How Tiger 21 Helps Entrepreneurs Create and Preserve Their Wealth with Michael Sonnenfeldt – EP 286

Justin Donald: Hey, Michael. So good to have you on the show.

Michael Sonnenfeldt: Great to be here. Thank you.

Justin Donald: Yeah, this is fun. Well, we just got a chance to hang out in Las Vegas at the Tiger 21 Annual Global Exchange, the big conference that kind of either wraps up the year or kicks off the year, however you want to look at it. And you guys delivered in typical fashion, and it's always fun seeing all the people there, all the friends I've made, and all the people we get to learn from.

Michael Sonnenfeldt: It's really an amazing thing. Today, we have over 1,800 members around the globe, and they manage about $250 billion. But what's amazing is the organization is 27 years old, but the GX is only 15 years old, but only in the last couple of years have members from around the globe been visiting, because we've really been opening up around the globe in the last few years, and that's one of the really big differences. And of course, this year we were in Las Vegas. That's the first time we're in Las Vegas. Anytime you run a conference in Las Vegas, you wonder if there might be too many distractions. But by and large, it came off without a hitch. I love being there, and one of the treats for me was I got to see the Eagles at the Sphere, which was a once-in-a-lifetime experience.

Justin Donald: Well, I did the same, and I'm an Eagles fan, but this was by far the best of any concert I've ever been to, and I've gone to a lot. I mean, this was the single best show I have ever seen.

Michael Sonnenfeldt: The reason is you weren't watching the Eagles. You were watching a show with backup by the Eagles.

Justin Donald: That's right.

Michael Sonnenfeldt: The show was in the Sphere, and that night, Joe Walsh wasn't there, and it still didn't make a difference. I'm sure it would have been better if he was there, but he was sick. It didn't bother me in the least. I had an amazing time.

Justin Donald: Yeah, just a really special event. And it was really neat seeing Glenn Frey's son be able to step in and kind of take over where he left off. And I mean, it was an all-star cast. I mean, the reach of the Eagles goes pretty far and wide, and it was cool seeing who they brought as their frontman for this.

Michael Sonnenfeldt: Yeah, really great.

Justin Donald: Well, I'm such a huge fan of you and of Tiger 21. I'm, let's see, either a six-year or seven-year member, and I'm based here in Austin, obviously. So, for those that are less familiar with Tiger 21, I have a group that I meet with on a monthly basis. That's generally these groups are about like 15-ish people, 15 to 17 people, maybe a little less as a group gets started, and then they build up to that, which is cool, because you've kind of got like a board of advisors, if you will.

Michael Sonnenfeldt: A personal board of directors, yes. And then you have more regional-type events, and then you have your big global events. And so, I'm excited to really just dig in with you on life before Tiger 21 and life after Tiger 21.

Michael Sonnenfeldt: Well, I don't think there was life before Tiger 21.

Justin Donald: I love it. Well, you certainly had a business life, and you had a nice exit, and I think it'd be great for people to learn kind of what you did in the real estate space, because you had a prolific career there, but then having a big exit, you're kind of like, "Who are my people now? I need some other trusted advisors, some people I can bounce ideas off of.”

Michael Sonnenfeldt: Yeah. The roots actually were I had my first notable exit when I was 31. I had been working at a warehouse that was on the waterfront in Jersey City, New Jersey, right across from the World Trade Center, literally, about 3,000 feet away, across the Hudson River. And when I was at 17, I was working in this warehouse because my girlfriend's father gave me a job, and I was meditating at the end of the pier for lunch, and the pier was about 1,000 feet out, meaning that's how long the pier was. And in the depression and afterwards, trains used to come out on the pier and unload their goods. And I looked behind me, and I saw Jersey City filled with abandoned rail yards and kind of decrepit industrial buildings.

And I looked the other way, and there was Manhattan bursting out of its seams, particularly because of the growth of Wall Street, and particularly technology that was creating these computer centers. And I had the idea to take this old industrial warehouse, which had been the biggest building of its type in the world when it was built in 1929. It was on eight floors, as big as the original World Trade Centers were on 80 floors. That's how big the floors were. And the building was wider than the Empire State Building was tall, so this was a massive, massive building, but it was an old industrial warehouse, and I had the idea to turn it into back office for lower Manhattan, and particularly to use the industrial floor loads to hold these new computer centers that needed special buildings.

And I had this idea when I was 17. Don't ask me why, but it took until I was 25. By then, I had married that girlfriend, and I didn't really want to be the son-in-law, so to speak. So, I went off to MIT, and I graduated. I did undergraduate and graduate at MIT, and then I went to Goldman Sachs in the merger department. But in that year, I think it was 1979 or ‘80, my mother-in-law died, and my father-in-law was running this large business with his brother, and I came to work for him for three years, and during that time, I wanted to renovate this building. Fortunately for me, he didn't want to do it, but I was able to buy it from him in 1982 with another partner, my first really great partner.

He was my father's age, so he was the father I never had, although I had a father, and I was the son he never had. He only had four daughters. He was my best friend, my partner, and sort of the guy who changed my life. And together, we turned that old industrial building into the largest commercial renovation in the country at the time, and overnight became one of the top 100 developers, although we might have been one of the only developers that reached that level on a single project.

Justin Donald: No kidding.

Michael Sonnenfeldt: So, I sold that when I was 31, and the rest is kind of history. It was an incredibly successful transaction. And in the parlance, I was “rich” at 31 unexpectedly, because who can imagine it happens at such a young age.

Justin Donald: No kidding. Well, talking about your big exit here, I feel like what happens with founders, there's two different mindsets that happen in two different personality types. You have your founder, your entrepreneur, starts a business, grows a business. If they're lucky, they have an exit, right? And if not, maybe they build a nice lifestyle business, but the investor is a completely different mindset. You almost have to redo everything that you know from the standpoint of like what made you successful as a founder probably is not going to make you successful as an investor. And maybe even so far as to say, what made you successful as a founder is going to actually make you really unsuccessful as an investor.

Michael Sonnenfeldt: You know, Justin, the little dirty secret of Tiger 21 is we have 1,800 of the world's most amazing entrepreneurs who have mostly had an exit. That's what distinguishes. We’re first-generation wealth creators, by and large, not 100% but overwhelmingly. And the dirty little secret is that our moniker, please don't tell anybody this, should be, "We take some of the world's greatest entrepreneurs and turn them into mediocre investors.” And the reason is that without that, they might actually be even worse than mediocre, because the thing that most people don't realize is that many entrepreneurs achieve a kind of success that's quite personal. It reflects some unique act of creativity, or unique talent, or unique ambition, or being in the right place, but it's not easily reproducible.

In fact, Tiger members, on average, are about one in 10,000 by financial accomplishment. And just to give you a perspective, if you were a member of a major league football, baseball, or basketball team, on average, you're about one in 17,000. And if you take the All Stars out, you're closer to one in 10,000, kind of. Imagine going into the Yankee dugout and the two all-stars are off at the All-Star Game. The 30 left, they’re still a pretty good team. And if you think in the entrepreneurial world, that's entrepreneurs who have created $20 million to $1 billion of net worth, but generally not above a billion dollars, because, as you know, there are about 4,000 billionaires in the world, a quarter in the US, but they tend to have different needs because of the scale of what we're doing. And so, we tend to focus on that community of people who have net worth between 20 million and a billion.

Justin Donald: Yeah. Well, and you guys do it well. You have quite the ecosystem, 1,800 members, as you had said, and I think 250 billion in total assets between them, which is really impressive. And I think for our audience, it's important that people realize that generally, most wealth is created through a concentrated approach, usually via business, every now and again, maybe through the right investments. But it's really in order to sustain it and grow it long-term, it really requires diversification. And so, after some sort of a liquidity event, a lot of these founders kind of are like deer in headlights and make poor decisions, make poor decisions just in personal consumption, but also in the investments that they do.

And I'm curious, for you, like, what you see as the hardest mindset shift that these entrepreneurs need to make when transitioning from wealth creation to wealth preservation?

Michael Sonnenfeldt: Justin, you're like almost a walking advertisement for what we're doing, because you understand it so well. And I'm going to get a little geeky but try and keep it simple. For those who studied statistics, there's something called a bell curve. We all mostly know about a bell curve, and at the top, there's a point that's called the median, or the mode. That phenomenon is what investing is about. There's a bell curve of outcomes. The vast majority are between plus 1% and minus 1% of the mode, which is around 8%. So, if you inherited 10,000 or 100,000 or 100 million, and you wanted to play it safe and stay within the zone, you could pick your five best managers, and the chances are they're going to deliver, over a long period of time, 8% to 10% if they're very good or reasonably good.

And so, if you want to preserve capital, be an investor. If you want to create extraordinary value, now you're in the world of risk, and it's kind of like rockets. Most of them fall to the ground, but occasionally one makes it into orbit, but that's no longer a bell curve. That's what's called a power law. It means very few people become phenomenally successful, and most actually lose money. So, if you had inherited that same million or 10,000 or 100,000 or 100 million, and you become an entrepreneur, the chances are you're going to lose money, but if you're really lucky, you're going to make 1,000 or 10,000 times your money.

And so, what happens is people get suckered in by the success of the names that we know, the Mark Zuckerbergs and Steve Jobs and Jeff Bezos and that whole group, and even Tiger members, because they're still only one out of 10,000, but the odds are so stacked against you that you really have to have something extremely compelling. You have to have what we call an edge, you have to have a theory of the case, you have to have discipline, and you have to have the ability to really focus to the exclusion of other things. And even then, it's a crapshoot whether you'll make money as an entrepreneur. But these two curves, the power law curve and the bell curve, people don't really understand that they're facing one or the other, or sometimes a combination of the two.

So, the simple fact is the learning is that the reason why most entrepreneurs have one success, whether they get there in their 40s or 50s or 60s, is they don't realize how lucky they were to have achieved that one in 10,000 success, and the chance of doing it again is quite small. Of course, it happens as sometimes luck strikes twice. But the point is, most people just don't appreciate how difficult entrepreneurial success is, and when they finally realize the statistics, they wake up and they become more of the bell curve investor, just hoping to preserve their capital and not waste it on the next entrepreneurial venture.

Justin Donald: That's right. Yeah. I mean, you said it so well, and obviously, that MIT education is paying off here with power laws and bell curves and standard deviations and everything. And what I will say what's interesting, because I actually have several friends that have had nine-figure exits. One specifically did very well. And so, most people would say, "Oh my goodness, this guy's set for life, nine figures. He's never going to run out of money. He can do whatever he wants.” But what happens? Let's say that this is $120 million exit, and let's say that you're living in a state that is a very high tax state, and so you're paying close to $60 million in taxes, maybe $50 million in taxes, something like that. Let's just be generous and say 40 million. Okay. So, now we're down to 80, and then you get a divorce. Now, we're down to 40.

Michael Sonnenfeldt: Wait, just stop there. And by the way, if that person is 80 years old, what's really important is what their kids get. And if they don't have an estate plan intact, that $40 million becomes $20 million. So, there are a lot of factors. What you're really pointing at is we think in a pre-tax world, but we live in an after-tax world. And when you get wealthy enough, you think of an after estate tax world, and you have to take all those into factor when you think about what you're investing and what the structures are.

Justin Donald: Totally. Yeah. I mean, 100%, and this person made some poor choices on investments and spent a lot of money on just fun and whatever. But all of a sudden, that big nine-figure exit had dwindled down to little under $20 million. And this person liked to live a very lavish lifestyle that was going to afford him maybe 10 years before it was all gone. And so, when I hear that, and I think about that, it makes me wonder, Michael, what is it that separates founders who successfully make the transition versus those that give back way too much of what they've built?

Michael Sonnenfeldt: You may have to cut this out, but my favorite story about this is about a rock and roll band that was the first band in the 60s to earn a million dollars a month. There was an unheard of amount of money, and he was being interviewed about 20 years later, and they said, “Well, what did you spend the time on? I hope this is PC.” He said, “Well, we spent about 70% of the money on wine, women, and drugs, and we wasted all the rest.”

Justin Donald: Oh, my goodness sakes. Well, in that, I mean, that is the world of rock and roll, right?

Michael Sonnenfeldt: Yeah. But the answer to your question is that one of the hardest transitions that any entrepreneur has is to reset expectations, which are completely different. A simple example, if you have a business, and of course, you'd be lucky to have a business making $3 million a year. It's an awful lot of money. But that business, if it's an average business, you'd be lucky to get $20 million for the business, and after you pay taxes, let's say it's $4 million, you're left with $15 million, if you invest it in bonds, you get like a 2% return or a 3% return. Well, even at a 3% return, that's $450,000 a year, but you used to be making $3 million a year. So, maybe you could afford two homes and three vacations on $3 million a year, but you can’t on $450,000, and I know for most people, even $450,000 would be a lot.

But if you were making $3 million and you didn't realize that selling your business would give you security but reduce your income, that's what we call sticker shock, and it's one of the biggest shocks of people who sell businesses and assume they've made it. So, when you have a business that generating real cash, and it's valued on cash flow or a multiple of cash flow, you have to be really careful about the pre-sale and post-sale realities, and make sure that you might be taking risk off the table by selling the business but you're going to have to change your lifestyle a little if you want to have it be sustainable over the rest of your life.

Justin Donald: That's right, yeah, and a lot of people have a hard time living life inside of those boundaries. To reduce the quality of life that you're used to, it's not only a financial decision, but it plays against your ego, right? You have to be okay doing that. And when I think about building wealth, I think about it more long-term. And wealth isn't just about the returns that you get every year. It's about protecting against the compounding. You don't want to interrupt the compounding. So, these small fees or taxes or, you know, there are a lot of things that can quietly erode millions of dollars over time. And so, for you, what do you think are the most common invisible leaks that you see that undermine compounding for otherwise what could be successful investors?

Michael Sonnenfeldt: Yeah. So, the one that is most talked about is fees. When you compare hiring a manager and paying a typical manager's fees versus buying an index of the stock market where there are very little fees, that manager is going to charge, for sure, between 50 and 100 basis points. And if it's in the private equity area, they're going to charge 100 to 200 basis points plus a percentage of the profits. That's what's called 2 and 20 in the private equity area, and you better have a big edge to justify those fees over time, because if it's the same level of performance, and there have been times where it hasn't even matched performance, you're going to erode.

It's amazing. If you look over something like 30 years, the difference between paying that one point fee, between, let's say, 11% and 12%, meaning you could have earned 12% one way, and after the fee, you earned 11, that's 100% of the profit, or 50% of the profit. I have a good example. I don't want to get too geeky here, but over 43 years, if somebody earned 21%, which is amazing, what do you think $1 grows to over 43 years at 21%? Well, I'm going to cut to the chase. It's $3,000. For every dollar you start with, over 43 years, you can get $3,000, but if your next-door neighbor started with the same dollar for 43 years and only earned 10%, I think they'd earn something like $75. I may be a little off.

So, it's amazing. $1 turns into $75, and another dollar turns into $3,000, and it's only the difference between 10% and 21%, but that's the power of compounding. And I think most entrepreneurs don't think of compounding. They think of the power of an idea. Investors think of the power of compounding.

Justin Donald: That's good. Yeah. I like that. Yeah. I think the power of compounding is just absolutely incredible. And I think a lot of people miss the boat there. How should people think about what's worth paying versus where they need to be ruthless about minimizing fees and drag and all the different things? Like, where can we splurge? Where should we be ultra intense and ultra critical?

Michael Sonnenfeldt: So, the hardest thing for many Tiger members, even after they've achieved great success, is to learn whether, as an investor, they have an edge. And that's kind of amorphous, but in concept, if you have an edge, you can generate a superior return over a long period of time, and if you don't have an edge, you can't. And so, one way to determine is to look backwards. If you thought you had an edge, but you couldn't deliver a superior return, you didn't have an edge. And sometimes it's the kind of intelligence. Sometimes it's a discipline, sometimes it's the ability to spot opportunities when others miss them.

But whatever the edge is, if the hardest thing for investors is to be honest about what edge they do or do not have, and I'd say my father used to say, "Most people are stupider than the average.” And I would say that most people, including some of the smartest people you know, delude themselves about whether they have an edge, because very often, the edge that they had gave them an advantage as an entrepreneur, but oddly enough, it doesn't give them an advantage as an investor. So, the bottom line is that if you don't have an edge, or you're not investing with a team that has an edge, you probably shouldn't pay the fees. Then you're better off probably just owning the index and combining it with some kind of bonds or cash and having a more traditional mix.

Justin Donald: Yeah. And I think most people don't realize that when you have a money manager, you're paying more for most likely the underperformance of you just buying the S&P 500 index or some other index, right? And so, if you look historically over any 15-year period of time, it's usually less than 5%, usually it's less than 4%, but any 15-year period of time, I believe, it's less than 5% of all money managers actually outperform the S&P 500 index, and over a 30-year period of time, less than 1% outperform it. So, most people pay more money to have worse performance when they can just go buy the indexes directly on Schwab or Fidelity or wherever. That's the cheapest way to participate in the stock market.

Michael Sonnenfeldt: It's counter to every instinct that we've been brought up with about individuals outperforming but not only are you right, another way to think about it is if you look at the stock market over 100-year period and say the stock market probably went up on average about 9% over that 100-year period, but yet the average individual investor earned between 3% and 5%, how could the average individual investor only earn between 3% and 5% when the market itself was going up 9%? And that's because human emotions have people buying exactly at the wrong time and selling exactly at the wrong time. They buy when the price is high, and they sell when the price is low.

One of the things about being in a Tiger group is you at least get to learn from people, sometimes as bright or brighter or more experienced than you are. And we were once in a group where a member was kind of talking about a particular drug stock that he thought was grossly undervalued. And when the discussion started, it was about $21 a share. And I'd say maybe a handful of us went in and did our research to understand why was the stock undervalued. And about a month after we started buying, one of the members said, "But the stock fell to 16. Should I sell?” And the guy who was the sponsor said, “If you don't know what the stock is worth at 21, you're not going to know what it's worth at 16, you had no business investing when it was 21, and you have no business investing when it's 16. If you're not clear that 16 is a better deal than 21, you just shouldn't be in the stock.”

It was a very powerful lesson about how we each fall prey to these kind of shibboleths and ideas about investing. But in the end, if you don't know enough about a stock to know that if it goes down in price, it's a buying opportunity, it seems so obvious. Don't be involved in the stock.

Justin Donald: That's right. Well, when I think about wealth, creating wealth, sustaining wealth, and really just living a meaningful life, you don't do it alone. It's always with people. You always have mentors and partners who dramatically improve decision-making over time. You even talked about your partner and best friend early on. So, my question for you is, which mentors or partners most shaped your thinking, not just financially, but in how you live today?

Michael Sonnenfeldt: Well, two very different things, because my first partner, his name was David Fromer. At the time, as I said, he was my father's age. I was 25, and he was 57, and he already was at a different part in life. And the reason we sold that project was it had gone up so much in value that he was then 62, five years later, and we each had 99% of our net worth tied in the up in that one project, and he wanted to diversify, because he didn't ever want to go backwards. I wasn't thinking about that. I would never have sold, because I was convinced it would have gone on to be much more valuable. But I had the kind of insight to know when to buy, and he had the genius to know when to sell.

In fact, we sold at the end of 1986, and then the stock market crashed in 1987. We were one of the only developers who had sold our assets, so we were sitting in cash and in fantastic shape to do the next one. So, he really had the genius to know when to sell. So, one of the lessons, as you say, what did I learn? One of the lessons is manage risk, because there are times where you can't reproduce a success, so take some chips off the table when you want. But he also had a lifestyle when we started. He said, “Michael, I'll be away on vacation eight weeks a year. You can reach me anytime I'm away, but I'm away eight weeks a year. We don't have a business that requires me to be there. I just need to be able to be in touch.”

And that was really profound, because my father was a corporate executive who had two weeks a year, and my father-in-law, although he worked for himself, had the discipline of only being away two weeks a year, and I just couldn't even conceive that you could be away eight weeks a year. But it wasn't eight weeks a year. I, for the last, I don't know, 40 years have probably been away, traveling for four to eight weeks a year, sometimes more, but I'm available 24/7, 365. So, I make a trade off that I'd rather have what looks like a vacation to many, but I never can give up my responsibilities, maybe now a little more than in the past, but that's a tradeoff many people don't want.

Some people want to walk out of the office at the end of the day, and they don't want to know anything until 9:00 the next morning. I take for granted that I'm available 24/7, 365, and on that basis, allow myself to be available in many different locations, doing many different things.

Justin Donald: That's awesome. I love it. And like you, I love to travel, and I let my team know I am available. I mean, sometimes I'll actually say I'm unavailable, but most of the time, I'm available, but I want to live life, and I want to live it on my terms. And I really appreciate that you do that as well, and so many other Tiger members do too. For someone who is listening and says, “Hey, I would love to build my own personal board of advisors or board of directors,” what should they look for? What are, I guess, qualities that you would say, “Hey, this is important in an advisor or a board member,” and what are red flags that they should avoid?

Michael Sonnenfeldt: It always starts with integrity and character. I think that the lesson in Tiger is we have zero tolerance for people who are not of good character. We do background checks on everybody, and if there's even a hint of integrity issues, if we can spot it before they join, they don't join, and if we learn about it or spot it when they're members, we politely ask them to leave because the community can't function without the level of trust and integrity that goes on between our members. But if somebody's not in a group and you're just asking a more general question of who should be your mentors, I would say just you didn't use the word mentor.

But mentor was actually the name of the slave in Homer in the Iliad and the Odyssey, that when Homer went off to war, he left his son in the care of his slave, who was an educator. Very different connotation than we think of the word. So, mentor was really the tutor for Homer's son. And one observation that I've noticed is that if you take any profession, and every profession manages or measures success differently, if you're an academic, it might be the number of articles you've published, or if you're something else, it's the number of people you made laugh as an example. But whatever it is, if you take 100 people in that industry and line them up from least to most successful, the half that are most successful will overwhelmingly have had mentors, and the half that are least successful will overwhelmingly have excuses why they don't have mentors.

And so, even before you get to the Board of Directors, you should be finding some mentors who you can trust implicitly, who you can share with confidentially, and who you can talk to about the issues that are distracting you, knowing that they only have your best interests at heart. And if you get it right with the mentors, you'll start seeing the qualities in a board of directors that you would want. The only difference, of course, is that depending on the purpose of the board, you want a certain type of diversity that gives you a range of views, rather than a singular view.

Justin Donald: Yep. You don't want an echo chamber. You definitely want that mix of not just personality but expertise. I want people that know a whole lot about the things I don't know about and then have the years of wisdom to have dealt with things that I haven't yet dealt with.

Michael Sonnenfeldt: You know, Justin, we talk in Tiger a lot about diversity, because the number of women is growing, and that's fantastic. And the number of people of color are growing. That's fantastic. We have an LGBTQ community, that's fantastic. And in every group that we have more diversity, by and large, the group experience is better because you're getting a diversity of experience. But sometimes we say, if you have an African American accountant and a female accountant and an accountant who's one religion or another, you still have a room full of accountants, that may not be exactly what you want, and that's not to malign accountants. It's just to say that you have to make sure that when you're looking for diversity, you really get a range of informed perspectives that each can help you think through an issue.

Justin Donald: Yeah, I think that's great. When I think about membership communities, masterminds, investment groups, I think it's really important. We're talking about mentors. We're talking about board of directors and advisors, people that can really weigh in in your life that you can trust. For me personally, I think the best money that I have spent is on peer group and mentorship, hands down, I mean, beyond my own personal education, right? But I consider peer group and mentorship like the greatest component of my education. But then you have these groups that are hard to get into, Tiger 21 is hard to get into, and then with a really high price point, right? So, you're 33K a year.

Michael Sonnenfeldt: I just have to argue. I don't think it's a high price point, obviously, because of the value we hope we deliver. But we've spent 27 years thinking through one issue. How can we best serve members with an experience that's unparalleled? And in order to do that, we have a team. I don't know if you're even aware, our team, I think, is over 150 people today, so that when you walk into a room, and you're just with a group of 12 members and a chair, what you don't realize is the 150 people that are thinking through, how do we make your time most effective? What do these extraordinary people need to experience, to say this was a wow and a big learning experience?

So, I don't think it's that expensive. And frankly, I was in a meeting a couple of weeks ago where somebody had one item. They were telling me about a particular commodity and why all of a sudden, the sentiment had turned against it, and that guy was worth close to a billion dollars and had the deepest expertise of anybody I know in that particular commodity. And I went out and sold, and the next day I had saved half a million dollars. Tell me whether $33,000 is expensive or cheap, according to that?

Justin Donald: Well, I love it. And by the way, that was going to be my exact point is the difference between the price of something and the value or the cost, right? So, when I look at Tiger 21, I'm in a number of groups, and so I actually have a pretty large budget for what I invest in myself, my relationships, my peer groups, but Tiger has been really a mainstay for me. And so, people, when they add it up, they're like, "Whoa, over six or seven years, that's a lot of money.” But the thing that I try to remind people is, you could live in like this linear transaction world where it's like, "Oh, I paid 33K to be in this group. I need to do an investment that nets me 33K,” or you could live in a world that's a little bit more far reaching, a little bit less linear, and a little bit more from the standpoint of, "What's one thing that I could learn, or one relationship I can gain, that actually in just that single equation is more than the cost of membership?”

Michael Sonnenfeldt: Justin, I think you may know a member, because I think he's from Texas, if I remember correctly, went out on our network, I think it was two years ago, and said, “I'm stuck here in…” I think it was Jacksonville, Florida.

Justin Donald: Oh, yeah. We love Ryan.

Michael Sonnenfeldt: “And I have a medical emergency, and I have to get back to Dallas,” if I remember correctly, "But there are no flights. Can anybody help me?” And literally, within about 10 minutes, four members said, “I have a private jet. I can get you.” And one of them said, “I'm literally getting out of my plane in Boca Raton, and I can send them to Jacksonville and get you to Dallas in four hours.” And when I met that member a year later, I didn't even know it was that member. We were both speaking at a Tiger 21 conference, and he said, “I have a stomach today because of that network.” Now, you tell me what that's worth.

Justin Donald: Oh, gosh, priceless. Ryan is a dear friend. I've had him on the podcast, and people are so impressed with that story, but that's it. I mean, you're afforded these when you build these type of relationships, have this type of access. This is life-saving. For most people, it's not a life-saving thing, but it's how do we level up in our mindset? How do we level up in our relationships? How do we level up in our business partnerships? How do we level up in wealth creation? And I truly believe you're just one mindset shift away, or one strategy away, or one connection away at any given time that can more than return the investment in any of these groups. That's how I look at it.

Michael Sonnenfeldt: I'd love to be able to give you two more examples, and you’ll decide.

Justin Donald: Please do.

Michael Sonnenfeldt: I get an email from a Chair in the Midwest, who a Chair is who runs the group. Each of our groups are run by members of our team called Chairs. And the Chair says, he's a male. I'm going to guess he's 60 more or less years old, says, "My best friend, apparently, for many years, was just diagnosed with stage 4 breast cancer, and I'm told I need to get her into Sloan Kettering. That's the cancer hospital in New York that's world-renowned. Can anybody help me?” And in this particular case, I was able to get her in to see somebody the next morning. And that was an example.

But another one is that as we've grown, we've started building networks across our 1,800 members. I'm in a couple. You might be in a couple of networks as well. And the networks are people who have common interests or issues where they might not find others with those same common interests. And the area of rare diseases is a terribly horrible circumstance that parents find themselves in when their children have a rare disease, because not only is it often misdiagnosed because it's so rare, most doctors don't know about it, but even after they diagnose it, they don't know what to do with because there's no proven treatments and so forth.

And one of our networks, yes, we have a chest network and a real estate network, and this network, but we have parents of children with rare diseases. And if only there are five people in that network that creates a support group around the globe, that those people might never have found each other. So, this power of the network, you talk about peer groups, it's not just peer groups. It's thinking about how do you network across the globe in a confidential, transparent way, with people who are your peers.

Justin Donald: Yeah, I love it. And as I've said many times on this show, I think the best place to invest, I mean, work hard, make the money that you can make, and then invest it in quality time and experiences with your family and friends and in your education and in peer groups and mentorship. And I think the world becomes your oyster when you're able to do that.

Michael Sonnenfeldt: Justin, I'm looking at your hand, and I see that you have an Oura Ring.

Justin Donald: I do.

Michael Sonnenfeldt: I got that from Tiger. At the end of every Tiger meeting, we have a tip jar and say, "What's interesting to you today, and what can you recommend?” And this was one of the recommendations that came out of my Tiger group.

Justin Donald: I love it. Well, I'm glad that I had a friend recommend that I invest in this company early days, which I did.

Michael Sonnenfeldt: That must be great.

Justin Donald: Yeah, we have a liquidity event here this quarter, because I think the company wants to buy back some of their shares. So, we're not selling all of it, but we're going to sell a piece. They've done pretty well.

Michael Sonnenfeldt: So, you've made more than you invested?

Justin Donald: Yes, oh, yes, which is great.

Michael Sonnenfeldt: Beautiful.

Justin Donald: Talking about investing and one of the things I think Tiger does a great job with is asset allocation and really breaking it down. And I think over the years, what's neat for me as a member is I get to see every quarter, not only what's the asset allocation of the members that participate in the survey, but I actually get to see the changes of that allocation from quarter to quarter, year to year.

Michael Sonnenfeldt: And now you can compare it on our internal website to your peers. So, if you want to know men from age, I don't know how old you are. You look like you're 39. How old are you?

Justin Donald: Well, I appreciate it. I'm happy that I'm looking younger. I'm 45.

Michael Sonnenfeldt: Okay. So, you can go on the website. I think we have like a 49 and under, and you could look at the asset allocation for members 49 and under, and that might be very different than me. I turned 70. I'm probably thinking a little differently, but the asset allocation has been one of the most amazing tools. And I literally am just coming into this podcast. I was on CNBC this afternoon talking about asset allocation. And there are many different things, but what you see is the single biggest change over the last 20 years is private equity going from 10% to 31%. It just hit the all-time high, and that little Oura Ring you just held up as an example why Tiger members realize, if you want to preserve wealth, be a passive investor in indexes or maybe funds, but if you want to still create wealth, you need to take the kind of risk you can take generally In private, small companies that are going to grow into big companies.

And it's an amazing story. It's not just that it's grown from 10% to 31%, the average age of our member over the 20 years or 27 years has come down from 59 to 51, and it's not just that Tiger members are younger. It means if you've created your wealth enough to be in Tiger, so you've created at least $20 million of wealth, and let's say you're 40, well, you didn't take 40 years building that wealth. You probably took five years or 10 years. So, when you create that wealth, you're going to go do it again. That's a big difference if you spent 30 years creating wealth, and you had your one liquidity event when you're 60, and you say, “Well, it took 30 years. I'm not signing up for another 30-year journey.”

So, in the making of earlier and earlier Tiger members, because of the frictionless global economy that we're in, the biggest difference about people achieving the level of wealth that you have in Tiger is that when you achieve it, you want to keep doing it. So, you want to become half a wealth preserver, so you don't lose what you created. But you also want to continue on your creative, entrepreneurial wealth-creating journey.

Justin Donald: That’s right. Yeah, it becomes a game. And I mean, some people play the game with other people, but for me, I just like to play the game myself. Like how do I continue to level up from where I was a year ago? How do I surround myself with the people that can help me do that? How can I get smarter based on the expertise in the room, my board of directors? And I love it. It’s just fun.

Michael Sonnenfeldt: I wish I met you when I was 45 because I’m learning stuff here and from other younger members at 70. I don’t have 45 more years to play that game, but I’m still learning new tricks as an old dog.

Justin Donald: Well, I love that. Thank you for the compliment. And yeah, I mean, I feel like you’ve done a great job of constantly learning, constantly surrounding yourself with bright people. And I mean, it’s even evidenced in what’s kind of happened here. And I would love to talk about some of the private equity investments into Tiger 21. This is a couple rounds and what’s really cool is that these big PE firms have interest in this greater economy of ultra-high net worth individuals, where I feel like there was a day and age that people didn’t even know what this was. I mean, this didn’t even exist. And so, why would anyone want to invest? And now, I feel like private equity’s beating down the door to get in front of these people who, it makes sense, are perfect avatars for them.

Michael Sonnenfeldt: Yeah, when we went out to market a year and a half ago, we had 18 bidders. It was mind boggling.

Justin Donald: Wow.

Michael Sonnenfeldt: I never would’ve expected that. But look, when I started Tiger 21, people used to ask me, is it a for-profit or nonprofit? And when they’d say, is it a for-profit? I’d say not yet. And for 20 years, literally 20 years, I plowed every penny of revenue back into building it into kind of a unique member-driven, member-focused organization. And I never took a penny. It was a labor of love.

And in some sense, that’s like many entrepreneurial stories of delayed gratification. I felt I was building value because if you can deliver great value to customers or members, you can deliver great value. We had many debates along the way, whether we should be a for-profit or a nonprofit. I always opted for a for-profit for one critical reason. The very best and brightest people that I could hire to run the organization wanted a piece of equity. And anybody who doesn’t understand that certain incredibly talented people are driven by the ability to create wealth for themselves, if you can’t understand that in Tiger 21, where are you going to understand it?

And so, by creating a for-profit business, it allowed us to attract a world class team that I think is one of the most incredible teams in the world. And more power to them, they’re creating value. And most importantly, our member statistics are going up. It’s not at the expense of profitability. The better run we are, the more profitable we are, but frankly, the better run we are, members are staying longer and they’re giving us higher and higher ratings. Me, personally, I mean, I only care about the member ratings. As long as the member ratings go up, I’ll keep us profitable in hiring people as long as you have to, but it is the member ratings and how long people stay. That is my number one indicator.

Justin Donald: Oh, I love it. Well, shout out to Tim Daniels, who I think has been brilliant, Greg Wells. I mean, a ton of people that I’ve met over the years, I’m not going to do it justice because I haven’t had the one-on-one contact with everyone, but I have with those individuals and with Jonathan. I mean, just, what an incredible crew that you’ve built and people that, I mean, anyone will be proud.

Michael Sonnenfeldt: I don’t mean to interrupt, but we just hired our first full-time doctor on our staff.

Justin Donald: I haven’t heard that.

Michael Sonnenfeldt: Not that she’s going to take any patients, but health and welfare is one of the most sought-after issues within our network. And as an example, we want to learn who among our members are on the board of every hospital in every major city around the country. So, God forbid, there’s an accident, we can put one of our members in touch with another member who might have access for their son or their parent or their daughter or whatever at a hospital in a faraway place. God forbid, one of your kids gets in an accident in London, now you can call our members in London and say, who can help me figure that out?

Justin Donald: That is incredible. What a huge value add. I love hearing that. Well, brilliant move there. For those that are interested in learning more about Tiger 21 and learning more about you, where should they go?

Michael Sonnenfeldt: Well, obviously, Tiger 21. The website is www.Tiger21.com. And not to be mercilessly self-promotional, but I have a podcast that features Tiger 21 members. We’re in our second season. It’s called NEXT, N-E-X-T. And we’ve been getting some great traction with that. And I wrote a book about 10 years ago for Tiger members called Think Bigger: And 39 Other Successful Traits of Entrepreneurs or Traits of Successful Entrepreneurs. And it still stands the test of water because what I did is I broke down an entrepreneur’s life into different phases at the beginning, the middle, and the liquidity event and post-liquidity event. And then I interviewed Tiger members. So, it really was one of the great treats to try and find examples for each of the phases of an entrepreneur’s life. And I do make about 23 cents a book, so I’m happy to promote it wherever I can.

Justin Donald: I love it. Well, this has been an awesome session. I appreciate your time and your wisdom, Michael, and I’ve had a lot of fun getting to know you as well.

Michael Sonnenfeldt: Beautiful. Thanks so much.

Justin Donald: Yeah. I love ending every episode with a question for our audience. So, if you’re watching this, if you’re listening to this, what is one step you can take today to move towards financial freedom and really just move towards living a life that you desire on your terms? So, not a life by default, but rather a life by design. Pick one thing that you learn from Michael. Put it into action. And we’ll catch you next week.