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[@alux] Business Models Tier List

· 7 min read
[@alux] Summarizer
Video Bot

@alux - "Business Models Tier List"

Link: https://youtu.be/l_cTrajgK4U

Short Summary​

Here's the requested information from the transcript:

Number One Most Important Action Item/Takeaway:

Avoid F-Tier business models like Multi-Level Marketing (MLM) and being a life coach without experience. These have extremely low success rates and are likely a waste of time and money.

Executive Summary:

This video ranks various business models based on startup costs, profit margins, time to profitability, and success rates. It categorizes them into tiers from F (garbage) to S (ultra-wealthy), highlighting the risks and rewards associated with each. The key is to avoid low-success models like MLMs and focus on business ventures that provide value, solve real problems, or offer a competitive advantage.

Key Quotes​

Here are four quotes from the video transcript that represent valuable insights:

  1. "The way that most life coaches make money is by teaching other people to be life coaches so they can teach others how to be life coaches." (This highlights a potential issue with the life coaching industry.)
  2. "For a restaurant to work, either the location has to be absolutely amazing, or the community around it is great and keeps it going. And those things are pretty hard to find..." (This encapsulates the fundamental challenges faced by restaurants.)
  3. "These illustrations, along with a couple of our courses, were designed by the same freelancer. We've even got a course called Freelance Mastery, specially designed to help you start your freelancing journey, which you can find at alux.com/freelance if you're interested." (This provides a helpful anecdote with a call to action.)
  4. "If you can solve a real problem and price it monthly, you're building a money printing machine," (Regarding software as a service.)

Detailed Summary​

Here's a detailed summary of the video, organized by business model and tier, as discussed in the transcript:

Key Topics:

  • Ranking of various business models from F (worst) to S (best).
  • Evaluation based on:
    • Startup cost
    • Profit margin
    • Time to profitability
    • Success rate
    • Personal input/experience

F Tier: Guaranteed to Fail

  • Multilevel Marketing (MLM):
    • Concept: Commissions based on sales of recruits and their recruits.
    • Startup Cost: $100 - $5,000 (starter kits, inventory).
    • Profit Margin: ~0% (most lose money).
    • Success Rate: Less than 1% (FTC data).
    • Reasoning: Mathematically unsustainable due to exponential growth, most participants lose money.
    • Verdict: Avoid at all costs.
  • Life Coaches (with no experience):
    • Concept: Charge by the hour based on personal brand and generic advice.
    • Startup Cost: Few hundred dollars (website, logo).
    • Profit Margin: >90% (low overhead).
    • Time to Profit: 1-6 months (if leads are found).
    • Success Rate: Under 5%.
    • Reasoning: Lack of real-world experience, focus on teaching others to be life coaches.

D Tier: Can Work, But Difficult

  • Restaurants:
    • Concept: Transactional sales of food and service.
    • Startup Cost: $100,000 - $500,000 (rent, equipment, staff, ingredients).
    • Profit Margin: 3% - 10% (very low).
    • Time to Profit: 2-3 years.
    • Success Rate: High failure rate (50% close in 2-3 years, 80% in 5 years).
    • Reasoning: Labor-heavy, inventory-heavy, location-dependent, requires high volume and consistency.
  • Traditional Retail Stores:
    • Concept: Buy in bulk, sell in person at a fixed location.
    • Startup Cost: $50,000 - $250,000.
    • Profit Margin: 5% - 20%.
    • Reasoning: Difficult to compete with online retailers (same-day delivery, discounts). Major retailers closing physical locations.
  • Small-Scale Manufacturing (Handmade):
    • Concept: Founder is also the factory, manufacturing products themselves.
    • Startup Cost: $10,000 - Six figures (tools, space, materials).
    • Profit Margin: 10% - 30% (manufacturing, logistics, supply chain costs).
    • Time to Profit: 1-2 years.
    • Success Rate: Low due to competition.
    • How to make it work:
      • Own a hyper-niche market with no competition.
      • Make the best product in the world.

C Tier: Reliant on Trends or Thin Margins

  • Drop Shipping:
    • Concept: Sell products online (usually from China), supplier ships directly, no inventory.
    • Startup Cost: $500 - $5,000 (advertising).
    • Profit Margin: 5% - 10% (can be 30% if viral on Tik Tok).
    • Time to Profit: 3-6 months (if any).
    • Reasoning: Low skill requirement leads to high competition and copied products, race to the bottom.
  • Print on Demand:
    • Concept: Create art, upload to platforms, earn commission per sale.
    • Startup Cost: Minimal (design software).
    • Profit Margin: 10% - 30% (very cheap products).
    • Time to Profit: Varies (depends on designs and niche).
    • Reasoning: Zero barrier to entry leads to high competition and low profits.
  • Ad-Based Apps:
    • Concept: Build a free app, monetize with in-app ads, rely on high user volume.
    • Startup Cost: $2,000 - $100,000+ (development, server costs, UX design).
    • Profit Margin: 5% - 15% net margin (low ad revenue per user, high housing costs, low user retention).
    • Time to Profit: 1-2 years (or failure).
    • Success Rate: Low.
    • Reasoning: Scalability (if millions of users, small revenue can be significant).

B Tier: Reliable and Profitable, Good Starting Point

  • Freelancing/Consulting:
    • Concept: Sell time/skills per project or on a recurring basis.
    • Startup Cost: Zero (freelancing website accounts).
    • Profit Margin: >90% (low overhead).
    • Time to Profit: Immediate to 3-6 months.
    • Success Rate: High; 1 in 4 US freelancers earn six figures.
  • Agency Model:
    • Concept: Freelancing with employees, building a team.
    • Startup Cost: $1,000 - $10,000 (office, tools).
    • Profit Margin: 20% - 40% (after paying employees).
    • Time to Profit: Immediate to 3-6 months.
    • Success Rate: Similar to freelancing.
  • Local Services:
    • Concept: Location-based physical services (cleaning, landscaping, repairs).
    • Startup Cost: $2,000 - $15,000 (gear, transportation, marketing).
    • Profit Margin: 20% - 50%.
    • Time to Profit: 1-2 months.
    • Success Rate: Medium to high, especially in underserved cities.

A Tier: Massive Potential, Strong Margins, Recurring Revenue (Not Beginner Friendly)

  • Franchise Ownership:
    • Concept: Operate under a proven brand with support and exclusive territory.
    • Startup Cost: $50,000 - Millions.
    • Profit Margin: 10% - 20%.
    • Time to Profit: 1-2 years.
    • Success Rate: >85% survive 5+ years.
    • Requirements: Operational experience, management capability, strategic location.
  • Digital Products:
    • Concept: Sell knowledge, access, or insight digitally (courses, content, communities).
    • Audience-based:
      • Startup cost: Audience building (years of consistent content) and product creation (few thousand to millions).
      • Margins: 80-95%
      • Time to profit: Immediately to 3+ years
      • Success Rate: Directly correlated to trust and reach.
    • Technology-based:
      • Concept: Plugins, automations, add-ons
      • Startup cost: $2-$3,000
      • Margins: 90%
      • Time to Profit: 1-6 months
  • Direct-to-Consumer (DTC) E-Commerce Brand:
    • Concept: Manufacture/white label a product, build a brand, sell directly via a website.
    • Startup Cost: $10,000 - Six/Seven figures.
    • Profit Margin: 30% - 60%.
    • Time to Profit: 6-12 months.
    • Success Rate: 10% - 20% reach long-term profitability.

S Tier: Ultra-Wealthy, Fast Scaling, High Margins, Recurring Revenue

  • Software as a Service (SaaS):
    • Concept: Code once, license forever (monthly fees).
    • Startup Cost: $10,000 - Hundreds of Millions (depending on complexity).
    • Profit Margin: 70% - 90%.
    • Time to Profit: 12-24 months.
    • Success Rate: higher if bootstrapped and niched.
  • Marketplace:
    • Concept: Connect buyers and sellers, taking a cut of each transaction (Airbnb, Uber, Amazon).
    • Startup Cost: $50,000 - $1 Million+.
    • Profit Margin: 40% - 70%.
    • Time to Profit: 1-3 years.
    • Success Rate: Low (requires huge traffic, but can work at niche scales).
  • Fintech:
    • Concept: Build infrastructure for payments, wallets, investing tools; profit via fees at scale.
    • Reasoning: Requires regulatory knowledge, insane upside. It is very hard to pull off.