Welcome to Biz Brainstorms –
My name's Connor, I'm the author of this newsletter. Every week I'll send you an email covering ideas, lessons & tools to help you start or grow your business.
These emails are designed to be skimmed. Enjoy. 🧠 ☕️
2 Rules of the Rich
A Bankrupt Wine Company
My best habit of 2022
How much real estate you need to buy to offset $1M in net income
💰 2 Rules of the Rich:
They borrow dollars from appreciating assets to buy more assets
The classic example here is when people buy real estate & borrow money using the real estate as collateral to buy more real estate.
But the legendary example is when you have people like Jeff Bezos buy a $500M yacht...
With a 1-2% interest loan using his Amazon stock as collateral
And proceeds to bonus depreciate the boat for a $200M loss on his income statement
All while Amazon stock continues to appreciate (paying for the interest and some of the principle of that loan). Cool thread on the topic.
2. They Compound At Double Digits For Decades
I found this chart on Twitter
Your 2 variables for growing your capital are:
There's a reason ultra rich own real estate. While the S&P averages 8%, the IRR of many larger REPE funds can range from 20-30%+ with a track record spanning decades.
🔎 🍇 Sour Grapes – Studying Failure To Win
I never want to celebrate companies failing.
But anytime a 9-figure company files bankruptcy, it's helpful to study why.
Winc – a wine subscription box company – was doing $74,000,000+ annually in sales...filed for bankruptcy.
The companies competitive advantage was their ability to recommend wines people would enjoy, with a high degree of accuracy, based on previous purchases.
Here's a few of the highlights their business and why this happened:
They're selling a $60-70 Average Order Value product with... insanely high shipping costs.
Low Gross margins (Price minus cost of goods sold) – 36% 👈 anything under 70% is usually deemed suicide in the e-commerce space.
CAC (Cost of Acquiring Customers) has been on the rise, no surprise here
This, combined with their operating expenses being over 50% of their revenue in 2021 and 2022 is a nightmare for profitability.
Run Lean – Expensive headcount in thin margin companies in a death wish. It's great when markets are going up & you've raised $54M. But when things turn south, begin cutting fast.
Don't sell physical goods online with thin margins – The wine market was a 417.85 billion industry in 2020. People love wine. That doesn't mean it's profitable to sell it online.
This segment was inspired by Jake Schmidts breakdown here.
💰 How To Not Pay Taxes On $1M of Income
90% of millionaires own real estate because it's the most tax efficient way to compound your capital.
This back-and-forth between Shaan and Mitchell was a helpful benchmark for offsetting income with cost-segregated depreciation.
We're doing our first cost segregated study this month on a property in Fort Worth. I'll share some of the numbers in a future newsletter.
@Jake_Langley@geoff_l@KrissBergTweets Probably 3-5 million
2 big factors
1. Land vs improvement value- you can’t depreciate land
2. Amount of 1245 property in the improvement. Gas stations are 100%, warehouses with no amenities can be very little.
— Mitchell Baldridge (@baldridgecpa)
Dec 29, 2022
⏰ The Best Habit I Started In 2022
I agree with the famous management theorist.
But, how does this apply to habits?
Well, at the end of 2021 I had a problem.
My businesses were gaining traction, but I wasn't taking much money from them because I wanted to keep reinvesting into growth. In short, I felt cash poor.
So, I made a change.
I began writing down in Notion every time a single dollar hit my bank account.
This sounds... psychotic (I know).
But from simply from tracking it, the amount of money I began taking home grew exponentially in 2022.
So, whatever it is in your business or life you want to grow or improve, try measuring it.
🤠 Random Links
Quality of Life Difference at different Net Worths (Good Reddit Read)
PS – Want to chat 1:1?
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