Online Marketing Problems Solved

What is the perfect business for today? In my opinion, this is what it would look like:

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1. I’ve mentioned my first criterion already. It would be a real business that could become more valuable over time and eventually be sold for millions of dollars. Single-store retail enterprises, as I’ve said, seldom qualify. Most have a net zero balance sheet when they are mature. You can sell them for a portion of the inventory and physical assets. That’s about it. No big payday.

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2. It would have unlimited upside potential. It could go from 10 million to 100 million as easily (actually, more easily) than it could go from zero to a million.

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3. To have that kind of upside potential today, it would have to have the entire world as its marketplace – not just a local community or even an entire country.

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4. Richard Russell pointed out in his essay – and, of course, I agree with him – that the perfect business would sell a product that benefits from “inelastic” demand. Inelastic means that the price you charge for the product is determined by you, not the market. If you are selling canned goods or beer, for example, you can’t charge whatever you want. But you can do that if you are selling luxuries, rarities, or unique pieces. That’s one of the reasons I like the art business. (Still, as those of us in that business know very well, even art can be affected by the market. Prices have dropped by about 30 percent in the past year.)

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5. In addition to benefitting from inelastic demand, it would be a product that could not be easily substituted for or copied. Ideally, as Russell said, it would be “an original, or at least  … something that can be copyrighted or patented.”

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6. The perfect business would not employ blue-collar workers. Forgive me for saying this, but, in my experience, the hassles are just not worth it. Working with professionals is infinitely easier. Take my word for it – or learn on your own.

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7. The perfect business would be financially leveragable. By that I mean it could be grown – at some point – without requiring an enormous amount of your attention. This is the difference, for example, between owning one hamburger joint and owning a string of burger joints. Opening a second restaurant is always a high-risk, low-return prospect. But adding another location to an already-successful chain is much easier.

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8. The perfect business would not take up all your time. In the beginning, you’d surely have to put in 12-hour days. (I’ve never encountered a business where that’s not true.) But after you learned the industry secrets and taught them to your top employees, they would be able to take over day-to-day operations.

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9. Similarly, the perfect business would not depend on you to keep it going. After a few years, it would run on its own.

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10. The perfect business would have a very high net-revenue-to-employee ratio. This is an idea I developed many years ago. (I’m sure MBAs have a name for it – but I don’t know what it is.) Whenever I contemplate starting a business, I insist that it can reach $10 million in sales, after refunds and cost of goods, with no more than 20 employees. That’s a $500,000-to-one employee ratio.

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11. The perfect business would have little or no inventory. If you have been in an inventory business, you know how important that is.

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12. The perfect business would be cash-based and, therefore, have no receivables – meaning your income would never be held up by payment terms or bad debt. Receivables are fine when an economy is booming, but disastrous when the market sags.

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13. The perfect business would have no debt. Customer payments would be sufficient to pay all bills and finance growth. (Imagine how lovely that would be!)

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14. Another Russell criterion that I endorse: The perfect business would not need “an expensive location … large amounts of electricity, advertising, legal advice, high-priced employees, etc.”

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15. Yet another Russell criterion: The perfect business would be relatively “free of heavy government and industry regulations. The cost of dealing with such regulations is always burdensome but will break you during a serious and long recession.”

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16. And yet another Russell criterion that I agree with: The perfect business would be portable or easily moved. In other words, you could take your business (and yourself) anywhere you wanted – Nevada, Florida, Texas, Washington, South Dakota (none of which have state income taxes). Or, hey, maybe even Monte Carlo or Switzerland or the South of France.

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17. I was trying my best to keep Russell’s criteria out of this article. In fairness to him and you, I wanted all the advice to be uniquely from me. But that’s not happening. My final requirement for a perfect business is from Russell too: It must be able keep your mind thinking and your heart pumping. You don’t want to become bored with it after a few years. You want it to be intellectually and emotionally satisfying, which is another way of saying “fun.” Most businesses simply can’t offer that.