I Discovered the Best Businesses to Start in 2024

Summary

In this insightful script, Warren Buffett's investment wisdom is applied to identifying high-gross-margin businesses for 2024. It highlights four lucrative business models: product businesses with efficient distribution, service-based agencies with recurring revenue, coaching and consulting with community engagement, and software with a focus on user retention and first-time experience. The script emphasizes the importance of understanding industry margins, pre-selling products, productizing services, and leveraging technology to scale businesses effectively.

Takeaways

• 😀 High gross margin businesses are recommended by Warren Buffett, emphasizing the importance of both high profit margins and selling for the highest dollar amount.
• 📈 Gross margin is calculated by subtracting the cost of production from the selling price, and the ideal businesses have margins of 70%, 80%, or even 90%.
• 🍽 Avoid industries with low gross margins like restaurants, which typically have only 45% margins.
• 📦 Product businesses can offer 50-60% gross margins and require understanding distribution, sales, and efficient product building to succeed.
• 💡 Pre-selling products through crowdfunding platforms like Kickstarter or Indiegogo is a strategy to validate demand without financial risk.
• 🛒 Direct-to-consumer sales are crucial for product businesses to avoid cash flow issues associated with wholesalers and retailers.
• 🏷️ Investing in brand building, focusing on word-of-mouth, reviews, and press coverage, is vital for a product business to create a successful flywheel effect.
• 🔧 Agencies or service businesses offer margins between 60-70% and are often based on skills already possessed by the entrepreneur.
• 🔑 Identifying a strong pain point in the market and offering solutions, such as introducing AI tools to businesses, can be a lucrative business model.
• 🔄 Focusing on productized services, reoccurring revenue, and scaling with systems are key strategies for successful agency businesses.
• 🧑‍🏫 Coaching and online training courses have margins between 70-80%, and successful coaches must learn to sell their expertise, provide free education to build an audience, and create a community for networking.
• 💻 Software businesses boast the highest margins of 80-90%, but require a sticky product, a focus on boring industries, an excellent first-time user experience, and a strong focus on customer retention.

Q & A

What does Warren Buffett suggest is a key characteristic of great businesses?

Warren Buffett suggests that great businesses have high gross margins, which is the difference between the selling price and the cost of production.

What is the definition of gross margin as explained in the script?

Gross margin is defined as the difference between the selling price of a product and its cost of production, expressed as a percentage of the selling price.

Why are restaurants mentioned as an example of a business with lower gross margins?

Restaurants are given as an example of a business with lower gross margins, typically around 45%, because they have higher costs associated with food preparation and service compared to other types of businesses.

What are the three key aspects to consider when starting a product business, according to the script?

The three key aspects are: 1) Pre-selling to validate demand, 2) Selling directly to consumers to avoid cash flow issues with retailers, and 3) Investing in the brand to build a strong reputation and customer base.

What is the typical gross margin for a product business as mentioned in the script?

The script mentions that product businesses typically have a gross margin of 50 to 60%.

What is the significance of focusing on a strong pain point in the market when starting an agency business?

Focusing on a strong pain point in the market is significant because businesses are willing to pay for solutions that can save them money or increase their efficiency, which can lead to higher profitability for the agency.

Why is productizing services important for an agency business?

Productizing services is important because it allows the agency to get paid for an outcome rather than just for time spent, which can lead to higher revenue and more predictable income streams.

What are the margins for a coaching or information online business according to the script?

The margins for a coaching or information online business are between 70 and 80%.

What is the main challenge that coaches need to overcome as mentioned in the script?

The main challenge coaches need to overcome is learning to sell their expertise and being comfortable with the idea of getting paid for teaching others what they know.

What are the key points to consider when starting a software business, according to the script?

The key points are: 1) Building a sticky product that solves a daily problem, 2) Targeting a boring industry where customers are less likely to switch products frequently, 3) Focusing on the first-time user experience to ensure activation and value delivery, and 4) Prioritizing retention to increase the lifetime value of customers.

What are the typical gross margins for a software business as mentioned in the script?

The script mentions that software businesses typically have gross margins between 80 and 90%.