Codie SanchezFounder @ Contrarian Thinking

The Genius Behind Costco

2 Jul 2026 · 1 min

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Costco's membership model gives it a cash advantage Netflix can't match. Members pay upfront, and Costco negotiates net terms with vendors, meaning it receives goods before paying for them. That cash-positive cycle is why Buffett and Munger call it a genius business.

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One of my favorite businesses is called Costco. Warren Buffett and Charlie Munger famously said Costco has the best business model that exists. Why? Similar to Apple and Netflix, they have this subscription program where you pay them first. But let me tell you why they're better than Netflix, because Netflix has to pay people up front to make movies, make content. They have to pay the comedians to come on there. What does Costco do with its vendors? Net terms, right? Which basically means give me your goods, I'll pay you for them later. How many people provide You provide a service and then they pay you. If that's the case, in our world, we would call that a cash suck as opposed to cash flow business. This is really important because the idea is instead of you first providing the service, then they pay you, what do you think we want to do instead? They pay you, then you provide the service.