There Are Only 3 Types Of Profitable Businesses (Pick ONE)

There are only 3 ways to get rich. Choose correctly and you'll make a lot of money building the life you actually want. Choose wrong and you'll head down a path that will never make you happy or rich. I've helped thousands of people make millions of dollars down each one of these paths, and this video is going to help you describe which is for you and how to make sure you actually make that cash. Path 1 is scale, and the early years are not pretty. So this way has the potential to make you the most amount of money in the long term, but you have to sacrifice almost everything to start. The question you got to ask yourself is how much money are you willing in the short term to give up for the amount of money you may eventually one day make? Most people won't do this, but you don't get outsized results doing what everybody else does. You get them by doing things no one else will. Like MrBeast, for instance. His company is worth over $1 billion, and he literally lived at the office for years, had a bench press next to a blow-up bed because, as he said, he didn't want to think about anything else but making the best videos in the world. This is the path I am on at Contrarian Thinking, although I do have a house. Thankfully. Okay, here's how you do this. Every scale business income starts like this. Well, the good ones do. It's called a J-curve. The company doesn't make any money at first. In fact, this is called the dip. This is what happens in companies, and founders look like this. They're sad. Amazon started selling books in 1995. It didn't have its first full profitable year until '03. By then, it was doing more than $5.2 billion in annual revenue, but it only made about $35 million in profit. Bezos poured every dollar he was making back into the warehouses, the tech, the people, distribution, and new products. This is how you do this. You know, first you have product-market fit. Just because you have orders doesn't mean that you have product-market fit, though. You know, so they obviously didn't have customers in the beginning that actually wanted what they have. Retention is the real indicator of product-market fit. And often you don't get that. right away. You measure by how many customers actually use your product, how much they actually use it. This is the difference between what I call an oxygen and a dessert business. So the question you might ask yourself is, are you solving a problem that people need solved right now and can come back for, or is it just nice to have? So in the beginning, even with Jeff Bezos, he had a dessert business, right? He's selling books Online. What's the budget for that? Actually really low. What's the need for it? Probably pretty low. There used to be Barnes& Noble everywhere. But then he started selling more things on Amazon. He started making it faster to get delivery until eventually Amazon became an oxygen business because everybody needed every single thing sent immediately to them. He was never really a book business. He was actually a business that was obsessed with one thing: getting you what you need as fast as humanly possible. So in the beginning, maybe it seems like your scale business is a dessert business, but if it's going to win in scale, it better actually be an oxygen business. This doesn't have to be a problem that everyone has. Like Paul Graham, for instance, founder of Y Combinator, gave Airbnb one of the best pieces of advice on scaling. It's better to have 100 people who love you than a million people who sort of like you. Peter Thiel says the same thing in Zero to One. So basically you'd wanna think about it like this. Instead of trying to capture 1% of a gigantic market, You want to find the smallest market you can dominate. Once you dominate it, expand to a slightly larger market, dominate that, then do it again and again. Number 2, after you find product-market fit, you have to invest in a killer team. Forget what you see on X as the rise of solo entrepreneurs. That's not scale. If you want to build something massive, you have to do it with others. Frankly, it's way more fun sometimes. And when you start, you need a small, lean team of what I call base camp people. This is how we talk about this at my company. They're obsessed, super talented humans who buy into the mission and will do anything to grow the company. I say this to anyone we hire here at CT. If you want a 9 to 5 and work-life balance, that's great. This ain't the place. We're gonna work really hard and make some really cool shit because scaling is really ridiculously hard. Work-life balance, not part of the deal, at least not at the beginning. So you need obsessed. And you want your employees to be operators that can solve problems. They need to solve them without you. You wanna have somebody that says, hey, I found a problem. I tried a few things. I found the solution for you. But that is what you need to get to. After you get traction, you're going to want to expand your team. So Amazon went from this many employees to over 600 in just the first few years. Now, how many do they have? Look at this, 1.5 million. But here's the deal. Nobody gets from 5 employees to 600 by spending their week on state filings. So a lean team, the back office is the first thing I take off the table. If I was going to start a company, Busy would handle it. The formation, the filings, annual reports that keep coming once the business is real. Setting one up is faster than most people think, but you do need someone who gets it right and doesn't disappear after day one. I love that Busy is founder-led, bootstrapped, which is how I like to build. So formation starts at $0 plus state fees to help you get set up right. Hit the link in the description. And the third thing you need to spend money on is infrastructure. So you aren't building for your customers now, you're building to have Maybe 2 times, 10 times, 100 times the delivery that you have today. Look at the difference between those levels. That's what we're doing here. We're building the best advisory firm for business owners. We start with this product-market fit. Then we systematize private equity strategy to help businesses between $500K and $5 million grow quickly. Once we proved that, we went out and hired an executive from Vista who was also one of the first employees at Uber. And we also got a world-class series of business coaches to have monthly check-ins with members. Then we invested in the infrastructure. Originally, $0 Slack. Now this many millions. So that's about $2.2 million a month we invest in making an industry-leading platform that shows us business owners the health of their business at a glance. Dashboards like this P&L, ton of free resources from me and others. If you want to access this, you can click the link here and I'll actually give you a free consultation with one of my advisors. The biggest mistakes I see people making on this path is confusing this with a lifestyle business. The only way this works is if you reinvest nearly everything in the business to grow it as fast as humanly possible. Humans aren't wired for that. This is called present bias. We are wired to grab the small thing today, and scaling a business is that exact question asked over and over for years. Do you want to do one of 3 things? Take the profit, reinvest it, or do you want to exit? Check out this study. It was done on high-growth companies between $25 and $100 million. Look how much their CEOs took home. Less than $500K a year. I know companies that do less than $5 million a year, and the owners take home more than $1 million. If you want to make more today, that's completely fine. There are 2 more paths that you can make a lot of money from. If you want to make more money today and work a little less, the next path may be a better fit. Path 2 is lifestyle. This is for the people who want to make money now, who want to be on the beach, eat at nice places. This is probably the best All right. So in a lifestyle business, you're going to make more money in the short term, but a lot less in the long term. Look at somebody like Iman Gadzhi. His entire persona is built around personal profit and freedom, not empire building. And he's like an example of an ambitious lifestyle business. And the profit doesn't have to get swallowed by reinvestment the way it does in a scaling business. Like, a lifestyle business lets you live well, travel, control your time. You are going to look a lot wealthier and probably live more comfortably than someone who's building a scale business in the beginning because you're taking a lot more out of the business. Like my friend Dean Graziosi, he's had a private plane for way longer than lots of our buddies who built multibillion-dollar companies. Let me show you. So if you want to spend money on your life right now, this is the business to buy or build. The goal of this business is really one question: are you happy? And if not, then this business probably isn't for you. If you make more money and you have more time, the idea with lifestyle businesses is you'll be happier. So here's how to do both. Unlike a scale business, pretty much every additional dollar you make is going to go in your pocket. So you wanna optimize your business to clear as much profit as possible. Here are 3 mistakes that businesses make that kill your profit. The first is what we call margin drift. And what does that mean? Your cost of goods creep every year— rent, materials, labor, software— but your invoice hasn't creeped along with it. You haven't raised your prices as you've raised your costs. In fact, in our studies and others, we've seen 80 to 90% of mispriced products are priced too low, not too high. And then look at this crazy statistic: a 1% increase in price will give you an 11% increase in your profit. If you want to know exactly how much you can charge, I made this value-based pricing calculator that you can use. You enter in the details about your product or service, and it'll tell you how much you can charge regardless of your competitors. The second issue that businesses have is no tracking. God, this is a killer for businesses. What gets measured gets managed, and what gets managed gets improved. This is important in every type of business. but it is especially important to track your profit in a lifestyle business. Some easy ones that everyone misses: subscriptions nobody uses, using vendors when you have that talent in-house, credit card processing fees when you could use direct deposit. One of our Growth Boardroom members, Meg, was actually able to use systems like this to cut what she estimates to be $150K in bloat, excess expense. That's why my team made this P&L dashboard to help business owners see at any second where their cash is basically leaking out. And the last portion of profit killers is no negotiation. Not negotiating terms and price is one of the dumbest ways I see business owners lose money. Every percent counts. If you own a business, I guarantee you can find an extra 3 to 5% in profit this week if you pick up the phone and renegotiate with your top 5 vendors. One of the easiest ways to make more money right now. And the other area you want to optimize for is your time. So, in a scale business, you're going to be working constantly. I'm sorry, it sucks. You just need to know this. We're not going to Ibiza to party for a weekend. In a lifestyle business, on the other hand, you got it. You go take the jet somewhere else. Now, here's how I would set this up if I was you. First, your team. You don't want to build a huge team like if you're trying to scale. You actually want a lean, scrappy team that can wear a few hats. The most important hire here is probably a really good number 2. Like they're going to handle a lot of the day-to-day things. If something breaks in the middle of the night, it goes to you, not them. A good one's going to cost you probably not less than $100K, maybe $150K with some aligned incentives on the performance of the company. So again, you're trying to make more profit. So you give them bonuses if they find ways to decrease your costs or increase your top-line revenue, keeping the margin the same. Second is only doing the things that you need to do. So it's like, is it you or can it be someone else? This applies to every type of business, but it's especially important if you're trying to maximize time in your lifestyle business. I use a delegation kill box. It's on page 254 of the book. It's basically 3 questions. The first question is, could somebody else do this? If no, keep it for now. Second question is, have I taught someone how to do this? If no, teach someone right now. 3 is, have I let them do it without me? If no, pick a day to hand over the task within 14 days. But here's the thing, profit and time are not completely separate from each other. If you stop working on your business completely, your time's going to go up, but your profit will most likely go down. So I usually measure the health of a lifestyle business by profit per hour of your time. Some of the deals are going to cost you a lot more time, won't really move the needle in your business. This is the only path where you can say, I'm full on with clients. I'm great. No thanks. I'm good. The last path you can take in business is the exit path, which means you are optimizing to sell. This is where you obsess over the price tag. Everything you do when planning for an exit is designed to increase your price so you leave with the biggest payout possible. So your income in this type of business, it's going to look more like this.

Other than nothing.

Because you're going to sell. So you're going to make a little less than a lifestyle business here because you're wanting to keep all the profit in the business. But you're going to have a huge check on closing day, and then you're going to be out of the business. Probably no recurring revenue or consistent stream. So if you absolutely love the business and want to keep working on it for a while, this isn't for you. This is for people who want to get in, grow, get out, and make a lot of money. And maybe you want to go on to your next product. Or your next business. Like, we have multiple members of our Contrarian Boardroom who are like, okay, I like to scale businesses to $1 million. The second it gets at $1 million, I like to sell it because I don't really know how to get to $10 million. So how do you do this? There are 2 numbers that determine how much your company will sell for. SDE, seller's discretionary earnings. That's basically like saying how much money you put in your pocket as the owner and the multiple. So SDE means how much money are you actually making from the business? This means you take the net income of the business, you're going to add your salary, you're going to add any benefits the company provided, like that trip to Greece that you expensed because you actually did work on it, and then any large one-time expenses that will not have to be repeated. To grow SDE, you want to grow the profit of the company as quickly as humanly possible. So that is the difference between a scale And a lifestyle business, you're looking for more profits in a lifestyle business. Scale, you're actually optimizing not for cash, but for usually market share of the business. Both can become an exit business, but not with the same strategy. Now, the multiple is where you make a lot more money on the exit. So if SDE is, you know, $200K, at a 3x multiple, that means you can sell the business for $600K, right? If it's a 5x multiple instead of a 3, well, that means now you sell the business for a million bucks. Think of the multiple as an indication of the risk, like the durability, the growth, how easy it is to transfer the business. A business that runs on one person doing everything from their kitchen counter, well, you're going to sell for probably 1x or lower. If you have a business where you have an executive team, incentive alignment, compensation. That means that that owner manages the systems and makes strategic decisions, and thus the multiple is going to be a lot higher for the business. Also, industry really matters. So software has one of the highest multiples, and one of the lower multiples is going to be service businesses. There are basically 4 areas I want you to focus on to increase the multiple that you can sell your business for and make a ton of money. The first one is called owner dependency, which if everything relies on you as the owner, you're not actually selling a business. You have a job. You're trying to sell it and nobody wants to buy it. I see this all the time. The business would actually cease to exist if they don't work all of the time. We don't want that. This is the reason why I actually wrote my new book, Own or Be Owned. It's my exact system on how I build a business that doesn't fully depend on me. All right. So we've talked about owner dependency. Now we've got recurring revenue. Recurring revenue is always going to trade at a higher multiple than one-off revenue. So the more people that you have paying you continuously as clients, the more you're going to get to sell your company for. What's a good rule of thumb is basically one-time revenue trades at 3x. This is a generalistic one. And recurring revenue trades at 5x. So if you're trying to exit, it makes sense to charge someone less to get them on a subscription than a one-time purchase. Isn't that wild? So you can basically see the difference here between the two. Now, scale, you just want maximum recurring revenue. With lifestyle, profit is profit, and it doesn't really matter if it's one-offs or recurring, although recurring is more stable. With exit, you can have a smaller total revenue if it is recurring compared to one time, because again, you can have a business that's 2x smaller, but if it's got recurring revenue, you could sell it for more. Third is customer concentration, which means how much of your revenue comes from one customer or a small subset. If 10% of your customers generate more than 50% of your revenue, then you have something called customer concentration. So the mark every business should be thinking about is how do we get our business to make sure that we have more customers and those customers have less with us individually? It really depends percentage-wise per industry. So some businesses it might be 20%, other businesses it might be 30% or 40%. So if you're optimizing for an exit, you have to diversify. by the number of customers you have. You actually want a lot more as opposed to one big one. And then finally, we've got growth trajectory, which is a business with $500K in profit growing at 10% annually is worth more than a business at $500K profit but growing at 3%. And then growth trajectory. So a business that is growing at 10% annually is worth more than a business that's growing at 3%. You don't need to be a genius to figure that out. But if you're optimizing for the sale, you really have to manage the fact that you want profits to grow up. But ideally, you'd also like growth, aka revenue growth, to go up. You can have a great business, amazing SDE, and optimize for a killer multiple, but not find any serious buyers. So I have a secret tool for you. This is why we built this thing called BizScout. This is free for you. It has over 175,000 vetted and verified buyers looking to buy really good If you're thinking about selling your business in the next 12 to 24 months, you can click this link and someone from Biz Scout will actually reach out. So now it's up to you. Decide where you want to land and how you want to build. Your business could even be all of these things, but not at the same time. So pick one and go all in, because otherwise you'll just be miserable and also not rich.