- Biz Brainstorms by Connor Gross
- My Favorite & Least Favorite Business To Start
My Favorite & Least Favorite Business To Start
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Welcome to Biz Brainstorms –
My name's Connor.
I go down weekly rabbit holes of business ideas & lessons.
Today's Topic: My Favorite Type Of Business To Start
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My Favorite Type Of Business To Start
As we enter 2024, I am beginning to think of 2 things:
How Can I Grow My Existing Companies
How Can I Start New Companies (I love this sh*t)
I’ve recently come to the conclusion that my favorite businesses to start all have one thing in common.
And I came to this conclusion from spending the last 2+ years in one of my current companies
One of the companies I own is Atlas Self Storage.
We buy & operate storage facilities in Texas.
This is an amazing business if your goal is equity upside, because you can buy a property like this one below (ugly yellow) for $590,000 (we put $130,000 down).
We put $55,000 into renovating it.
And then sold it 13 months later for $1,150,000. On a building that was making $11,000/month.
After broker fees & closing costs, we 4x’d our money.
That is the beauty of value-add Commercial Real Estate.
You grow cashflow slightly and it magnifies the property value. And you look like a genius more making a measly extra $5,000/month.
Sounds awesome, right?
OK, here’s the awful part of this business that no one talks about:
We have currently have 3 employees at Atlas.
And every month that business loses ~$15,000 after payroll, debt coverage, insurance, repairs, etc.
Out of the 5 properties we currently own, we make $28,000/month (2 properties we just bought need to be leased up still and only make like $2,000 right now).
Here’s the real bummer: the MAXIMUM we can make on those 5 properties is probably ~ $60,000/month.
So we’ll stop losing money, but we aren’t getting rich until we sell and buy more properties.
In short, the easiest way for us to increase revenue (aside from leasing more) is by buying more facilities.
And buying more facilities costs a lot of money…
Which brings me to my main point:
My Least Favorite Businesses To Start Are Capital-Intensive Businesses
Businesses where your growth is directly tied to needing to put more money into the business.
Think companies like:
Dumpster Rentals (your revenue growth is limited to how many $40,000 dumpsters you can buy)
Manufacturing (you’re buying & holding inventory before you ever sell it)
Brick & Mortar Retail (especially if you need to invest a lot into the set up experience)
These companies are hard as hell to bootstrap.
They do have one huge advantage though: They are easy to get financing on.
Banks & financiers love lending on tangible things (collateral).
And they can be excellent businesses when you start with a lot of capital (see United Rentals for example – they have 17.68B in assets with 8.5B in 2020 revenue)
They are extremely painful to start & grow though if you need to depend on the revenue of the business to grow them.
My Favorite Businesses Are Asset Light
The benefits of being asset light:
Little financial risk if the business doesn’t work
Maybe the most obvious, but the best business owners cap their downside. If you’re new to business, the reality is you don’t know what you don’t know.
There’s a learning curve to everything.
Would you rather spend a month making an eBook on “The 10 Notion Templates That Every Product Manager Needs” that no one buys?
Or spend $20,000 buying & installing vending machines just to realize that you put them in low foot traffic areas & someone just broke-in to one on a Saturday night & you have a $3,000 maintenance bill + $200 in stolen inventory?
Revenue growth could be free.
Let’s say you got into the photo booth rental business. You spent $25,000, got the props, photo booth, and cargo van for delivery.
And you’re crushing it.
You start booking appointments at holiday parties & event spaces. Making $20,000/month. Awesome.
You want to expand. If you want $40,000, you need to spend $15,000 for 3 more photo booths. Oh and another van.
Compare that to running a business of paid online community for email marketers that charges $29/month. Getting 1 new member there could actually cost you $0.
At scale, if things go wrong, you can react quicker.
Similar to point number 1, let’s say you bought a $5M business park in April 2017.
And you leased it up crazy fast and put everyone on 3 year leases.
Everything is going well and you’re sitting back & collecting cash.
The March 2020 happens and suddenly no one wants to resign.
And demand… dropped of a cliff.
Now you’re stuck with a $5M asset that might be worth $2M.
You can have huge upside with assset appreciation, but also huge downside. Asset light businesses can adjust quicker to their environment.
So cheers to 2024, a year of asset light companies that help you scale without needing to buy more physical assets 🍻
✌️ See you next week
PS – These last few emails have been different from the typical business idea blasts. What do you think about them?