John Stoj Real Estate Background:
- Spent 14 years on Wall Street from 1992-2006
- Raised $300 Million for a distressed hedge fund
- Has started and grown multiple businesses
- Based in Atlanta, GA
- Say hi to him at www.verbatimfinancial.com
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Best Ever Tweet:
“First thing you need to think about when it comes to scaling is, what do you want to do, what do you want to make and what can you make?” – John Stoj
TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, John Stoj. How are you doing, John?
John Stoj: I’m doing great. I’m really so happy to have the opportunity to talk to you and share with the Best Ever listeners.
Joe Fairless: Well, I’m happy as well, and I’m looking forward to our conversation. A little bit about John – he spent 14 years on Wall Street from 1992 to 2006, he raised $300 million for a distressed hedge fund, and has started and grown multiple businesses based in Atlanta, Georgia. With that being said, John, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
John Stoj: Sure, sure. Well, right now, I’ve, I guess, re-entered the workforce after a little bit of time playing Mr. Mom – super-excited about that – and one of the reasons why I’m doing it is that I feel like I finally found my ‘why’. People talk about that a lot, but I realized that my ‘why’ is taking care of people, and how do I do that? I’ve done it through the course of my career by helping companies more so than people. During the time I took off, I helped raise my son. My wife works a lot; she’s a physician, and I also helped be a caregiver for my dad. He was 96 when he passed away. So we’re in a position where I feel like I’ve got a lot to offer for folks. I can help them to get a sense of where they fit in the world and more so, where they fit with their careers and their goals, whether they be entrepreneurship or existing within the corporate world.
Joe Fairless: Okay, and so that’s from an individual standpoint. I am sure that ties into our topic today, which is building, scaling and growing a business. So how are those dots connected?
John Stoj: That is a fantastic question. It makes a lot of sense… Because when I speak to people — I get a lot of people calling me because they say “Well, geez, you’ve done this before. I want to start a business. How do I do it?”
Joe Fairless: Before we get into that, what businesses have you started and what were the results of those businesses?
John Stoj: Sure. I call myself an accidental entrepreneur… Although, I realized I was an entrepreneur from an early age, whether it be just having a paper route as a youngster, or building up a cache of folks who I mowed lawns for… But after getting out of college, I went to work for Wall Street, and the thing I liked about it was that your income was uncapped. If you did well, you got paid well, and I really couldn’t understand how people could go into careers where they knew what they were going to get paid regardless of how they performed, and that, to me, drove my entrepreneurial mindset. The reason why I say it was accidental is, I would say, I was pushed into it by the financial crisis. I left a banking position along with the rest of my team to start a money manager. And we started in February of 2007, and we were out of business by Thanksgiving. This was not a good time, if you recall, in the financial world, and I think that you have some experience with that, if I read your bio correctly…
Joe Fairless: So February 2007, in terms of what do you mean by that, I have experience?
John Stoj: Your experience in Lehman.
Joe Fairless: No, I’ve never– I’m not related to Lehman. You might be thinking of someone else’s bio. Never worked there, never–
John Stoj: I bet I am, Joe, and there I’ve made my first blunder on the podcast. I apologize.
Joe Fairless: I lived in New York City for ten years, but I wasn’t working for any financial company.
John Stoj: That’s exactly it. You were in advertising; my mistake. Let me go back to that and say, we got there and looking back– so, the reason why we were put out of business – and this is a key bit that I get into with folks, is learning to do the due diligence on any project you’re getting involved with. We were supposed to have financing for a minimum of 24 months, but there was a key provision in the company’s financing that scuttled the whole thing if a few key things did not happen. So surprise, it didn’t happen.
Joe Fairless: What were those things?
John Stoj: Well, we had to do a deal by a certain time period, otherwise, our bank wouldn’t release the rest of the funds for us. And now what we were doing was we were buying CDOs… So not to get too much into the weeds on that, but suffice it to say you could not purchase goods assets at the time. So I was an asset manager, I said I wasn’t willing to purchase these assets, and as a result, we couldn’t close the deal, and the company had to go out of business. So this was something where I trusted too much in someone else who had arranged for that type of financing.
Joe Fairless: So your financing was contingent on you all closing on a deal, okay.
John Stoj: And of course, that could happen in real estate as well.
Joe Fairless: Yes, definitely financing provisions could be violated or not adhered to or loan covenants rather. So it’s a little bit different in that world though, because — help me understand, why did your company need financing, because — isn’t it just your salaries, so if you just didn’t get paid, then that’s fine?
John Stoj: So think of it like a construction loan.
Joe Fairless: Okay.
John Stoj: We had to hit certain milestones in order for them to release the funding.
Joe Fairless: I get that.
John Stoj: We did not hit the milestone; the funding which would cover everything from salaries to the rent would then not be released.
Joe Fairless: Okay, got it. So how come you all just didn’t take salaries and just work from home?
John Stoj: Well, this is actually what led me to raise the capital for our hedge fund. Some people just threw up their hands. This was a time in ’08, where people in the finance industry and in my sector of it, structured finance, were throwing up their hands and giving up to do something different, or just taking some time off. A partner and I, we decided that we didn’t want to do that; we wanted to do exactly as you say – let’s start our own business. We had somebody try to start the business for us and work for them, and that was unsuccessful. Let’s do this on our own. So we were lucky enough to put together the project materials and raise $300 million for investing in these distressed assets, all backed by the types of securities that started the financial crisis – CDOs, subprime, real estate, bonds and such.
So what we did was we created a whole system where we would be able to purchase those types of assets out of the banks who were under severe distress at the time, and we ended up getting — these transactions take a long time to close. We were around for about a little over a year. In our second year, we were about to close on our first transaction of about $120 million or so, and literally, two weeks before the closing date, the banks were bailed out for the last time by the government, and we got a call from our banker that we were going to purchase from saying, “Well, we love you guys, but we don’t need your money anymore.” So that ended that adventure, and that’s [unintelligible [00:09:47].03].
Joe Fairless: Oh, that’s a punch in the gut.
John Stoj: It was a punch in the gut. I always tell people that you never know when the brass ring is gonna come and you never know when they’re gonna snatch it away from you. So I went from two weeks from being financially independent–
Joe Fairless: How much would you have made personally?
John Stoj: Well, my partner liked to torture himself, so he tracked that one investment, and contractually, we would have each made $7 or $8 million.
Joe Fairless: Oh, that’s it?
John Stoj: Yeah. So not that much… [laughter]
Joe Fairless: Oh my… Alright. Instead, you didn’t make any money?
John Stoj: I didn’t make any money, except for our little salaries that we took during that period of time. So the $300 million was lined up specifically for the purpose of buying those assets.
Joe Fairless: So the $3 million that was lined up – was that already funded in an escrow account or in some other account?
John Stoj: No, it was pledged.
Joe Fairless: Okay. So then what did you do?
John Stoj: So then I got fed up and I said “This is now the second or third time that I’ve been put out of business in the finance world because of extraneous events. I want to control my own business. I don’t want to deal with any of that. So how do I do that? I’m going to go ahead and start my own business that’s completely different.” So I looked into businesses that have low barriers to entry. Food business is a business with low barrier to entry… And started making inquiries.
I found actually a friend of mine who I had gone to business school with had started a small business selling sushi, and that’s how I came to run a sushi kitchen… But then he was looking to expand his business. So this is one of the– we haven’t gotten to it, but when I talk about the steps that I think you should look at when opening your own business, one of the steps is making a plan that includes for running the business as it exists, and then running the business as you hope it might exist, and seeing even what could be the issues if you have no growth, low growth or even exponential growth.
So I figured the only way that food business could have exponential growth is either franchising or wholesale, and I had no interest in running a restaurant, because I did not want customers like that, and I didn’t want to worry about hanging up a shingle and just hoping somebody would walk in the door, whereas I knew I could go out and sell a product to folks. So I wanted to sell a product that I could sell to people all over the place or as many places as possible, and I didn’t want to deal with retail. So I caused this sushi company to be turned into a wholesale supplier as opposed to a retail restaurant, and we bought – or I should say we leased a large catering kitchen here in Atlanta, we transformed the company’s other locations into production facilities as well, and I went out and got businesses who had cafeterias, buildings who had cafeterias, and then universities, hospitals, folks like that to purchase our sushi and offer it as lunch fare. So we would make it overnight and package it and sell it to those folks at lunch.
Joe Fairless: I bet that’s so much more profitable than just a standalone restaurant.
John Stoj: Well, that’s it. You’re in much better control of your margins.
Joe Fairless: Oh, yeah. The stress level’s down, you don’t have to deal with random people complaining about stupid stuff…
John Stoj: Correct, and I’m also a planner. I was a Computer Science major in college along with finance, so I have a programming mindset and a planning mindset, and what you could do with a wholesale business like that, especially when we developed long term relationships with clients, you knew the whole month’s production, give or take some standalone orders, so you could control your inventory, you could control your labor, all those kinds of things, which are just impossible with a day-to-day operation like a restaurant.
Joe Fairless: So smart. And do you have any actual numbers for before and after, in terms of profitability or anything like that?
John Stoj: Yeah. So, the business, when I joined it, there were– I’ll call them two and a half locations in two different cities.
Joe Fairless: What were the cities?
John Stoj: They were in Kansas City, Kansas, and of all places, Alexandria, Virginia, and then we opened up one in Philadelphia, and then one is in Atlanta; it was the last one to open. So we had four production locations. When I joined the company, two of the three existing locations were losing money. The profitable location was supporting the other two.
Joe Fairless: Because they were restaurants.
John Stoj: They were restaurants with extremely small production, and we just turned them into production. And the Atlanta office, obviously, we started from 0 and we went from 0 to 400 in revenue for the first year, then we doubled it again, and then we finally got over the million-dollar mark by the time I sold the business.
Joe Fairless: What a smart move. If i as a restaurant owner, I would be doing the same exact thing. Well, fortunately, I’m not, because there would be no restaurants in United States.
John Stoj: Some things are more difficult to transform into that packaged food than others… And in fact, I will tell you the main reason that I like sushi as an idea was not because of I’m a big sushi eater, or that it wasn’t necessarily the most popular food, but it’s a food that’s–
Joe Fairless: Gotta be made fresh.
John Stoj: It has to be made fresh, which is a little sad. I was always jealous of the guys that did frozen stuff, because our shelf life is literally just one day. But constructed food, there’s no cooking involved. All you do is– the rice is steamed, but everything else is just a construction, essentially. So if you have a couple of guys that are good with knives that can cut the fish correctly, the rest can be trained. So those are all reasons why I really liked that business and why I chose it, even though it wasn’t something that my heart was drawing me to. Now one of the things I talked about when making the plan for the business–
Joe Fairless: Well, let’s talk about that. That way we’re not sprinkling in some stuff. We’ve got about five minutes left. So let’s talk about your steps for scaling. So what are your tips?
John Stoj: Okay, the first one is to think about, what do you want to do? How much do you want to make? How much can you make? You have to ask yourself all those questions, and then what would happen if you had something that was extremely good that happened, like exponential growth, versus– people always think about, “Well, what if nobody comes in the door? How can I keep the lights on and cover expenses?” Well, what happens if that customer walks in the door and they ask you for 5, 10, 100 hundred times what you’ve ever produced in the past? I tell folks the same story, and it did happen in my sushi company, because I was pursuing a client – the Atlanta public schools, in fact – to see whether they would be interested in selling sushi in their cafeterias and providing it to their students, and going back and forth with the head chef, and then even the superintendent of schools and all that stuff… Tons of meetings, tons of samplings, all that stuff, and you say, “Well, geez, nothing’s gonna come of this.”
And then summer before school started one year, I got a call from the chef and he said, “Okay, we like the idea. Can you start providing the sushi in August, whatever” and I was like, “Oh, that’s great. Sure. How much?” and he’s like, “Well, we want to have two pieces of sushi at least for each student on the opening day of the school” and I did the calculation pretty quickly. They wanted 120,000 pieces of sushi. Now pieces aren’t rolls; they’re eight pieces in each roll, you do the math, but it was a staggering amount, that he also wanted delivered at the same time, on one day. And that was the offer that you get as an entrepreneur and you think to yourself, “Oh, geez, this could make me and/or break me.”
So I did work it out, but it took a lot of figuring, it took a lot of explanation about the food business, about freshness and about delivery service, because half of my company was a logistics company by delivering the sushi. But it doesn’t matter that I did get through it, that good thing was just as stressful as a bad thing. So I tell folks that you’ve got to think about it and you’ve got to wargame it out, and really figure, “Okay, how do I do this if it happens”, and if it’s not possible, don’t go for those opportunities.
Joe Fairless: Okay, so that makes sense, and it’s gonna be a fun exercise too to think what would happen if things went really well, and also what happens if they don’t. You mentioned earlier, making a plan that includes running a business as it exists and how you hope it might exist, which is similar. Any other tips for scaling?
John Stoj: Scaling is big. I think you’ll find that — I’m not the first person to say this, but systematize everything as much as possible. And that’s where I would tell folks, especially — I’ve worked with a few people who have, like me, have left the corporate world to go and try to either purchase a franchise or start their own business. They’ve got a great idea they think, and one of the things I tell them is think about anything that you took for granted working in the corporate world is suddenly not available to you. The human resources department, for instance, how to hire people. It’s a little easier now. Even when I started the company in 2010, between then and now, outsourcing is a lot easier than it used to be, but as you know, there are pitfalls that can go along with that as well. So I tell people they need to figure out where they can source people, they need to systematize things. So if they need to hire people quickly, they can get that person trained up quickly. It’s all about creating almost that handbook of the business while you’re building it.
Joe Fairless: It makes sense. And then any parting thoughts that we haven’t talked about that you think we should before we wrap up?
John Stoj: I think one of the biggest things that if you’re going to be an entrepreneur and you’re going to start your own business, if you have a family involved, you want to get full buy-in from your family, because without that, you’re going to have a difficult time being there for the business. Because as you know, owning your own business means you’re never fully off. You’re never fully on vacation, you’re always on call, and if they’re not up for that, you might want to look into a different opportunity. I’m going back now, way back in your podcasting days, hundreds of episodes back, but I listened to an episode with Matt Rodak, and he said–
Joe Fairless: He’s a friend of mine.
John Stoj: Okay. He said that entrepreneurship is hard, really, really hard, and when I heard him say that, that lit up in my mind, because that’s what I tried to tell people. I sat down last year with a friend who told me that he and his wife both wanted to quit their jobs, and they were looking at half a dozen franchises to purchase and open, because they wanted control of their lives… And I told them two stories. I told them the story of how I started the sushi business; it grew, it was fantastic, but my wife practically wanted to divorce me before I sold it, because I was getting calls at [1:00] in the morning when the guys ran out of avocados. So I said, “Watch out for that, because that could be a big problem.” But if you talk to somebody who started a business and they didn’t really notice it, and then somebody bought them out for millions of dollars, they’re gonna give you a different opinion for sure.
Joe Fairless: Yeah, they’ll have recency bias.
John Stoj: Yeah.
Joe Fairless: They’ll just remember the end. Well, John, thank you so much for being on the show. How can the Best Ever listeners learn more about what you’re doing?
John Stoj: Well, thanks a lot, Joe, for having me. Again, just being able to do this podcast for so long and so consistently is super impressive. Best Ever listeners can get to me at my website at verbatimfinancial.com or john.stoj [at] verbatimfinancial.com.
Joe Fairless: I have been doing this podcast for many years, but I learn something every day that I do them; I do about eight to nine interviews. Let’s say I learn probably something on every interview, but maybe not every interview, I don’t learn something, which is my fault, because ultimately everyone has something to teach us; it’s my responsibility to find out what that is. But on this one, I can say I certainly learned some stuff, and I find your sushi restaurant to wholesale supplier fascinating, and it’s something that we should all take a look at in our business.
If our business in total is not working, then what services, what products do we have to offer within that, that would be beneficial for others and maybe we just shift the focus. So thanks so much for being on the show. Hope you have a best ever day. We’ll talk to you again soon.
John Stoj: Thanks for having me.
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