Behind The Scenes Of The Billionaires' Mastermind (TIGER 21) | Michael Sonnenfeldt Interview

Sam Parr

What was the original fee and what was the requirements

Michael Sonnenfeldt

The original organization, 20 years ago, started with people who had created a net worth of between $10,000,000 and $100,000,000. Very quickly, the top end exploded with success, growing to $1,000,000,000. More recently, we've realized that our focus is on members with a net worth between $20,000,000 and $1,000,000,000. What I was going to say is the main difference between Vistage, YPO, and Tiger 21 is that the average net worth of Vistage and YPO members is probably maybe a tenth or a fifth of that of Tiger 21.

Sam Parr

how long ago did you start the company

Michael Sonnenfeldt

about 21 or 22 years ago at this.

Sam Parr

What was the original idea

Michael Sonnenfeldt

It's really a simple idea. If you're an incredibly successful entrepreneur, you could be building a business for 10, 20, or even 30 years. Then, when you sell the business, you might think that it's the magic moment. However, what actually happens is that the day after you sell it, you have a lot of money, but you might be alone. You might have an assistant, but you don't have 1,000 employees. You don't have anybody laughing at your jokes anymore. You might even have to get your own coffee. Everybody around you thinks that you're wealthy and successful, but you've lost the platform that allowed you to feel successful. All of a sudden, you're back at square one. The number one challenge you face is to be a wealth preserver so you don't lose what you've made. The problem is, you don't know anything about preserving wealth. What you are is a great entrepreneur, a great leader, or a great manager. You're good at inspiring troops, but you don't have any troops anymore. So, you experience this dramatic shift. It turns out that what it takes to be a great entrepreneur might qualify you to be a mediocre investor. When you're an entrepreneur, you focus on a single opportunity. You're highly emotional about it, and you give it everything you can. But when you're an investor, you have to be more dispassionate. You need to have a diversified portfolio, and you have to be unemotional about it. In summary, there's a little understood transition that a few very lucky, very successful people get to go through. We wanted to study that, which is what we've done over the last 21 years to help people in that transition get through it and on to a better place.

Sam Parr

When you originally started the business, what was it like? What was the product? Was it like YPO, where it was a monthly group meetup? What was it?

Michael Sonnenfeldt

Sure, so you mentioned YPO, which is a fantastic organization. There's another similar organization called Vistage, and they both are for CEOs. If those are the great colleges, we're the one great graduate school. We have a lot of YPO members that graduate into Tiger 21 and a lot of Vistage members that graduate into Tiger 21. Just to give you an idea, the last time I looked, both Vistage and YPO had about 50,000 members globally. It might be 60,000 now; I've lost touch.

Sam Parr

vistage has 50,000 members no

Michael Sonnenfeldt

and ypo each

Sam Parr

oh oh oh

Michael Sonnenfeldt

okay that's about 30,000 each I think could be a little more I haven't looked in a couple of years

Sam Parr

company

Michael Sonnenfeldt

oh these are huge businesses sure

Sam Parr

because vistage charges like $50 a year right or

Michael Sonnenfeldt

I think Vistage is around $15,000 or $18,000. I don't have the exact number; it could be $20,000. YPO doesn't have a single price because it depends on whether you go on the trips, and different people pay different amounts. But the big difference between those two, which are great organizations, is that YPO is self-facilitated by its members, whereas Vistage and also Tiger 21 are groups led by professionals. We have over 100 groups around the globe now, and we have a cadre of over 60 professional chairs that we've trained exquisitely to lead these incredible groups. But the bottom line is that those are the two great organizations for CEOs and business owners. When you decide, as a rule for life, that you want to get off of the merry-go-round for whatever reason, the next decision is best focused on with peers that you'll find in Tiger 21.

Sam Parr

So basically, the original premise—and you could tell me if that's still the premise—is you have a small group of peers. I don't know how big the group is; you could tell me.

Michael Sonnenfeldt

12 to 15 people

Sam Parr

so 12 to 15 people and you meet of some type of cadence like 4 or some weeks

Michael Sonnenfeldt

monthly full day a month

Sam Parr

and you have a coach or what do you call your coaches

Michael Sonnenfeldt

facilitators you have a they're the chair

Sam Parr

You have a chair who leads these discussions. What was the original fee and what were the requirements?

Michael Sonnenfeldt

The original organization, started 20 years ago, began with people who had created a net worth of between $10,000,000 and $100,000,000. Very quickly, the top end exploded with success, growing to $1,000,000,000. More recently, we've realized that our focus is on members with a net worth between $20,000,000 and $1,000,000,000. What I was going to say is the main difference between Vistage, YPO, and Tiger 21 is that the average net worth of Vistage and YPO members is probably maybe a tenth or a fifth of that of Tiger. If you do the math, we have $140,000,000,000 under management. We don't manage it; our members manage it by themselves. We're not a money manager, but collectively we have about 1,200 members, which is a little over $100,000,000 per member.

Sam Parr

that's crazy so and what's the price now

Michael Sonnenfeldt

The membership is about **$33,000** a year. We try to have a kind of one price, so the only thing you pay is a single membership fee. Unless you come to the annual meeting, there are lots of other events that are included. However, because there are hotels and all that kind of stuff, if you come to the annual meeting, there's an additional charge of a couple grand.

Sam Parr

So, I can't do the math in my head, but that's over $100,000,000 in revenue. So, these are like, no...

Michael Sonnenfeldt

No, no, no, no. So, it's about 1,000. It's a very simple business model. It's about 1,200 people that are paying a little more than $30,000. So, it's about $35 or $40 million.

Sam Parr

oh I thought you said 12,000 members my bad

Michael Sonnenfeldt

1200 and and that's what it costs to run

Sam Parr

That's crazy! And what's crazy is that $10,000,000 today is a significant amount of money. Twenty years ago, $10,000,000 was obviously significantly more than it is now. How did you find your first folks?

Michael Sonnenfeldt

So, I was in a Vistage group which had about 15 members. In a dramatically weird coincidence, in 1998, 5 or 6 of us sold our businesses. We were all in that Vistage group because we were business owners trying to be better managers, owners, and CEOs. We loved the group. After our businesses were sold, we didn't want to leave the group. However, we found that over about a 6-month period, we were going to meetings trying to figure out how to make our CFO, sales team, and production more efficient, but we didn't have that anymore. We had sold our businesses. So, I frankly said, "Wow, I'd like to be spending time with peers, but what I want to be learning is how they're going through this transition of becoming a wealth manager and how they can help each other be more successful managing through that transition." That was the roots of Tiger 21.

Sam Parr

what was your first business

Michael Sonnenfeldt

my first business

Sam Parr

the one or sorry the one that you sold

Michael Sonnenfeldt

The first business that I sold was something called the Harborside Financial Center, which I developed with a partner. We were 50/50 partners; I was 25 and he was 57. It was the largest commercial renovation in the country at the time. We bought a rundown warehouse that had been the largest building in the world in 1929 when it was built, eclipsed a few years later by the Pentagon. It was an industrial warehouse on the waterfront in Jersey City, directly across from the World Trade Center. I had the idea literally when I was 17 because I worked there at that age. It was just 3,000 feet from Wall Street, and what was happening was that it was in the age of large computer centers. Mhmm.

Sam Parr

and so

Michael Sonnenfeldt

You had all the downtown Wall Street firms building computer centers. If they didn't want to be in Manhattan, they would go to a faraway campus in suburbia. People felt like they weren't in suburbia; they felt they were in Siberia. It was too far from the mothership. I had the idea that if you could put some of those computer centers into this huge industrial warehouse, it would be just 5 minutes from the parent company under the Hudson through the PATH train. In 3 minutes, you could get back to whatever the parent company's parent was. That was sort of the original insight: this old industrial building had floor loads and ceiling heights that would accommodate raised floors for computer centers and the weight loads you needed. That was basically the idea.

Sam Parr

and that's the thing that you sold before but that was

Michael Sonnenfeldt

Yeah, I sold that when I was 30. Then I did another business that was basically a real estate merchant bank. It acquired a lot of distressed real estate when the real estate market crashed in the late eighties. I don't know if you remember, but the stock market crashed in '87, and the real estate market followed. I was able to acquire a couple hundred properties from banks that had gone under, and the federal government had taken them over. When I sold that business in 1998, I said, "I don't want to have to go back to work. I want to know how to preserve money. How do people who've sold their business think about what they're going to do so that they don't take stupid risks and find out they've lost it all?"

Sam Parr

Has building Tiger 21... You kind of... Was Tiger 21 supposed to be a business earlier?

Michael Sonnenfeldt

it's actually it's been a labor of love for me

Sam Parr

But you know, oddly, was it able to create more wealth than the other things?

Michael Sonnenfeldt

No, it hasn't at all. Basically, for 20 years, I put every penny back into Tiger of revenue because I wanted to hire some of the best people in the world and the best teams to get it right. There's a lot of inherent value in it, there's no question, because we have extraordinary members. The value of our franchise has to do with our members, and the team we've put together is incredible. However, I realized that in order to scale the business to fulfill its potential, I needed more senior help. To attract that senior help, I needed people who were interested in equity. So, having a private equity partner made it easier to attract world-class talent who would own part of the equity.

Sam Parr

You're kind of in an interesting position. You work with a significant amount of wealthy people and you have some interesting insights. What have you seen regarding the levels of wealth where someone starts to see changes in their life?

Michael Sonnenfeldt

You know, there are so many things I could give you, one number or another, but it's really a state of mind. You have people who are retired and they get X dollars, and then you have other people who are retired and they get 10X dollars. Yet, the one who is receiving the lower amount might be more evolved and emotionally balanced because of meditation or the work they've done. The most interesting thing is that there are endless studies showing that, regardless of whether people earn $70,000, $700,000, or $7,000,000 a year, the question remains: how much more do you have to earn to be happy? The number is something like 20%. No matter where you are, the average person just needs a little more to be happy, which tells you about the unfulfilled nature of human ambition.

Sam Parr

I've read a bunch of stuff like that, and if—well, the way that I remembered it, and I could be wrong—it was like 2x. So it was like, or maybe it was for net worth. If your net worth is a million, you're like, "Well, I would feel a lot better if it were 2." But then they talk to people who have $100,000, and most people would say, "Man, if you have $100,000 liquid, it's going to be a little bit hard to screw up." But even they were like, "Yeah, but if I had $200,000, I think I would finally feel more comfortable."

Michael Sonnenfeldt

You know, the fact is that wherever you are, you have the illusion that if you had a little more, it would make your life a little easier. But sometimes, if you have a little more, it's a burden because now you have to manage it. When I say it's a burden, what I mean is that intellectually, you have to work harder to make sense of it. In that sense, it is a burden. It's like a job. It's just in the nature of things that the grass always seems greener on the other side. That's part of why I say a lot of this is just a mindset. There's another part which is really important as well. You know, it doesn't matter whether we're talking about $3,000,000 or $30,000,000. If you take two people who are worth $3,000,000 or $30,000,000, and one had been worth $50,000,000 and lost $20,000,000, now they're worth $30,000,000. The other had been worth $20,000,000, made $10,000,000, and is now worth $30,000,000. Those two people are worth $30,000,000. You could use the example with $3,000,000 as well. But the person who got to $30,000,000 by losing $20,000,000 feels absolutely devastated. The person who got to $30,000,000 by making another $10,000,000 feels generally quite positive or proud of themselves.

Sam Parr

yeah

Michael Sonnenfeldt

It's the same $30,000,000. So, it's a lot of things that are specific to the individual that generates the psychology.

Sam Parr

There was that one article that came out, and it was total nonsense. It came out years ago and said that you don't get significantly happier after a certain amount of money. The amount they mentioned was crazy—it was $70,000 a year. But of course, this was like 15 years ago, and I thought that was ridiculous. I don't think that's true. I do think there is a number where it's like, "Alright, maybe there's a threshold here." You could definitely continue to get happier, but there is a baseline. I always thought that you will always want more money. But today, maybe if you're in like the $10,000 to $15,000 range liquid, maybe life won't change significantly more after that. You know, you could screw that up, but you have to kind of screw up majorly. But I don't know, that's kind of what I always thought.

Michael Sonnenfeldt

Well, the $70,000 is a number that shows up in literature. It means that below $70,000, every increment you get closer to it—if you were earning $30,000 and you get to $50,000, then $50,000 to $60,000, anything up to $70,000—those increments have dramatic increases. It's just kind of obvious; it's basic needs. You need to put a roof over your head, you need to put square meals on the table, and you might need a car. At $70,000, you can pretty much afford most of those things—not in the lap of luxury, but you can afford them. Below that, it's really, really tough. So that's kind of it. It might be $90,000 today with inflation, but it's somewhere in that range. I don't mean to trivialize the difference between $70,000 and $90,000, but everything above that, you know, for every level that you have, you can just spend more and create the same sense of being overextended if you're not disciplined. It's the rare person who generates excess capital and doesn't change their lifestyle. So no matter how much they have, they keep spending more. If you can keep that gap of not needing what you have, that gives you a cushion. That's rare and really something remarkable for those who have it.

Sam Parr

Have you met people who have done that? Who have been, let's say, worth $100 million but still live like they don't even live nearly like that?

Michael Sonnenfeldt

Well, you know, the most classic example would be Warren Buffett, who still lives in a $30,000, $50,000, or $100,000 home that he bought in the Midwest, where he lives in Omaha. It's really hard to have one person comment on another person's health. You wonder, "What's all that money for?" But now he's given half of it or something to charity, and there's tremendous benefit gained from the money he's given to charity. It's one thing to live within your means; that's responsible. It's another thing to be so disconnected between your wealth and what you're living. There's something going on inside, and you know, I'll leave it to the shrinks to figure it out. But it's kind of hard to understand why a person who might be working 60, 70, or 80 hours a week, as if there's no tomorrow, might be worth a certain amount of money but is living on 1/100th of it, as if they had 1% of the wealth that they do. What are they hiding from? There are lots of answers, and they're all dependent on different people.

Sam Parr

Most of the people I hang out with are in a similar age range. I'm 32 years old and I started an internet company. My co-host, Sean, is a year or two older than me and also started an internet company. The majority of our friends are in their late twenties to early forties, and most of them, except for a few, are involved in the internet. So, I run in this very "internet-y," young circle. The vibe that I get from Tiger is that it's a little bit older and more focused on traditional businesses, or maybe finance or real estate. They seem to have really knocked it out of the park. Is Tiger 21 mostly like that? Am I categorizing it correctly, or do you guys actually have a lot of...?

Michael Sonnenfeldt

Only because of how we've grown, when you have, you know, 115 or 160 members, the average age has fallen over the years from the high fifties to the low fifties. In order for it to do that, given that a lot of people stayed, most of our new members are in their thirties and forties. We have a lot of internet folks. But the reason they're joining Tiger as opposed to something else is that when they're sitting around, they're not just sitting with internet folks. They're sitting with people who have real real estate experience and experience running businesses in the world that isn't just from the internet. The reason we're so excited to have folks in the crypto space or the internet space is precisely because they understand these new technologies that are going to transform the world in a way that many of our members wouldn't otherwise. So, it's this combination that makes some of our meetings so electric.

Sam Parr

Have you noticed a difference between, let's just say, Group A? These are people who made their money on the internet, and they did it in only 3 to 8 years, all selling just internet stuff. So, you know, not real stuff that you can touch. Versus, let's say, the small business owner who scaled something over 20 or 30 years and then eventually sold it or made cash flow along the way. Then there's the tech person who was probably poor for a long time and then suddenly, boom! They're not poor anymore because they sold their business, even though they weren't ever profitable. Have you noticed a difference in those people's attitudes or the problems they have?

Michael Sonnenfeldt

well there are probably you know as many differences as there are people but there's some fundamental truths that I think you're pointing at you know when I went to business school at mit 40 some years ago you know if you were doing a marketing exercise they'd say come up with a product that you could sell to a 1000 people and today if you go to stanford to a marketing course they say come up with a service you could sell to a 1000000000 people literally a 1000000000 people that's what facebook does and some of the other major social media so scaling is not just a difference in size we have a dramatically more frictionless economy the nature of internet and technology allows businesses to scale that's why we have unicorns today but we almost never did in the past so when you think about life expectations people who started out 30 or 40 years ago had an expectation that they'd be they'd have to put their nose to the grindstone for 30 years before they'd hit a payday not all of them but some of them and of course there are many different types of wealth I distinguish between people who are workers versus people who have some kind of god given talent a singer a basketball player an actor a rapper these are people not who are building businesses but have god given talents they of course they have to work hard to hone those talents but it's very different when your wealth is created from your own talent than when you have to scrimp and save you know to make a payroll and and get everything done but then if you compare that to people who are creating wealth today first of all they can do it in 3 to 5 years you have unicorns in you know 3 to 5 years or not much longer and so one of the big differences is that if you were 58 20 years ago and you sold your business you probably were retiring because you spent 30 years doing something and that was your first sale but today if you sell you might be 30 or 35 or 38 you're not retiring you're going on to the next thing so the I think the biggest difference is this kind of expectation of what a life looks like you know a generation ago a really successful entrepreneur had 1 or maybe 2 serial successes today a successful entrepreneur could have 3 4 5 or multiples because he or she has figured out how to manage a couple at the same time elon musk is not the only person who has multiple businesses he's certainly the most visible but it's much more a creature of today it happened in the past but just much less so

Sam Parr

When I was selling my business, I would talk to some bankers, friends, and advisors. A nice amount were like, "Yeah, sell it and get paid. You don't have to worry about money anymore," and that's wonderful. Then, the other group of people, though, were like, "Man, starting something that works is really, really, really hard." A lot of people sell a business and want to start it again, but they don't realize that there's some luck involved, and it's just actually really, really challenging. Sometimes you get confident and think, "Oh, I can just do it again." So, if you don't have to sell it, never sell it. Lately, I've fallen into the category of thinking that if you don't have a lot of money, sell a company if that means you will be financially secure. But after that, oftentimes, try not to sell anything ever. See if you can just run it or get it to run on its own or hire people because getting something going is such a pain in the butt. Do you tend to, when you're talking to your members, what do you think? Which of those categories do you think is actually a little bit more true or more common?

Michael Sonnenfeldt

I I think you're on to something really important and then it's kinda like all of the above one of the biggest learnings is that most people who sell their first business have no idea that it feels like having the rug pulled out from underneath you because you see a big dollar amount and and you're so focused on the sale that it's the everything else that's kind of the shock and the most important one is the momentum or the platform that you don't even realize how valuable it is so you know one of the things we really talk about is before you sell you really have to think about not just the pros but the cons and and particularly in an environment like today forget that the markets are down this year in a low interest rate environment when you sell you know a typical industrial building obviously you're talking about other other types of metrics but it used to be a typical meat and potatoes business which sell for 7 or 8 times earnings and you know if you take a business that was making I'll use an example $3,000,000 and you sold it for $20,000,000 and you paid the taxes now you have 16,000,000 but if you buy bonds at 2% you're now making $320,000 on that same capital that was generating $3,000,000 before you've lost 90% of your earning power and we call that sticker shock and 90 I would say the vast majority of people who sell their first business go through sticker shock because they haven't really thought through that the passive earnings on the profits of the sale will generate dramatically less income than the business itself did now of course the positive is that when you get when you sell that business you don't have all the risks of that business and maybe the business had risks that could put it out of business so a good sale allows you to take chips off the table and that has a lot of benefits but I think you're really you know you're on to the central issue around selling businesses because particularly if you hold on to the business you don't have a tax liability I'm not against taxes in general I'm just saying that it it eats into some of the value whereas if you continue to own the business the full value is working to make the business larger and larger so when you're thinking about risk I think the greatest service that we do is help some of our members think about the things they hadn't thought about when they're thinking about selling

Sam Parr

like what

Michael Sonnenfeldt

Well, just what we're talking about: this sticker shock, this sense of, "Do you really want to lose the platform that you have?" and "Will you have enough capital?" We've had many examples of people who think that when they sell the business, it's going to be easy street. But they don't realize the loss of income that occurs when you're taking dollars from a sale and putting it into passive assets or, worse, in order to generate income like they had before. They take risks they don't understand in investments because investing can be a lot harder. You know, when you own a business, it's kind of like being on a dog track. You have a fence to your left and a fence to your right. Somebody shoots a gun behind you, and you can only go forward. If you're a paper clip manufacturer, or you sell rocks, or frankly, even an internet service, you have one direction. You want to be the master of whatever your business is, and that's really hard. But intellectually, when you're an investor, how can any one person understand all the markets? If you're starting out with no fundamental understanding of the markets because you've just been running a business, one of the real shocks is that most people think the hard part is making the money. Then, once you have the money, you're on easy street. But from an intellectual challenge...

Michael Sonnenfeldt

Of view, many of our members find the challenge of managing the wealth that they've created is actually intellectually more challenging than the business. This is because the business might have come naturally to them. They might have had an idea and they just pursued it to its good ends.

Sam Parr

When I sold, I mean, I didn't know it. This was only a year, a year and a half ago, or a year and a couple of months ago. I didn't know anything. I mean, I knew nothing. When people said they were going to short a stock, I was like, "I don't know what shorting means." And when they said they were going long, I was like, "I don't know what that means." So, it was... and people, like friends and family, were like, "Well, what are you going to do with your money?" And I'm like, "I don't know anything." I think people are surprised that your ability to earn is not often correlated with your ability to invest.

Michael Sonnenfeldt

Just the opposite. That's what I'm trying to say. You can be a great entrepreneur and a really lousy investor. To give an expectation for people who might be listening, how long do you think it takes to go from being a successful entrepreneur that is a mediocre investor, where you were a year ago? How long do you think it takes until you have sort of a modicum of confidence that you know what you're doing as an investor?

Sam Parr

I mean years I I don't know I mean I I've been studying it now for a year and a half and I feel like I don't know much

Michael Sonnenfeldt

5 years 5 years yeah that's and that's if you're really working at it

Sam Parr

what I just did was put so I are you familiar with hubspot

Michael Sonnenfeldt

sure

Sam Parr

So, they're the ones who bought us. I own HubSpot stock, and then the rest was just mostly a Vanguard total index fund and some real estate funds. With your folks, what's the asset allocation of what you've seen? What's a fairly successful allocation?

Michael Sonnenfeldt

Sure, so I want to be... yeah, I want to be really clear. We're not an investment adviser, but I do track the asset allocation of our members and can simply report on it, which is... yeah.

Sam Parr

you guys put out this annual report that's awesome I love that

Michael Sonnenfeldt

So, the asset allocation, very roughly, is traditionally real estate has been king with about 28% of the assets, maybe 27%.

Sam Parr

does that include primary residence

Michael Sonnenfeldt

no generally not it's it's mostly investment real estate

Sam Parr

and does that mean they own it or they're in a reit

Michael Sonnenfeldt

It could be they're in a REIT. More likely, they either own a building or they own a limited partnership in a real estate fund of some sort. The second would be public equity, about 26%, anywhere between 24% to 26%.

Sam Parr

that's so much lower than I thought

Michael Sonnenfeldt

Exactly. In private equity, and this is unique to the Tiger community, our private equity has, for the last couple of years, been more than public equity. It's now a little neck and neck, but private equity is around **21% to 24%**. What's so remarkable is if you take those three numbers—private equity, public equity, and real estate—it adds up to **70%+**. Those are the risk-on assets. Our members are relatively long-term bullish on investments. Even when they think we're going into a recession, they are still over **70%** invested in what I mean by "risk-on assets." That's what the investors say are assets that are risky and have to do with business-like qualities. Then, fixed income, until now, is at a historical low of about **7%**. It was as high as **12% to 14%** in prior years. Crypto and gold are creeping up **1% or 2%** each, and cash is at **12%**. Our members' cash has stayed relatively fixed over a long period of time. The biggest fluctuation typically occurs between **11% and 13%**, but during the pandemic in March of **2020**, it spiked to **20%**, which statistically is off the charts. That's how concerned our members are. Generally, in the **12%** range is what our members are looking at in cash.

Sam Parr

what do they love about real estate so much I mean and

Michael Sonnenfeldt

It's the gift that keeps on giving. First of all, there are terrific tax attributes of real estate because of depreciation. When most people think of an investment asset and they buy a company, that company is subject to competitive forces every single day. It's why most operating businesses don't lend themselves to multigenerational families. Of course, there are exceptions and some very important ones, but real estate is a much more tolerant asset for multigenerational ownership. If you own certain natural resources, like timberlands, those are also good to pass from generation to generation. When you own a great piece of real estate, the joke is that your child can be, let's say, less than brilliant and still know how to collect the rent. Even in your own lifestyle, if you own a great piece of real estate, the tenants have to pay the rent even when you're playing golf. But when you're running a complicated technology company or something else, you have to be out there working every day. Your team has to be really, really good. I'm not in any way suggesting that real estate doesn't take a different kind of unique smarts. It's not an easy game, but it's very different. One way to think about it is if you took the whole economy—I don't know if you remember the Dewey Decimal System of libraries—but if you broke the economy into all of its sectors, and one of those sectors was real estate, along with nine other sectors like medical, education, high-tech, aerospace, etc., real estate is more different than those other nine sectors are to each other. This is because of its durability and multigenerational capacity.

Sam Parr

We always make a joke that people get offended about this, but I'm like, it's kind of a compliment. We always say that real estate has the highest number of dumb rich people, and that was kind of like my son.

Michael Sonnenfeldt

Like a fox. In other words, they may not be people who have the same intellectual pursuits that you do, but they can go and smell an opportunity. They can sniff out where there's a problem in a way that most other business owners don't. That's why I say it's very deceptive because they're a breed apart. However, that's become a little less so in the last generation. As real estate became more securitized with different types of ownership and debt that went to Wall Street, it became more of a Wall Street game. So, it's a little more of a Wall Street game today than it was 20 years ago.

Sam Parr

Yeah, and the strategy that my wife and I had was, "Let's just try to get somewhat wealthy with tech stuff and have that continue to make cash flow." We thought about selling companies and piling a lot of it into real estate because that's something... With my business, we had to send an email every day. But if Gmail changed, I could go out of business. A building that I own, I can lose a fair amount of money on it, but it's still a thing that someone will purchase, even if it's at a huge loss. It's not going to go to zero. Whereas my company, it definitely could. If I owned a conference business and a pandemic hit, like which I did, it literally made $0. Whereas this land that I own, that I'm looking at right now, that's probably not going to go to zero.

Michael Sonnenfeldt

You know, none of these things are as simple as we'd like. I think you're making some really excellent points. But if you owned retail, movie theaters, or airports during the pandemic, those went to zero too if you had any leverage on it. So it's not just real estate.

Sam Parr

hyperbolic but like in existence yeah in general

Michael Sonnenfeldt

I totally get it. It's not that it's without risk, but as an asset category, it's a long-dated asset. I can't find this client info.

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Sam Parr

One more thing about selling versus not selling. Because you have a way bigger sample size, do you regret selling your companies? The thing about selling is, let's say you sell a business and you make $30,000,000. After paying taxes, you're left with $20,000,000. You could build a business for 5 or 10 years, sell it, and make that $20,000,000 from cash flow—annual cash. And that's really freaking hard. I mean, your taxes are higher because it's income versus capital gains. It just seems like selling a business is probably the easier of the two. And it's still not easy; it's still not easy. It's the easier of the two to accumulate your first bit. Would you agree with that or no?

Michael Sonnenfeldt

Well, it's... the problem is that it's better to think of it as a shift in risk. Because when you made the decision to sell for $30,000,000, the example you just gave, what you've done is taken a lot of risk off the table. So, the chance of losing that $30,000,000 now goes down radically. It's much less once you've turned it into cash. However, the chance of getting to $60,000,000 might have gone down also because you lost the engine of growth. So, you know, do you want to sleep well or do you want to eat well? Are you long-term greedy or short-term greedy? But there's no question that when you sell your business, in my opinion, more often than not, it's not number dependent; it's risk dependent. You want to take risk off the table. You don't want to have the risk, just as you said, of losing your business anymore. So, you can take your chips off the table and diversify it over a number of investments. But it's going to be much harder if the business was a well-functioning, growing business to get to that next level. You've increased the hurdle rate before you can get to that next level of $60,000,000, $80,000,000, or $100,000,000.

Sam Parr

Do you regret selling your two things and Tiger? Or, so you didn't sell it?

Michael Sonnenfeldt

First of all, I'm still the chairman and majority owner of Tiger, but it's run as if I'm 50/50 partners. Tiger would be a great example. I'm 66, and when I sold Tiger, the risk that I was most concerned about—because I'm a cancer survivor—was longevity and sustainability. If something happened to me, our board said I was the number one risk. Because I love this business, I asked, "How do I reduce that risk?" Well, the first thing is I bring in a co-owner, and the second is we bring in a world-class CEO. In order to bring in that world-class CEO, I needed to bring in a co-owner. So, Tiger is immeasurably stronger today from a team perspective, ownership, and resilience. It is still my legacy; I'm the founder, and it was my idea. But I never went into it for money, and I'm not sure that I would have done any better on my own. I think the diversity of ownership and the addition of the team that we built into a world-class team is just dramatically different than I could have created on my own. So, I have no regrets whatsoever with Tiger. As for the other businesses, it was interesting. I sold my first project that I mentioned to you when I was 30, and that's...

Sam Parr

can can you say what you sold it for so so we have context

Michael Sonnenfeldt

I mean, it was a project that I was a partner in, but the project got sold for over **$100,000,000**. That was in **1987**.

Sam Parr

so that was pretty life changing I'd imagine

Michael Sonnenfeldt

Totally life-changing. But what I remember is not so much the dollar amount. What I remember is that it was heralded as the most successful real estate project in metropolitan history in terms of financial return. It took me a couple of years to kind of find myself again because I went from being one of the top 100 developers in the country. I also had the advantage of having a partner. The project was my idea, but selling was his idea. He never would have gotten into that project if he hadn't been my partner, and I never would have sold it if I hadn't been his partner. We sold at the end, and 99% of what we were worth was tied up in that project. If somebody had gotten hurt or killed during construction, it could have wiped us out. So we sold and closed in January of '87, and in October '87, the market crashed, and real estate followed after that. We had been one of the top 100 developers, and we might have been one of five developers in the whole country that had lots of capital and no buildings to weigh us down with the problems from the market crash. That gave us an extraordinary opportunity to get back in at the bottom. I did that by creating a company that bought distressed real estate from banks and went on to buy close to $1,000,000,000 worth of assets.

Sam Parr

Wow, one of the surprising things when I kind of started, when I sold, was I had never heard of this thing called an **asset-backed loan**. Basically, one example of that is when rich people buy a home. You'll hear that they bought like a $5 or $10 million home in cash. Oftentimes, what that really means is they're using this thing called an asset-backed loan. So, basically, if you have a stock portfolio of $10 million and it's in a Vanguard index fund or some basic thing like that, you can borrow like 60 or 75% of that at a very, very low interest rate— as low as 1%. What were some surprising things that people who come into money after selling their company see? When my banker told me about that, I was like, "Are you kidding me? This is how people do it? This is amazing!" What are some other things that kind of fit in that category?

Michael Sonnenfeldt

I'm sorry, but I would never do that. Most Tiger members... yeah, most Tiger members wouldn't for two reasons. 1. I don't have any debt. I wouldn't want any debt. Debt can be very corrosive at exactly the wrong time. You know, the market has just gone down. For people who are levered, they could have been wiped out. If you want to be here for the long term and preserve wealth, I would argue you want as little debt as possible.

Sam Parr

I'm not suggesting that's a good idea no

Michael Sonnenfeldt

no no I understand

Sam Parr

it's an interesting option that people have like for sure to pay taxes

Michael Sonnenfeldt

sure but the other the other part of it is that 1% can be illusory because the rate can go up if it's a floating rate and if you have a spike in interest rates and you made assumptions that you were borrowing at that low interest rate and then it goes up you can really wreak havoc with your balance sheet so I one of the things that most tiger members enjoy when they reach a level of wealth is the ability not to have debt hanging over them now having said that who are the best managers of debt well private equity firms and real estate is the place where most debt is so people who've spent a career managing debt understand the power of it but they just understand that at some. You wanna reduce risk and take chips off the table I think the other thing is something you said before not everybody fully appreciates why they became successful because for every person who had a plan somebody else was lucky let's say doesn't mean that they didn't have a plan but fundamentally they're lucky and it's just a statistical thing the the number of people who've had 2 successes is dramatically smaller than the number of people it's a bell curve of who's had one success and for people to have 3 and 4 successes gets down into the you know 1 in a 1000 entrepreneurs or something and I think that many people systematically overestimate their own skills when they've been successful and there's a real comeuppance that after they sell their first successful business they assume they'll be successful in the next one and they get their clock handed to them as I did when I was 30 was a very painful lesson but it was the most valuable lesson well I sold this amazing project when I was 30 and then I started a business in the real estate information this is before the internet you know pretty much what zillow is today where you can look up any house and get a price on it we created a business that was a precursor to zillow before there was an internet

Sam Parr

it was a lot of your of your net worth from the previous thing did you invest into this new thing

Michael Sonnenfeldt

Oh, I probably risk somewhere between 25%... something like that. One of the biggest learnings is that when you sell a business, many people think they're great investors. When they own a business, if they make an investment, they have to talk about it at a cocktail party. If they lose money on an investment, it gets swept under the carpet because the business itself is profitable, so it covers up those losses. Many people who've been successful entrepreneurs don't realize how poorly they are as investors because they've never been battle-tested without the benefit of the company providing, you know, the cushion if they make a mistake. So, I think one of the biggest mistakes that people who sell businesses make—and it's what you said before—is that they assume they can do it again and again. Only a portion of people who've been successful once are going to be successful twice.

Sam Parr

When you're talking about earning money, what about spending money? Something that I ask myself is, I'm quite frugal. I say, "I don't want to buy this, this, and this because it costs too much money." I just don't... and some stuff, like owning a lot of objects in my home, kind of stresses me out because I feel like I have to take care of it. But then there are other things, like flying nicely or staying at fancy hotels, where I was like, "I don't want to spend money on that." Then I realized, well, you know what? That actually makes me happier. This is fun for me. I should spend on that because I feel it.

Michael Sonnenfeldt

know about the marshmallow test

Sam Parr

yeah about delayed gratification delayed gratification

Michael Sonnenfeldt

so should I tell it for your listeners

Sam Parr

yeah yeah yeah yeah

Michael Sonnenfeldt

it's a very famous very famous test that was done at stanford in the I think fifties or early sixties and you know they put a table of 12 3 year olds or 4 year olds out and they put 1 marshmallow in front of each of the kids and they said look I'm gonna step out of the room if you don't touch the marshmallow while I'm gone when I come back I'm gonna give you another marshmallow and only 1 or 2 of the kids could wait for the person 20 minutes to come back they just had to eat the marshmallow in front of them those 1 or 2 could handle delayed gratification and it turns out that they tracked many kids who went through this and the very few who could delay gratification were more successful in school more successful in life and more successful in business by various measures over the next 30 to 50 years of their life it's a remarkable study and it has to do with what I was saying before when you're an entrepreneur as apparently you were you had to delay gratification because you were putting money into your business you couldn't you couldn't do all the things others who were making a lot less but didn't have a business were doing and delayed gratification the discipline of delayed gratification is at the core of entrepreneurial success but frankly when you're a movie star or a rock star or a baseball pitcher or a basketball player delayed gratification isn't so much at the core of your success because you you don't need to scrimp and save you need to practice and and be well so when people sell you know there's a syndrome where somebody's been very successful but they've been delaying gratification so long that they only open up one step at a time they still are driving a chevy they still are wearing a certain kind of suit they're wearing a timex watch but they go on a great vacation or they go on a mediocre vacation but they're wearing a really expensive watch you find when people have sold their business they open up slowly because they wanna they wanna be smart and they don't wanna waste and they have to find that new balance but you know we have a rule at tiger which I think is the most important rule it's called the 2% rule if you've been lucky enough to sell a business one gauge you can think about is if you're solely living on the investments in your portfolio if you can live on 2% of your assets or less then you're in a safety zone and obviously some people have the good fortune to earn a lot more than 2 or 3 or 4% on their assets so they can live on a little more but once you start living on more than 2% you're actually starting to stress the ability to preserve capital and my guess is if you if you went to a whole bunch of 25 year old kids and said you know if you inherited a $1,000,000 how much could you spend a year and preserve the money you'd be shocked a lot of kids would say I don't know a 100,000 or 200,000 a year

Sam Parr

way too high

Michael Sonnenfeldt

it's 20,000 a year and that learning is really fabulous

Sam Parr

I just... there's this funny, cool subreddit—a forum that I go to—and it's called **Fat FIRE**. You know what FIRE is, right? FIRE stands for **Financially Independent, Retired Early**. Typically, FIRE is for people who want to save like $1,000,000 and live off like $50,000 a year. **Fat FIRE** is for people who want to earn a much larger amount and live somewhat lavishly. On that subreddit, the withdrawal rate is like **3%**. So, it's a little bit higher than **2%**, but like **3%**. I think there was this thing called the **Trinity Study**, and they said like **4%**. Frankly, I think that sometimes is too high, but I kind of buy into the **3%** range. Anyway, there's this one book... have you ever heard of this guy named **Felix Dennis**?

Michael Sonnenfeldt

no I don't think so

Sam Parr

He's amazing. He's kind of... he's dead now, but he's kind of like a combination of Mick Jagger and Richard Branson. He was this British entrepreneur and he was flamboyant like Richard Branson. He did a bunch of stuff, but he was like Mick Jagger in that he was kind of a degenerate. He loved drugs and hookers. He wrote about his escapades when he got older. He said, "I had a drug problem and I was never married, so I was just sleeping around." He's kind of a fun guy to read about. He has this book called *How to Get Rich*. It's kind of poorly titled in a way that it's embarrassing to talk about, but it's quite a good book. He eventually founded Micro Warehouse, which was a publicly traded company. He also started Maxim magazine; he was a publisher, so he made all of his money in magazines. He said, "I'm going to die soon because I've got cancer, and I'll die with a $600 million net worth. But if I could do it all over again, my goal would have been to make $20 or $30 million by the age of 35 and not focus on money-making ever again. I would only focus on the people I cared about." But like a boxer who's punch-drunk, I went back into the ring every time because I was addicted to it, even though it didn't always bring me the most fulfillment and happiness.

Michael Sonnenfeldt

I just want to share three reactions to that. The first is about a band leader from the late sixties or early seventies who was being interviewed a few years ago. The announcer said, "You know, you were the first band to make $1,000,000 a month. No band had ever made that much money. What did you do with all that money? You guys must be rich." He replied, "Well, we spent about 70% on wine, women, and drugs, and wasted all the rest."

Sam Parr

but but the thing

Michael Sonnenfeldt

The thing with Mick Jagger is what you don't see is he works out 6 hours a day. He eats a food regimen that's like second to none. Here's a guy who's...

Sam Parr

may maybe keith was a better example

Michael Sonnenfeldt

Yeah, well, that's important because even with Richard Branson, with his persona, he knows how to leverage from a marketing point of view. He puts very little into a business, and others invest around his name, so his risk is very low. These are people who are real geniuses at what they do. But the thing that you didn't mention is **philanthropy**. How do people create meaning? I think that people who've created a certain amount of wealth and then say, "A higher percentage of what I'm going to make, I'm going to give back to causes that I believe in and try to make the world a better place." I think that's a really important way to find meaning. So that guy who made $600 million and said, "I should've just made $30 million," maybe he should've just been a little more philanthropic and looked around the world and said, "I can make an impact in a positive way."

Sam Parr

Have you heard of this book called "Die With Zero"? You have a ton of books behind you, so maybe you have it. It looks like you read a lot. There's this book called "Die With Zero." It's by a hedge fund guy named Bill Perkins. I've just started reading it, but it sounds like the premise of the book is basically to spend your money while you're alive. Instead of giving away money when you're dead, give your kids the money now. If they want to buy a home or do something, maybe you can enjoy it together. If you want to leave money to a certain cause, just give it now because you'll be able to see it, and you can all get a little more joy out of that. Sure, it is too.

Michael Sonnenfeldt

That was the biggest debate, you know, for many years. Warren Buffett said, "I'm leaving a big foundation when I die," and he explained that he was growing his capital so quickly that by leaving it in his portfolio, he would leave so much more. Bill Gates made the argument with him, "Yes, but what's the value of a life saved today versus a life only saved 30 years from now when you die?" Some things aren't financial calculations. So, the point you're making is that there's a lot of value in being philanthropic, both with your time and your money, earlier on and not just later on. I think one of the things that is really important is that many entrepreneurs have a lot more than just money. They have skills, insights, and contacts that they can leverage philanthropically. So, I do believe in being as active as possible. Climate is my number one issue, and I'm involved in climate both politically, philanthropically, and in the way I invest. That's given me a lot of feeling, at least, that I'm doing as much as I can.

Sam Parr

Yeah, well, last two questions. First, the interesting thing about your business, Tiger 21, is that from the outside, it seems like the vast majority of the value comes from your group of about 8 to 15 people. This means that there's a lot of faith placed in the facilitator. You need that facilitator to be good. If your facilitator stinks, then that could potentially ruin the experience. So, it almost feels like your business is decentralized. Customers could have drastically different experiences, regardless of what's happening at HQ. How do you make sure your facilitators are good and are providing a valuable experience?

Michael Sonnenfeldt

So, I think what you're searching for is kind of a classic example: Would you rather own 300 gas stations or one oil refinery if they're both worth the same amount of money?

Sam Parr

well the answer is obvious on that one I think

Michael Sonnenfeldt

which is what

Sam Parr

You don't want one big customer. It would be nice to have 100 more that are equal.

Michael Sonnenfeldt

But the fact is, if you have 300 gas stations that all have the same label and name, you have brand exposure. If something bad happens in one of them, it could affect people's demand for the others. So, our only asset is our people—both our team, our chairs that facilitate the groups, and our members. We spend a fortune of time screening the facilitators and providing lots of opportunities for them to learn from one another. Our facilitators, whom we call chairs of the groups, come in from all over the world to learn best practices from each other. We track all of the relevant metrics to see which groups are performing well and which groups are not. Of course, the most important thing is that we have zero tolerance for anything less than high integrity and maintenance of confidentiality. If a member or a chair ever violated that, they would be out in a second. So, I'd say that maybe besides the core asset being our team and our members, the thing we protect the most is our brand by being really true to what it stands for. I don't think we've ever compromised on trying to put members first. That's kind of what we're about. I'm a member-first person. Most of the value that I've gotten out of being a member of Tiger has been from being a member. The fact that I own a little more than half the business today is almost irrelevant to the value that I've gained by being a member and all the opportunities that come my way as a member.

Sam Parr

Well, you're awesome! The reason I wanted to talk to you was that I've heard of Tiger. I've thought about joining, and I have friends that are part of it. I love the business model. My business was tangentially related but not quite the same thing; it was community-based. I hadn't read or seen too many interviews with you, and so I'm happy that we got to talk because I wanted to kind of explore this. You're cool as hell! I appreciate you taking the time. This is awesome.

Michael Sonnenfeldt

thanks so much for having me it was

Sam Parr

And if people want to find you, do you use Twitter or anything? Do you want to share them anywhere?

Michael Sonnenfeldt

I'm on LinkedIn. I don't use Twitter. I don't use Facebook, but I'm available through LinkedIn, and it's kind of easy. My email is **[email protected]**.

Sam Parr

hell yeah thank you man I appreciate it thank you