If I wanted to start the perfect

business, these are the things that I

would focus on. So, think of these like

the five advantages [music] that make

any business easier to grow and way more

profitable. And this is what's helped me

build a portfolio of companies that

generated over $250 million in revenue

last year alone.

>> [music]

>> And so, for each one, I'll describe what

it is, I'll give you examples, and I'll

show you industries that excel in them

and industries that suck. There are very

few businesses that have all five, and

even having one of these makes the

business that you have better than

others. And so, just think of this video

as like an S-tier ranking for

opportunity vehicle. So, if you've ever

heard or thought, "Man, like I feel like

I've got a you know, level 10 skill set

and a level two opportunity," then this

video is for you. So, let's get started

with number one. Sticky. It's the most

important thing. If you do not have

what's called revenue retention, you

have nothing. Revenue retention just

means how much revenue from last year

you retain to the next year. That's all

it is. If you don't have that, you will

always be in the sales business. So,

John Paul DeJoria, who started Paul

Mitchell, he started Patron, he says

this quote that I always remember. He

says, "You want to be in the resale

business, not in the sales business."

And so, there's two types of retention

that people discuss. One is logo

retention, which is if you had 100

customers in January, how many do you

have now? And then, the second is the

revenue retention piece, which is if you

made $100 from those customers in

aggregate in January, how much do you

make from that same cohort or group of

customers today? And so, logo retention,

just to be clear, you almost never have

100% logo retention. Like, you can't get

more than 100%. You only have a certain

amount of customers, and it only decays

over time. And so, some reasons for that

is that there's something called

structural churn. So, someone moves

away, they die, they're, you know, their

business dies, there's a, you know, they

fire the employee if you do a payroll

thing who used the subscription or the

service. And this is called involuntary

churn. It's because it's just structural

to how businesses operate, right? On the

other hand, there's something called

voluntary churn. And this is the one you

really want to avoid. That's when people

leave because they just think you suck,

right? And so, those are kind of like

from a logo retention perspective, how

many of the number of people are still

here? The revenue retention side, you

absolutely can have over 100% net

revenue retention. And so, that means

that even if you lose some of those

customers, the ones who stay increase

how much they spend enough to make up

for the ones you lost. And so, the

easiest way to do this is have a clear

way for cheaper customers to spend more

with you. And if you're a service, keep

doing the thing they need you to do,

which part of it is making sure that

that person that you sell actually needs

it in the first place. And this is why

qualifying customers is so important.

But, for example, if I have a $9 month

membership and a $99 month membership,

like School, if someone comes in at $9

and then goes up to 99, then I get an

11x in terms of value from that

customer. And so, even if 20% of

customers leave from the nine, if I get

even 10% of customers to take an 11x, I

have more than 100% revenue retention,

and that means that when a customer

enters the business, that means that the

business will continue to grow whether

we do nothing at all over time. And that

becomes a very valuable company. Now,

let me give you some interesting data on

School that manages hundreds of

thousands of memberships that you can

use for any recurring business. Number

one is that the first amount of churn

that's the greatest is month one. So, if

you ever have to focus, focus first on

your first 30 days.

It across all categories it was over 20%

plus churn in that first month, all

right? The next big kind of like

drop-off point in churn is about 10%,

and that happens at about month three.

The third and kind of final spot where

you have a big drop in in churn is month

six. And so, the big takeaway here is do

whatever you can to get people to month

six. So, in your mind you might be like,

"How am I going to keep them forever?"

It's like you really just got to get

people to that sixth month, which really

means make sure the first 30 days are

awesome, and then have a clearer way to

get them past that third month, and then

you basically

walk your way to month six, and at that

point churn drops to almost 2% a month.

And that's across all categories. All

right, so this is just structural to how

people consume and value memberships or

recurring subscriptions of any kind. And

so, please take this as like this is

where I'm going to focus all of my

attention to get people that 2% churn,

which means we just got to get them to

month six.

So, let me give you examples of

businesses that are not sticky. So,

education on its own is not a sticky

thing. That's why you graduate when you

go to school. Like, you're not going to

go and retake the same math class over

and over again. Um roofing, car sales,

these are businesses that do not have a

lot of stickiness to them. They're

one-time shots, right? On the other

hand, a good example of sticky

businesses is term life insurance. You

sign up for life insurance and you

pretty much just pay until you die,

right? Uh alarm systems, like you don't

really think, "Oh, I'm going to shop my

alarm system." You have it, as long as

it works, you're good to go. Internet,

phone providers, banking. Um

and to use that kind of education, a

different version of that for like

school, for example, is if you have

something that's based on community, and

something that's based on consumables,

meaning people consume it month over

month over month, then it means that

they're going to want to pay month over

month over month. And so, if I could

only have one thing for of these five,

it would be this, right? And so, think

about it like this. Let's imagine

company A and company B. So, company one

sells 100 customers year one, and then

loses 100 customers year one. Year two,

uh they sell 200 customers cuz they get

better at marketing and sales, and then

they lose 200 customers. And then year

three, they sell 300 new customers, and

then they lose 300 new customers, all

right? Now, company B, same time period,

sells 100 customers, and then loses

zero. Year two, they sell 100 customers

again. They don't scale their sales and

marketing at all. But now they have the

original 100, so now they have 200

active customers, which means they

actually have the same revenue. Year

three, they sell another 100 customers,

they still have the first two, and they

have 300 customers in total, meaning

both of these businesses in each of

these years is doing the same revenue.

Of these, which would you pick? Company

A or company B? Obviously company B. And

so, I'll give you two reasons. One

that's uh personal and one that's math.

On a personal level, the idea that you

could just have no new customers at any

given point, and then every year after

that you still have your 300 customers

who pay you over and over and over

again, that helps you sleep at night

great. Now, from a math perspective,

getting 300 new customers in a year is

very expensive. So, look at how many

total customers this business needed to

acquire over that period of time. So,

they had to acquire twice as many

customers as company B. All that

additional cost is taken out of the

profit of the business. But, on top of

that, getting 600 customers versus 300,

and especially 300 one year versus 100,

the cost of getting that additional

customer is not going to be just 1x

more. Often times it's two or three

times more. So, it's really almost like

getting 900 customers from a cost

perspective compared to that 300 that

you had to get and spread it over three

years. The cash flow of the business,

the profitability of the business will

be significantly higher, and as an

owner, way more fun to own. And this is

just like me talking to my younger self,

building a business that does this

takes time. But, what it unlocks is

compounding. And so, the reason that you

don't usually want to do this B thing is

because you're excited to jump from

thing to thing, because your current

thing still feels month to month. Once

you see compounding unlock and you see

revenue lock in, you really never

consider other vehicles because you can

literally just excel sheet out your

wealth knowing exactly how big you're

going to be in the future because you

know the customers you have today are

going to be there tomorrow. Real quick,

I'm going to show you the exact 10-stage

roadmap from zero to 100 million plus

that less than 1% of companies finish.

I've now done multiple times, and so I

can say with a lot of confidence that

these are the stages as head count

increases that you need to get through.

And I broke each of these down by eight

different functions of the business,

what the constraint feels like, like

what are the symptoms of it when you're

going through it, and then what steps we

actually took to graduate. And we've

done this across software, physical

products, uh service businesses, brick

and mortar, all of this, and it works.

And it's my gift to you, it's absolutely

free. And so, the link's in the

description, but you just go

acquisition.com/roadmap.

Just enter your info and it'll spit it

right back to you all free. Now, the

second thing that I see is like a a big

advantage, you really never consider

other vehicles because you can literally

just excel sheet out your wealth knowing

exactly how big you're going to be in

the future because you know the

customers you have today are going to be

there tomorrow. Now, the second thing

that I see is like a a big advantage is

expensive. So, what does that mean? In a

perfect world, you'd want something that

costs a penny that you could sell for a

buck, right? High gross margins means

that you can pay people better, your

cash conversion cycle is typically

faster, you can reinvest that cash in

more growth, and this typically has

higher EBITDA margins. So, if you have

high gross margin, you'll typically have

higher net margins. And so, for example,

if I had a hundred million dollar

business with 10% margins versus a 20

million dollar business with 50%

margins, you'd make the same money at

the end. Now, you get five times the

incremental EBITDA per dollar made, and

that's certainly nice. It's less work

for more money. Now, this was the topic

of my money models book that I spent a

lot of time on, and the goal was to see

how you can combine things to speed up

the money cycle and increase gross

margins and cash flow in the business.

So, let me give you some examples of

businesses that have low gross margins.

So, grocery stores, right? They're

notoriously gross small gross margins.

Farming, restaurants, and you'll notice

that all these are kind of grouped

around one thing is because food is one

of the most elastic products, so take

note to that. But fundamentally, it's

really like things that are commodities,

which is why the first chapter that I

have in the Offers book is how to

decommoditize yourself so that you can

increase your gross margins, so you can

ultimately get the cash you need to

grow. Now, on the flip side, examples of

good businesses that have great gross

margins, media. I mean, think about it.

A podcast read that you do when you've

got a thousand people listening or a

million people listening takes the same

effort, and all of the extra that you

can charge is just profit, right? Uh

information, that's one. Education

itself, um community access, these are

things that have high gross margins.

Data, software, pharmaceuticals, right?

It costs them a penny to make a pill and

they sell it for a buck. Um lotions and

potions, it doesn't cost a lot to

create, you know, a supplement, you can

sell it for a lot. All of these things

are businesses that have high gross

margins. Now, quick disclaimer, many of

you wonder what you should pick or

whether you're in the right boat. And as

a reminder, this doesn't mean you watch

this video and then like jump ship in

your business.

Um but you should at least see the

levers that you have available to you to

improve the the value of the business

you have right now. And to be clear, all

of these are continuums, not binaries.

It's not is it sticky or not sticky,

it's how sticky is it. It's not like,

oh, this has, you know, zero gross

margins or 100% gross margins, it's how

how big is the gross margin? And all the

way down. So that brings me to the third

one, which is expansion. I want

something that is growing, right? That's

the best It's the easiest way to grow is

to go into something that's already

growing, so if you just do a normal

amount, you still grow by default. And

so, I'm thinking about this more as an

industry growing rather than the

business itself growing. The business

growth would often come down to

marketing and distribution, and I can do

that, so that's not something that I

care as much about. This is a skill

advantage to us as entrepreneurs picking

the right markets, because once you know

how to generate demand, then you don't

need to always have a tailwind behind

you, you just need to not be in a a

headwind, fundamentally, right? Make

sure you're just not fighting an uphill

battle. I speak about this in the Offers

book. And the main reason is this, even

if you know how to market and sell,

going into or staying in a space that's

shrinking is an uphill battle. And this

is why I use the example of newspapers.

Most people are like, I don't really

read the newspaper, it every single year

goes down. If you're like, hey, I want

to get into formal education, probably

not the time to do it because it's going

it's shrinking by 6% a year. All right?

Uh tobacco, shrinking. Alcohol,

shrinking, right? Retail, like brick and

mortar where you're selling stuff, not

to say you can't make money in it, it's

just harder, right? Uh administrative

roles, clerical, data entry, these are

things that normal in how the world

works. Now, the flip side is, what are

examples of industries that are growing?

Energy, going through the roof. AI,

through the roof. Healthcare,

through the roof. Cybersecurity, through

the roof. E-commerce, through the roof.

Alternative education, through the roof.

And this is what fundamentally the bet

that I made on school was about. The

CAGR, so compound annual growth rate for

alternative education is over 20%

annually, right? People are tired of of

traditional education, and this is why

platforms like YouTube are proliferating

like crazy. People want to learn

specific niche skills that are useful to

them. Which brings me to, drumroll,

please, number four big advantage that

you want to have, air. You want

something that has operational scale or

low operational complexity and low

capex. So, let me define each of those.

So, low operational complexity means the

number of variables that you need to

actively manage to expand production.

So, if I make a podcast, like I said

earlier, and then I sell an ad read

inside of that podcast, someone gives me

money, I read it, and then I hit post.

That's pretty much it. There's nothing

else. And that scales all the way up,

right? And so, that's low operational

complexity. Now, if I manage a hundred

restaurants of a chain, I have thousands

of employees, I have suppliers, I have

inventory that goes bad, I have

build-outs, I have leases, I have

parking, I have permitting, and there

are many more pieces that I need to

actively manage in order to expand

production even a small incremental

unit. The other side is capex, which is

just a fancy way of saying capital

expenditure, meaning how much money you

got to spend to get the business to keep

growing. Now, there's a little asterisk

on this cuz I'm going to explain why it

can be a good thing um when I bring up

my very last point. So, wait and and pay

attention to the end because it's going

to be very important for number five.

Now, the reason that this is valuable as

a founder is you typically would need

less capital, which means you can dilute

less for your ownership, for equity, uh

for cash to continue expanding. Which

means you can expand faster without

needing money from the outside. So,

Warren Buffett talks about this because

he wants businesses that generate lots

of cash, not ones that generate it and

then have to consistently reinvest that

cash in order to maintain

competitiveness in the business. And so,

this is the important caveat. If you

raise capital to grow faster, you could

have all the correct economics, you just

want to grow faster. That is a strategy,

it's an advanced one, um but if you're

trying to capture market share and

capturing market share has actual

advantages beyond the economics of

scale, like we'll make it up in volume,

it's rarely true, but if it actually is

true, then there is reason to go get

market share, actually have some sort of

network effect.

That makes sense. In my experience, it's

very rare, right? School is a great

example of actually it doing it right.

Additional users to school do not cost

very much. But getting everyone on

school is worth doing because there are

strong network effects. And so it's

worth us putting more cash in now rather

than taking distributions. Said

differently, taking that cash and

putting it into the business yields

tremendous ROIC, which means return on

invested capital. And if you have great

ROIC, then you become a magnet for

money. So this is just a little pro tip.

You should never have any difficulty

raising money if you are in a business

that's like that because if you do, it

means that you need to make the deal

better. Let's say you have a restaurant

chain and you want to grow it. And I to

be fair, I think it's a very tough thing

to do. But if you wanted to grow it and

if you're like, man, I can't get people

to, you know, invest in my franchise or

want to buy franchise locations, like

how do I have a better, you know,

marketing strategy? For sure, there's

things you could do to market and sell

better. But if you come to somebody and

say, "Hey, you know, it costs 100 grand

to open my thing, it'll take 3 years in

order for you to get your money back."

That's kind of like a mediocre-ish

offer. If you say it's going to cost 100

grand to do my thing and then you're

going to make $300,000 back on average

in the first year, that's going to be a

significantly more enticing offer. And

so for most people who want to use

outside capital in order to scale, the

reason they can't raise it is not

because they don't lack some big skills,

because the core economics of the thing

they're trying to scale just aren't that

good. And so the fifth and final is

unique. So you want a competitive moat,

something that no one else can build.

Now part of what can raise the bar and

create a larger moat is the number of

people who can afford to enter the

market. So if you have a market that has

virtually no barriers to entry, you'll

have a lot of competition. And this can

be a huge driving factor. So for

example, social media marketing

agencies, the bar is virtually nothing.

It can be sticky, it can be high gross

margin,

it is kind of an expanding thing, people

always want more customers. It can be

air from a capex perspective, but from

an operational drag perspective, it's

not as good. Now, with AI, it can

actually become really interesting. But,

the main issue is so many people can do

it, and that's what makes it so

competitive, and that's ultimately what

drives down the price cuz it's very

difficult to differentiate. Now, let me

explain what I was saying earlier about

capex as a way to have a moat. So, if

you are competing against every human

being who has hands to dig holes, if you

buy a shovel, you'll be significantly

better than people who don't have a

shovel, and that'll cost you a little

bit of money. That'll make you more

efficient. And so, in a way, you can

actually use capital that you do to

invest up front into building things

that make it less competitive for you

and more competitive for other people to

try and enter your marketplace. This is

why like building a power plant is

probably very profitable. It also costs

a lot of money, right? [laughter] And

so, um these are things that you can do

to any business. If you find can have a

return on invested capital for things

like technology, for things like

equipment, um those become moats that

make it more difficult for other people

to enter, which means that you'll have

more pricing power. And so, once you

start to see some success, I like

getting into businesses that cost some

capital to expand because it just means

that I have fewer people that I have to

compete with. Now, up to this point,

I've only talked about capital as a kind

of moat. Now, to be clear, it's not

indefensible, but it's better than

nothing. But, the best kind of moats are

the things that you know how to do, but

no one else can do. So, for example,

Nvidia chips. This is something that

costs a ton of money and has incredibly

specialized skills. So, as a result,

they're one of the seven most valuable

companies in the world, right? Pretty

wild. Uh nuclear energy costs a lot of

money and is something that's super

proprietary, not a lot of people know

how to do. If you didn't have the

capital, then it would be recipes,

processes, patents. These are trade

secrets, your special sauce. And just as

a side note, you're like, "Well, what

differentiates, uh you know, like a

trade secret from a patent?" Well,

patent just requires three things. It's

got to be new, it's got to be

non-obvious, and it's got to be useful.

Those are from the patent office. All

right, so if you're thinking about,

"What are the things in my business that

are brand new that I only do, that are

not obvious, and that are useful. Those

things are patentable, right? Kind of

cool. Now, you have to defend patents,

which is a whole another story, but

that's a way of creating a moat. Now,

one of my favorite ways of creating a

moat is creating a brand. You can make

anything that's a commodity unique by

adding a brand to it. So, for example,

Revlon is kind of like a mass-market

brand for beauty stuff. You can get it

at CVS, whatever. And you might think,

"Oh, that's a that's a cheap brand."

Now, the point though is that even if

Revlon is cheap, it's still a little bit

more expensive than white-label generic.

So, CVS might have some CVS brand

makeup, right? Revlon's going to be a

little bit more expensive than that.

But, they literally will come off the

exact same manufacturing belt, and

they'll stamp on Revlon, and they'll

stamp on CVS, and they'll ship them

there. And that premium converts a

higher percentage of people at a higher

price, and increases the stickiness. And

so, a brand is one of my favorite ways

of taking something that's otherwise a

very normal service, and making a moat,

or making something unique about it. So,

let me give you a different example that

that manages some of these, all right?

So, Coke requires capital to enter new

markets, but it gets great returns on

capital, so people are happy to provide

it, or it can provide capital to itself,

and get returns on its own capital. And

it has patents for the flavor of Coke,

and the brand itself. And so, these are

things And if we're looking at this,

right? When people start drinking Coke,

they usually keep drinking it for a long

time. It costs a few pennies to make a

can of Coke in terms of the liquid

inside of it, but they can sell for a

lot more than that. Now, is it expanding

as a marketplace? I think Coke's pretty

global, and I guess the only expansion

is just more human drinking stuff. So, I

guess there's probably right now still

some expansion that's happening. From an

operational scale perspective, this is

one where it's a little harder. Now, is

it easier than scaling an accounting

firm globally? Absolutely. Is it harder

than scaling software globally? Yes. And

so, it's kind of like in the middle on

this one. And then, unique, what it does

to create that uniqueness so so Shasta

Cola doesn't take over the market,

right? Is that it has the brand, and it

has its recipe. And so, those are the

ways that it creates something that is

harder to usurp, which is why Warren

Buffett's been a long-time investor in

the business, and it just continues to

grow and print money. And so that's what

you want. Now you're not going to have

something that has all of these. It's

very very hard to do that. There are

trade-offs, but the perfect business

would include many or all of these. And

if your business includes none, that's

okay, work at retention first, and then

backfill the rest. But if you're in an

industry that has no retention, then

switching to one that does, if you're

early in your career, may not be the

dumbest decision. And so if I were

starting it all over again, this is what

I would look for in a business that I'd

want to start, ideally something that

people keep buying, something that is

expensive relative to what it cost me.

It's in a market that's not going down

at the very least, there's less

operational complexity in order to

scale, and it's unique to me, or at

least I know a way to make it unique to

my customer. Real quick, I'm going to

show you the exact 10-stage road map

from zero to 100 million plus that less

than 1% of companies finish. I've now

done multiple times, and so I can say

with a lot of confidence that these are

the stages, as head count increases,

that you need to get through, and I

broke each of these down by eight

different functions of the business,

what the constraint feels like, like

what are the symptoms of it when you're

going through it, and then what steps we

actually took to graduate. And we've

done this across software, physical

products,

service businesses, brick and mortar,

all of this, and it works. And it's my

gift to you, it's absolutely free, and

so the link's in the description, but

you just go acquisition.com/roadmap,

just enter your info, and it'll spit it

right back to you, all free.