Businesses that Always Fail? 7 Businesses with Shockingly High Failure Rates [Backed by Data]

66% of entrepreneurs will never start a business because they're too scared of failing. How do you give yourself the highest likelihood of succeeding in a business? You follow the data in this video, we're going to break down for you the businesses with the highest failure rate and the lowest failure rate. So you can pick one where you can win. Gyms, not one of my favorite businesses. You want to know why 80% of them fail within the first year. 81% to be precise. Now, the cool part about gyms is you typically don't need all of this. You don't need a giant building. You don't need a huge location that's prime. You could have a little CrossFit gym with a box and start it with a couple hundred K and some friends, which is what a lot of people do. Here's the problem with gym businesses. Typically the owners start a gym business as a hobby, right? They like to work out, so they want to put their name on the building and that's what they do. Which means that they neglect the finances. They don't have a marketing plan. They do things custom. They don't have standard pricing, they don't have third party products that they take a cut on and sell. And they don't do high margin, which is things like subscriptions and also personalized training at really expensive level. One of the secrets to wealth in general is if you want to get rich, sell things to rich people because they pay more. Gyms are a really hard business to do that now. There are models that work. Gold's been around forever. It's a franchise. And there's basically two ways you can do a gym. You can have a Gold's Gym and you can have a Planet Fitness where they kind of expect you to subscribe and then really never come. Or you can have an Equinox where they expect you to come, but you're going to pay for it. That's the difference between like 10 bucks a month and 200 or 300 bucks a month. Regardless, I think just go get swole when you go to the gym. And if you want to make your bank account swole, pick another business, ATMs. I get pitched this business all the time because it seems easy and like it might not take that much money to start. Let me tell you why I don't like this business. Because of the math. Average three to five transactions a day of 80 to $100. The average transaction size, you get 1 to 2% of it, which means you make about $2.40 to 50, $18 a day per machine. You gotta drive around and pick up the cash in all of these on at least a couple day basis. Otherwise they get stolen. This one actually isn't located here anymore. I bet you could guess why if you pan around this area. So the money just doesn't add up. The other problem is for a machine, the machines themselves are pretty expensive. They cost seven years on average. From you giving them the money for the machine to you paying it all back with the revenue and profits of the business. The other reason is, let's think about it this way. Anybody got cash on them in this group? I know the answer to that and that's no. Except maybe Samuel. But most people these days are not carrying cash around. So we're having a declining user base with really tiny margins and a lot of logistics. Tough business. The second way that people make money on ATMs is they charge a surcharge, right? So you take a percentage of the transaction cost, 1 to 2 to 5%, and then you might add a surcharge which is like two to five dollars per transaction. So that is where you could make your meatier transaction. But again, if you're only doing three to five transactions today at a normal location, that's not going to be enough. Now how could this business work? If you're outside of a cannabis store where they will only take cash, this could work. If you're outside of a bar where they require a ton of cash, this business could work. But then you're going to have to pay more for rent on that location. Also, here's the thing. At the end of the day, I think you need 50 to 100 ATMs to make enough profit for it to be worthwhile as a full time gig. If you want to have a little side hustle, you want to learn the game of business, you want to learn your P and L, you want to start small, somebody else can fund you or you can lease the ATMs, then we're good to go. Why I would never buy a dry cleaning business or why Cody Sanchez hates dry cleaners. Let me tell you two reasons. The first one is look at this graph. We basically seen the number of establishments plunge, meaning people are using them a lot less. Probably has to do with the fact that suits are going out, more people are working from remote and less things that need to be dry cleaned are part of our everyday life. The second reason is one word and it's called remediation. So if you go on the Internet right now, you'll see See like hundreds of dry cleaners selling for 100 to $200,000. And you can often sell or finance them. So why wouldn't I like those? It's because I was looking up the math for you guys. If you use a dry cleaner the old way, there can be a lot of toxicity right here underneath our feet that needs to be cleaned up by whoever owns the business. It's called remediation. How much does that cost is fascinating. The EPA right now thinks that 75% of the dry cleaners in the US are contaminated, the soil underneath them is, and that they have 650 gallons of hazardous waste that they need to clean up. But how much does the hazardous waste cleanup cost? Anywhere from it could be five to hundreds of thousands of dollars depending on how deep it is and in what state, city, etc. I don't want to buy a business that's only making 100 or $200,000 or run one that's only making that much and then I got to pay for somebody to come clean up all this toxicity. Plus, aren't we all green these days? Isn't that where we're going? So anyway, thank you to dry cleaners that exist. But also be careful about what's underneath your feet. Hotels. These are not businesses. This is real estate masquerading as a business. Let me tell you why the data says these businesses are really tough. Look at these margin numbers. So on average you make $94,000 a year, but the average expense for a hotel is $96,000 a year. So they're losing 2%. Why is that? Okay? Because they use the real estate depreciation kind of a fancy word to say that they use the ability to, to decrease their taxes in order for these things to become actually profitable. So they're not even profitable unless you're messing around with the irs. Also, I don't know about you, but I don't want to have a business where somebody can call me at 2 in the morning and yell at me and expect service right away. 247 support is what you have when you have a hotel business. There's enough going wrong in business for you to wake up at eight, have a cup of coffee and then deal with it. I think that's sufficient. The other thing is this is a complex business because you see we're at one right now and if you were to look around, you basically see a bunch of people behind me are doing landscaping, right? A bunch of people behind me are redoing the bar over here. It's complex. It requires 24, seven support and a ton of humans to run this business. Not to mention, look at what's happening to this industry. So back in the day, there were 20 major hotel companies in the 2000s. Now there are only 10. So we've consolidated the industry and those 10 own 65% of the market. So if you want to get into hotels and be independent like this lady is, she's a legend into hotels, by the way. It's really hard and so you have to end up going franchising. Most 67% of all hotels are franchised hotels. Here's the problem with that. They take a ton of your revenue and they leave you with something like 2 to 7% total revenue at the end for you to run the business. Since these contracts run 10 to 15 years on average, you better make sure the PEP franchise is one you want to stick with for a while. This hotel is amazing. The grounds are beautiful. But the problem with a hotel like this is can you imagine what it costs to run this thing nonstop? Sorry, I think we've been kicked out of like, what, 17 businesses now? Amazon, FBA, the other type of business that is my least favorite of all of them. Let me tell you why. Although I have a bunch of friends that made money and you have all these young YouTubers all over the Internet telling you how much money you can make doing fulfilled by Amazon and how easy it is and how seamless it is, the truth of the matter is the math doesn't math. One, because if there is one platform that has more risk to one, being your biggest competitor, which Amazon does, two, allowing a bunch of Chinese knockoffs to come compete with you. And three, actually giving your data to both your competitors and then taking your data about what sells and using it for their own. It's Amazon huge platform risk. The second reason why I don't like fulfilled my Amazon businesses is you actually can't touch your customers. How wild is that? You buy from my store on Amazon and I send your house my product pens. Let's say I cannot get your contact information or your address. And oh, by the way, I'm not even allowed to put something in the packaging that asks for you to write a review or that asks for you to get more information, you're completely divorced from your customers, which is one of the most dangerous things that you can do in business overall. Let's get into the math really quickly. We can actually see how many Amazon sellers make money or not. Fast forward through what all these numbers mean. Only 1% of sellers succeed with an annual salary of around 100,000 to 250,000, while 27% achieve about $5,000 in total sales. Here's all the numbers for you now. A lot of people can be break even inside of a year because they don't have all the crazy upfront costs you get with a business, but your ability to make some six figure income, tough. So I suppose you could have some fun. You could experiment with all the 27 year olds on YouTube talking about fulfilled by Amazon, but the likelihood that it's going to make you hundreds of thousands of dollars is really quite slim. Furthermore, I'm really concerned about the fact that you put in all this time and effort and work and then one thing changes on the algorithm and you're no longer listed at the top. Oh, and not to mention the last time that I was looking at one of our businesses that had a percentage of their revenue from Amazon, they started getting competitors who actually gave fake reviews and bought their product in order to tank their rankings. Because if you have one negative review on average, you need 10 to 20 positive reviews to offset it. That business eviscerated. So be very careful. We like Jeff Bezos. Great for the world. 24 hour delivery. Incredible for our bottom line, probably not. Retail stores are the next one I wouldn't buy. Incredibly high failure rates. Look at this. The other reason is, if you think about it, these are really high rent locations, meaning that it's expensive to just even have your feet on the ground here. Second is the user base is declining. What do you mean? Well, more and more we shop online, Amazon and at E Commerce as opposed to in person. So the graph goes like this, which is usually not a great tell in a business that you're starting. The other reason is they have something called negative four float, which sounds like kind of maybe technical, but negative float. All that means is that you pay money up front for clothes maybe a season or two ahead, and you only get money when somebody buys it. Eventually, after waiting for it to be shipped to you and then hoping that you sell to somebody else. It's also really hard to determine what inventory should look like. That's why retail freaks me out. I call this a cash suck business, not a cash flow business. And while I'm really happy to window shop, I think if you just need that little retail store to sell live, laugh, love T shirts, maybe do it as a loss leader, as a business that you have a ton of money and you don't want to make any more. And as the Saying goes with vineyards. The same goes with retail, which is if you want to make a million dollars with a retail store, start with 3 million. This statistic is wild. As of April 2023, there were eight big retailers that went completely bankrupt. Bed Bath and Beyond included. In 2022, there were 10 retailers in the entire year. This is not a good trajectory. The other one that freaks me out is the percentage rate of businesses that still operate after the first four years in business in the retail industry is less than 47% after the first year's 90% failure rate. No mathematician, but that don't look good. Restaurants, really tough business to win in. Actually, one of my least favorite ones, as evidenced by one failed right behind us right now. Look at all of this real estate that is now empty and how expensive it had to be to get started. The average small business in the US sells for somewhere around $800,000, but the average restaurant sells for 198,000. Why? Because they're really hard to win at over the long term. In fact, I was looking up some stats for you guys. 60% fail in year one, 80% in four years. Huge competition. In fact, scroll down this street to see what they're working with. We've got Juice Land, we've got Chipotle, We've got something at the end. We've got a Hop Dottie over here, and we've got three more restaurants right next to them. So why do restaurants fail? Lots of reasons. One is they run out of cash because they don't have enough money up front. The average build of a restaurant's anywhere from $200,000 to a million dollars to build out. That's a lot of quant. Second is, they have to have a lot of money to keep running. Both for wages, for employees, but more than anything for the food that they need to sell you. Plus, there's this little word called spoilage, which is awful, which basically means that that food can't last forever like a T shirt can. And so you gotta pay for it over time. One of the other big things that nobody thinks about with restaurants is it's really hard to keep a consumer with you over time. And often they don't give you their contact information. They just wipe a credit card. So as opposed to an online business where you can email them, tell them to come back, a restaurant, you can't really do anything unless you're really smart about getting referral. Referrals. If you have to start a restaurant, then you might want to start one like this. They have lower failure rates as fast food joints. This one here, which is called full service restaurant. A lot more expensive to run. Much higher failure rate. That is a lower failure rate. Also, I do own some restaurants or at least parts of them. It doesn't mean you can't make money in these things. It's just what's the highest likelihood to fail and how good of an operator do you have to be? I own part of a restaurant called the. Well, it's awesome. But they've also got these pop up stores and these things are the real part that makes money. Trucking transportation. This is called last mile delivery and this area is booming. In fact, the success rate is about 76.4% to do this. Now obviously you're not going to start your own FedEx or stand in the middle of the street because that's annoying. And now we're going to get on influencers in the wild. But what you can do is there's a bunch of trucking companies where you can own routes like this for UPS trucks for instance. And you can also do last mile delivery for local stores. This business is booming. Why? Because you animals won't stop ordering things on Amazon. Me either. In fact, here's a last mile truck right here. See guys, there's another one that's a prime last mile delivery truck which also you can do the same thing for. The statistics are ridiculous. Look at this. 53% of total shipping costs are related to the last mile. One mile of your shipping is most of the costs. 90% of consumers see two to three day delivery as an expectation because you know, we see no magic in the world anymore. It's an $84.72 billion projected value of just the last mile delivery market. In house, delivery fleets are the most common type of last mile delivery. 42% of all companies require some help from a last mile fleet delivery. So that means as opposed to those other businesses we showed you, your demand curve is going to go like this. Now there are a lot of tough parts about shipping and logistics and transport businesses such as expensive trucks. So you want to be careful on leasing such as the ability for you to have drivers that are good. Although I saw Waymo go by. So in the future maybe they're autonomous. So let's say you like me, could never drive this thing and maybe this is too expensive for you to get. Well, you can actually do a courier business too, which is basically like a version of side hustling and Ubers. But sometimes they're certified and so you can make more money doing them. There's levels to the game that usually correlate with the size of the truck. I think this business, for a good operator, even though there's probably not huge margins, could be a really interesting business. And data seems to agree with me. Senior care centers. This one actually surprised me. I didn't realize how low a failure rate these businesses have. But I guess it makes sense for a couple different reasons. First of all, you've got government subsidies and state subsidies. So the government knows they need to take care of senior citizens, so they provide an easier way for people to do that. That's point one. The second point that's interesting is if you look at the demographics of the US Today, what's happening, we're having this massive balloon of baby boomers who need somewhere to go. And increasingly, grandma doesn't live with us. They live in a center like this. We also are seeing this massive increase of Alzheimer's, dementia or advanced care needs in these facilities, which actually increase increases how much money you can charge by 3 to 5x, although it's pretty sad. The other thing that's interesting. So I was looking at this and like, this facility, millions of dollars to build. Like, how could you do this if you were a beginner? And then I realized, oh, there are these small little houses where if you zone it right, you get the proper certifications and licensing. Depending on the state and city that you're in, you can have a senior care center that just has one or two individuals and that take care of a few people that share a house. That's super interesting. In fact, I lived by one in San Diego. And the last thing is, let me tell you why I'd never do this business. Could you imagine being the person that has to kick somebody out of a senior care center just because they don't have money, but they're old and they're alone and what are you going to do? That's why I wouldn't do this business. Even though apparently it's kind of hard to fail if people need a place to live no matter what. Also cool stat, 9.18 billion is the size of this industry in 2022. And it's growing at like 6 to 7%, which is wild. So if you have a heart of stone and you like to take care of grandma, this might be the business for you. Real estate, rental properties in particular. Andrew Carnegie famously said 90% of all millionaires got there through some form of real estate. Now, 90% of all billionaires didn't. But if you're going for your first million, rental properties are a great way to incrementally do it. Also using a bunch of tax advantages. Here, let me give you a few reasons why and some of the stats on this business. One, the success rate on real estate is crazy high. 85.3% on rental properties. That means that they don't go defunct or bankrupt as often. 44 million Americans are home renters. So there's a huge captured market and actually that market is increasing today. The other thing that's fascinating is they spend $485 billion a year on rent. Oftentimes it's more expensive to rent than to own on a monthly basis. You get to benefit from that. You want to break down how much you're going to make on average, based on what other people make. So landlords on average make about $97,000 a year. If mom and pop landlords own multiple properties over time, you could stack a couple hundred K. What's interesting is mom and pops, me and you own something like 20.5 million rental units in the US which means that there's a lot of opportunity, there's a proven model, there's a simple specific base case for this. Now, this has been documented all over the Internet, so I won't go over it ad nauseam, but if you're going to play the rental property game, do you actually understand enough to put the guarantee and the cash down that you might need on a property? Because they come after you if you can't pay it off. But I like real estate. High success business, laundromats. This one's a fascinating business. 92% success rate. I think it's probably really somewhere between 87% and 95%. And it's because these things often are cheap to start. 100 to $300,000. They last for a long time. The machines last for anywhere from, let's call it five to 20 years on average. They have repeat customers who come week after week after week. And since the number of locations is in a decline, you're actually not seeing a ton of competition spring up. The interesting part about laundromats also are you can add additional revenue streams so you can have a vending machine on site, you can have an ATM company. And if you want to take a laundromat, that on average probably taps out at mid six fingers in revenue. You add delivery, delivery and what's called wash and fold. If you see inside, we'll try to sneak in there. The ladies fold the clothes like this. They put it in bags and they send out to the neighborhood. That one bag costs you something like 30 to $50, and it costs them dollars to wash and fold. And so there's actually big margin if you can understand the logistics of that business. Also, if you want to be a total stud on how to do it, you can use a company like Sense, which is a technology company. I own part of this company, by the way, that allows you to make everything to do with laundromats a lot easier. Owning laundromats isn't all sunshine and rainbows. I've owned these before. So what you really need to think about is your customer is because sometimes you got meth addicts outside. You also have to think about how many people are you going to have on staff. You don't make that much money in it than if you want to have a bunch of employees. So it's really nice if you can add a bunch of technology that allows you to monitor the building, to collect cash, to dispense soap without any humans around. This is something that most new owners come in and do, and a laundromat like this definitely has that. And the last thing is these laundromat machines are like buying a Honda Civic. They're like 10 to $30,000 each. So this part ain't cheap, but it's a 92% success rate, so they last for a while. Now you get to pick businesses with a high likelihood to fail or ones with a high likelihood to succeed. But it's more than you just picking winners and losers. We're here on Main street, and like the sign says, I love a street like this in Austin, Texas, full of small businesses that decide to give their lives. So serving us with something, you have to walk into an ice cream shop where people are up at five in the morning to make you and your family a little something. And there's magic in that, that happens in everyday communities by humans just like you, who decide to do the hard thing, which is to actually build instead of just consume. So at this channel, we are about making Main street millionaires. You should subscribe if you want to be one, but you should also subscribe if you want to see a Main street like this.