1,000 Entrepreneurs: Dave Sather

Dave Sather did not plan on starting his own business. While waiting tables, he met a man who would change his life forever. Within a few years, Sather found himself deep in the world of investment management, unsatisfied by the way his employers were conducting business. A lack of concern for market changes and subpar customer service left Sather with no choice but to start his own business that transparently served its customers without working on commission.

Founded in 1999, Sather Financial Group recently celebrated its 20-year anniversary. The company, which operates primarily out of Victoria, Texas, revolves upon a fee-only fiduciary system. The company provides services that include investment management as well as well as strategic planning. They take no commission from the investments that they manage. In the year 2019 alone, the company has seen its assets raise from $500 million to approximately $750 million across one thousand separate accounts.

The early years

Before becoming an entrepreneur, Sather found himself roaming the post-graduation world of uncertainty. Luckily, during school, Sather had met his wife, who kindly informed him that she would rather not spend the rest of her life living in the metropolis of Houston. The two had a target destination of Victoria, where Sather’s wife already had family obligations.

Prior to attending grad school, Sather found himself waiting tables and eventually spoke with a gentleman who would set him on a career course.

Upon this interaction, Sather found himself increasingly intrigued by the business of brokerage. He began to pursue opportunities in the field throughout Victoria. He discovered that PaineWebber & Co. had an office in the area. The office was a “one-man office,” as described by Sather, that catered to a few large families. Without any other clients, the company attempted to shoehorn him into a market that they had existed in for decades with no advertising or other clients. At the very least, it was a start.

The job allowed Sather to make the move to Victoria, get married and begin the next leg of his journey. Sather describes the two major lessons he learned in these early years:

“During that time, I learned two things. I learned that I really loved the investment business and I learned that I hated selling on commission," Sather said. "I started to realize very quickly that there is just tremendous conflicts of interest when you are getting paid under the table for pushing one fund versus another, or whatever the sales promotion of the week was.”Â

The early to middle '90s brought an “eye-opening” experience after first learning about Warren Buffett (Trades, Portfolio). This was a time when Buffett was not written about daily, but there was still consistent content being published around the guru’s investment wizardry. Then "The Warren Buffett Way" came out, Andy Kilpatrick released "Of Permanent Value: The Story of Warren Buffett"Â and shortly after, "Buffett: The Making of an American Capitalist" was published.

“It was not nearly as often that an article was written on Buffett, but every time there was something, I would just devour it and read it over, and over, and over,” Sather said. With “toes in the water,” he began to develop an understanding of the investment business and how the industry operated.

The city of Victoria had a population of 67,106 as of 2017, according to the U.S. Census Bureau. According to Sather, the town acts more like it has a population of 6,000. The people are stingy with trust, and you need to be well established to do business there. For those without deep roots in the area, starting a business would be next to impossible. “Maybe if you’re there for 20 years, maybe, they’ll start to do business with you,” Sather said.

Working at PaineWebber & Co. and having cold-called every business in town, Sather was at the end of his wits. He knew there had to be a better way of getting clients and conducting his business in the area. The investment business was something that had true appeal, but working as a broker was not on Sather’s shortlist for career choices.

In a town where businesses kept trust close to their chest, Sather struck gold. Originally known as Brownson’s Bank, and becoming First Victoria Bank after several name changes, First Victoria Bank is one of the oldest operating banks in the state of Texas. First Victoria had no trust investment officer and had no brokerage operation. Sather was the man for the job. He had the opportunity to create both the entirety of the bank’s investment portfolios as well as their brokerage operation from scratch. Not only could he invest as he saw fit, but he had one of the most trusted names in the area to operate under.

The world exists in a state of yin and yang or push and pull. For every good there seems to be a bad. While Sather had found the opportunity, it would not come without issues of its own. The bank had provided the opportunity to develop a trusting client base in the area, yet the company hierarchy would put him in a tough spot:

“At the time I had a boss who was asking me to do some unethical things and it was weird. At the time I was working for a bank, but Glass-Steagall (Glass-Steagall Act 1933) was still in effect, so banks could not be in the brokerage business; so, I had all the licenses, but he had all the control. So he was trying to basically force me back into the old brokerage mold of ‘sell the highest commission products’ and I was still working the trust department where you are supposed to have fiduciary obligation. I was also working as a broker and you were also trying to really uphold your reputation.”Â

In the words of Buffett, “It takes 20 years to build a reputation, and five minutes to destroy it.” Finding himself in an uncomfortable position that was jeopardizing himself and the clients he was working for, Sather sought out his superiors to have a conversation about the future. He realized that the market had been in an upward trend for the last several years and that eventually it would return to a normalized state. He told his boss that at the time that the market came back down, they would eventually underperform expectations and would have to explain losses to clients.

The powers that be listened to the ideas presented and simply did not see the need to change their business model. It was at this time Sather theorized the business model that he runs today.

Creating a business

The idea was relatively simple, but unseen in the market. Sather would create a business that allowed him to invest based upon the ideals laid out by Buffett. Alongside this, Sather could act as an “outsourced chief financial officer” that could answer questions about retirement or estate planning and model out a plan that would truly give value to the relationship with the client.

With a clear goal in mind, Sather sat down with his wife and created a plan. Between his savings of $50,000 and the salary that his wife was making as a teacher, he figured he had three years. If the business became a success, they had no worries. If they failed, then it would be time to find a new way of making money. This provided a clear timeline to operate upon and an expectation that upon failure it would be time to cut losses.

On May 1, 1999, Sather left the bank and set out on his own to start his business. He described himself as being petrified at the beginning, as one might expect. However, dedication, a solid business model and trust from clients laid out the path for success.

The initial office that he operated out of was gifted to him by a client. The man had extra space in a complex and gave it to Sather on good faith to “help out a youngster.” With an office in hand, Sather crafted the business around him. Doing everything alone, he worked tirelessly. He filed, made copies, submitted forms and answered the phones all without staff.

“I was doing everything by myself,” Sather said.

Working alone to create a business left very little time outside the office. On average, Sather was working 80 hours a week. There was no time off and no weekends. Fueled by his passion for the business he could not stop. This was crucial for getting things running, yet it also created an unforeseen issue.

One day in the first few months, Sather’s wife sat him down and said, “I need to have a conversation with you. Whatever it is I can handle it, but I need you to tell me the truth.” For Sather this was a strange occurrence. He describes his wife as being extremely intelligent and confident in herself. “It was a weird way for her to start a conversation,” he said.

It was at this time that she sat him down and asked him directly if he was having an affair. Sather was stunned. His initial reaction was to laugh out loud, which clearly would not have gone over well. He told her that he was not having an affair and that he wanted to know why she would think so.

“She said, ‘Well, you’re gone all the time and all of the sudden you’re so happy,’” said Sather. In hindsight it made perfect sense. Her logic was sound.

The first three years saw Sather continue to work at this pace. He worked tirelessly to build the company he had started. He describes himself as having worked non-stop and all the time. From her side of things, Sather could absolutely see where she was coming from. After their conversation, “I made sure to set aside some time to make sure she still knew that I loved her,” he said.

Transparency

Initially when a business is founded, it is not expected to make money. Sather was well aware of this when he began his business.

The trust he had built with his clients in the previous years went a long way. Prior to leaving the bank, he sat down and made a list of every client he thought would come with him on this new venture. He did not tell any of these clients he was leaving the bank. No confidentiality with the bank was violated. Almost every single person on the list went into business with him.

Until Sept. 1, 1999, Sather did not charge his clients anything for the services he provided. He felt the need to make sure that every aspect of the business was in line and that he could truly serve his clients the way he wanted to. There would be no scams, no false promises and no investment failures. Everything in his power would be done to protect the clients he was working with. Sather made certain that the clients understood the services he was providing them in depth before they trusted him with their life savings.

The transparency about the struggles of starting a business gave his clientele confidence. They understood that no matter what, Sather was not going to do something that would harm their well-being. He was in the business for the long haul and had a dedication to doing things right.

At times, Sather and his partner Warren Udd would call clients after they had a failure with an investment. They would let them know they felt they had shortchanged the client and would ask if it was OK to work for free until they paid it off. It was this dedication to his clients and their well-being that gave Sather his early successes.

Success early on

Early in his career Sather had set the goal of making $100,000 a year by the time he was 30. At the bank he was making $60,000 a year and he knew he would not be reaching his goal at that job. Initially at the foundation of his business, he wanted to make the same wage; $60,000 a year would suffice. The first six months of operation saw the accumulation of both assets and clients hit the $60,000 mark, yet the growth never stopped. “I just didn’t realize it was never going to let up,” Sather said. By age 32, he had hit his goal of $100,000 a year. It was the first year of doing business.

A large portion of Sather’s early success clearly rose out of the transparency he brought to his business practices alongside the trust he had built with his clients over the years. However, Sather was a student of Buffett. He understood there were safer ways to invest. At the time he left the bank, investing was trending away from “blue-chip stocks,” recalls Sather. This gave him the opportunity to buy things like Johnson & Johnson (JNJ, Financial), Proctor & Gamble (PG, Financial) and Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) when almost nobody else was. The rest of the world was investing in internet and telecom stocks.

“We didn’t buy any of those,” Sather said.

When the tech bubble burst, the market crashed by almost 80%. Many investors suffered major losses at this time. Sather’s portfolios were up that year. He recalls people beginning to give Buffett a huge deal of credit in his investment strategy and, consequently, Sather’s clients began to spread the word of his success. Since then, the company has not taken out a single ad and the entirety of its expansion has come from the recommendation of pre-existing clients.

Twenty years of operating a business will see both good times and bad. For Sather, the best and the worst came at the exact same time.

The future of entrepreneurship and Sather Financial Group

Even though the world is constantly changing, Sather still has hope when it comes to entrepreneurism. He holds on to the ideology that hard work and dedication will pay off in the long run. Sather describes his favorite books as being a series of books revolving around being a millionaire, which were written by Thomas J. Stanley.

“If you really want to think about where wealth is created in the United States, it is on the back of entrepreneurship," Sather said. "So it is not Wall Street. It is entrepreneurs that are starting a sheetrock business, or a salvage yard or a trailer park business, you know there are oil field supply businesses. That is the backbone of America and that is what makes America so great.”Â

The people with their hands in the dirt are the ones who are making leaps and bounds economically. They might look like an average Joe, but they strive to take care of their customers in one way or another. There are the few outliers in this. The people who made millions off software in Silicon Valley, for example. In Sather’s words, “There are a massive amount of people in America between California and New York that is really just bread and butter, hard-working people, that live below their means and save, and save, and save for that rainy day…”

Sather describes a capitalist world filled with hope. One where every person can run a successful business if they put their nose to the grindstone and make it happen. This type of hope carries over into the future of Sather Financial Group.

He does not plan on stopping his business anytime soon and believes that no matter what it will stay in the hands of those around him. For the 20-year anniversary, Sather sent out a letter that let all of clients know the business was now under shared ownership. He describes this as a set of “golden handcuffs” that will tie his partners to the business. His hope is that the ownership of the business will give his partners the same passion and dedication to clients that he brings to the table.

While this year brought about 20 years of business, Sather is already looking further down the road. The year 2049 will bring about the 50-year mark for the business. Sather hopes that at this time he will still be sitting in his chair at 82 years old. He describes Buffett being active in the industry at 89 as an inspiration and hopes that he can follow in his footsteps. The business for Sather is his passion. He speaks of having no other place he would rather be. He does not play golf. He does not fish. He does not hunt. He goes to work and believes that even into old age he will still find himself in the office on the weekends.

“There is a butt print in this chair that likes to be there,” Sather said.

Question and answer

GuruFocus: What are you grateful for at this point in time?

Sather: Obviously, so much of it started with my parents. My parents never compared me to my brothers. They would always just ask me; did you try your hardest? My parents were very smart. They knew that if they asked if I tried my hardest that I would know there was more that I could do.

GuruFocus: What do you like best about your position in the company?

Sather: I’m not sure that it has changed much since the first day. I enjoy the independence, but the business owns me. It’s not like I’m on the golf course. I don’t golf. I don’t hunt. I don’t fish. I work. I like to work and in my free time I like to teach. That’s my fun time and so the business allows me the flexibility to go volunteer my time on behalf of students.

GuruFocus: Is there anything about the business that you don’t like or wish you could change?

Sather: Sure. In an ideal world I wish I was 35 years old again and I could work 100 hours a week. At 52, I can tell you that I need a lot more sleep. Also, the business has changed an awful lot. Especially after 2008 to 2009. The world of cybersecurity has become very complicated. Now there’s a whole host of cyber-related issues, like how do you know that your clients' data is safe? Or if you custody with Schwab or TD Ameritrade, how do you know that Schwab or TD are on top of cybersecurity? This requires us to bring in a bunch of third-party consultants to help us.

Keys to Successful Entrepreneurship

Find your passion:

-Without a passion, you are working to make money. For a person like Sather, the point is the people. He is in the business to serve those around him to the best of his ability because that it what he is passionate about. Without this type of drive, Sather would still be working at the bank selling whatever would make him the most off commission.

Have a good business plan and plan for failure:

-Know exactly what you want your business to do. Once you know what your business will do and is theoretically capable of, make a plan that is achievable. Have a goal that you want to hit within a certain timeframe and be aware of exactly how much money you will need by then. At the same time, be aware that things might not work out. If you do not achieve your goal, you must be ready to move on outside of your established time frame.

Develop a business with a high return on investment:

-Sather describes investment management as a business that can essentially be run with a phone and a computer. When starting a business, find the best ways to save money early on and capitalize on the money that you make. If costs are kept low, then the profit margins will continue to expand and your business will be turning a profit in no time. “This allows for enormous returns on capital,” Sather said.

Sather’s advice for entrepreneurs

-Read "The Millionaire Mind," "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" and "Stop Acting Rich: …And Start Living Like A Real Millionaire" by Thomas J. Stanley. All of these books helped Sather to gain an understanding of where wealth is truly created in the U.S. Sather said that there are a few outliers on Wall Street or in Silicon Valley that are very wealthy. The rest of the time, wealth is created by those getting their hands dirty helping their customers and saving for a rainy day.

-Emphasize transparency in your business. Be upfront about what you can offer to your clients and exactly how much things will cost. Sather spent the first summer in business working for free because he didn’t feel comfortable charging clients for lacking customer service. He still to this day sends each client a monthly letter laying out exactly where their money is being spent and what services they are being charged for. Sather even has gone so far as to work for free for clients until he pays off losses that he may have incurred for them. It is this type of work that allows a client to truly trust the person they are working with. For Sather, transparency is the name of the game because it builds long-lasting trust that is hard to come by in the industry.

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