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%.

Outlines

00:00

💰 High Gross Margin Businesses for 2024

This paragraph discusses the importance of high gross margins in successful businesses according to Warren Buffett. It explains gross margin with an example and emphasizes that the best businesses have high margins and sell for high dollar amounts. The speaker shares insights from analyzing industries and evaluating gross margins, suggesting product businesses as a good start with a 50-60% gross margin. The paragraph also mentions the challenges of product businesses, such as distribution and sales, and offers three key strategies for success: pre-selling to validate demand, direct-to-consumer sales to avoid cash flow issues, and investing in brand to drive traffic and create a product business flywheel.

05:00

📈 Agency and Service Businesses with Scalable Margins

The second paragraph focuses on agency or service businesses, which have margins between 60-70%. The speaker shares personal experience in creating and scaling agencies, emphasizing the ease of starting such businesses by leveraging existing skills. To make these businesses successful and scalable, four key points are highlighted: identifying a strong market need, productizing services for outcome-based payments rather than hourly rates, focusing on recurring revenue to build a stable income base, and scaling the business through systems that replace the need for the owner's constant involvement, allowing for growth and efficiency.

10:01

🏆 The Art of Coaching and High-Margin Software Businesses

The third paragraph is divided into two main parts. The first part discusses coaching and related businesses, such as consulting and online training courses, which have margins between 70-80%. The speaker encourages considering coaching as a business opportunity but warns of the pitfalls if not done correctly, suggesting three strategies: learning to sell expertise, adopting an education-based marketing approach by giving away information for free to build an audience, and building a community for networking and support among clients. The second part of the paragraph addresses software businesses, which can have the highest margins of 80-90%. The speaker shares personal insights into the software industry, highlighting the importance of creating a sticky product that solves a daily problem, targeting boring industries for stability, focusing on the first-time user experience to ensure activation and value delivery, and prioritizing customer retention to increase lifetime value and gross margins.

🚀 Strategies for Software Business Success and Growth

The final paragraph continues the discussion on software businesses, emphasizing the importance of customer retention and understanding why customers churn. It stresses the significance of focusing on retention rather than just acquiring new customers, as retaining existing customers increases their lifetime value and, consequently, the business's gross margin. The paragraph concludes by summarizing the best businesses to start in 2024 and invites the audience to learn more about rapid business growth through a provided link.

Keywords

💡Gross Margin

Gross margin is a financial metric that represents the difference between the revenue a company generates and the cost of the goods sold (COGS), expressed as a percentage of revenue. It indicates the profitability of a company's core operations. In the video, Warren Buffett emphasizes the importance of high gross margins for successful businesses, using the example of a product sold for $5 with a cost of $1 to make, resulting in a gross margin of 80%.

💡Product Business

A product business refers to a company that creates and sells physical or digital products. The video discusses the challenges and strategies for starting a successful product business, such as pre-selling to validate demand, selling directly to consumers to avoid cash flow issues, and investing in brand building to ensure word-of-mouth and positive reviews.

💡Crowdfunding

Crowdfunding is a method of raising capital through small contributions from a large number of people, typically via the internet. In the context of the video, crowdfunding platforms like Kickstarter and Indiegogo are mentioned as a way to pre-sell products and validate market demand without financial risk.

💡Direct to Consumer (D2C)

Direct to Consumer (D2C) is a distribution strategy where products are sold directly to the end consumer, bypassing traditional retail channels. The video script highlights D2C as a key strategy for product businesses to avoid cash flow issues associated with wholesalers and retailers, with Amazon being cited as a popular platform for D2C sales.

💡Agency Business

An agency business is a service-based company that offers specialized skills or services to clients, often on a contract or project basis. The video outlines the importance of identifying market pain points, productizing services, focusing on recurring revenue, and scaling with systems as key strategies for building a successful agency.

💡Service Business

A service business provides intangible products such as expertise, skills, or solutions. In the video, the speaker discusses the potential of service businesses, particularly when they are productized, have recurring revenue models, and scale through systems, allowing the business owner to replace themselves and grow the business.

💡Coaching

Coaching in a business context refers to a professional who provides guidance, training, and advice to individuals or groups to help them improve performance or achieve goals. The video emphasizes the high margins in coaching and the importance of selling expertise, providing free educational content to build an audience, and creating a community for clients to enhance the coaching experience.

💡Software Business

A software business involves the development and sale of software products. The video highlights the high gross margins achievable in software due to low marginal costs of serving additional customers. Key points for success include creating a sticky product, targeting boring industries, focusing on the first-time user experience, and prioritizing customer retention.

💡Sticky Product

A sticky product is one that customers use frequently and find hard to leave due to its value and utility. In the video, the concept is used to describe software products that solve daily business problems, making them essential for users and increasing the likelihood of sustained usage and high customer retention.

💡Boring Industry

In the context of the video, a boring industry refers to sectors that may not be glamorous or high-profile but offer stable, long-term opportunities for software solutions. The speaker suggests that software targeting these industries may experience less churn and more consistent customer relationships compared to more volatile sectors like marketing or sales.

💡First-Time User Experience (FTUE)

First-Time User Experience (FTUE) is the initial experience a user has when they first interact with a product or service. The video stresses the importance of a well-designed FTUE in software to ensure users quickly understand and derive value from the product, using the analogy of a video game tutorial to illustrate the concept.

💡Retention

Retention in a business context refers to the ability to keep customers over time. The video emphasizes that focusing on retention is crucial for software businesses, as it leads to higher lifetime customer value and increased gross margins. It suggests that understanding why customers churn and working to retain them is as important as acquiring new customers.

Highlights

Warren Buffett emphasizes the importance of high gross margin in identifying great businesses.

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

Ideal businesses have both high gross margins and high dollar sales.

Restaurants are cited as an example of a business with lower gross margins, around 45%.

High-performing businesses aim for gross margins of 70% to 90%.

Understanding industries and their gross margins is crucial for business success.

Product businesses typically have 50-60% gross margins and require careful distribution and sales strategies.

Pre-selling through crowdfunding platforms is recommended for product businesses to validate demand.

Direct-to-consumer sales are advised to avoid cash flow issues associated with wholesalers and retailers.

Investing in brand building is essential for product businesses to create a positive word-of-mouth and reviews.

Agencies or service businesses offer margins between 60-70% and leverage existing skills for business offerings.

Focusing on a strong pain point in the market is key for scaling an agency business.

Productizing services and focusing on recurring revenue are strategies for successful agency businesses.

Coaching and online training courses have high margins of 70-80% and require selling expertise, strategy, and community building.

Software businesses can achieve the highest gross margins of 80-90% due to minimal costs for new customers.

Creating a sticky product that solves a daily problem is crucial for software business success.

Targeting boring industries with software can lead to higher retention and less competition.

Focusing on the first-time user experience in software is compared to the tutorial level of a video game, guiding new users.

Retention is highlighted as more important than acquisition in software businesses for long-term success.

Transcripts

these are the best businesses you can

start in 2024 Warren Buffett says great

businesses have high gross margin so

what is gross margin essentially if I

sell a product for $5 but it cost me $1

to make then my gross margin is $4 or

80% see the best businesses are ones

where you have the highest margin and

then also sell for the highest dollar

amount what you don't want to be is like

a restaurant where the gross margins are

only 45% you want to be on the upper end

of 70 80 even 90% % gross margin and to

do this you need to understand all the

industries that's why I've spent a lot

of time analyzing all the best

Industries and evaluating all the gross

margins from lowest to highest that you

can start today with very little

experience to make this year the best

year of your life the first business is

a product business typically these

companies have 50 or 60% gross margin

now I've been involved in some

incredible product companies like paila

that does a biodegradable phone case or

laundry sauce which is a modern-day

detergent company or Lomi that does a

food composting device and I mean these

are literally some of the best companies

out there but I've seen people lose

their shirt Building Product companies

because they don't understand how to get

distribution how to get sales how to

build a product efficiently and

essentially they take all their savings

put it into a product don't get any

Revenue so if you want to make a product

business work great these are the three

things that you need to do right number

one is you have to pre-sell see most

product companies use Kickstarter or

Indiegogo or other crowdfunding

platforms so that they can validate

demand for the product without losing

money now I know you've probably been

burned by investing in some of these

crowdfunding campaigns but the best ones

know how to do them promote them Market

them get the money and then use that to

actually build the product the second

thing is you have to do direct to

Consumer and the reason why is you got

to skip the retailers because if you go

through a wholesaler to a retailer by

the time you actually get paid and

there's the big cash flow issues it's

very hard to make a product business

work that's why Amazon has been a big

category for a lot of people that are

getting into the product space and the

third thing is you have to invest in the

Brand This Means making sure that you

use premium products meaning that you

care about Word of Mouth that you focus

on reviews that you look for

opportunities to get pressed to drive

traffic to the business because that's

what's going to create the flywheel to

make a product business work the second

business is an agency or sometimes a

service business business the margins

are between 60 and

70% now I've learned over the years that

the easiest companies are ones where you

take a skill that you already have maybe

as an employee and then offer that skill

to other businesses and get paid to

either do for those businesses what you

currently do or teach them how to do it

for themselves now I've seen a lot of

people launch different types of

agencies social media marketing agencies

Etc and the ones that actually scale and

make money not just have a low paying

full-time sometimes dou double full-time

job they focus on these four things

number one is they focus on a strong

pain in the market if you think about it

you could start an AI company today

where you go and you analyze businesses

and all the inefficiencies and then

introduce them the AI tools to solve

those problems and you would make a ton

of money because businesses will pay for

anybody that can show them how to save

them or make them money using AI is a

modern-day way of them getting leverage

and you can even negotiate where you get

paid more based on how much money or

time you save them number two is

productize Services see if you sell just

work for time then you're always going

to get paid for your hour what you want

to do is get paid for an outcome and to

do that you got to focus on one thing if

you're a designer focus on Logo designs

if you're a programmer focus on the

onboarding experience if you're a

salesperson focus on the Discovery call

teach people how to do one specific

thing so that you can productize it and

as you grow you can buy back back your

time by having somebody else support

different aspects of that productize

service number three is focus on

reoccurring Revenue see too often when

we start we just want to like get paid

to do the thing problem is that every

month you got to get paid to do the

thing over and over and over again so

you start at zero at the beginning of

every month what you want to do is sell

a service an ongoing reoccurring Revenue

Service for whatever that work is so

that you come in you evaluate it you

support them you keep doing more work

and that way you can sign them up for 3

months 6 months 12 12 months of service

and you start building the revenue Base

number four is you want to scale with

systems the whole philosophy is build a

business you don't grow to hate the way

we do that is by replacing yourself

using a system a checklist for how you

deliver on that agency work and then

that way you can hire people to get them

to do the work following your process

that guarantees the results for the

customer the third business is coaching

and the margins are between 70 and 80%

now this is also consulting or

information online online training

courses that kind of business and I know

this one incredibly well I run one of

the largest coaching Organization for

software CEOs I've been involved in

creating multiple courses and trainings

and seminars and all this stuff for some

of the largest coaches that you know of

online and even for me I hesitated

launching this I mean I even built a

whole technology company called

clarity.fm because I was too scared to

call myself a coach and I put it off I

mean this platform we built I did over

1,300 Clarity calls over a 2-year period

and never gave myself permission to call

myself a coach and I want to tell you

it's been one of the most rewarding

things deciding to go all in on being a

coach and really working with some of

the best CEOs out there and I want to

encourage you to consider it but if

you're going to do it these are the

three things that you have to do right

or you're going to eventually end up

hating being a coach number one is to

learn to sell your expertise I mean this

one is a fascinating one cuz I know

people that are worldclass in what they

do they're literally the fittest person

I know or they're incedible networkers

or they're so talented in their art but

they would never feel comfortable

getting paid to teach somebody else to

do the thing they've done which is crazy

I mean at the end of the day you've

become great at the thing you're doing

and people have noticed I want to

encourage you to allow other people to

pay you for that advice because in doing

so you're actually helping them often

times the transformation happens at the

transaction so them investing in

themselves by hiring you to teach them

how to become world class at what you do

is actually where a lot of the value is

created number two is strategy see most

people think that I know this

information so I can't give it away I'm

going to tell you something

controversial I want you to give all of

it away okay it's called education-based

marketing see I believe that information

wants to be free and then you get paid

for the support of the implementation so

you want to teach everything you know

around the topic for free on social

media at seminars get on stages speak

share it all the best stuff and by doing

so you're going to build an audience of

people that want to learn more from you

and they will pay you for the

implementation number three is build a

community see I had a coach once and she

was incredible her name was Marcy I

learned so many things she had brought a

company public and just an incredibly

valuable coach the challenge was is that

I knew she was working with other

incredible entrepreneurs and I never got

to meet them never once did she organize

a dinner or a Meetup or things so that I

could also get value from meeting the

client she worked with I'm telling you

if you are a coach having a community

where other people from that same coach

can connect and meet each other that's

where a lot of value as a coach will

come from to help you with keeping

people in your world and also allowing

you to send their support as you grow

the business the fourth business is

software and the gross margins are

between 80 and 90% if you think about it

having a new customer use your software

costs nothing literally it's like server

data storage on some computer now I

learned this personally back in the

2000s when I started writing code in

building software and over the years I

just found it so amazing that I can

build some software once and the more it

grows the less it costs me and as long

as the servers don't change that code

will run the way it has forever now I

have a lot of friends that want to get

into software but what they miss is

these key points to make the software

work because if you don't have people

using and loving it the way you need to

then it's not going to create the

margins cuz customers are going to come

and they're going to go number one is a

sticky product you want to build a tool

that solves a problem in a business

where they have to use it every day

think about things that are painkillers

not vitamins you want to create

something that's a musthave problem

solve not a nice to have like a vitamin

think you know dating sites where it's

just like a oneandone or taxes where

they do it once a year those are not

tools that are going to have daily usage

like a Dropbox or slack so you want to

look for problems that are sticky in

regards to the product solving those

problems and keeping them around number

two is boring industry see most people

build software for marketing or sales

because it's what they know but the

problem is the customers are going to be

swapping off of your product to your

competitors every 3 to 6 months you want

to be in boring Industries like local

services lawn care Body Shop software

government is definitely a fit you want

to find customers that aren't always

looking for the latest whizbang but you

can solve a core problem in their

business using software number three is

firsttime user experience also

pronounced fouy the key is is you want

to look at your software as like the

level one of a video game you know when

you start playing a video game they

don't just like drop you in and say

start fighting or start racing like they

walk you through the process and they

actually teach you you're not playing

the game but you're kind of playing the

game that is the same concept you want

to do with your software so you don't

overwhelm people and get them to what's

called activation or receiving core

value most people try to add too much to

the product especially when people just

sign up and it confuses the customer so

you want to focus on that firsttime user

experience to make sure they activate

and receive the value you promise on

your homepage number four is focus on

retention see too often people want to

focus on the chocolate which is

marketing and sales and getting more

customers and leads and just trying to

get as many people into the thing but

the real broccoli of software is

retention and keeping people from

turning out figuring out of the people

that leave why did they leave try to

keep them back because the more you can

keep the customers that you've got the

higher the lifetime value will be of

your customers over time which will

massively increase your gross margin and

what makes software so powerful those

are the best businesses you can start in

2024 and if you want to learn how to go

from Z to a million in 60 days click the

link and I'll see you on the other side