When we think about “great businesses” everyone talks about Google, Amazon and Facebook. Not to mention the top tier brands like Nike, Apple and Coca-Cola. While these are all great businesses beyond a shadow of a doubt, the chances of creating these mega corporations is quite small. In fact, there are millions of other ideas that generate very high cash flow, revenue growth and stability that most people wouldn’t bother looking into because they are “boring” or “unsexy”. Instead of trying to become billionaires we focus on making a few million ($5-10M or so) and then calling it off (hitting cruise control to enjoy life versus playing the “who has the biggest wallet” game). Everyone has their own set of principles and ours are outlined in that sentence alone. No point in being rich if you’re busy working all the time (money is just a tool). So below, we’ll go through several good businesses.
Higher Cost Items
Financial Modeling Classes: We always laugh at the high price tags. People really do pay $3-5K or more for “financial modeling” classes before joining Investment Banking and other high finance sub-segments. This is highway robbery. Any major bank already has pre-made templates for every single type of transaction: Merger of Equals, Acquisitions (Cash vs. Stock), comparable company analysis, Leveraged Buyouts, Financing… So on and so forth. Learning how to use excel (something a macro can do by the way) is not going to set you apart. Now here is the fun part… Will anyone listen to this paragraph? Nope.
Why? Well the vast majority of high achievers will do practically anything to get an “edge”. Financial modeling courses target severe insecurity (failing at first position out of college). Now that you’ve seen the phrase “severe insecurity” you know what that means! Great business. Once you get them to learn something new they will think it was worth the money. Besides, spending $3,000+ on something that added no value would be something a “dumb” person would do and no one who is getting a high paying job is “dumb”… right? Now you see the entire full circle of the business model. They are not targeting dumb people. They are targeting the “need to succeed” and doing so in a way that requires very little operating expenses (only cost is a person and a room in a central location).
Motivation & Self Help: Another great business model. While we have a controversial view on “motivation” in general it does not mean the business is bad. In fact, it is a great business. If you can successfully get 100 people or so (rough math) hyped up about your ideas, then one of them will succeed (1% is reasonable and likely low de to large numbers). You then build off of this with success stories and how the presentation/seminar changed their lives! You can wash rinse and repeat this because it essentially “stacks”. If you get one devoted person, they will then likely get at least one more for you.
This is another one we would classify as “targeting insecurity”. You’re essentially telling people they can be “more than they are today”. In some form of rah rah scenario. Now it is true that taking a positive view on life and killing yourself (working extremely hard) will result in a lot of benefits… paying $3,000+ to hear this message is a bit of a stretch to say the least. No successful person needs to pay for these seminars, instead they work hard and improve constantly. The last item before signing off on this great business is you don’t even need to succeed. That is right. All you have to do is “inspire others” to succeed and you’ll succeed. By getting other to believe your message you’ll be successful by default “perception is reality” as they say.
High End Fashion: Brand names are the highest margin businesses on a “like for like basis”. If you have the exact same products, you can charge another 50% margin on top of the product (likely more) just because you slap on a name such as Gucci on top of it. This is 100x as true for jewelry and any item that essentially has fixed costs (no variable costs). We could list off a hundred brand names but jewelry and clothing are the two most obvious ones since they deal with particularly high volume.
The one downside of going down this path is your market size. Since your goal is to be exclusive you can’t do brand damage by suddenly allowing your products to show up at Nordstrom Rack for example. This would take the clientele down a notch since it would no longer be seen as a luxury item and more of a “upper tier” brand. Even though the product could be exactly the same quality wise, the brand damage would not be worth it for these high-end products.
Lower Cost Items
Dive Bars and Pizza: If you have a better idea of what the average person wants, focusing on these two low end businesses are profitable. Sure online sales is still 100% the best way to go if we’re asked. But. Both late night pizza shops and dive bars pull in large amounts of money. It’s interesting because the higher end clubs rely quite a bit on bottle service and heavy spenders (hence the big turnover) while the dive bar crowd has much lower costs and doesn’t have to pull in $10,000+ tables every weekend to make a living. A large number of people buying an $8 glass of wine that costs about $1 or less is going to create high cash flow assuming that the overhead cost is minimal (typically is since we’re talking about smaller venues).
The second item is what most people do after partying all night. They go to some nearby venue that serves pizza or another unhealthy basic food option. Sure it’s not a glamorous business… But the cash flow is very good yet again. Dominos Pizza can turn a profit off of their cheap $5-6 medium pizzas so those $3 slices of pizza sold at your standard shop are high margin. Think about how many slices of pizza would be required to generate a full medium sized pizza and you’ll get an idea for the math behind it. Naturally, most people won’t think about this since they spent the night partying and a few bucks is nothing. This is great for you if you’re interested in a basic brick and mortar.
Magic Pills: We’ve covered this many times in the past so we’ll keep it short. Anything that is supposed to help: 1) focus/intelligence, 2) weight loss or 3) magic skin care will be an amazing product. The testosterone replacement pills were a great idea but the market is just a drop in the bucket compared to the other three. Weight loss or skin care are billions of times larger than any of these other smaller secondary markets. If we fast forward to the year 2150, we have no doubt that the same markets will exist. People don’t want to work hard, they don’t want to think, they just want to wake up and suddenly have their problems solved. You can even put terrible stuff into the pill such as Guarana and it will be bought (diet in this example).
Scents: We’ll take a broad phrase here. Anything that has to do with improving the smell of an environment typically commands extremely high margins. Cologne, perfume, air fresheners etc. All of these items cost almost nothing to make. A bottle of good smelling liquid costs fractions of pennies more than pure water (except maybe Fiji water, they’ve successfully branded that thing to extreme prices!). These are high volume products but a popular scent can create large amounts of money. If you’re familiar with the brand “Axe” they did a phenomenal job targeting men who had trouble dating women. This was so successful you can even google the phenomenon. We suggest the following article: How Axe Built A Highly Scientific, Totally Irresistible Marketing Machine Built On Lust
“For here, at this very lab, the same scientists, with the same equipment, often with the same ingredients, are designing elegant $200 colognes and $3.99 bottles of Axe body spray”… We’re not exactly sure how the Company was able to do this. Yes we know that it was marketing, but the level of execution was incredible to watch.
Services
Blue Collar Work: Using this as a vague term to encapsulate plumbing to cleaning to landscaping (and many more). While this is unlikely a path for most of our readers it is by far the most lucrative path for someone who has a limited skill-set. Even if you’re not the best with numbers and you’re not going to be creating high quality internet ads/products, you can always work hard. Blue collar positions will still be around for the next several years. Sure automation will begin to replace pieces of it, but you’re going to have a client base that unlikely sees a big benefit from a few dollars saved. Besides… You can always buy the robots in the future to do the work (hedge yourself out). This line of business is a “must have” meaning that everyone will need someone to help fix up a house, fix a broken faucet or improve the landscaping of their backyard. In short, this is much more time consuming up front but has a clear path to winning (long hours and scale). After you can hire your own employees and build a rolodex of repeat clients its a solid business (just isn’t sexy to call yourself an electrician for example).
High End Services: The wives of rich men are not going to have their hair done and live without spa treatments are they? Of course not. The cost of massage oils and other items used at Spas is somewhere around a few pennies so the only real cost here is the therapists and a cool “atmosphere”. You’ll hear the word phrase “wanting to be pampered” frequently and this just means higher margins for you! If you can create a high quality “relaxation” spa, chiropractor or otherwise… You’re going to be swimming in money. These are great businesses because many people enjoy the experience which can result in a much higher premium on the cost. The small increase in physical well being is more than worth it for a wealthy person so the trade off ends up being a “win win”.
Terrible Businesses
With some of the best ideas out of the way we’ll go ahead and highlight “terrible businesses”. This does not mean you will fail at them. We are simply pointing out that there is high competition, slimmer margins and a lower chance of success.
Brick and Mortar in General: At the end of the day, having a business with a lease + monthly payments is going to make it a lot harder to succeed. People attempt to justify this cost by saying “built in customer base” but that is extremely weak. Online you can buy the customer base with a much lower cost and they can be located anywhere in the world (this is what we recommend for beginners). If we’ve learned anything from the latest Facebook privacy issue it is that these companies know exactly who to target with their ads. This is your benefit and at a much lower cost than a monthly lease payments.
Restaurants: Excluding the late night and dive bar examples we gave, the restaurant space is extremely competitive. Sure you can go down the higher margin path with drinks/frozen yogurt etc. But. The competition for restaurant money is quite high. They are all over the place and if you’re in a major city you’re likely competing with 5-10 other solid restaurants in the exact same niche.
Being a Private Driver: The math behind driving an Uber or Lyft is just not good. Unless you’re driving an extremely fuel efficient vehicle, it’s going to kill your margin line. When it comes to businesses we’d avoid trying to compete against these tech giants in general. You’re better off becoming a dog walker because at least you can have a 0% operating expense line and you can build a client base to then consistently walk 100s of dogs a week.
Low-end House Services: This is specifically the low-end. High-end moving/home services are quite good as you’re likely dealing with the aging population and you’re dealing with bigger changes. Low-end cleaning/services is tougher to scale because each employee is going to make a much lower wage relative to the higher-end. If you find a niche within the housing services space make sure you can take some sort of item and scale it up (carpet cleaning with a large piece of equipment that usually needs to be rented, the mentioned plumbing/electrical work etc.). Just don’t go out there trying to scale a business with a mop and some soap. Find heavier machinery that cuts on time and is too costly for your average person to purchase for their home.
