Interview with Ace Chapman, CEO Freedom Internet Group
In Episode 3 of the Mad Profit Podcast, Ace Chapman discusses how he created an online business empire from his early days when he purchased his first trading software at the age of 19, to today owning more than 45 businesses. He explains the various mind shifts, lessons and mentors he’s had throughout his career that has enabled his success.
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Transcription of Podcast
| Snippet: But what I look for is distressed situations. I don’t want to distress business. I want a really great business that happens to be in a distressed situation. Intro: Welcome to the Mad Profit Podcast where we interview active investors, entrepreneurs and experts who left corporate jobs to buy or start successful ventures and live life on their own terms. Listen to their stories learn from their experiences and heed their advice so you too can create mad profits and the life you’ve always wanted. And now here’s your host Laurent Truc Laurent: Ace welcome to the Mad Profit Podcast. Thank you for joining us Ace: It is good to be here. You know, it’s always special when I get to do these with folks that I’ve had the opportunity to work with you. We’ve been working together for a little while so thanks for inviting me on Laurent: well, thanks for accepting. I think I’ve learned so much from you over the few years that we’ve been working together and some of the deals that we’ve done. I think there’s a lot to extract from you during this short time together. I’m looking forward to it. So, why don’t we start a little bit with your journey? I know you have a pretty interesting background. Can you speak a little bit around what got you here for the audience? Ace: Yeah, I guess it was a bit untraditional. You know my dream as a kid was one day to own a big business and make a lot of money (that kind of thing) and so the path that we’re all told to do that is to get into the best school that you possibly can, get really great grades and you’ll earn a lot. When I was young growing up in an inner city, we had a school that was an all-boys school called McCallie. It was just a really great school and was nationally ranked as a high school and before going there, I really didn’t care much about school but it was very challenging and I kind of got engaged. Then after that I got into Colgate which is one of the top 20 schools in the US and I became all about education. I knew I had to get a full ride. My parents could not afford, what was 40 grand a year back then. I don’t even know what it is now, but 40 grand a year, whatever it was, my parents could not afford that. I ended up getting a scholarship which was a huge win and my sophomore year everything changed. I’m getting good grades, president the class, and just loving school. Then a buddy of mine comes to me who was the programmer (this is back in the day of Instant messenger in chat rooms) and I was a real business nerd and into the stock market. I had been a member of this website called CoolWallStreet and had built this internet friendship with this guy who had built it. While he was doing that, he built this other project that was growing a lot faster than Coolwallstreet and he basically came to me and said he wanted to sell the business. He said you’ve been really involved as a client and I’m wondering if you know anybody that would want to buy it. I’m 19 years old, a College kid, in the middle of nowhere New York, no, I don’t know anybody that wants to buy this thing. But I was curious. I’m just as a user and as somebody who was interested in business, I ask how much money is it making and do you want to sell it for. He actually sent me all the information and I start pouring over it. It was making about $60K a year off and he wanted to sell it for $70K I didn’t know anything about valuations or if that was a good price or a bad price. But what I did know is that I’m spending $40K a year and I’m in my second year (I spent $80K) so far in college, and that was the cost (I was fortunate I had scholarships) but it cost $80K. I know people that are graduating from great institutions that are getting out after spending $120K and they’re only making $30K/year. So that was like in real estate, my “comparable”. My comparable was how much it cost to go to Colgate versus what my friends were making when they left. Okay, $70 grand for $60 grand. Sounds comparatively like a really good deal. But I’m thinking I got $3K in the bank, so it doesn’t really matter. I can’t buy this thing. I had developed some websites and stuff over the summer save about $3,000. But that’s a big gap from $70K. So it was one of those things, I’m sure you’ve had that experience where it’s just nagging at me. Man, I gotta figure out a way to buy this thing So I went to a buddy man on campus that did have money, he came from a lot of money and I tell him I’ve got this opportunity to buy this this site and he liked the deal. He agreed that it made sense, just based off of my college cost logic. He said “all I have is $15K, but I’ll put it in with you”. So I’m getting closer, I’m up to $18K now but still a long away from 70. I went back to the guy he was willing to finance 50%. This is when I did the thing that I don’t recommend anybody do. Back in the day, which I don’t know if this is still on college campuses, (it’s really predatory when I think about it now), but you would have all of these credit card companies that would stay on campus and give out t-shirts and little chachkies and stuff. And we’re college kids and I don’t know anything about money or whatever, but it’s like a t-shirt looks cool and I just have to sign this paper, and I don’t have to pay anything for it. So I am talking to the guy and ask, how can I get money off of the credit card? And that was when I learned about how you get these checks and it’s basically an advance. It was a terrible terrible idea for any college kids to do. But a better idea than spending all the money on beer. Laurent: Yes, very true Ace: I ended up getting the rest of the $12K. I end up borrowing under my address instead of my college address. So every month before they send the bill I would call them and say please don’t send it to my parent’s house. Fast forward about six months later, I go home from school, from college for vacation and basically the business ends up growing like crazy and I actually made a really tough decision to leave. It was a tough decision for me to leave college because there was no Mark Zuckerberg at that point. There weren’t all the people that we see now. oh like that could be a path? It was like, you know I am making the worst decision of my life. I remember I was dating a girl and told her I wasn’t coming back and she was like Ace, you’re gonna go bankrupt. You need to get back up here and finish school. This is not gonna work. What are you thinking? So yeah, that was the beginning of this journey and the big mind shift for me there was that I can actually buy income. You know the same way that we buy a house, the same way that we buy a car, you can and you don’t have to have all the money up front? Nobody or very few people pay all cash for their house or their car. You can figure out how to get the money and you can actually buy income and that was a huge huge mind shift for me. Laurent: Wow, I guess you were using a platform so you already had the vision of what you felt needed to be improved and the opportunity of networking to find other customers. There must have been fear. That’s a lot of credit card debts to take on. Ace: Little bit of it was naivete. Naivete worked in my favor. And that’s why I say looking back “oh my goodness young ace you could have ruined yourself”. But I did know the business. I knew that it was been run poorly and I didn’t really understand why but after figuring out that guy had this other business that was this large thing and that was Kind of encouragement. You know the customers were complaining that the site was down all the time. There was just a very simple responding that he just wouldn’t respond to people because he was so busy and thought I can definitely grow this thing. Remember it was making really money for a college kid. That was a lot of money. One of the other funny things that happened during that time was I was home working on the business that summer and you gotta keep in mind the internet back then was very early. I mean people weren’t using it especially older people. My parents, I remember, my dad would ask me weekly are you gonna get a job this summer and I told him, dad have a business and it’s a stock market business and he’s like, so you’re investing in the stock market? No, I’m not investing in the stock market But it’s a platform and people are paying and I have advertisers that pay me and he’s like that just sound right. You need to get a job. All summer he’s on me, “you gotta get a job”. And I remember getting to the end of the summer and I had some investors that wanted to invest in the business as there was this article that was writen-up about us and the investors didn’t want me to go back to school. They’d invest to get the business to the next level, but they didn’t want me to go back to school. I go and I sit my parents down and tell them I got this tough decision to make. I was fully planning on leaving school. I’m just saying no I just want to get their thoughts and I knew they were gonna be like are you crazy? You’re going to forget your $20,000 a year scholarship? You’re taking your butt back to college. So I tell them I got these investors they want to put money into this thing and they don’t me to go back to school. They want me to take a year off. My dad was like, why do these investors want to invest in this thing? It’s only internet money. And I’m like dad it’s making regular Monday. He said it’s just internet money so my dad really came up with the idea for Bitcoin So I’ll be explaining that this is real money and I show him a check from double-click which is a company that Google bought and it was a $12,000 check at that point and he’s like, oh my goodness. You’re being scammed. Somebody’s like, like we gotta get down to the bank. He’d takes me to the bank, right now we literally get the card go to the bank we walk in and he’s like “we need to talk to somebody, my son’s getting scammed”. He looks at me and says “you’ve been depositing these checks?” He asks the bank, “what do you think?” The person comes back and he’s like no. This is like a half billion-dollar company, it’s legit all this stuff is god. So yeah, one of the funniest things, we get back in the car, and he just looks at me and he’s like and “you were thinking about going back to school?” Laurent: That’s amazing, that’s amazing. I love those stories because it makes me think about my kids who love gaming and I’m thinking why are you wasting your time? But god knows what he’s gonna be able to do with that. Ace: Yeah, it’s so tough. I have it with my nephews. Where you want to get them on the path that you kind of understand and you see but at the same time things are changing so quickly. We didn’t have anybody in our time that was making millions of dollars playing video games. Laurent: That’s a big jump from being 19 building a business to the way your world looks like today. What has that evolution looked like? What are you doing now? Ace: Yes you know, it’s been interesting. The recession/dot.com bust happened in in 2001. So this whole thing started 1999. I ran the business, had employees, all of this. Actually got a good return because of the income from the business, but then in the end sold it for pennies on the dollar after the dotcom bust because most of our advertisers were those types people. I actually wrote the internet off for years. I ended up doing a lot of offline businesses: bought a mortgage company, a string of tanning salons, some retail businesses, a lot of different deals (franchise businesses and had a lot of real estate) and different things and every once in a while, I still dabble in internet deal. Years later, I kind of looked at my portfolio and realized on a time investment basis, trying to manage two different offline businesses, looking at real estate and comparing both of those to the internet deals, the ROI was just unreal and it was very obvious at that point for a couple reasons. 1) Scalability in the number of deals that I could do and manage and still have the lifestyle that I want and 2) the diversification and being able to have a lot of different things without having to learn a whole new skill set. If you’re somebody that has any hair salon one day and then the next day you buy a restaurant, those are two totally different things. Online, you can have a business that’s in the hair space and still get that kind of exposure while selling products or even having some kind of service where you’re sending hairstylists to homes. There’s just all these different options and you can have something that’s selling a monthly food box subscription kind of business that’s sent out and therefore have some exposure to the food industry and those skill sets are going to generally be similar between those things. I also had decided to have some location independence but even with managers, (I had about thirty four units in real estate) but even with managers and having people that are there on the ground it was just always a headache that would coming up. So I sold all of that and just so happens that this was 2007. I got ahead of that 2008 debacle, not because I was an Oracle or anything but wanted to get into the internet thing. That was fortuitous and now today, I manage over 40 internet businesses. It’s always going in between 40-45. Sometimes we’re selling the business but then between the buyers I pull out and keep equity and you know have all these internet businesses that have different people involved. I also manage a private equity fund that owns about nine larger entities. Laurent: It’s amazing. What a journey. Yeah. Those were eclectic different businesses that you put together under that umbrella. Especially when you were working more brick-and-mortar. Do you have a methodology you use to select the businesses you want to get into? Hair salon and something completely different that you owned, it’s a lot of work. It’s a lot of switching focus and getting to learn a new industry. How do you pick the deals? How do you decide? Ace: So when I was doing the offline businesses and doing the tanning salons and things like that (that’s a really great example) what I look for is at that point and then I’ll talk about now. But what I looked for is distressed situations, I don’t want to distress businesses, I want a really great business that happens to be in a distressed situation. So, you know, the only reason I ever bought a tanning salon, I’d never walked into a tanning salon. The first time I ever walked into a tanning salon, I actually put together a contract to buy it. And the reason was, it was really simple. So, I go to this tanning salon the lady had put it on Craigslist that she had to sell because her and her husband were moving to Europe so that’s what I mean when I’m talking about a distressed situation. So it wasn’t so much, I need to sell this because I’m losing ton of money. It wa, I got this situation and I have to leave. So I go and I meet her at the salon. We walked through, she’s literally explaining how tanning works and the beds and the spray tan and just all this stuff. For those not able to watching on video, I’m black. So I had no reason to ever go into a tanning salon in my life. So I walked through and we’re looking at the bed talking through all this stuff and I don’t know anything about all this but the numbers look pretty decent. Then we sit down and we’re going through her numbers and all this and I’m like, so what about your database of customers. We’ve got 8000. You know what information you have? We have a lot of emails, almost all of them have phone number because that’s required and most of them have mailing address. Oh that’s great. So how often do you contact those people? and she was like, what do you mean? I’m like, how often do you send a coupon or anything? Oh we don’t do that. I would never want to bother my customers. I’m not the kind of business person that’s gonna bother my customers. That’s when I decided, I think I think I’m going to buy this. I made an offer. Literally got on her computer typed out an LOI because she didn’t have that much time she was leaving in like a short period of time. And that was the first one and then it became interesting because there was a at the same time she gave me basically a big discount because the federal government was doing this thing where they were trying to discourage tanning salons. They was a 10% tax and all the tanning salon owners were nervous about this and in my head, it’s interesting. This is such a big lesson. I think for people who are looking at opportunities. I think when you’ve done something for a long time where it’s worked a certain way and there’s something that is a big change for a lot of people, it’s more of the scare and you know they spend a lot of time lobbying against this. So when it got approved all the owners were just like oh this is the end of the industry. They’re trying to kill our businesses You could just charge 10% more or charge 5% more making 5% less. We’re literally selling electricity here for a lot of money and it’s a light bulb. We got pretty strong margins here. So it was really interesting that there was essentially this belief in the industry. I just started saying, you’re all right man, this is the end now. I’m not gonna buy it for that much because as we all know like this the end of the tanning industry. I bought five of them and then a sixth one that I just bought the inventory out of and years later packaged together. Laurent: That’s incredible. Very cool. Ace: So that’s what I was looking for in the beginning and I kind of took a little bit of a deep dive there but I what I look for now a lot different because what I’m looking for situations, I want to be able to buy a business and then buy a complementary business where we can cross-promote those. I have a business in the hotel space like our Openrooms.com and it has over a million emails and I also want to buy a business in an airfare space like airfarewatchdog business that has like half a million emails. My goal is that I don’t want to have to pay for ads, I don’t want to have to pay Facebook for ads. I would rather go and find a way to grow that business by buying another profitable business. So now instead of me having an expense for advertising I literally can have an asset that’s making me money. That’s the goal now. It’s looking for those businesses that have strategic value to complement each other. Laurent: That’s brilliant. Do you feel you’re at that point because you’ve created enough of a diversified portfolio so now it’s not about the diversification. It’s about piling on to get better value from what you already have? Ace: yeah, I think it becomes easier but I think at the very beginning that’s where you want to think and the interesting thing is you don’t have to buy the business. You can just look at your business and say okay how could I? If I didn’t buy those two businesses, could go to an airfare business and say hey let’s do a joint venture together. Right now, I’m spending this money, but I can create this opportunity and do a joint venture for you. I think it’s more about that shift in the way of thinking and how you look at deals even more than you know. Obviously, we do have a lot of those businesses were ended sometimes just buying the exact same business. We’ve got one business that’s a whiteboarding agency and we’re literally in the middle right now of closing another deal that’s just a same business. So, in those cases we’ve got duplicated expenses we’re able to get rid of and some different opportunities there. Laurent: Very cool. I talk to a lot of individuals that are currently in jobs and either they’re trying to get a side hustle going or they’re looking to leave their businesses and they always ask me “why would I spend the money to buy a business”. The cost of starting a website really is not a lot, its domain name, a little bit of programming. Share with us your philosophy on buying versus building. Ace: Yeah, a little bit of it is or at least the peek into it is what I was mentioning earlier. It’s not so much that it’s the worst thing ever to build a business. I think there’s a lot of experience and things that can be gained. What happens though is for the person that that has a goal of Income they’re getting distracted by something that wasn’t really what they what they’re even looking to get. So if you’re looking for a car, sure, like you could go to mechanic school or start looking at videos online, start buying a bunch of parts, you can do it… you can build a car. The funny thing is it’s actually easier to build a car than to build a business. If you do everything the right way the car is going to work but people understand that that’s outrageous. I don’t have time to do that. I don’t want to figure that out. It just doesn’t make sense. What I want is to just be able to drive a car and I think that people have confused what they want just because there’s a lot of advertising around books around entrepreneurship and podcasts around starting from scratch. There’s just a lot of information and we celebrate that as the path to getting to the income, but the truth is, what you want is the income. It’s not, about building a car, you just want to be able to drive the car. You want to be able to get the income. I think that people don’t understand that they can just go buy the Income. I think that is a mind shift for people, most of it is just psychological. And the second psychological shift is what’s expensive. For me my most valuable asset is not my money, it’s not any of the things I have that I can buy…none of that stuff has any value that even comes close to the value of my time. So then when I’m investing time in the site, and that’s way more costly to me than me spending the money. I would much rather spend the money. If you get into that kind of fundamental thing what that person is really saying is it’s so much less expensive for them to build a business than to buy one, what that person is saying is I want my money more than I want my time But what’s more important to me? I’ll spend my time on this business, but I’m not spending my money. So that’s outrageous. It literally doesn’t make sense or it’s just that people aren’t using logic. If you use Logic, its the most logical thing to me. You get the thing of people saying “I can’t afford it”. It’s like you can’t afford a lot of things. People can’t afford to get to college but they will figure out… where do I go to get this money? So the same way that there’s money for college out there, there’s money for cars out there, there’s money for houses out there, there’s actually money for you to buy the businesses out there. You know once you value your time enough then you’re willing to do that work so that you don’t have to spend a lot of time in something. I think there are some people that are like Steve Jobs. I’m not one of them. They’re people like Elon Musk and we need those people that are just super talented, super driven. They’ve got a specific vision and honestly, they changed the world but for the average…but when you look at Steve Jobs movie, like even just looking at his life.. I love what he’s built (got my ipad right here) but I don’t want his life at all. So for me, I think there are a lot of average folks that could be in a successful businesses if they went down the route of buying it as opposed to trying to start from scratch. As you know, I call it the entrepreneurial lottery. Where the odds are greatly against you. It’s tough to buy something that’s successful and continue to make it work. To start from scratch is fighting an uphill battle. Laurent: Yeah, that’s a great point. So I know you’ve helped a ton of entrepreneurs find their business way..any tips that you would tell our audience if they’re kind of thinking “Hey, maybe I want to give this a try.” What should they prepare for? What should they look at before they jump in, before they prematurely make a jump. Ace: yeah, when it comes to buying businesses, it’s one of those things where you learn best through experience and If you can get into deals, obviously if you can find a mentor that has experience, that’s huge value. But if you can get into opportunities where you can invest alongside somebody else. I know you work with investors sometimes when you’re doing deals now but if you can find an opportunity to invest and watch and participate, I think that is the most powerful way to get into the game. I tell people that we work with let’s just go and do deal together and it’s funny. Jenn was on a call who was in your group and we’re on a call with this is Pastor that’s kind of gone through our process. So we’re on a call with a group of new guys and you know they’ve been at it for a few months and we’re walking through the process together and a guy asked a question and Jenn answers all this stuff. And the guy says “man, you know a lot about SEO and affiliate and content deals, what course did you take to learn this? Jen said, “I’ve never taken a course, Ace and I did a deal together. She learned everything through that process and I think when it comes to everything from finding the deals, to talking to the seller, negotiating the right deal structure to doing the due diligence in each one of those steps once you’ve got that experience it changes everything. You’re talking to a potential seller on a business and you speak their language and you’re telling them that you know, you own a similar business this is what you’ve done with it and they see this guy knows what they’re doing. We also get people that ask us how do you get the deal structures that you get. Thats kind of a part of it. We are up against a bidder who has no experience (the average business buyer is buying a business for the very first time) and they’re talking to that seller and it’s obvious. This guy has no idea what they’re doing so what do you think the seller is going to want? They’re going to want all of their cash up front so when that person comes back and says hey, I just want 25% of financing when we’ve got somebody like you or I can say, I’ve done deals similar to this, you’re speaking their language. You can say I want 50% financing but the seller is going to say, this guy’s is gonna grow the business and I’m gonna get my money back really quickly. I’ll take 50 percent Financing from him over 30 or 20 percent from that guy that doesn’t know what he’s doing any day of the week. So having said that, the most important thing and I think you know the best way to get it is finding folks like you that have done deals and can be mentors. It’s the same thing that I did. One of the things that we didn’t have time to talk about is the fact that I was very fortunate to have a guy who that I could not offer much to (there wasn’t enough money that I could give him to make it worth him spending time with me), but literally I spent an hour per quarter with this guy for a couple of years and it was just a huge shift. In some cases maybe hour and a half but he’s somebody who flipped hospitals and when he told me that that it was for me mind blowing. Isn’t tht owned by the city.. wait a minute. You can buy a hospital? I thought that was the government. Having him really helping and I wish I would have found him earlier because there were a lot of mistakes that I have made as I was bumping my way through the dark trying to figure out things. But it’s one of those things, you can’t learn this stuff in school. It doesnt happen. You can’t learn it through videos or courses. Anything you really want to get out there you just have to start to do it. Laurent: You’re absolutely right. There was some stuff that I got bit by in due diligence in the first go-around that I saw again on the next deal and was able to negotiate my way out of it and actually get a better deal because of it, so I would have never figured that out through courses or training. I know you’re tight on time so a couple of more direct questions. What are some of your favorite resources? I know you consume a lot of books and newsletters things like that. Where, if somebody was looking to get into the space or hone out some of their skills, what recommendations do you have and books that you suggest? Ace: Yeah, I think one of my favorite things is the Berkshire Hathaway shareholders meetings. You know, it’s just an amazing opportunity to go through what is basically a book. It just goes through all the letters that Warren Buffett has done. I went to the actual meeting this year and that’s a beautiful experience but even if you don’t come up to the meeting getting that book with all of the letters to the shareholders for the Berkshire Hathaway is a big win. It’s just very specific as you can see every step from the beginning to getting to where it is now, which is an incredible thing for doing deals. I recommend Oren Klaff’s book Pitch Anything. He’s another. He would be kind of my second mentor that I got to spend a lot of time with in San Diego and he raised a ton of money (I think he’s raised over a billion dollars with different deals) in his lifetime but Pitch Anything is a necessary readings. Those would be two that are at the top of the list Laurent: Very good. Perfect. Last question, somebody who’s interested in potentially leaving their jobs or starting something on the side any big recommendation you have in terms of what they should be prepared for or how to take action? What would you recommend? Ace: Yeah, I remember a buddy of mine back in or when I first started working with folks (actually was one of the reasons that I even started coaching and all of that) was my mentor said I had to figure out a way to duplicate myself. He said because you like doing these smaller deals (you don’t wanna do a larger deals because the multiple changes incredibly) so you’ve got to figure out how do you duplicate yourself. And that was kind of the impetus of this this whole thing and I was talking to a buddy of mine who’s a pharmacist now and we were talking through this and I think one of the big mind shifts is what’s the worst that can happen? I think for some people when they think about leaving their job that automatically think if I fail, I’m gonna be a homeless person on the streets. I’m not gonna have food to eat. My family is gonna starve to death. It’s just this very terrible thing. But no. I think you need to walk through what exactly will happen and you realize like ah, it’s probably not that bad. Maybe I’ll have to move into our parents basement for a little while, and you know I can go get another job and get back on my feet and deal with my annoying parents for two months, and you get into this, reality of what it really looks like to fail. And I think then it’s interesting because it’s this imagination, I’m not saying that works against us, but that automatically goes to this worst possible thing. So I think really getting comfortable with that and understanding that is one of the ways to prepare. I mentioned the second ago, but when I left school I had struggled with fear of being branded as a failure. It is was a tough thing for me. And I remember going through that exercise of what’s the worst that can happen if I don’t go back to school. So it’s one of the exercises that I would recommend people do Laurent: Perfect awesome Let’s end it here. If somebody wants to get in contact with you or they’re looking to learn more about what you’re doing, what’s the best way for them to reach out? Ace: Check out a acechapman.com or on Instagram it’s at acechapman and there’s a lot of free video education. You can ask specific questions there and I’ll do videos to answer them. Laurent: Yeah. All right, Perfect. Thank you so much for your time. This this was huge and I can’t wait to get you back on the podcast in a couple of months or years, and see how you’re doing. See if you’ve got more recommendations for the audience Ace: sounds good Thanks so much. Outro: Thank you for joining us on this episode of the Mad Profit Podcast, we hope you enjoyed the show. Don’t forget to subscribe on iTunes Google Play or the listening platform of your choice. Also check us out at MadXCapital.com for more useful information and resources to help you achieve your investing, entrepreneurial and business goals. See you next week on the Mad Profit Podcast |