Why I Chase Economic Profit Over Operating Profit

After 15 years on the sponsor side of real estate private equity, I thought I had the game figured out. We consistently delivered 20% IRRs and 2.0x multiples, no matter where we were in the cycle or what the Fed was throwing at us. We beat public markets, preserved capital, and built solid portfolios. I was genuinely proud of those results.

But something kept nagging at me. A 20% IRR looks great on a pitch deck, yet it glosses over two critical realities: the true opportunity cost of the capital and the operating risk we were shouldering. When your only tool is a hammer, every opportunity starts looking like a nail.

My perspective changed completely once I started digging into smaller, operator-led businesses. Local service companies, digital products, B2B services, and even the occasional franchising or vending model caught my eye. Real estate excels at preserving wealth, but in today’s hyper-competitive environment, accelerating wealth creation demands shifting from the passenger seat (passive limited partner) to the driver’s seat (active operator).

That’s exactly where I am now, in late 2025, kicking off a new chapter in public. I’ve allocated $5,000 in immediate working capital and $100,000 in investment capital to this experiment. The goal is straightforward and unapologetically ambitious: identify repeatable models that generate 50–70% annual returns on invested capital.

Not because I’m chasing ego or excess, but because I’m finished trading my time at a discount.

The lens I use for every decision is the distinction between operating profit and economic profit.

I begin with a rock-solid benchmark for my capital. I still have access to top-tier real estate sponsors who reliably produce around 18% IRR with virtually zero ongoing effort on my part. That 18% is my cost of capital—my hurdle rate.

Here’s the simple math I apply to every deal. Imagine a business throwing off $50,000 in annual operating profit on my $100,000 investment. Subtract the $18,000 opportunity cost (18% of $100k), and I’m left with $32,000 in genuine economic profit—the compensation purely for my time and effort.

Now comes the gut-check question: Was my time worth $32,000?

If the business demands more than 320 hours a year (~6 hours/week), my effective hourly rate dips below $100. I already know I can earn that consulting or in a corporate role with far less risk and stress. So either I engineer systems to slash my involvement, or I pass.

With capital that can earn 18% passively, my active hours must be extraordinarily valuable—starting at $500+/hour and pushing higher over time. That’s precisely why I target 50–70% total returns: the math compels me to build leverage, systems, and pricing power that make every hour count.

Starting small ($100k deployments) has a huge edge: almost no competition. Institutional players and big funds can’t efficiently chase these deals. Small checks stay off the radar, allowing outsized returns in overlooked niches.

I’m completely vehicle-agnostic: home services, B2B services, info products, lightweight SaaS, vending, or franchising—whatever clears the filter. The only question that matters: Can this sustainably deliver economic profit that values my time at $500+/hour and beyond?

This is day one of building in public. I’ll be sharing the opportunities I’m vetting, the raw numbers, the systems I’m implementing, and the inevitable setbacks. If you’re a mid-career guy fed up with mediocre returns on your most irreplaceable asset—your time—come along for the ride. We’re not just managing investments anymore. We’re engineering real wealth creation.