5 Worst Businesses to Start in 2024

Studies show that these five businesses are the worst businesses to start or buy. The game of entrepreneurship is so ugly for an entrepreneur. It's war out there. The worst investment I ever made. How long do you have? Numbers don't lie. So we're breaking down. Why These businesses are great. If you like losing money or what I call the anti investment businesses. People are going to hate this when I call their babies ugly. And then the rest of you guys, you're going to make some money. I like the sound of that. When investing, I'm obsessed with one thing. Probabilities. What is the likelihood that my money leaving my hands comes back and they bring their friends? That's the only game we play. So let's talk about some really bad businesses, shall we? Because I think in life, the most important thing you can do is find the best games to play. If you were playing the game of NFTs before the crash, it didn't matter how good you were, how hard you worked, you still lost money, you time and respect. So let's talk about the things to avoid if you want to make real money and why, and if you don't want to lose your shirt. Most important to me, number one, ATM routes. You know I love a good vending machine business, but not all vending machines are created equal. Far from it. ATMs being one of them. This is just what the data says. It's not opinions. Now why would I Never invest in ATMs? The problem is the math doesn't add up. Let's look at this. So the average ATM does anywhere from three to five transactions per day. The average ATM withdrawal is 80 to 100 bucks and you get 1 to 3% of that. The math doesn't add up. To even pay someone enough to run your routes, imagine you have to have somebody go pick up out of your ATM at least once a week, which means they charge you 20 bucks every single time. And then you have the operating costs for the the business. And unless you have hundreds of machines, your margins are too tiny to make real money. Now let's talk payback period. It's long. What does this mean? Well, I've looked at multiple funds in the space and they don't start paying you until after four years because an individual ATM won't even hit break even until after seven years. In reality, that means if you pay 1500 to $10,000 per machine and you only make a few hundred bucks a month, it's going to take you seven years to get back the full cost for each machine. I don't like that. I want money today instead of waiting seven years for a couple thousand bucks. It's been 84 years. Next is future of cash. This is a little bit of a squishy one, but think about this for a second. Will cash continue to be important in the next few decades? And what do I mean by cash? I mean dollar bills, not the rate the Fed is printing dollars. It's an open question. If the overall use of actual cash, like paper cash, decreases, you're at a big risk. Since then, there's nothing to sell. I ain't got no cash, man. As we increasingly use things like our phones and credit cards, ATMs become less important. The only caveat to this is, if you're giving me a spot in a cannabis store where they don't take credit cards, or in front of a massive grouping of bars that never have enough card swipes and you can use cash, then maybe ATMs work, but other than that, I'm out on ATMs and the data says you should be too. All right, the second business, Amazon fba. Is it just me or does every kind of scammy Instagrammer have a hey, girl, let me set up your Amazon FBA store for you just for like a quick 5 to $20,000. I don't know what it is with that, but what I can tell you is when most people aren't setting up their own accounts, they're just telling you how to do it. You should run the other direction. Anyway, Amazon FBA is when you let Amazon pick, pack and ship your orders. You sell the product online, but all through their shipping. You store your products in Amazon's fulfillment centers, and they do all the logistics to get it to the customer, including customer service. You, in fact, don't even have the customer's emails. You leverage their massive scale and logistics, which is not a terrible idea. But let me tell you why I never do this business. And the data says you shouldn't either. First reason, platform risk. Amazon controls everything. What happens when Amazon decides your product is a quote unquote scam because a competitor puts up a bunch of fake reviews? That happens. They're notorious for it. In fact, I know a seller that was doing 1.5 million in sales and had his account banned for fake negative reviews and couldn't get it back for 90 days, by which point he'd gone out of business. Or how about if Amazon actually gets all your data like they do, all on how incredible your niche is, and then they duplicate your product with A cheaper version of their own. No thank you. The second reason I don't like them is me too. Products. The barriers to entry to Amazon FBA are really low. Maybe even lower than FTX's actual balance sheet was. The competition is everywhere and thanks to all these Internet gurus slanging Amazon courses. I love when people are dumb and are like haha, I outwitted you. I'm like you're so stupid. Amazon is already flooded with me too. Sellers just like this. And then of course we have the Chinese. Am I allowed to say that? I don't know. But their speed at copycatting products is almost as impressive as their lack of interest in two words intellectual property. So every time you create a product, Amazon lets a bunch of Chinese copycatters in on your game. One of the last reasons is that Amazon sets your price. They use an army of bots and data who scrape other websites for pricing information. What's interesting about that is if they see your product as too high, they they may shadow ban your account, which is a sales killer. So if you want to sell higher priced products on your own website or elsewhere, it's a no. You have to have the same price on Amazon. Now even if you sell your own branded products on Amazon, it doesn't mean that you get to set your own prices. Often Amazon has parameters for doing this. And the fascinating part about all of this is that Amazon has had a history of having the information on their accounts listed on the black market. This is wild. Amazon has had employees selling companies data in other countries. Countries. This is basically the cheat sheet for low cost copycats to come in and recreate your business. Below is a real sheet off the black market showing Amazon data on an individual business out for anybody to see. It's why I will not do Amazon fba. The third is retail stores. I know it's every lady's dream to start a little boutique with all their favorite things and have your friends come in and sell as many live, laugh love graphic tees as your little heart desires. And I know it's not just ladies like Minnie a gent wants to own the, you know, bourbon store with cigars and that are actually have cool clothes. But the problem is that 9 times out of 10 those are terrible businesses. If you look at the math and let me tell you why one, you can see the scars in this business historically. I walked into a shopping mall on the outskirts of San Diego the other day and despite the flashing lights and sale signs, I can't help but notice store after Store after store had been closed. The flagship store, formerly a 200,000 square foot Dillard's, Empty, dark. The future in retail may continue to be online except in high traffic experience based areas where people are already hanging out. That's why I don't like having a little boutique. The second reason that retail concerns me is you buy the product up front. This is called float. In this business there is no float. When you go in to buy the retail supplies to sell in your store, you pay before you get them and often at a lag. So they need to then ship the clothes to you, which you then need to stock and likely hold for a period before the season comes. For clothing, if you have leftover inventory, too bad you order new fall styles in summer. Even though you can't sell it for another 90 days. That means you have to have at least 90 days of cash to buy your goods. And up front it's really hard to do. 90 days? Yes sir, 90 days. The next reason is it's really high rent. I call it high rent for high traffic. The cash flow realities of high overhead retail businesses like this, you can't understate. People aren't going to tell you that a lot of these mom and pop stores are funded by people with big pockets as like a side project or to bolster a brand's online e commerce business. But you need to pay attention to these numbers if you're going to do retail. You live and die by sales per square foot. In order to get enough sales per square foot, you have to pay a high rent. That's hard to do. And then last is tough financials. You have inventory that has to turn over a lot. Which means in order to get customers coming back for your new stuff, you gotta keep buying new things. And then you have to figure out the big question. What do I stock when and how do I ensure some of my lower pay employees aren't stealing? Why do you think that nobody gives loans to start these retail businesses? These are one of the hardest businesses for banks to get loans from. And that's because the largest problem you have is not just your margin, but what percentage you make on each item you buy and then sell, AKA your net profit. Getting enough volume to handle the fixed costs like real estate, the clothing costs continuously makes these businesses really hard. So shop local retail, but don't start one. The next one is restaurants. People hate this one because there are incredible restaurant groups and people who make millions. You know you've got Nobu, Fox, restaurant concepts, Momofuko, et Cetera. But the truth is, restaurants are an incredibly complex business. So let's look at the numbers first, because they don't lie. The average small business in the US sells for around $800,000. The average restaurant sells for $198,000. Why this huge disconnect? Because 60% of restaurants fail in the first year and 80% after four years. On average, successful restaurants net about 3 to 5% too small. I won't do a deal without that. 30% or 30 cents on every dollar. 3 to 5%. Imagine a few things go wrong in your business. You're instantly in the red, AKA losing money. The third is competition. Restaurants are in what's called a red ocean market. A blue ocean is where you have no real competitors. Your Uber, right when it was first created, or Facebook, it was the first of its kind. A red ocean is where you have so much competition you can't throw a rock without hitting another one of them. Think about this for a second. In order to eat at every restaurant in New York City, It'd take you 22.7 years. It'd take you 12 years just for Manhattan, five and a half years for Brooklyn, half a year for Staten island and three and a half years for Queens. You need to compete with all of those next. I like stupid simple businesses. As opposed to what this is which is complex. You have procurement, forecasting, demand storage, handling of waste, reducing theft, managing off peak hours, pricing, calculating gross profit on each item of food when the costs vary. Let's just take spoilage in case stuff goes bad. You not only have to buy the stuff up front, but you have to hope that you are so good at guessing if fickle crowds will eat your three day old shrimp before they go bad. Suit is nasty, really hard to do. Last is expense. I want businesses that I don't have to spend much on before I can get money back. An average restaurant build out is 95,000 to 2 million. Can you imagine the cost? Not only that, can you imagine then wrangling servers all day? No wonder banks don't loan to restaurants. I don't care if you're a foodie. If your buds all tell you that you should sell that perfect cheeseburger that you make, don't do it. Restaurants are for humans that see, simply cannot exist without running one. That's you. You can make millions in it. It's just really hard. So I go eat there. I don't do deals where I eat. The next one is hotels. Hotels aren't businesses, they're real estate. With too many parts masquerading as a business, the cash flow typically isn't enough to cover the real estate transaction. They're expensive, massive, and have wear and tear on what's called an asset heavy, AKA a lot of stuff you've got to have in one business and I'm not into that. Now these are the numbers though, and they're shocking. The IRS publishes tax return data each year on roughly, let's call it 28,000 sole proprietorships. So businesses where one person owns them. In the US we analyze about 61,900 ish tax returns that are filed in the hotel industry. Want to know what we found? The average annual revenue for sweet sole proprietorship hotel businesses in the US was 94,464. Annual revenue, 94,000. The average annual expenses for these same businesses was 96,064. Now I'm no mathematician, but that appears to be losing money. The average net profit then for a hotel business is negative 2%. They make minus 2% per year. Well then how come there are so many of them? Because they use this tax wizardry called depreciation to get that to 12% which basically means they can write off a bunch of the costs of the real estate which make up for that. The business lose money and they get some tax breaks. That negative 2% margin though thinner than a thin mint. I want fatty margins and that's not it. Next is 24,7 on demand. I don't know if you guys have actually run businesses before hard enough from 9 to 5. Try midnight phone calls you have to pick up. I'm a pass. Then I think about something like time for effort. So leases for a multi family or most real estate, you sign a year long lease, right with your tenants. For a hotel, these leases AKA hotel stays are a few days. Can you imagine the nightmare management becomes? You can't predict your revenue. They could drop off a cliff at any time and there's not much you can do about it. You know, I like to think about it this way. On the management side, you managing the hotel, you have to build out these things called revenue and forecasting systems. Maybe you have to do it for the next quarter or few months, but how do you do it for a few days? And the reason it's so hard is because you have to predict demand. Let's say you have a hotel near Madison Square Garden. Did the New York Rangers not make the playoffs? Did Taylor Swift change her tour location? Congratulations. Your revenue is now down 20% from last year. Because people didn't travel for the playoffs or to go see Swifty. Not your own fault, just the market. Have fun explaining the T. Swift phenomenon to a bunch of investors. Who's Taylor Swift now? Employees. Hotels need hundreds, and I mean hundreds of people to run them. You got general managers, you got assistant general managers, you got front desk managers, you got salespeople, you got housekeeping, you got revenue managers. So instead of managing a physical building easier, you end up having to manage people. Not always fun. And then a physical building as well. And then the type of people you're managing, it's a hard market. Low skilled, minimum wage workers. A bit like herding cats. And when that next hotel guest finds a pair of somebody else's underwear in their clean bed, you're gonna hear about it probably at midnight. So if you're just dying to own a hotel, you can make money. But it's hard. All of these businesses are in the too hard for me category. If you guys want to hear about some other businesses I also love to hate, we got gyms on this list. We got dry cleaners on this list. I can tell you why. One word remediation for the second. I hope I didn't quit your baby ugly. And if I did, sorry. Let me know in the comments below if you want me to do a part two on this with the other businesses that I don't think you should do. Backed by data. Also, what is your business? If you comment it below, I will tell you if I think that business can be a good one or a really hard business because I think you should really question everything and protect those pennies.