Starting or purchasing a business can be one of the best or worst decisions of your life. Renowned American entrepreneur and financial blogger Codie Sanchez has introduced 9 types of businesses and their related real data on her self-media channel to demonstrate whether the business can make you rich or bankrupt.
First, let’s introduce Sanchez. She is an entrepreneur, investor, best-selling author, and financial blogger. She used to work on Wall Street and later focused on finding and acquiring seemingly unremarkable but cash-flow-stable “boring but profitable physical small businesses” such as laundromats, utilities, and other traditional small enterprises.
She has personally acquired and founded over 30 businesses, with a total value exceeding $100 million, and operates a consulting community with about 5,000 business owners. Therefore, the list and data she provides below come from real cases of practitioners, aiming to show you the real situation of starting or acquiring these businesses.
She classified these businesses from high to low as: S, A, B, C, D, F.
Perhaps you’ve seen many stories of e-commerce success online, but the real data shows that 70% of e-commerce businesses close within the first year. This failure rate is more than twice the rate of other types of businesses. Only 10% of new Shopify stores can still be operational after 90 days.
E-commerce makes money from the price difference between wholesale and retail, but even in the best case, the profit margin is only 10% to 30%. For a $40 T-shirt, your profit may be only $4 to $12. And this is before deducting advertising costs, which are the sole reason customers find you.
The startup costs are not cheap, typically requiring $30,000 to $50,000, and people often burn through money in the trial operation process before even admitting that the project is doomed to fail.
Furthermore, if Amazon changes its algorithm, your ranking disappears; if Meta increases CPM (cost per thousand impressions) fees, your profit is gone.
However, if you already have an existing audience, existing customer base, or a product that others don’t have, it may work.
But if you start from scratch, paying Meta to attract potential customers who currently have no reason to buy from you, this model is almost unprofitable. Therefore, e-commerce’s final rating is an F.
Rich people have yards, and rich people hate taking care of yards.
Currently, the cost of mowing the lawn weekly ranges from a minimum of $50 to $150 per household. A motivated team can serve 10 to 15 households per day. The real attraction of this job is that it provides continuous monthly revenue as long as customers’ lawns keep growing, and there will always be customers every week because lawns will always grow.
However, the real money-making is not in mowing the lawn itself but in subsequent upselling. When you regularly enter customers’ yards, build trust, it’s easy to extend to higher-value projects – for example, from mere trimming to designing and building a backyard terrace worth $60,000. These add-on businesses are often “within reach” because you’re already on the customer’s property.
Moreover, you can start with just $2000. You need a lawnmower and your own feet to knock on doors in larger neighborhoods on Saturday afternoons, and you can have your first customers before dinner. But if you have some capital, acquiring an existing small business with a loyal customer base will bring greater profit potential.
Therefore, the landscaping industry’s final ranking is a B. Solving rich people’s problems means they will pay you every week. The only reason it’s not ranked higher is due to intense competition.
Sanchez has deep personal experience with this business. She used to have a well-paying, glamorous job in capital management on Wall Street. Later, she resigned and bought a self-service laundry in a shopping mall. Her colleagues thought she might be experiencing a mental health crisis.
However, this move made perfect sense to Sanchez. She knew that regardless of economic fluctuations, people would always need to wash their dirty laundry, and running this store didn’t require her to be on-site all day. She invested less than $100,000 and immediately had cash flow.
Currently, there are two models for this business. One is the classic self-service laundry that requires a physical store. You can earn $2 to $4 per wash. An average store has around 30 washers, and with proper management, monthly revenue can range from $15,000 to $30,000. However, due to the low net profit margin, the return isn’t high.
The newer pickup and delivery model entail you personally picking up the clothes or customers dropping them at your laundry. You are responsible for cleaning, folding, and returning the clothes or having customers pick them up. You can charge by the pound, such as $1.5 to $3 per pound, or per bag, $25 to $75 per bag. When you offer subscription services and earn continuous income from the dirty laundry your customers bring every week, your business model eventually can generate higher profits.
However, starting costs are higher. Providing delivery services requires a van. You need commercial washing machines and laundry detergent. So, if you rent a van and use someone else’s self-service laundry, the startup cost is under $5,000. But if you buy an existing self-service laundry, depending on the location and equipment, costs can range from $300,000 to $1,000,000.
Sanchez warns never to start a new laundry store yourself. You can acquire existing stores or rent laundry facilities at night, but never start a new store. Renting or buying is much cheaper than building a new store.
Sanchez’s final rating for the laundry business is an A. This mundane business doesn’t require much investment to achieve business scalability.
In the field of digital marketing, there are high-risk and low-risk approaches.
The first way is starting a company where the business scope can be in any area: marketing, social media, search engine optimization (SEO), paid advertising, etc. You can quickly attract a few clients, which isn’t difficult. You charge fixed service fees ranging from $1,500 to $10,000 per month. Soon, your monthly income can reach $15,000 to $80,000. On paper, this seems very enticing.
However, then one client calls to cut marketing budgets, another client is snatched by one of your multitude of competitors, and your business scale halves instantly. And if you’ve been constantly expanding the team during the startup phase, these disloyal clients quickly eat up all your profits. A company that was profitable with just one person operating turns into a scenario where five to ten people can’t make profit.
The problem with the agency model is that the entire business relies entirely on your personal relationships, hard work, and personal reputation. So, you’ll work 16 hours a day, seven days a week. Once you take a vacation, the agency’s work stalls; lose two clients in the same quarter, and you’re in trouble with the funds continuously draining.
Moreover, artificial intelligence has taken over many tasks like copywriting, design, and SEO. Profit margins are rapidly compressing, making it hard for them to rebound. Thus, starting a general digital marketing agency from scratch now carries high risks.
However, acquiring an established marketing agency is a different story. Ideally, you’d purchase a niche-market-oriented, highly specialized agency with existing customers, systems, and long-term contracts.
One of Sanchez’s clients found a marketing company that optimized hotel bookings through revenue management. He bought this multimillion-dollar business through revenue sharing and sweat equity and avoided the risks of starting a new business.
The final ranking for the digital marketing business: starting a new company is rated D, while buying an existing business is B. Sanchez says the business model itself isn’t problematic, but choosing between buying a business and starting one is crucial.
This is the business type rated S on the ranking. Because with some paint, a few brushes, and a knack, you can start making money. Moreover, there are many ways to operate this business.
You can charge by residential room, charging several hundred dollars per room, or charge thousands or even tens of thousands for overall indoor and outdoor painting.
If you don’t know how to paint, that’s not a problem. You can subcontract and match painters with clients, taking a markup, which means additional profit. Typically, the gross profit margin before deducting all costs is around 50%, which is quite high. After deducting indirect costs like insurance, vehicle, marketing, management, the net profit margin usually falls between 15% – 25%.
This additional profit margin means you can afford to hire people while maintaining cash flow – a must for anyone just starting.
You can build a website, prepare a phone number, print some really cool business cards, and directly approach customers. You can place signs and cards in front of houses being painted.
Sanchez revealed that she knows many painting businesses that earn hundreds of thousands or even millions of dollars annually. Most of these business owners are not painters. So whether you’re keen on personally picking up the brush or good at marketing, you can enter this industry. It’s a high-priced, high-demand market with a relatively good profit margin. With proper quoting and execution, each large job completed can bring substantial returns.
(To be continued)