BigDeal Podcast Episode Summary: "The 7 Worst Businesses to Buy Or Start"
Host: Codie Sanchez
Release Date: April 28, 2025
Podcast Description: BigDeal aims to transform lives by sharing unfiltered lessons from the smartest minds. Hosted by Codie Sanchez, an entrepreneur, investor, and reformed journalist, the podcast challenges conventional thinking to help listeners achieve happiness, health, and financial stability.
Introduction: Setting the Stage
In this episode, Codie Sanchez delves into the seven worst businesses to buy or start, offering candid insights on why these ventures are often detrimental to aspiring entrepreneurs and investors. She emphasizes the importance of choosing the right business aligned with one's skills, passions, and network.
1. Restaurants
Key Points:
- High Failure Rates: 60% of restaurants fail within the first year, and 80% within four years.
- Operational Challenges: Dealing with unpredictable customer preferences and high waste from unsold inventory.
- Financial Strain: Restaurants typically sell for around $198,000 compared to the average small business price of $800,000, reflecting their risky nature.
Notable Quote:
"Restaurants are for people who simply cannot exist without running one. They're not for making money."
— Codie Sanchez [07:45]
Example: Codie recounts the story of Mary, a member of her business buying community, who suffered significant losses after purchasing a failing restaurant franchise, entering a poor partnership, and dealing with ineffective management.
2. Hotels
Key Points:
- Nature as Real Estate: Hotels are fundamentally real estate investments rather than pure business ventures.
- Negative Margins: On average, hotels operate at a negative 15% margin, meaning they lose money per dollar earned.
- Complexity and Overhead: High expenses due to maintenance, asset-heavy operations, and the necessity of 24/7 customer service.
Notable Quote:
"Hotels aren't businesses, they're real estate. The cash flow typically isn't enough to even cover the real estate transaction."
— Codie Sanchez [16:30]
3. Retail Storefronts
Key Points:
- Inventory Challenges: Upfront costs with no float, leading to financial strain from unsold seasonal inventory.
- High Overhead: Significant expenses from rent and utilities, especially in high-traffic areas.
- Competitive Landscape: The shift towards online retail makes physical storefronts less viable unless in premium locations or luxury segments.
Notable Quote:
"The future in retail continues to be online except in high traffic like experience-based areas."
— Codie Sanchez [23:10]
Example: Codie cites the decline of flagship stores like Dillard's, highlighting the unsustainable nature of large retail spaces in today's market.
4. Consulting Firms
Key Points:
- Keyman Risk: The business heavily depends on the primary consultant; losing this individual can collapse the firm.
- High Labor Costs: Significant capital tied up in salaries, making scalability and profitability challenging.
- Lack of Productization: Customizable services increase dependency on individual performance and reduce operational efficiency.
Notable Quote:
"Consulting firms require too much capital in the business attached to your consultants, AKA labor costs."
— Codie Sanchez [28:50]
Exceptions: Government consulting firms with long-term contracts and established consulting firms with productized services may mitigate some risks.
5. Personal Brands
Key Points:
- Transferability Issues: Personal brands are intrinsically linked to the individual, making them difficult to sell or transfer.
- Dependence on Individual Engagement: Without the original persona, the brand loses its value and customer loyalty.
- Technological Risks: Advancements like AI can easily replicate or undermine personal brands.
Notable Quote:
"Once somebody sells their business, they're about as engaged in running it as your cat is interested in coming when it's called."
— Codie Sanchez [33:20]
Example: Codie references James Altucher’s sale of his newsletter to Agora Financial, highlighting the pitfalls of relinquishing control over a personal brand.
6. Amazon FBA Dropshipping
Key Points:
- Platform Dependency: Amazon controls key aspects like pricing and can ban sellers, posing significant risks.
- Intense Competition: The low barriers to entry result in a saturated market, especially with rapid and inexpensive product replication by competitors, particularly from China.
- Profit Margins: Due to pricing controls and high competition, profit margins are typically slim or negative.
Notable Quote:
"The only way people can reliably make money with dropshipping through fulfillment by Amazon is to teach others how to do it."
— Codie Sanchez [40:15]
Example: A seller Codie knows was banned by Amazon after reaching $1.5 million in sales, illustrating the precarious nature of relying solely on Amazon for business operations.
7. Dry Cleaners
Key Points:
- Environmental Risks: Use of toxic chemicals can lead to costly remediation efforts if environmental regulations are not met.
- Operational Challenges: Difficulty in finding and retaining reliable employees due to the demanding nature of the work.
- Regulatory Compliance: Strict compliance requirements increase operational costs and complexity.
Notable Quote:
"The reason that I don't like dry cleaners is this big word called remediation, which basically means if the toxicity gets into the ground, which it often does, then you are responsible for any third party effects of that."
— Codie Sanchez [45:50]
Transitioning to the Right Business: Self-Assessment
After outlining the seven undesirable business ventures, Codie shifts focus to guiding listeners on how to choose the right business for their unique circumstances.
Key Steps:
-
Self-Assessment:
- Passions: Identify what you love to do, even without monetary incentives.
- Skills: Recognize your strengths and areas where you excel.
- Network: Leverage relationships and connections that can support your business endeavors.
-
Defining Your Deal Box:
- Personal Alignment: Ensure the business aligns with your financial needs, risk tolerance, and lifestyle preferences.
- Perfect Fit Venn Diagram: Combine your passions, skills, and network to identify the optimal business opportunity.
Notable Quote:
"Buying a business is kind of like dating. It's not one size fits all. It's deeply personal and it needs to be in sync with who you are, what you can handle, and where you see your life heading."
— Codie Sanchez [47:30]
Actionable Advice:
- Download Resources: Codie offers a deal calculator to help evaluate potential business opportunities.
- Community Engagement: She encourages listeners to join her Contrarian community for support and education in business acquisitions.
Conclusion: Empowering Your Business Journey
Codie emphasizes the importance of knowledge and strategic decision-making in business acquisitions. By avoiding high-risk ventures and selecting businesses that fit one's personal and professional profile, entrepreneurs can increase their chances of success and financial stability.
Encouragement to Share:
"The most beautiful thing you can do for someone that you care about is to share it with them. Help them grow alongside you."
— Codie Sanchez [50:10]
Codie concludes by urging listeners to share the podcast to foster community growth and mutual success.
Key Takeaways
- Avoid High-Risk Ventures: Restaurants, hotels, retail storefronts, consulting firms, personal brands, Amazon FBA dropshipping, and dry cleaners present significant challenges and risks.
- Self-Assessment is Crucial: Understanding your passions, skills, and network is essential in selecting the right business.
- Strategic Planning: Utilize tools like deal calculators and engage with supportive communities to make informed business decisions.
- Community and Sharing: Building a network and sharing knowledge amplifies success and fosters a supportive entrepreneurial environment.
By meticulously analyzing the pitfalls of certain business types and providing a structured approach to selecting the right venture, Codie Sanchez equips aspiring entrepreneurs with the knowledge to make informed and strategic business decisions.