America’s Worst Companies This Year—Exposed!

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Transcript

00:00Studies show that these five businesses are the worst businesses to start or buy.

00:05The game of entrepreneurship is so ugly.

00:09For an entrepreneur, it's war out there.

00:11The worst investment I ever made? How long do you have?

00:13Numbers don't lie, so we're breaking down why these businesses are great

00:17if you like losing money or what I call the anti-investment businesses.

00:22People are going to hate this when I call their babies ugly

00:25and then the rest of you guys, you're gonna make some money.

00:27I like the sound of that.

00:28When investing, I'm obsessed with one thing, probabilities.

00:32What is the likelihood that my money, leaving my hands, comes back and they bring their friends?

00:36That's the only game we play.

00:38So let's talk about some really bad businesses, shall we?

00:41Because I think in life, the most important thing you can do is find the best games to play.

00:46If you were playing the game of NFTs before the crash, it didn't matter how good you were,

00:50how hard you worked, you've still lost money, time, and respect.

00:54So let's talk about the things to avoid if you want to make real money

00:57and why and if you don't want to lose your shirt.

01:00Most important to me.

01:01Number one, ATM routes.

01:03You know I love a good vending machine business, but not all vending machines are created equal.

01:08Far from it.

01:08ATMs being one of them.

01:10This is just what the data says, it's not opinions.

01:13Now, why would I never invest in ATMs?

01:15The problem is the math doesn't add up.

01:17Let's look at this.

01:18So the average ATM does anywhere from three to five transactions per day.

01:24The average ATM withdrawal is 80 to 100 bucks and you get one to three percent of that.

01:30The math doesn't add up to even pay someone enough to run your routes.

01:35Imagine you have to have somebody go pick up out of your ATM at least once a week,

01:40which means they charge you 20 bucks every single time.

01:43And then you have the operating costs for the business.

01:45And unless you have hundreds of machines, your margins are too tiny to make real money.

01:51Now, let's talk payback period.

01:53It's long.

01:54What does this mean?

01:54Well, I've looked at multiple funds in the space,

01:57and they don't start paying you until after four years.

02:00Because an individual ATM won't even hit break even until after seven years in reality.

02:06That means if you pay $1,500 to $10,000 per machine and you only make a few hundred bucks a month,

02:13it's going to take you seven years to get back the full cost for each machine.

02:18I don't like that.

02:18I want money today instead of waiting seven years for a couple thousand bucks.

02:24It's been 84 years.

02:26Next is future of cash.

02:27This is a little bit of a squishy one, but think about this for a second.

02:30Will cash continue to be important in the next few decades?

02:33And what do I mean by cash?

02:34I mean, dollar bills, not the rate the Fed is printing dollars.

02:37It's an open question.

02:39If the overall use of actual cash, like paper cash decreases,

02:43you're at a big risk since then there's nothing to sell.

02:47I ain't got no cash, man.

02:49As we increasingly use things like our phones and credit cards,

02:52ATMs become less important.

02:54The only caveat to this is if you're giving me a spot in a cannabis store where they don't take credit

02:59cards or in front of a massive grouping of bars that never have enough card swipes,

03:03and you can use cash, then maybe ATMs work.

03:06But other than that, I'm out on ATMs and the data says you should be too.

03:10All right.

03:10The second business, Amazon FBA.

03:13Is it just me or does every kind of scammy Instagrammer have a,

03:17hey girl, let me set up your Amazon FBA store for you just for like a quick five to $20,000.

03:22I don't know what it is with that, but what I can tell you is when most people aren't setting up

03:27their own accounts, they're just telling you how to do it, you should run the other direction.

03:32Anyway, Amazon FBA is when you let Amazon pick, pack, and ship your orders.

03:38You sell the product online, but all through their shipping.

03:41You store your products in Amazon's fulfillment centers,

03:44and they do all the logistics to get it to the customer, including customer service.

03:49You, in fact, don't even have the customer's emails.

03:51You leverage their massive scale and logistics, which is not a terrible idea.

03:54But let me tell you why I'd never do this business.

03:57And the data says you shouldn't either.

03:59First reason, platform risk.

04:02Amazon controls everything.

04:04What happens when Amazon decides your product is a quote unquote scam

04:08because a competitor puts up a bunch of fake reviews?

04:11That happens.

04:11They're notorious for it.

04:13In fact, I know a seller that was doing 1.5 million in sales

04:16and had his account banned for fake negative reviews and couldn't get it back for 90 days,

04:22by which point he'd gone out of business.

04:23Or how about if Amazon actually gets all your data, like they do,

04:27on how incredible your niche is, and then they duplicate your product

04:31with a cheaper version of their own.

04:33No thank you.

04:34The second reason I don't like them is Me Too products.

04:36The barriers to entry to Amazon FBA are really low,

04:40maybe even lower than FTX's actual balance sheet was.

04:44The competition is everywhere.

04:46And thanks to all these internet gurus slinging Amazon courses,

04:49I love when people are dumb and are like,

04:50ha ha, I outwitted you.

04:52I'm like, you're so stupid.

04:53Amazon is already flooded with Me Too sellers just like this.

04:58And then of course, we have the Chinese.

05:00Am I allowed to say that?

05:01I don't know.

05:01But their speed at copycatting products is almost as impressive

05:06as their lack of interest in two words, intellectual property.

05:10So every time you create a product, Amazon lets a bunch of Chinese copycatters in on your game.

05:16One of the last reasons is that Amazon sets your price.

05:19They use an army of bots and data who scrape other websites for pricing information.

05:24What's interesting about that is if they see your product as too high,

05:28they may shadow ban your account, which is a sales killer.

05:31So if you want to sell higher priced products on your own website or elsewhere, it's a no.

05:36You have to have the same price on Amazon.

05:38Now, even if you sell your own branded products on Amazon,

05:41it doesn't mean that you get to set your own prices.

05:43Often Amazon has parameters for doing this.

05:46And the fascinating part about all of this is that Amazon has had a history of having the

05:51information on their accounts listed on the black market.

05:55This is wild.

05:56Amazon has had employees selling companies data in other countries.

06:00This is basically the cheat sheet for low cost copycats to come in and recreate your business.

06:05Below is a real sheet off the black market showing Amazon data on an individual business

06:11out for anybody to see.

06:12It's why I will not do Amazon FBA.

06:14The third is retail stores.

06:16I know it's every lady's dream to start a little boutique with all their favorite things

06:20and have your friends come in and sell as many live,

06:23laugh, love graphic tees as your little heart desires.

06:26And I know it's not just ladies.

06:27Like many a gent wants to own the bourbon store with cigars and that are actually have cool clothes.

06:34But the problem is that nine times out of 10,

06:37those are terrible businesses if you look at the math.

06:39And let me tell you why.

06:41One, you can see the scars in this business historically.

06:44I walked into a shopping mall on the outskirts of San Diego the other day.

06:47And despite the flashing lights and sales signs,

06:50I can't help but notice store after store after store had been closed.

06:55The flagship store, formerly a 200,000 square foot Dillards, empty, dark.

07:01The future in retail may continue to be online,

07:04except in high traffic experience-based areas where people are already hanging out.

07:08That's why I don't like having a little boutique.

07:11The second reason that retail concerns me is you buy the product up front.

07:15This is called float.

07:16In this business, there is no float.

07:18When you go in to buy the retail supplies to sell in your store,

07:21you pay before you get them and often at a lag.

07:25So they need to then ship the clothes to you,

07:28which you then need to stock and likely hold for a period

07:32before the season comes for clothing.

07:34If you have leftover inventory, too bad.

07:36You order new fall styles in summer, even though you can't sell it for another 90 days.

07:41That means you have to have at least 90 days of cash to buy your goods up front.

07:46It's really hard to do.

07:4790 days.

07:47Yes, sir. 90 days.

07:48The next reason is it's really high rent.

07:51I call it high rent for high traffic.

07:53The cash flow realities of high overhead retail businesses like this,

07:57you can't understate.

07:58People aren't going to tell you that a lot of these mom and pop stores

08:01are funded by people with big pockets as like a side project

08:05or to bolster a brand's online e-commerce business.

08:08But you need to pay attention to these numbers.

08:10If you're going to do retail, you live and die by sales per square foot.

08:14In order to get enough sales per square foot, you have to pay a high rent.

08:18That's hard to do.

08:19And the last is tough financials.

08:21You have inventory that has to turn over a lot,

08:24which means in order to get customers coming back for your new stuff,

08:27you've got to keep buying new things.

08:29And then you have to figure out the big question.

08:31What do I stock when and how do I ensure some of my lower pay employees aren't stealing?

08:36Why do you think that nobody gives loans to start these retail businesses?

08:40These are one of the hardest businesses for banks to get loans from.

08:43And that's because the largest problem you have is not just your margin,

08:47but what percentage you make on each item you buy and then sell, aka your net profit.

08:53Getting enough volume to handle the fixed costs like real estate.

08:56The clothing costs continuously makes these businesses really hard.

09:00So shop local retail, but don't start one.

09:04The next one is restaurants.

09:05People hate this one because there are incredible restaurant groups and people who make millions.

09:09You know, you've got Nobu, Fox Restaurant Concepts, Momofuku, etc.

09:14But the truth is restaurants are an incredibly complex business.

09:18So let's look at the numbers first because they don't lie.

09:20The average small business in the US sells for around $800,000.

09:25The average restaurant sells for $198,000.

09:29Why this huge disconnect?

09:31Because 60% of restaurants fail in the first year and 80% after four years.

09:37On average, successful restaurants net about three to five percent.

09:42Too small.

09:43I won't do a deal without that 30% or 30 cents on every dollar.

09:47Three to five percent. Imagine a few things go wrong in your business.

09:51You're instantly in the red, aka losing money.

09:54The third is competition.

09:55Restaurants are in what's called a red ocean market.

09:58A blue ocean is where you have no real competitors.

10:01You're Uber, right?

10:02When it was first created.

10:03Or Facebook.

10:04It was the first of its kind.

10:05A red ocean is where you have so much competition,

10:08you can't throw a rock without hitting another one of them.

10:10Think about this for a second.

10:12In order to eat at every restaurant in New York City, it'd take you 22.7 years.

10:18It'd take you 12 years just for Manhattan,

10:20five and a half years for Brooklyn,

10:22half a year for Staten Island, and three and a half years for Queens.

10:25You need to compete with all of those.

10:27Next, I like stupid simple businesses.

10:30As opposed to what this is, which is complex.

10:32You have procurement, forecasting demand, storage, handling of waste,

10:37reducing theft, managing off-peak hours, pricing,

10:40calculating gross profit on each item of food when the costs vary.

10:44Let's just take spoilage, aka stuff goes bad.

10:46You not only have to buy the stuff up front,

10:49but you have to hope that you are so good at guessing

10:51if fickle crowds will eat your three-day-old shrimp before they go bad.

10:56This food is nasty.

10:57Really hard to do.

10:58Last is expense.

11:00I want businesses that I don't have to spend much on before I can get money back.

11:03An average restaurant build out is $95,000 to $2 million.

11:08Can you imagine the cost?

11:10Not only that, can you imagine then wrangling servers all day?

11:13No wonder banks don't loan to restaurants.

11:15I don't care if you're a foodie,

11:17if your buds all tell you that you should sell that perfect cheeseburger that you make.

11:21Don't do it.

11:22Restaurants are for humans that simply cannot exist without running one.

11:25If that's you, you can make millions in it.

11:27It's just really hard.

11:29So I go eat there.

11:30I don't do deals where I eat.

11:32The next one is hotels.

11:33Hotels aren't businesses.

11:34They're real estate with too many parts masquerading as a business.

11:38The cash flow typically isn't enough to cover the real estate transaction.

11:42They're expensive, massive, and have wear and tear on what's called an asset heavy,

11:48aka a lot of stuff you've got to have in one business.

11:51And I'm not into that.

11:53Now, these are the numbers though, and they're shocking.

11:55The IRS publishes tax return data each year on roughly,

11:59let's call it 28,000 sole proprietorships.

12:03So businesses where one person owns them in the US.

12:05We analyzed about 61,900 ish tax returns that are filed in the hotel industry.

12:11You want to know what we found?

12:12The average annual revenue for sole proprietorship hotel businesses in the US was 94,464.

12:20Annual revenue, 94,000.

12:22The average annual expenses for these same businesses was 96,064.

12:27Now, I'm no mathematician, but that appears to be losing money.

12:30The average net profit then for a hotel business is negative 2%.

12:35They make negative 2% per year.

12:37Well, then how come there are so many of them?

12:39Because they use this tax wizardry called depreciation to get that to 12%,

12:44which basically means they can write off a bunch of the costs of the real estate,

12:47which make up for that the business lose money and they get some tax breaks.

12:50That negative 2% margin though, thinner than a thin mint.

12:53I want fatty margins and that's not it.

12:55Next is 24-7 on demand.

12:57I don't know if you guys have actually run businesses before.

12:59Hard enough from nine to five.

13:01Try midnight phone calls.

13:02You have to pick up.

13:04I'm a pass.

13:04Then I think about something like time for effort.

13:07So, leases.

13:09For a multifamily or most real estate, you sign a year-long lease, right, with your tenants.

13:13For a hotel, these leases, aka hotel stays, are a few days.

13:18Can you imagine the nightmare management becomes?

13:21You can't predict your revenue.

13:22They could drop off a cliff at any time and there's not much you can do about it.

13:27You know, I like to think about it this way.

13:28On the management side, you managing the hotel,

13:30you have to build out these things called revenue and forecasting systems.

13:34Maybe you have to do it for the next quarter or a few months.

13:37But how do you do it for a few days?

13:39And the reason it's so hard is because you have to predict demand.

13:42Let's say you have a hotel near Madison Square Garden.

13:44Did the New York Rangers not make the playoffs?

13:46Did Taylor Swift change her tour location?

13:49Congratulations, your revenue is now down 20% from last year.

13:53Because people didn't travel for the playoffs or to go see Swifty.

13:56Not your own fault, just the market.

13:58Have fun explaining the T-Swift phenomenon to a bunch of investors.

14:01Who's Taylor Swift?

14:02Now employees, hotels need hundreds and I mean hundreds of people to run them.

14:07You got general managers, you got assistant general managers,

14:10you got front desk managers, you got sales people,

14:11you got housekeeping, you got revenue managers.

14:14So instead of managing a physical building easier,

14:17you end up having to manage people, not always fun,

14:21and then a physical building as well.

14:22And then the type of people you're managing, it's a hard market.

14:25Low skilled minimum wage workers, a bit like herding cats.

14:29And when that next hotel guest finds a pair of somebody else's underwear

14:33in their clean bed, you're going to hear about it.

14:35Probably at midnight.

14:36So if you're just dying to own a hotel, you can make money.

14:39But it's hard.

14:40All of these businesses are in the too hard for me category.

14:44If you guys want to hear about some other businesses, I also love to hate.

14:46We got gyms on this list.

14:48We got dry cleaners on this list.

14:50I can tell you why.

14:51One word remediation for the second.

14:53I hope I didn't call your baby ugly and if I did, sorry.

14:55Let me know in the comments below if you want me to do a part two on this

14:58with the other businesses that I don't think you should do backed by data.

15:02Also, what is your business?

15:03If you comment below, I will tell you if I think that business can be a good one

15:08or a really hard business.

15:09Because I think you should really question everything and protect those pennies.

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