Japanese Misogi, LBO 101, and a meaningful career change

“We suffer more in imagination than in reality.”– Seneca

October 10, 2023

Leveraged Buyout 101 [2 minutes]

Picture this: you've reached a comfortable level in the corporate world, earning a substantial six-figure salary. You're on a roll with extensive experience in managing projects, developing businesses, and creating new corporate products. Perhaps you're eyeing a C-level position in the coming years, and I’m rooting for you!

But what if I told you that you could purchase a business, leverage your skills and experience, and start building equity for your retirement?

Did you know that many baby-boomer entrepreneurs in the US are approaching retirement and either don't want to sell their businesses to competitors or can't take them public? That's a golden opportunity!

Think you'd need tens of millions to make that move?

Let's debunk that myth with a real-life example, as I'm currently in the market.

I like small, stable businesses. No debt, just a consistent pre-tax income of $1.5 million annually. After taxes, it pockets a cool $1 million.

For the sake of this example, let's say the appreciation multiple on net income is x10 so that business is priced at $10 million. Sounds out of reach. But here's the twist: I want to put up only part of the amount myself. Instead, I think, "What if I could leverage this deal for a better return?"

So, I will put up $1 million of my own money and approach a bank for the remaining $9 million. I’ll get a 5-7% interest rate, assuring the bank that this business's consistent income can cover the interest. Plus, I offer the business as collateral. This is where the term "leveraged buyout" (LBO) comes into play. I'm using borrowed money (leverage) to acquire that business.

Now, let's break down the numbers post-acquisition. Previously, the business had a pre-tax income of $1.5 million. With the new $9 million loan at a 5% interest rate over 10 years, I'll owe $1,200,000 annually. Subtracting that from the pre-tax income leaves $300,000. After taxes, the net income is around $200,000.

Here’s the magic of LBOs: I invested only $1 million of my own money, yet I'm earning $200,000 annually. That's a 20% return on my investment, compared to the original 10% without leverage, and in 10 years, my holding will own the company debt-free.

LBOs can be a game-changer, turning a "sleepy" investment into a high-yield opportunity. But, like all financial strategies, it's not without risks. The debt can become a burden if the business's income drops or interest rates skyrocket. However, when executed wisely, LBOs can amplify returns, making them a favorite tool among savvy investors.

In essence, a leveraged buyout is like turbocharging an investment. It's about using borrowed money to maximize returns, all while understanding and managing the inherent risks. So, the next time you hear about an LBO in the financial world, remember: it's not just about buying businesses. It's about leveraging opportunities for greater gains.

Do you want to by a business? Check out these websites:

How to make a meaningful career change [4 minutes]

TL;DR 

  • If you want a career change, switch to a job that fits your personality.

  • Take psychometric tests that indicate your vocation and determination.

  • Based on this, you should narrow down the careers you should look into for more professional satisfaction.

Ever since COVID-19 started, workplaces have been turned upside-down. Some companies went on massive hiring sprees (Microsoft alone had a 36% headcount increase in two fiscal years following the pandemic). Starting 2021, we saw “the great resignation” taking place - people quitting en masse for various reasons: wage stagnation, frustration built up over the years, lack of opportunities in the current workspace, etc. After navigating home offices over the past 2-3 years, we now see employers pushing people to get back in the office, but the resistance is high.

Long story short, people are not too happy for whatever reasons. Most people I speak to are disengaged and looking for a change. But will a change solve all issues?

Workplaces are not perfect. There will be people you like and people you don’t like. There will be frustrations generated by an imperfect manager (as they all are). Silly rules you will never like. All of that cannot be changed. No company or job is perfect, but some may be more suitable for you than others. How do you figure that out? Is there a way to make a meaningful career shift? I think so.

While in university, I encountered this mysterious “psychometric testing”. I took a couple of these tests and was shocked at how well they described me, my personality, and what I could be fit for in terms of a career. I thought it was a bit of a coincidence, but later in my career, I took a few more tests – as part of my MBA program and with several employers. There was a trend. Different test suppliers and formats, but the results were incredibly similar. That’s when it clicked.

How does it work? 

Initially, you must answer a relatively large number of questions. The trick is to answer them as honestly as possible. The test formulates your personality trait, management style, or professional profile based on extensive research and empirical data. Now, keep in mind – the results are guiding and not decisive. If your test shows that engineering fits 75%, you can most likely follow a career as an engineer. If the result shows a 10% fit (as it did for me), it just means that you will have a more challenging time following that career path and need to put in more effort.

Psychometric Testing - Sample Professional Profile Assessment

Above, you can see the dimensions of a sample professional profile assessment. The test result then proceeds to do a deep dive into each area and discuss detailed characteristics (again, all based on the answers you provided in the test). With the scoring on these dimensions in mind, the test result proposes a relative fit for internationally recognized jobs studied in terms of personality trait requirements.

Again, this is not an exact science, but it does help. I went through an engineering program but didn’t see myself working as a design engineer in the long term. That requires tons of patience, an analytical approach, and a meticulous approach. I am very conceptual, often intuition-driven, and I love working with people. All my psychometric tests indicated this, but it was too late. I had already chosen the wrong undergrad program and needed to finish it.

Was it too late for my career? No. I used the results of my psychometric tests to guide my career and to aim for roles in which I work with people. You can even use this to help guide your teenage kids in choosing a career. It will just be better for them.

So, where can I do this? 

You can use a few services for different types of psychometric tests. I like the Central Test as they have psychometric tests specifically designed for this.

The VOCATION is an 8-minute test with 60 real-life scenario questions determining your natural inclination – should you be in Sales or Accounting? It takes different personality traits for both and different approaches.

Aside from finding your potential, you need to understand what motivates you. The MOTIVATION+ is a 12-minute test consisting of about 40 questions. The test will help you understand what drives you to be engaged at work. You may be following your vocation (say you are a stunning marketing professional), but you may be doing it for the wrong industry or company.

Once you determine your vocation and what drives you, you can narrow down the jobs you should focus on and the environment, industry, etc. With these two guiding points, you can make more informed decisions toward a meaningful career change.

Of course, there are plenty of resources out there. Choose the one that works best for your budget, and if you can, take a few fests from different providers. It will paint a more complete picture, and you will recognize trends between the tests.

The Misogi from Jesse Itzler: One Year, One Monumental Achievement [2 minutes]

A few days ago, I stumbled upon a viral video featuring an excerpt from an interview with Jesse Itzler. Besides being known for his success, he is the author of "Living with a SEAL: 31 Days Training With the Toughest Man on the Planet" (yup, he lived 31 days with David Goggins!). In that video, he discussed the concept of "Misogi," which is the idea of accomplishing one defining thing every year—something so significant that you can look back on it and say, "In 2022, I launched a podcast," or "In 2021, I quit smoking." Essentially, one significant endeavor should define the year for you.

You know, I have a penchant for ancient philosophy and love to present it to you in digestible pieces.

Now, what is Misogi? The concept originates from Shinto practices in Japan and is traditionally a purification ritual involving the washing of the body. In traditional Shinto, Misogi consists of standing beneath a waterfall or engaging in other cleansing practices to purify both body and mind—these can include breathing exercises, salt purification, and fasting.

Misogi rituals aren't confined to any set frequency but are often performed annually during seasonal observances. Traditionally, these rituals involve standing and/or meditating under a cold waterfall.

You might wonder why Jesse Itzler discusses Misogi as "one big thing that's going to define that year"?

In the last few decades, the concept of Misogi has evolved beyond these specific rituals to embody a more general idea of pushing one's boundaries. In this modern interpretation, a Misogi doesn't have to involve standing under a waterfall. It's more about selecting a challenge so formidable and far removed from your comfort zone that it helps you shatter your mental barriers, inspiring you to grow and redefine what you believe is possible.

So, what is your Misogi for 2024?

Would you like to talk more about the topics of this newsletter?

Drop us a line at [email protected], and we’ll gladly help if we can (free of charge). 

The Industrialist