Shortcuts to wealth are appealing, but lack ethical credibility. For those that do create very successful businesses, it often takes more than 5 years, flexibly executing a plan. Such businesses often have key features.
I draw upon the ideas in The Millionaire Fastlane book by MJ DeMarco.
Features of a fantastic business
Prospects for significant wealth creation are maximised where the business scores highly in relation to:
❤️ Need: The product meets a real need.
🚪 Entry: Barriers to entry are high.
🕹 Control: Key aspects of the business process are controlled internally.
📈 Scale: Potential to scale to millions of people.
⏳ Time: Income is not linked to our time.
❤️ Need
Make something people want - Paul Graham.
Paul’s quote may seem a statement of the obvious. However, 90% of businesses fail in the first 5 years because they offer products that don’t meet a real need. It’s very hard to develop a business based on a problem that doesn’t exist. Our product has to represent a value proposition that people are prepared to pay adequately for. Crafting Our Business Plan sets a broader context for this point.
🚪Entry
Build a business where the barriers to entry are high, i.e. it is difficult to establish such a business. Starting a new Google, to dominate internet search, would be almost impossible. By contrast, making videos for Tik Tok or YouTube is pretty easy. The lower the barrier to entry, the more competitive a market is.
🕹Control
Control every step of your business process, including creating the product. If we don’t control the price or distribution of our product then we are vulnerable to external change. A business reselling products made in China on eBay is vulnerable to external production, distribution and payment issues.
📈 Scale
Build a business that has the potential to scale. To make millions, you have to impact millions, unless your product is of very high value. Setting up a single cafe has limited ability to scale, unless you are developing a franchise business model. Whereas a digital content creation business does have the potential to scale as the costs to sell and distribute another copy are effectively zero. Network Effects - Growing Pains explores this further.
⏳Time
Disconnect the income and value of the business from your time. Our business should work while we are not (passive income). If our business generates its income based on an hourly rate of our time, even if that’s very high, e.g. consulting, then this sets an upper limit on it’s value. By contrast, a successful author can generate effectively unlimited income.
📱 App business features
❤️ Need: Apps often need to rapidly iterate, based on a tight user feedback loop, establish product/market fit. Highly successful examples include Instagram and Slack.
🚪 Entry: Depends on the nature of the app. For Web3 or AI based apps barriers are probably high.
🕹 Control: Native apps depend on platforms, e.g. Apple’s and Google’s; web apps do not.
📈 Scale: Billions of people have internet access. High scalability as distribution costs are effectively zero.
⏳ Time: Income is not linked to our time.
➕Other resources
How to Join the New Rich post by Phil Martin
Copy in Tech we Trust? interview with Peter Thiel and Marc Andreessen
How to Succeed with a Startup talk by Sam Altman
This post suggests there are five features of a fantastic business: Need, Entry, Control, Scale and Time. Until next Sunday, check out how your business idea scores against these features.
Have fun.
Phil…
Another great article Phil, just catching up on your e-mails after the holidays. The Time feature really struck a cord in me... Generate income while not working, it's a good point, one may say it's easy to think about - but honestly it's such a good point...