to do unit pricing. If something weighs 14 ounces for the unit price, you need to show that by the pound.

You need to do these conversions and all these if statements. If it’s ounces, display this type of unit. If it’s whatever, this type of unit. Ended up using FileMaker to format all that data, printing the tags in-house. We bought a printer. I think it costs us two grand a year to do it all in-house, just basically the materials. That system still runs today. I have a girl in the office who’s our scanning coordinator. Every week, she’s printing shelf tags off of it. It’s cool. It’s like this little piece of software that I created that people get to use and we save some money on it. Makes life easier.

I’ve added on to it as well. We got a new point of sale software company. Our old one, you would submit the UPC for an item without the check digit. I don’t know if you’ve ever seen the UPC, the barcode on a grocery item. It’s a 12-digit number. The last number is a calculated number based on the 11 numbers that precede it. What it’s doing is it’s adding up every even number and every odd number. Then it does a calculation to determine what the last number should be.

When you scan that item at the register, the scanner is actually confirming that the math works for everything and it’s legit to make sure I had a proper scan. There’s all this complex math happening in the background. Needless to say, the old point of sale system used only the 11 digits of the UPC, and the last one was calculated by the software. Or the new one, it used the full 12 digits. Our wholesaler only gave us our files with the 11 digits. I then use FileMaker to create a new formula and script to automatically add in that 12th check digit, so that we could import that data into our point of sale system. That’s just a little example of a way that I found a tool to streamline an annoying process that someone would have previously had to do by hand.

Would you be willing to walk us through some of the margin discussion for a grocery store business for those who aren’t familiar?

Yeah. This brings up the story that we talked about the last time where, occasionally, we’ll get a complaint from a customer like, “Oh, your prices are too high. You guys are making way too much money.” We always chuckle because it’s like, if you only knew. We’ll say to the customer like, “What do you think we make on a $100 sale?” The default answer is usually somewhere around $20 to $30. They’d be correct for the most part if we were talking gross margins. Our gross margins are only after you subtract the costs of goods, which are usually around 65%.

On $100 sale, you got to take $65 right off the top cost of goods. That goes to our vendors. We’re left playing with that roughly $35, that’s left to do all of our other expenses. You’ve got payroll that has to come out of there. There’s another almost 20%. Alright, now we’re down to, what is it? 10% left. Then out of that, you’ve got to pay your rent. 3%, you have taxes, you’ve got electricity, all your other utilities, supplies. On average, it’s a little higher now.

On average, I think from the years 2012 to 2018, the industry average was 1% to 2% net profit margin for grocery businesses. On $100 order, typically, a grocery store is only making $1 to $2 on that, which is wild. You got to do volume.

Yeah, that is wild. You also had a tweet earlier about the real money in grocery stores is made by owning the real estate. Can you expand on what you mean by that?

Yeah. Growing up, my grandfather would always say to me like, “If you get the opportunity, you got to buy commercial real estate.” He goes, “I never had the chance to, and I wish I did.” My father would say, “I know a guy that owns one grocery store. He’s killing it because he owns the whole plaza and he’s paying himself rent.” It’s a game changer. We could pay 300 grand a year in rent. You’re paying that to yourself. Who cares what your mortgage is? You’re paying your mortgage out of the building. In 20 years, you own the place.

We never have the opportunity to at any of our locations, because the landlords were long-term holds. They had no desire to sell. It was often second generation. It was the kids or grandkids who owned it after it was passed down. I know so many people who may have one little location, but they’ve been paying themselves rent for two generations. They’re sitting on all the money they make from the grocery store, but also this really valuable asset. That’s a key thing. What it allows you to do too, is you can get much better financing terms if you own real estate.

We have to go get a business loan to restructure some debt. The most we can get is 10 years, because there’s no real assets behind it besides the inventory. That’s not that much. Whereas if you own the real estate, you can go and finance something for 25 years. Your cash flow is just dramatically better. Also, if you get into trouble, you can just reduce your rent. You’re the landlord. There’s so many ways you win by doing that. Because of those conversations always being pounded into my head, it put me on the lookout and planted that seed in my head to, alright, I got to figure out a way to get into real estate one day. That’s what eventually led me into the self-storage business, which is where I am now as a side gig.

I’m excited to talk about the self-storage, for sure. Before we get into that, I want to hear more about your failing business. I love talking with people who have these family businesses, because each generation makes their own changes and improvements on the last. Has your family talked about some of the changes they’ve made with each generation with these stores?

I think it’s interesting to look back because if you look at my great grandfather, he was strictly a butcher for his entire career. His only job was to have a knife in his hand and break down, whether it was lamb, pigs, beef. That was back when they were bringing it in by the whole side of an animal. Whereas nowadays, it comes in Cryovac portions, smaller muscle groups that will break down into specific cuts. Nobody is breaking down whole animals anymore, unless you’re a super small craft butchery or you did in the farm animals.

You go to my grandfather who, under his ownership, it grew from one little butcher shop to eventually a couple stores. He eventually stopped being a butcher. He became the chairman and CEO of the company. Then when my father was probably in his early 30s, he took over as president of the company. He used his knowledge to take it from this little small town store to really professionalize the company, adding the formality, the processes in how we do things.

Under his leadership, even while my grandfather owned it up until he bought them out, growing up to four stores. Eventually, it was five at one point. We’ve grown and we’ve shrunk. We’ve grown and we’ve shrunk as we’ve had good locations and not so good locations. We’re still very much a small business. Even though it was a little more professional, it still lacked a lot of the formal processes. I think that’s where I come in, is I feel like each LaBonne has gotten a little bit less ADD with each generation. My grandfather was like off the wall.

My dad’s a little more subdued. I feel like I’m more subdued than both of them. I have a little bit more structure to my thought process. My dad is so good in the moment dealing with people, this big drama, whether there’s a rift between the employees in the store or there are some random sexual harassment claim that he has to deal with. He’s so good at handling problems going on with people. My job now is I need to get him to just focus on what he’s really good at, which is that one on one, the personnel stuff.

I’m taking over all of the structure, the systems, the processes, so that the business can continue to grow, even if we are not pulling every single lever every time. Empowering our people with the tools, whether through technology, scalable systems, so that it’s not this one for one every single time.

You’ve talked also about lessons that your family has instilled with you over time. Can you share a few of those lessons that they’ve shared with you?

I think they’ve been successful despite their actual lack of business skills. They’re just really good people, which has led good people to want to be around them. I think I’m actually bringing much more of the business knowledge to the table to scale this amazing reputation we’ve built over generations. My grandfather and father, they’re like Santa Claus. They’ll give their shirt off to people’s backs. There’s been years where we’re a nonprofit company. Basically, we’ve lost money, but we’ve continued to give to charity every year.

We’ve given away more money than the company’s profited. I think the biggest takeaway from them and their lessons is actually less on the business side and more on the human side, just realizing that your reputation takes a lifetime to build, but you can lose it in an instant. That’s extremely valuable. Also, the importance of family. I’m very lucky to have such a large local family all within a couple towns and probably within an hour to a half an hour of where I live. Our family parties, pre-COVID, obviously, could have 50 people. A lot of them have worked in the business over the years. It’s just a really special thing that is priceless.

Are there any favorite stories that they’ve told you about examples of giving the shirt off their back or things they’ve done in the community that were really impactful?

We have the recurring ones, such as like, every year, we host … We’ve done it for 34 years in a row now, our annual charity golf tournament. I took this over in 2012. Basically, we raise funds for our annual charity golf tournament. We charge people to come play. We have sponsors for the tournament. Each year, we net about $40,000. That gets donated to our local food banks. That’s a big one. In addition to that, we have a cash for charities program where, say, your church or something, you can collect LaBonne receipts.

We’ll give half a percent of the total back to these organizations once they submit the receipts. There’s been organizations that have received $20,000 in donations on our behalf through those. Other little examples of things that don’t really get talked about are, we had a manager recently whose mother passed away. They were going to lose her house, because they couldn’t pay off the mortgage. It was something with the estate. It was all complicated. Didn’t have any planning set up. She would just happen to be talking to my dad about this. She goes, “It’s such a bummer.

We’re going to lose the house.” He was like, “What do you owe on it?” It was like not a huge chunk of money. He was like, “Well, I’ll just pay it off for you. When you sell it, just pay me back.” She was like, “What?” She would never ask for that. He was … “Yeah, of course.” If he can do that, he’ll do it someone. Another example is, this was just probably a month ago. We had one of our employees who has a mini dachshund dog. The dog swallowed a penny and two rocks. The dog is the cutest little dog you’ve ever seen in your life.

He had to make the decision to either spend $4,000 that he didn’t have, potentially $4,000 to do the surgery at an emergency hospital, because it was Thanksgiving Day. There’s no vet open. He had to take the dog to emergency hospital or had the dog put down. Another employer heard about this and they called us. They’re like, “He will never ask you to do this, but we know the dog is his life. His mother has cancer. He’s helping her pay the rent.” We’re like, “Yeah, just do it.” We just paid the bill. We called the hospital, give them credit card number.

He’s going to pay us back over time. Like, sure, of course. We’ll take care of that for you. Those are monetary examples. There’s been so many other ones of one that I like to tell, is some little lady called. She was upset because … “Every time I buy meat from you guys, it goes bad. I come home and put in my fridge. Next day, it stinks.” It’s like, something’s not right here. My dad is like, “How’s your fridge?” She goes, “My fridge is fine.” She goes, “Come over and see it if you want to see it.” He comes over, he opens the fridge and he’s like, “Oh my god.”

There was steam coming out of this thing. It was like 60 degrees. Her fridge was in that temp. He pulled the grate off her fridge. He has a grabber vacuum. She’s got a cat. The thing is the intake on the fridge is coated with cat hair. It’s not getting any circulation. He vacuums out the fridge, pulls it off the wall, vacuums the back of the fridge to clean all the coils off. We deal with refrigeration issues all the time. He knew what to do. He’s like, “Your fridge will be fine tomorrow.” He knows her house was really hot as well. It’s like middle of the summer.

He goes, “You don’t have air condition or anything?” She goes, “I do. It’s upstairs in the attic. My son will come over and put it in.” He goes upstairs in the attic and he puts the air conditioner in for her. That’s just like a classic example of my dad. I swear, he could just retire and just go door to door helping people. He would do it because he gets way more joy out of that than anything else in life.

Yeah, you said that these stories and this family of yours is able to attract good people into their business. I’d imagine it’s really hard to find. You mentioned having 420 employees like that many really great people within your community. How do you hire when you’re going through that many different positions in your company?

Yeah. Most of the hiring is done by the store directors for your entry level roles. Most management positions are hired internally, people who’ve been with us and they get promoted when someone else either moves on or moves up. That’s been great. We have our own feeder system and having multiple stores helps with that, because it gives people opportunities to shift from location to location as opportunities become available. We’re just really lucky to have such a deep talent cool people, especially managers who’ve been with us for decades.

There’s really not that many formal training processes. A lot of people just learn through osmosis. They come on board and they start working day one. Thanks to the great people around us, things just get done and the show goes on. Which is, I joked my dad recently, I said, “If we had to burn all this to the ground and start over tomorrow, we couldn’t do it.” I said, “It’s the generational flywheel, the inertia behind that that keeps this thing turning.” It’s just amazing how every day all these moving parts come together.

You mentioned earlier about self-storage and your own separate real estate investments or thought process. Can you explain what you did recently? I know you, obviously, had a very popular Twitter thread about that that we can link to. I would love for you to go through why you decided to go into self-storage and how you find this particular deal.

It was an accident, really, besides the fact that I wanted to own commercial real estate at some point in my life. My then girlfriend, now wife, and I, in 2016, were renting an apartment that was right next to a self-storage facility. Every day after work, I’d come home and my dog and the owner of the storage facilities dog would play together in the field in between our two buildings. We hit it off. He was an old Vietnam War vet, into hunting and fishing, and all that stuff. We’ve stayed in touch over the years.

I told him back in 2016, I said, “If you ever want to retire and sell this business, let me know because I’d love to buy it.” I’m like, how hard could self-storage be? I kept bugging him about it as years would go on. It was November of 2018, one day, I noticed his website was broken. Just like if you’d go to Google his business and you click on the link for the website and crashed. It didn’t work. I offered to build him a new website for free. Just pay for the hosting, I’ll set it all up for you. That rekindled our conversation again.

He was like, “Yeah, I just got to buy my sister’s portion of the property side of the business out.” He goes, “I think about retiring.” I kept nudging him. A couple months later, he goes, “I bought my sister out.” I said, “You ready?” He goes, “Make me an offer.” I was like, “Alright, well, can I see your financials and share all the information with me?” I had to go figure out how to value a self-storage company. I knew nothing at the time about commercial real estate evaluation. Any of that stuff worked.

Finally, on March 5th, 2020, we closed the deal, and been a self-storage owner ever since. I went into it thinking like, if this thing pays the mortgage, I’ll be happy. 20 years owned the thing, that’d be great. I took it over. I was going to streamline some things. I already had my plan for the management software and the new website. People got more themselves online. Then I started looking at it further. I’m like, wait a second, I’ve got a lot more levers I can pull here from price increases to cutting costs. Since March, I’ve already more than doubled the value of the business.

That’s where this Twitter thread comes in. It has a catchy title. It’s like how I bought a self-storage company and became a millionaire three months later, because I added literally a million dollars’ worth of equity to this business through growing the sales and cutting the costs. That falls down to the net operating income. You multiply that by cap rate, and it’s now worth a heck of a lot more than it was when I bought it.

Yeah. Can you talk about a few of those improvements, in particular some of the levers that you could pull on a self-storage facility.

The biggest thing with the one that I bought is he had a lot of unnecessary expenses. This was an owner who had had this business for 40 plus years. The building was built by his father, was a manufacturing company. He bought his father out, saw where manufacturing was going. He sold all the manufacturing equipment, put self-storage in in the late ’80s. The things basically filled up and he didn’t think much about it. He had a 95-year-old bookkeeper that he paid almost $40,000 a year to mail out invoices for him, which was outrageous.

Because software can do that for $80 a month. That one line item alone, if you can put 40 grand a year, increase your net operating income by 40 grand a year, even at a 10 cap, that’s $400,000 in value just added to your business by eliminating one line item of expense. In addition to that, there was a handful of other expenses he was paying way too much for heating oil. Electric bill is outrageous, because there was no LED lights. He had employees there six days a week from 9:00 a.m. until 6:00 p.m.

I now have an employee there three days a week for a total of nine hours for the entire week. There’s another 40 grand. We’re up to $800,000 value added just for those two things. In addition to that, I’ve grown the sales. There was over 120 units that were well below market rates. Basically, if someone had been there for a long time, he never raised the rates. I got everyone up to today’s rates, even increased prices at that point. Just add them up to today’s rates and you add all those things up. Conservatively, I’ve added a million dollars in value to the place. It’s now a great cash flow business making six figure income for me. I basically only spend a few hours a week dealing with it.

Yeah. You mentioned having other employees there originally, and now you only have one. Where did those employees do before? Is there something you automated that made it so that single employee over nine hours a week could handle that work?

In the past, everything was done on paper. If you wanted to rent a unit, you had to call there. You had to say, “What do you guys have available?” They had to pull out their paperwork and say, “Oh, it looks like we got these ones available. It costs this much a month, and it’s this size.” They would say, “Okay, great.” Then they have to schedule an appointment for that person to come in, fill out the paperwork, walk them to the unit, they had to then sell them a lock for the unit, unless the customer already had one. There’s all this handholding involved.

In addition to payment collections, their bookkeeper, God bless him, this guy was 95 years old who’s working harder than anyone I know. He would hand type the invoices every month in Microsoft Word. Literally, he had typed. He would even put the dashes in to pretend this is where you would cut the invoice. He would type the invoice numbers at the top. Sometimes there’d be an invoice number at the top, and there’d be an invoice number at the bottom. They often didn’t match because as he updated them, it was a mess.

There’s all this additional expense and inefficiency. I go in and I put in a new management software. If a customer wants to rent from me now, they go to my website. They click rent now. They fill in their contact info. They sign the contract digitally online. Then they receive an automatic email that tells them where the unit is, the general rules and instructions. They also get a free lock included with the rental. We don’t have to have any interaction with them. They received the email. They get their access code for the building. They come in.

They walk to the unit and they rent it. Since March, I can think of two units that have been rented over the phone, probably rented 50 or so as people come and go. They’ve almost all been online. You just remove the friction from the process, and it takes care of itself.

Yeah, it sounds like you’ve built quite the playbook for acquiring and then updating these self-storage facilities. Is this something you’re going to try to do continuously on the side with the grocery store business? Or do you think you’d switch to one or the other over time?

In the past two weeks, I’ve put in two more offers on other self-storage facilities. We’ll see. I’m expecting to hear back on one of them tomorrow. The other one, I know the owner is not really in a rush. That one’s off market. He was just testing the waters. We’ll see. I’m going to try to do both. I’m still handling a lot of the admin stuff myself, a lot of the detailed billing questions I handle. Once I get another facility, I’m going to hire someone and just put that totally on their plate, which will allow me to scale it up without really my time being impacted. I can still do both, the grocery business and the storage business.

That’s fantastic. That’s such a cool side project to have.

I’m having a lot of fun with it. I love the yin and yang, comparing to grocery industry to the self-storage industry because grocery is just endlessly complex. You could work 24/7 and never be caught up and never do a good enough job communicating with your customers. Whereas self-storage, it’s just so simple in comparison. It’s like a joy to do. It’s fun for me.

Speaking of fun, on our last conversation, you talked about wanting to know a little bit about what leisure activities other business owners did to balance out their work. We put a Twitter thread together and you, of course, comment and talked about CrossFit and Jiu-Jitsu. I’d love to hear just a little bit about that.

Yeah. You’re asking like, how do you, as a business owner, disconnect from work and take care of your physical life? I think I went to my first CrossFit class probably in 2010. I did that for a few months while I was living in New Haven. Then I moved back home, got out of a long-term relationship at that point and was looking for something new, a new group of people. I found another CrossFit gym that I knew some people at and really, just lifted weights there for a while. Eventually, got into doing CrossFit again. This was probably like 2012 to 2018.

I was doing CrossFit pretty consistently. It’s so much fun, just because the learning is endless from gymnastics to bodyweight stuff, to Olympic lifting, to powerlifting, to running, sprinting, jumping, all these movement patterns you get to learn and you get pretty proficient at. It’s just so much fun, because it doesn’t end. You can always add a little more weight. You can always go a little faster. It’s this constant leveling up of yourself and acquiring a new skillset, to go from doing pull ups on a fixed bar to ring muscle ups.

It’s just there’s always the next level, the next progression. I love the structure of CrossFit, is scalability. The thing that took me out of it was I started doing Brazilian Jiu-Jitsu and that’s even more addicting, I feel. It’s like jumping from one cult to another. The thing is, with Jiu-Jitsu, it’s probably the only martial art that you can go, you can practice full force and not risk getting really hurt because you just tap out. Whereas if you’re doing Muay Thai or some other striking art, you can’t really train all out because you’re going to get brain damage.

I don’t care how much headgear you’re wearing. If you’re taking kicks or punches to the head, it’s not going to last long, and you’re going to do permanent damage. Whereas with Jiu-Jitsu, it’s going for chokes and pressure on joints. If you are going too far, if someone’s doing an armbar on you, they apply a little pressure and you tap. The game is over. You clap hands, and you’re right back at it. If someone’s in a chokehold, they gradually apply pressure and you tap. Clap your hands, and you’re back at it again.

It’s like this extremely physical game that’s so humbling, because you can’t fake it in any way. It’s so humbling. Because everyone who walks in there, you know exactly where you stand. You know no matter how big and strong you are, if you walk in there, day one, you could have some little 100-pound girl just tear you apart because you don’t have the skills to combat what she’s doing. It’s just such a beautiful thing and so much fun. It’s like chess for the human body. I was doing that for about a year-and-a-half. Then COVID struck. Obviously, the world shut down.

My wife got pregnant and out of an abundance of caution. I haven’t gone back yet. We just had our first child in December. I’m probably due for the COVID vaccine soon being a frontline worker. Once I get that, I’ll be back to Jiu-Jitsu.

Yeah, that’ll be exciting to hear about. I’m looking forward to seeing what other moves you can do after a little bit more post-COVID Jiu-Jitsu.

I want you to go to a class too because I know you’re going to love it.

Yeah, I should definitely try something like that. I haven’t done weightlifting or really strong workouts since football in high school. Should probably get into something else now soon. Moving into some closing questions, what’s the class you would teach in college if you could teach about anything you wanted?

This one, I’m not going to go business related, even though it indirectly is. The class would be about how to choose the right person to marry or life partner. The reason for that is it’s really the foundation for a happy life. If you don’t have a positive fulfilling relationship, your work is going to be impacted. Every single thing you do is going to be impacted. The goal of work is to eventually not have to work or work so much. Finding someone who you’re going to be happy building a life with is probably one of the most important decisions you’ll ever make, even more important than the work you do, the business you run.

I think people don’t know how to quickly qualify as to if this person is right for me. Really, the goal being to find out, alright, if you’re dating people and you’re trying to find who’s a good fit in life, to quickly qualify, are they a good fit? If not, move on. No harm, no foul. I think people get involved in relationships that in their gut, they know aren’t right from the beginning. Then things get too deep and you don’t know how to get out of it, and people settle. The man being miserable for the rest of their life.

As a part of that, I would also teach people the right way to end your relationship. This applies to business too. If you go into business with a partner, you want to already have preplanned. If things fall apart, how do we dissolve this or how do we get out? Do we have a buy sell agreement in place? You want to bookend. You want your best possible scenario, which is great. You’re always working towards that. You also want to cover the worst case scenario. If things just fall apart completely, what’s the best way to get out of this? That way, there’s no drama.

You guys, we’re just following our plan. We’ve agreed to this in advance. I think in relationships, it comes back to honesty. If you are honest with someone when things are good, they just get better. If you’re honest when things are bad, you can either fix it or move on. This just applies everywhere in life. I don’t think it’s talked about enough. That’s a class I would teach.

It’s a great class. It definitely applies to business and, of course, life as well. That’d be a good one to add in. I certainly haven’t seen anything like that. I hope you get to add it somewhere. What’s the belief used to hold strongly that you’ve changed your mind on?

I wanted to talk nutrition stuff on this. That’s my first gut reaction. It’s a very polarizing thing. Everyone used to think like, oh, red meat, so bad for you. It’s not the burger patty killing you. It’s the bun. I was going to bring up, when I was younger, I think it’d be really cool to own a bunch of two family homes and be this landlord with a bunch of apartments. The first house I bought was a two family. We lived on the top floor. We rented the bottom one. Actually, just made a tweet about this today.

Because there’s this recurring thing going around with this tweet where people say, so you want to be a landlord. Then you give your situation where you probably would want to think twice about being a landlord. With mine, I remember it was like 2:00 a.m. and my tenant calls me. She goes, “My tubs backing up. The septic is filling up in the tub.” I had to go down with the shock effect and freaking suck the crap from the septic system out. Well, it turns out, the flushable cat litter, even though it says flushable, the bag is not flushable. It had settled in the main drain pipe that exits the house. We had to have a Roto-Rooter come in and Roto-Rooter this settlement of cat litter out. Lesson learned, do not flush flushable cat litter. It’s a lie.

Wow, that’s terrible. That’s awful.

I guess the change belief is, no, I don’t want to be a landlord of a bunch of apartments and deal with people. I’d rather be in self-storage where there’s no plumbing. It’s much more simple.

Yeah, that’s certainly much more simple. Absolutely. What’s the best business you’ve ever seen?

This is also one I tweeted about recently. Onesource Water was founded by a guy I know, A. J. Wasserstein. He’s now a professor at Yale School of Management. This is his second big recurring revenue, contractual recurring revenue business that he started. Contractual recurring revenue is the gold standard of all revenue types. There’s varying degrees of revenue quality, and contractual recurring revenue being the best one. You often hear people talk about recurring revenue, which do you think of like as a storage business or even like a SaaS software company.

Contractual recurring revenue is a step above that, where you have contracts in place, which lock someone in for an extended period of time. It has auto renew clauses. You don’t have to go chase someone down the contract and setting to get him to resign it. You can start each year and know, for the most part, even if I don’t go and acquire one more customer, that my book of business will be there. As an operator, you can be very long term focused, and just keep going after these big strategic moves to grow your business.

A.J. started Onesource Water. I’m sure you’ve seen at companies, they’ve got a little water cooler in the corner, and there’s a water line going to it and a filter. It keeps the water cold. People can go in and fill their water bottles up. He would deploy these into companies and give them a great deal on leasing the water cooler thing. Then there was a service agreement where every month, someone come make sure the unit was cleaned and there’s no mold or anything on it. They would change the filter. Say, it was like $30 a month for a water cooler.

Well, they had 48,000 of these around the US before he ended up selling it to a private equity company. I don’t remember the math off the top of my head. If you check out my Twitter, you’ll see it. These were all contractual recurring revenue agreements. He would say like, I want to be in a business, that the line item is so small that it would never even cross the CEO’s desk to even have them say, oh, we should get rid of it. This is unnecessary. That money is guaranteed. It’s going to be paid no matter what, because they have these three-year time commitments.

If you don’t say anything, it automatically renews for another three-year term. He grew through acquisition, acquiring all these similar companies throughout the US. One thing I thought was interesting is he didn’t care about the real estate at all. He strictly wanted the business assets and the recurring contracts. He’d often tell the owners like, “Listen, I’ll just buy the business, you can keep the real estate. We’ll rent from you. We have our warehouse or whatever we need.” He was just able to grow this thing like crazy, and he cashed out big. I just think it’s such a beautiful business model.

Yeah, certainly. Mentioning that he didn’t buy the real estate, it’s the opposite track that you’ve taken. Is there a few lessons from his experience that you tried to apply in your own businesses?

Well, in that business, the real estate isn’t critical the operation. Whereas in self-storage, it absolutely is, the water company. If the landlord started jacking up the rent, he could just go find another place to rent and move his equipment over there. Whereas with self-storage, if you’re going to pay to build storage units inside of a building, you need that long-term security. Because once your lease ends, the landlord could say, “Wait, he’s not going to come and deconstruct all of these units in my building. I’m just going to check the rent.” He leaves that and I’ll take over this business. People do lease buildings for self-storage, but it’s not advisable. They also become pretty tough to value because they don’t have the real estate component.

Yeah, certainly. This has been awesome. Thanks, Rob, for sharing your time with us. It’s been really fun to hear about all your businesses through your adolescence in high school, college, and then now the things you’re working on now. It’s been a lot of fun and a lot of new ground for the podcast too with self-storage and grocery businesses. Thanks for sharing on those things.

Thanks, Alex. This was great. I look forward to reading your new publication when it comes out.

Yeah, thank you. I’ll be sure to send you a copy.

Awesome.

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