6 Business Models that Never Fail (Proven & Profitable)

If you're in business or you're thinking about going into business, I've got a little trick up my sleeve that takes your profits from just an okay place to a fantastic place. It's all about business models. Most people are operating just run-of-the-mill okay business models. With a few little tweaks, you can turn that okay business model into a great business model. This isn't theory that's coming to you here. This is tried, tested, and proven. Over the last 20 I've run many just okay business models. I've worked really hard to tweak my business models so that my business becomes a commercially profitable enterprise that over time works without me in it. If you look at most people, they're running profitable jobs. We want to get that profitable job to the next stage of being a profitable business. Then the holy grail of entrepreneurship is a profitable investment where someone looks at your business, knocks on the door and says, hey, I'd like to buy your business. They'll want to pay a lot of money for it because you've tweaked the model to be that commercially profitable enterprise. Let's break it down. Let's first of all understand what a good model is. A good business model is that commercially profitable enterprise. What really dictates what a great business is is when someone wants to buy the thing that you've built. What are they looking for? Well, they're looking for predictable cash flow. Really important. They want to understand that the cash flow is not key man driven, just driven by one person, i.e. not a profitable job. We're looking for margins. We're looking for exit value. Even if you're a buyer and you're buying a business, you want to know that when you've put your money into it, someone else wants to buy it when you're finished with it. It's the primary objective of venture capitalists and private equity. They're putting their money in. They want to sell again in five years. They want to know that more all-important exit value. How can they grow the business? Where's the strengths, weaknesses, opportunities, and threats? What's the management quality like? Who are the management? Really important. What moats are around the business? Is your cash flow predictable? Is that a tweak that you need to manage? Do you have low margins? Can you improve your margins? How are you going to do that? Now, I'm going to give examples to all of these things as we walk through the video. Management, growth, what's the moats around your business? Think about your business as a castle and the moats that are going around the castle to protect it from enemy taking the castle from you. All of those things should be in your personal zeitgeist to build a brilliant business model. Let's break it down further. Let's talk about the best business model of all. That's creating a business with positive cash flow models, which sadly, most businesses do not have. Most have a negative cash flow model. For example, let's look at retail. Retail is a really good example of that. You open a gift shop, you open a furniture shop, you buy a load of stock, and you might turn that stock two or three times a year. So you put 1,000 pounds worth of stock out, you put your margin on, but you might not get your cash back and your profit back for six months. Now, let's look at a business called Rolex. I'm on the list at Rolex, and if they ring me up and say, hey James, we've got a new Rolex. Would you like to come and buy it? You can come and collect it, we'll hold it for you for two days, but we've got a long list of people that are predetermined to buy from us. So Rolex have a 24, 48, 72-hour cash flow cycle term. As soon as they release a new watch in store, they're getting cash and profit back within days. Most people are only turning their stock two or three times a year. There's other shops like Asda and big supermarkets might turn their stock eight times a year. So they're holding cash and turning the profit eight times a year. Costco, brilliant, 12.3 or 12.4 times a year. Rolex is hours, days. So what you've got to try and do is find businesses where you speed up how much cash you get into the business. Now, I've given you a retail example here, but there's another example. There's a great book called Built to Sell, which is all about selling businesses. And this guy talks about selling a specialist logo design business. So if you think about most marketing companies, say, oh, can you build me a website? So you do all the work, you build the website, and then you get paid 30 to 60 days after doing the work. Client says, I would like website. You do all the brief, you build all the website. It might take three or four months to staff it, to get all that paid. And you're waiting all that time to get paid. In logo design, they say, well, you pay 50% upfront before we actually design the logo. And then as soon as we deliver the logo, you pay the balance, which means you're getting cash flow upfront before you do any work. And then you get paid on delivery. That improves the cash flow of the business model. And so if you've got a model in your business where you're getting paid 30, 60, 90 days, what could you do to tweak it? Now, in my business, I've got a mixture of direct-to-consumer and B2B business models. When I mix them together, I create an ecosystem of regular cash flow. Now, I am owed millions of pounds at any one time. And if I just had those B2B parts of our business, I'll be stressing like you would never believe. But I've got other businesses where I get paid upfront from customers and then deliver the service. You've got to find ways of repairing that business model to improve your chance of success in business. Keeping the cash flowing keeps the business going. There's lots of businesses that go bust, not because they're not super profitable. It's because they haven't got good cash flow management. Now, let's look at this little tweak in making your model fan-bloody-tastic, which is distribution. Once you have distribution in your armory, you have a distinct advantage. If you look at companies like Sainsbury's here in the UK, they bought Argos some years ago. They didn't buy Argos because they wanted more shops. They bought Argos because they were one of the biggest distributors of products in the United Kingdom. They had lorries, they had depots. And once you can distribute your products, things get very exciting. But it doesn't just have to be physical products. Think about digital distribution. I make all of my content, put it on YouTube, and YouTube distributes it for me. YouTube are this powerful distribution platform, Disney being on Disney+, on their own distribution platform. How can you tweak your model for your own distribution? Now, I've done this in my own small way in my business. I bought a food services business in London because I made ice cream. It's one of my companies, and I wanted to distribute it through London. And I found that devilishly difficult to do. So I tweaked my business model so that I became a transport company that sells food by buying another company that could do that for me. It gave me wills every single day on the ground in the biggest city in Europe to distribute my product. Having distribution has given me a moat around my business and tweaked my business model so my business is more profitable. You don't have to set up your own distribution. You can buy into other people's distribution, network with distribution manufacturing powerhouse CEOs so that you can get your products into the key decision makers, or just buy distribution networks like I've done. Things aren't as difficult as you may see. Buying companies is how I managed to sort of get over all these hurdles. If you really want to increase the profits in your business, think about this little term. Being a generalist, which is most businesses, the a specialist, which is not many businesses. Thinking about accountants here, and solicitors, and doctors, the okay money goes to the generalist of these three. And the real profit making money goes to the specialist of these three. Anyone that's employed a barrister over a solicitor will know that the barrister charges a lot more than the solicitor. Anyone that's gone to a specialist taxed accountant over a broad service accountant will know the difference in fees. And if you want to go to a family doctor that may earn around £100,000 a year via the specialist doctor, the heart surgeon, the brain consultant, that might earn six or seven times that, £607,000, even a million pounds a year, the specialist makes all the money. And the same is very true for business. Think about an engineering firm. Say you work on a specialist aeroplane, and you've got your engineer who doesn't know everything, and you might call the specialist engineer. And he turns up, and he fixes the problem in 10 minutes and puts in a big whacking bill. And you're thinking, my God, why are you charging me all this much money? You've only been here for 10 minutes. He goes, yes, but I know exactly where to hit the nail, or screw the screw, or my brain knows exactly the problems, and you're paying for my 10,000 hours of specialist experience. Therefore, I'm not commoditized. I'm a specialist, and therefore, you must pay accordingly. If you've got a business model, and your model appeals to the generalist market, you compete with all the commoditized businesses. If you've got a product that you can buy on Amazon, you're going to get generalist margins. But if you're a specialist, and people will go out of their way to buy direct from you, you protect your margin, you protect your marketplace, and therefore, charge accordingly, and usually have a much better business model. Now, I alluded at the beginning of the video about having moats around your business. So we're just going to draw a little castle here. And what we want to do in our business is get as many moats around our castle as possible. So let's look at the first moat, content. Now, I have learned this through the actual process of making a lot of content. Content is king. Content drives you a proprietary audience that just want to buy from you. People love coming to my business seminars, or buying my books, or coming to listen to me speak at a talk, because they've consumed my content. Yes, it's a lot of work. Yes, it's a lot of effort and energy. But it gives you proprietary content that drives you unique customers that will pay a bit extra, and only want to deal with you. Let's have a look at some other ones. Awards. Could you get awards into your business? Could you also get establishment? Buying a business is, you know, I'm a big fan of doing this, but buying companies that are established for over 10 years. I'm recording this in our hotel, 500 years old, this room that I'm in right now. People buy into establishment. Human beings love it. So buying companies, maybe you do a product or service, but you've only been going a couple of years. You're really good at your product or service, but you're not established enough. Could you buy a company that's established and put all of that into it? And bada bing, bada boom, everyone is a winner. Population. Now, I'm speaking to people that if they operate their business in America, where 350 people live, that's a better business model than the UK, where only 70 million people live. Having population is a moat around your business. Enough people wanting to buy what you do. IP, intellectual property rights. Have you got a patent for your business that is valuable, that people want to buy into and all cannot buy into what you're doing because you've all got a patent protection? Let's have a look at some others. Brand. Have you got a really strong brand or can you buy a brand that's really valuable? You know, shoes are commoditized, but for Nike, that's worked, hasn't it? Because they've got a brand that they've put on a commoditized product that gives them a moat around their business. And the last one that really makes a huge difference is location. I bought this hotel, 500 years old, brilliant location. The Rossi ice cream parlor, got no neighbors on the seafront, 100 years old. What can you do to get amazing locations that are scarce, buying them in, being located in there, maybe paying a little bit more rent. But all of these things give you moats around your business that stops people taking things away from you. Actually, having a location of any sorts, I do believe, protects the business. Let's look at this one. Regular orders. Most businesses just do not have this. But if you do have it, creating a habit between business and customer, things just get better. Now, if you get one of my businesses, which is a day nursery, you know, you come on a Monday, we'll see you on Tuesday, we'll see you on Wednesday, see you on Thursday. Within one week, the staff are getting to know the customers, the parents are getting to know the Everything's working really well because we've got regular customers. What you're trying to do is not make your customers fickle. That's why restaurants are really tough businesses. You know, you only go to a restaurant once or twice a year, there's a new one opening up in town, you're very fickle to that type of business. That's why hospitality and leisure is really, really difficult. And that's why schools and childcare and education, or Netflix or Disney Plus are great business models because your customers are transacting regularly. How can you make your business more Netflix? How can you tweak your business model so that people want to transact with you four times in as quick a succession as possible, because that is when habit is formed. Most businesses don't have that, but supermarkets do. People need to get their bread and milk all the time. If you've got a local corner shop, you get to know the person, don't you get to know his face and that smile, how's his family, blah, blah, blah. How can you get that into your business so that people transact with you regularly four times in quick succession? It's just a better business model. Now, the last one before I give you my example of how I've done this in my business is volume of sales. If you can increase the amount of average customer value and average transactional value and average lifetime value with your business, everything improves. The value that your business has to someone wanting to buy it, remember that's the underlying thing here, turning your business into an investment. Think about Amazon. How often are you transacting with them? What's the lifetime value of you with Amazon? What's your average customer value with Amazon? It's increasing all the time. Think about how often you fill your car up in your regular petrol station that you always go to. You're transacting with them, 100 pounds for me, 120 pounds every single week. I usually go to the same one. I'm horrifically cannot believe the lifetime value of what I've spent with the same petrol station that I go to. The volume of sales is amazing. Every time I go there, I'm buying stuff from the little Marks and Spencer's food shop that's there. They're getting so much cash from me all the time. Average lifetime value, average customer value, average transactional value, if you can get that up, you've tweaked the business model amazingly. Now, let me give you an example of a business that I bought that had an okay business model. It was just a run of the mill. It was the Rossi Ice Cream Company. It was a manufacturer of ice cream. Big problem, the rule of four. People ordered lots of ice cream on our B2B business, but just in the summer. They didn't want ice cream very much in the winter. I wanted to try and increase the volume of orders, how often they transacted, and how often they bought from me. It had some moats around me because it was a 100-year-old brand. I bought another business called Cafe Deli. I also bought a bakery business. Now, putting them all together creates this beautiful ecosystem where people buy bakery stuff in the winter. Cafe Deli was my transport and widened my product range. By doing that, my average customer value increased. By widening my product range of bakery and Cafe Deli stuff, which is food service in the round, my average transactional value increases. When my average transactional value increases, my average lifetime value increases. Bolting these three businesses together has turned it into a brilliant business model. Now, when I bought this, this was sub-a-million turnover. This was around 500,000. I'm selling all of my ice cream and bakery products into Cafe Deli, putting it all together, turning it to what I think will be a 15-million-pound business. Now, this business, say this makes a million. This was breaking even. This was making 100,000, but pushing it all into there, it then net results into probably a 2-million-pound-plus business by bolting them all together, turning it into a much better business model that has higher lifetime value, higher transactional value, higher average customer value. Now, remember, what happens here is because people need their eggs and their milk and their ham and all their normal food services products to run their cafes or their restaurants, ice cream's not enough, bakery products are not enough, but pushing it all together, you're forcing habits for customers to be able to use you more, increasing this all-important ALV, ATV, ACV makes a business model. And that's my point of making this video. If you've got a business and your model's just okay, what are the things that you need to do to tweak it to turn it into an amazing business model? Is it buying some other companies? Buying businesses is how I have done it, looking at the problem and not just being, oh, well, it's tough, maybe we'll improve things by 3% or 5% next year. Me, I'm thinking, how can I buy this 10-million-pound company, fold it all together to make it the right decision? And that's what I've done in my career. I haven't just done it here, I've done it in multiple businesses. I had a farm park, it was an okay business model. I put a day nursery on it and put an events business on it, turning it into a brilliant business model. When I opened this hotel, rather than just accepting that we didn't have many rooms, I built more rooms to tweak the business model so it's a better business model, do events here. And we doubled the turnover in the first year, doubled the profitability by tweaking the business model. But I think what a lot of people do is they look at their business model and they just cry in the corner about it. Well, you've got to be better than that. You've got to be better than that, gang. You've got to tweak your business model for super success. And that's what this video is all about. Hope you've enjoyed this video. Make sure you like and subscribe, and I'll see you in the next one. Let me know if you've got any other ideas that really tweaked your business model to improve it in the comments below. And don't forget, subscribe to the James Sinclair newsletter. I write down all my thoughts that I'm having each week to help you in business, and you can get the newsletter for free. Subscribe on my website, jamesinclair.net, and it'll arrive in your inbox 7am every Monday morning. See you in the next one.