What Business Should I Start in 2021? [Perfect Business Model]

Summary

• We should strive for a perfect business that is unique, expensive, sticky, and air-like. These characteristics make for long-term success and profitability.
• A business that costs a penny to produce something but can sell for a dollar is ideal; it should be habit-forming, almost like air, which people need to keep buying.
• The perfect business should have a high gross margin—what costs a penny should sell for a dollar, which reflects a 99% gross margin.
• It's critical to focus on not losing money; being risk-averse is much more important than chasing big wins. Only have to get rich once, so prioritize stability.
• Long-term thinking over short-term gains will help grow businesses sustainably; wealthier people always consider the long-term impacts rather than immediate returns.
• Management and operators' characteristics are crucial; they should be risk-averse, think long-term, and maintain unimpeachable character.
• A strong reputation is an intangible asset that can give a competitive advantage and compounding returns over time.
• The lesson is to create products or services that are high in demand, low in production cost, habit-forming, and unique, managed by people who are cautious, strategic for the long-term, and inherently trustworthy.
• Maintain integrity and protect your reputation fiercely; transacting with honor and transparency paves the way for long-term business success.
• Ultimately, aim for businesses that others cannot replicate easily, ensuring a sustainable, competitive advantage.

Video

How To Take Action

I would suggest starting by finding what makes your business unique. It could be a special way you serve customers or a unique product. Make sure that it's hard for others to copy. You want to stand out in the market.

Next, focus on creating a high-value product that costs little to produce but can be sold for much more. This will give you a high gross margin. You don't have to spend a lot of money. Just be smart about your costs.

Also, try to make your product or service something customers will want to buy over and over. Make it a habit for them, like they need it just like they need air.

Be careful with your money too. It's better to avoid losing money than to take big risks for big wins. You only have to get rich once. Think about how to keep your business stable over time.

Always think about the long-term results of your actions, rather than quick, short-term gains. This will help your business grow steadily.

And remember, your character matters a lot. Always do business with honor and honesty. When people trust you, they will want to keep doing business with you.

So, my tips for a perfect business are:

• Make your business unique.
• Create high-value products that are cheap to make.
• Make sure people want to keep buying your product.
• Be risk-averse with your money.
• Think long term.
• Maintain a good reputation.

Stick to these ideas, and you can build a business that lasts and is hard for others to compete with.

Quotes by Alex Hormozi

"Something that costs a penny, sells for a buck, and is habit-forming"

– Alex Hormozi

"You charge what the market will give you"

– Alex Hormozi

"Alex, you should only have to get rich once"

– Alex Hormozi

"It's much more important to not lose than it is to win"

– Alex Hormozi

"Your reputation over time becomes a competitive advantage"

– Alex Hormozi

Full Transcript

what's going on everyone happy tuesday hope you guys are pumped uh for today's podcast slash video uh i've been looking forward to this one for a little bit and uh if i sound a little bit stuffed up it's because i have two massive tubes that are like four inches long in each of my nostrils uh but that was no reason to not give you guys some sick stuff uh for business stuff and this is mostly just for me too so uh anyways buckle up hope you enjoy so today what i want to talk about is the perfect business and so believe it or not this is actually something i talk a lot about um not as much publicly but what i like if if we were to talk in person and talk talk shop about business i i love talking about business models i love talking about uh just monetization structures in general uh writing books specifically modification structures uh so really excited about it but uh i just recently finished uh berkshire hathaway university which is basically uh uh the consolidated 30 years of shareholder uh the the war buffett a trolley bugger the the you know the co-founders coach sheriffs etc of of berkshire hathaway they do these yearly shareholder events and these guys are both billionaires now they're both in their high 90s which is crazy they've been investing for 50 plus years investing for 50 plus years and they've built a you know kajillion dollar empire um i think as of today it's worth half a trillion um which is just nuts their return on capital was 2 million percent so when they started where they when they acquired berkshire hathaway which was a publicly traded company at the time was a textile company they uh the stock was nineteen dollars i believe actually no they offered to buy war buff it out at eleven dollars and thirty cents uh i love fifty anyways doesn't matter point is is that it was it was between 11 and 20 right and at this point that same stock is worth 377 000 all right so that's a that's a 20 000 x return so if you so his odd put thousand dollars in it's not worth 200 million all right that's how crazy this is and over you know 30 years of shareholder things there's many times where he gives little nuggets of wisdom of what he's looking at uh when he's buying a business or what he what he believes to be valuable businesses and uh i was really it was cool for me because uh i have always had three main things that i look for businesses and in reading his book or the book that was about his shareholder readings i added two uh two to that list and so i wanted to share those with you today all right and uh the moniker that i have had for this is i'm gonna i'm gonna share with you is unique expensive sticky air and i said there's five there's four words here that's okay because i'm going to show the last one in a second but unique expensive sticky air so what i'm looking for like in my mind of what a perfect business is it's unique expensive sticky here and i've explained each one of these so unique is something uh and i'll even tell you one of the things that he said in his shareholder video that i found really just it was just so it was so short and so like packed that i loved it um he said in response to what is an ideal business in one of the one of the meetings he said uh something that costs a penny sells for a buck it is habit-forming and it was so succinct it's so great and reading some of the other stuff he's got other other things but that one was three of the five in three sentences right so they cost a penny sells for a dollar and it's habit for me and i just like it it's just so great all right so let's let's break this down so something that costs a penny so that would be like air something that costs you almost nothing to make all right it's expensive meaning you could sell it for a dollar so cost you a penny you could sell it for a dollar and it's sticky it's habit for me people come back and keep buying it again and again and again right which means very long lifetime values all right that's that's what he's looking at initially now the the unique part is something that if you if you listen to some of his other stuff is he likes to have big competitive boats all right so what's something that's you know what's how can i find air for a petty sell it for a dollar that people come back you want to keep breathing and no one else can sell it so it's unique air right it's not here that anyone can sell it's specific to the to it has a brand behind it that no one could copy uh it has share of mind he talks about that a lot uh like geico everyone here probably does like you could say 50 or more by switching to geico you've heard that uh because he 10x their advertising budget as soon as he bought the whole thing uh and just had them go on a massive rampage so they could take over my chair and geico has grown proportionately and so this is four of those features right unique expensive sticky air something equal make for a petty sells for a dollar is habit forming that no one else can replicate and um for me this is just so cool uh and i'll talk about a couple of the features of this in a second um you know what i'll talk about it now so one thing that you'll notice and this is for all the newer entrepreneurs or you know really it any entrepreneur uh who's interested in this kind of thing notice the gross margins he's talking about right a lot of people quote feel bad for charging for things that don't cost that much which is a terrible mindset to have you charge what the market will give you right so if for example uh you you know you find this these widgets like these pens and you know that that you get them from some place in china that cost you a dollar if someone's willing to give you a hundred dollars for it do you feel bad taking it you're like well if only they do markets are built on information advantages information inefficiencies meeting one person the seller knows more than the buyer that's that's how these things work a lot right and so uh i i noticed this because you know you're listening to one of the best investors of all time if not the best investor of all time and he looks for like a hundred to one right costs a penny sells for a dollar a hundred to one it costs one penny one percent cost of goods compared to what it's being sold for so 99 gross margins that for me was actually very very interesting uh is that he he doesn't go for like an 80 or a 90 he goes for 99 and for perspective the difference between selling something uh for a dollar that cost you 10 cents versus selling something for a dollar that costs you penny is not that uh you know it's it's just nine percent more profitable to sell some you know sell it for a dollar that costs a penny versus a dollar that costs a dime it's actually ten times more profitable and here's here's why i better explain this is that for one unit of cost the petty one could sell 10 times the amount for that one cost so does that make sense so if i were to sell 10 pennies worth of buy cost it means i make 10 whereas 10 pennies worth of the other example of a dive is only one dollar and that's one of the things that people don't understand about margins right the gross margin of the product that you have like every increment when you go from when you go from 90 to 95 gross margins in a business you double the profitability of the business that's what's crazy right and so uh that's why this is so important right now if you try for example look at your prices right now and say uh i want to get to if you're at 90 and you say i want to get to 95 percent gross margins now let's say it costs you right uh let's say it costs you 10 right uh for your for your thing right you sell for a hundred that's ninety percent gross margin so ninety dollars is is margin for you ten dollars is cost you sell for a hundred all right so if you wanted to get to 95 percent gross margins what do you think you do would you add five dollars maybe 105 no that's not bad to get to 95 gross margins you'd have to sell the same 10 thing for 200 that's what people don't get about margins right and so what i like what i would we would we would turn gyms around at what and whatnot i would have guys who are at 66 margins that's usually where most people are and that's horrible by the way and i would say we need to get you to 80. and they would see 66 to 80. only 14 percent only 14 you just saw me double the price from 100 to 200 to get five right and so that's that's how important these margins are and so to hear this man say i want something that i could create for a penny sell for a dollar that's habit for me get people keep buying over and over again for the rest of their lives and that no one else can buy because it's unique right that was pretty cool and so these are the four kind of components of the business itself but the last thing that buffett talks about and he talks about this a lot so i draw a little dotted line here is the person who is running it all right and he has three characteristics that i saw him repeat over and over again uh for the management or the operators all right and they have such a brilliant model of managing right because berkshire only has like 19 employees or something like that something stupid and they have a gazillion they did 88 billion in profits last year think about that 88 billion the second most profit in the entire world was like a 20-person company because they're so good at advocating response just basically delegating out responsibility to the businesses that they bought now he turns out a lot of deals but what he looks for in operators and this is why i think this is cool is that what he looks for in operators we can look for it ourselves we could create that ourselves as entrepreneurs right we could think how can i embody these characteristics all right and so the first of these characteristics is he says i want somebody who's risk averse all right because he said many times any things time zero is zero he's like you could have 30 years of a great track record and make one bet that goes to zero and lose it all and that is why he's so risk-averse and i had a mentor who told me something once that i that i just loved he said alex you should only have to get rich once and for some reason that just like that that hit different you should only have to get rich once and so uh and the smartest best of the world feels that way too you should be risk averse he's like i give i give up bigger opportunities all day long to to cover my downside all right the richest people in the world i'm telling you this right now if you don't have access to people who are worth a hundred million a billion i do and i will tell you how they think all right it's all about downside risk mitigation they will give up they will give up huge returns to not risk losing money and the funny thing is that poor people think the exact opposite they go for the lottery they've basically 100 guaranteed downside right one in 300 million of winning and they do it all the time right and one of the things that uh buff says is like if you if you uh if you bet poorly small you'll bet poorly big uh which i i love that too right so anyways number one matchmaker is risk-averse so we think about ourselves how can i be more risk-averse how can i make sure that i can't lose right it's much more important to not lose than it is to win and what's interesting is that if you don't lose long enough you kind of win by default which is kind of interesting which brings me to the second point which is log-term thinking so the reason that they like family-owned business specifically is that families think about generations they think about passing it down between you know father and son parents and kids right and they like those businesses because they don't cut quarters they think about quality they think about long-term investment long-term competitive strategy they're not thinking about quarterly earnings and you know basically short-term gratification which is what most of the stock market companies are forced to do because they have to pay her to to to stock stockholders right and so if you can't i've talked about this some of my other podcasts shifting from ceo to investor but one of the most beneficial things that i have done for my mental health and for the success of my business is thinking in a long-term type horizon and i can't tell you that i'll tell you that of the people that i encounter the longer their time horizon that they talk in the wealthier more successful they are invariably so when i talk to somebody and all they're thinking about is this week the next two weeks payroll and what they're gonna make this month and last month i already know that they don't make a ton right and it's because that's all they think in right and then and then they get from there you get to slightly higher level entrepreneurs they're thinking in quarters okay this quarter this one we can't focus anything this chord is all we got this is what we can do right and that's fine because the smaller you are the less stable you are it's more volatile right but over time as you expand those horizons right you'll be able to make better better decisions because you'll start thinking well if i did this for five straight years would it be reasonable that i would win probably right uh if i do this consistently for five years do i think that i will it would be unreasonable that i won't be able to be far past by my my goal probably right but most people still think of these tiny chunks of time and could never get ahead and they spend month after month after month for 30 years trying to become millionaires rather than just set a goal of like well let me just see if i could increase my my income by 20 000 in the next year right and then next year after that i'll try and increase it by another 20 000 and they do that by you know and in five years you have a top one percent income uh but only 99 of people don't think that way which is why only one percent do so anyways number one for the management is that they're risk averse they will take they will take the loss they will not take the opportunity to avoid the loss number two they think of long term horizons right and number three they have unimpeachable character which i just really like that is a word unimpeachable character and if he uh if you listen to or talk about uh about about about losing buddy he said if you lose money that will be forgiven he said but if you lose me a shred of reputation i will be ruthless and he's he's so uh so big on this and i think that's you know these these these kind of three things come together people who have unimpeachable character are not trying to get rich quick right they're trying to build something of value they're trying to build something that's enduring something that's long term and uh they're honest and so what happens though is that when you have an impeachable character it's actually intangible that has compounding returns and i'll explain what would be that but he talks about it for his own business he's like the fact that our check's always clear that we we do what we say we're going to do uh allow us to get access to more deals because more people want to work with us right and we do we close deals faster and so the thing is is that your reputation over time becomes a competitive advantage and that's what a what's a unique that's a sustainable and compounding competitive advantage because someone who's stuck with their word for 10 years compared to somebody stuck with their word for 30 years whose word is worth more the 30-year guy someone she's stuck with you know who's done everything and but unique character for 30 years compared to guys done it for 60 years who has the stronger word the 60-year guy it's something that if you can develop it literally compounds with time uh and it's and it's in his opinion priceless and i think he's a very good valuer of things and so anyways the perfect business model i'll give you a quick recap it's unique expensive sticky year that's managed by somebody who's risk averse long-term thinking and has unimpeachable character all right so something that you could create for a penny sell for a buck that's habit-forming that no one else can do and you do it in such a way that you don't take short-term risks you think long-term in terms of how you're going to invest in the business and the legacy and building something of value and not not obsessed with short-term volatility but for a long-term earning and finally that you do it in such a way that people will think everything that this man has done has been fairly earned and wisely used and so with that i will leave you with the perfect business i hope you enjoyed this hope you found this valuable this is one of my favorite things to talk about and uh keep being awesome and if you're in the arena keep getting up i promise uh you will get better over time lots of love i'll catch you guys soon bye