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The Perfect Business – Dow Theory Letters

Posted on 4/07/2009 09:32:00 PM No Comments

The Perfect Business

AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I’ve ever written was not about the stock market — it was about business, and specifically about what I call the theoretical “ideal business.” I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I’ve added a few thoughts in each successive edition. But seldom does a month go by when I don’t get requests from subscribers or from some publication or corporation to republish “the ideal business.” So here it is again — with a few added comments.

I once asked a friend, a prominent New York corporate lawyer, “Dave, in all your years of experience, what was the single best business you’ve ever come across?” Without hesitation, Dave answered, “I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.

“My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don’t particularly care what they pay for it — as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I’ve ever come across.” I was fascinated by the lawyer’s story, and I never forgot it.

When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale’s Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.

Here’s what my dad told me: “Richard, stay out of the retail business. The hours are too long, and you’re dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can’t unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you’re really serious about making money, get into the money business. It’s clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion.”

So much for my father’s wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I’ve been in a number of businesses — from textile designing to advertising to book publishing to owning a night club to the investment advisory business.

It’s said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don’t know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.

Bill Gates is known as “America’s richest man.” Bully for Billy. But do you know what Gates’ biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn’t have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft’s rise to power. Lesson: It’s not enough to have the product, you have to know and understand your market. Gates didn’t have the product, but he knew the market — and he knew where to acquire the product.

Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). “Find a need and fill it,” runs the old adage. Maybe today they should change that to, “Dream up a need and fill it.” That’s what has happened in the world of computers. And it will happen again and again.

All right, let’s return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I’ve termed the IDEAL BUSINESS. Now obviously, the ideal business doesn’t exist and probably never will. But if you’re about to start a business or join someone else’s business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you’ll be.

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years — then another bigger and better retail store moves nearby, and it’s kaput for the first store.

(2) The ideal business offers a product which enjoys an “inelastic” demand. Inelastic refers to a product that people need or desire — almost regardless of price.

(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it’s something that can be copyrighted or patented.

(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today’s example of this is the much-talked about “virtual corporation.” The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.

(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.

(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).

(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.

(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you’re now in your own business, you most definitely know what I mean with this one).

(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want — Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.

(10) Here’s a crucial one that’s often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There’s nothing like being fascinated with what you’re doing. When that happens, you’re not working, you’re having fun.

(11) The ideal business leaves you with free time. In other words, it doesn’t require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).

(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).

That’s it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it’s helpful knowing what we’re looking for and dealing with. As a buddy of mine once put it, “I can’t lay an egg and I can’t cook, but I know what a great omelet looks like and tastes like.”

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trendwatching.com: “Innovation Jubilation”

The New Yorker: How David Beats Goliath

Entrepreneur.com: Evolve (7 Ways to Evolve Your Business Model)

Seth’s Blog: Thinking about Business Models

Entrepreneur.com: 6 Website Fixes to Make Now

NY Times: 10 lessons from a failed startup

sorry for not updating the previous day – but this isnt supposed to ba a ‘daily’ anyway. just 3 links today:

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Online Marketing Blog: 25 Must Read Social Media Marketing Tips

TheStreet.com: Learn to Measure Your Web Presence

The Kway Teow Man: Much Ado About Local Entrepreneurs

Singaporean Entrepreneurs: Brilliant German Marketing

Singaporean Entrepreneurs: Liking what you do vs. Doing what you Like

Wild Illusions: 4 big opportunities for radical innovation in media

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apart from the few above, i also found alot of good stuff on here!

: http://startups.alltop.com/ 
there’s a lot of stuff to go through
so i just picked out some of the more interesting ones (to me, at least) to put here…

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Entrepreneur Corner: 5 best Stanford tutorials in management

Entrepreneur Corner: We teach entrepreneurship like every vertical market has the same set of rules

Entrepreneur.com: See Your Business with Fresh Eyes

Entrepreneur.com: Recession-proof Franchises

NY Times Business: The Sales Profession: Attention Must Still Be Paid

Demo.com: Why Do You Win?

Forbes.com: Finding Your Next Gig In Your Garage

Start-Up Toolkit: Top 5 Tips for How to Promote Your Company to a Reporter

startupnation: 7 Secrets to Compelling Content

Bootstrapping Blog: Why Should I Buy?

Bootstrapping Blog: More Kick A$$ Guerrilla Marketing Promotions Part 1

bootstrapme.com: How Sound is Your Business Plan?

bootstrapme.com: Picking a Logo: Some Mistakes to Avoid

trizle: Why You Suck at Business Success

trizle: How Business Strategy Sucks You Up

Lifestyle Design: Marketing Tips – Always Remember

Associated Content: Ten Donald Trump Business Tips for Entrepreneurs

Associated Content: How to Make a Fan Page for Your Business on Facebook

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Seth’s Blog: Making Commercials for the Web

Expeditus Media: Tips to Create a Great Blog

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On Startups: Startup Lessons From The Underpants Gnomes: PROFIT!

On Startups: Thoughts on the Economics of Giving It Away

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Young Upstarts: Relationship 101 for Startups: Guanxi Matters

Young Upstarts: Do Yourself a Favor, Startups, and Get Yourself Media-Ready

Young Upstarts: Where Should I Locate My Fashion Pushcart Business?

Young Upstarts: Shoestring Marketing: Tips For Pushcart Entrepreneurs

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Open Forum: The Art of Generating Buzz

Open Forum: The Art of the Tutorial

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OkDork: Startup Tips: Getting to that first 10,000

OkDork: Startup Tips: How I grew a waiting list of 20,000+ at Mint.com

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The Unchartered Waters: Some Advices on Entrepreneurship 

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It means you stop planning and planning and actually go and do something.

i think most of us can relate to this: it’s fun to sit down and dream up of business models and business strategies and how are you going to makret your stuff to the world, but the most important thing is you need to have a product or service offering first – and the hard part is investing the time and energy to get it there.

this is partly the reason why i call this blog “READING about STARTING.” It’s kind of an oxymoron, isn’t it? We can plan a lot, we can read a lot on how to do things right, but in the end we need to get our butts off and actually do something.

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so for those who actually went and did something, or those who will do something soon, this blog will provide some readings to keep you better informed about starting up.

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Bizzia.com: When in Doubt, Just Start
this advice is also very applicable to budding entrepreneurs, in a sense. Of course, if you’re a startup, it’s important for you to do some due diligence and homework to make sure you don’t do something stupid; but the point is, don’t be paralysed by analysis. Just start first and things will work out as they go along.

Seth’s Blog: I need more Time   

On Startups: Startup Conversations With Myself: What Should I Work On?

Sg Entrepreneurs: Why and how do you write an Executive Summary?

The Innovative Marketer: 10 Great Marketing Podcasts you Should Not Miss

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This is from a freelancer website, but i think the advice on the site will be very useful for one man operations

FreelanceSwitch: How to Craft Your Personal Business Model

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and finally…
well… i figured this is (or should be) important
a boring entrepreneur is… after all… pretty boring, right?

HELLO, my name is BLOG!: 30 Ways to Become the Most Interesting Person You Know

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Project:Senso forum: How to index your website in google within 2 days

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a few posts from the same author:

Wild Illusions: 5 reasons why you should start a blog before doing a startup

Wild Illusions: 10 Random Mobile Start-up Ideas 

Wild Illusions: Why I used Twitter for market research on startups

Wild Illusions: 4 issues with Singapore Startups

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SgEntrepreneurs: Does Your Business Pass the PIS$ Test?

The Art of Non-Conformity: 279 DAYS TO OVERNIGHT SUCCESS

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something’s wrong with the font colours… damnit

this might be a bit dated, but his post about how we utilise slack time is very relevant. we’re still in an economic recession, most of my friends still hadn’t gotten a job. do we stay at home and read comics everyday, or do we actually do something useful?

Seth’s Blog: Slack

Also from Seth’s Blog: This is Broken

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speaking of trying to find jobs, you should really try to use the new social networking tool LinkedIn. i’m still experimenting with it myself, but so far it looks like a good place to at least post an online resume and establish… a professional image of yourself online (in contrast to the probably more casual image of yourself on facebook)

Guy Kawasaki (the person in the video in the previous post) posted an article on his blog about how to use LinkedIn. In these rather troubled times I’m guessing everything helps.

How to Change the World: Ten Ways to Use LinkedIn

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another article which might be a bit dated but i find useful is this one on how websites make money. most of us – especially those without a lot of capital – would have considered starting a business via a website. here’s a list of how to generate some income off it

DailyBlogTips: 28 Ways to Make Money with Your Website

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other useful posts:

Entrepreneur.com: Top 10 Reasons to Start a Business in a Recession

OnStartups.com: Why Startups should ALWAYS Compromise when Hiring

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these are very practical tips startups can use right away:

OnStartups.com: Startup Marketing: Tactical Tips From The Trenches

Small Business Marketing Guide: Branding 101: How to Name Your Company or Product

Small Business Marketing Guide: Branding 101: How to Write a Positioning Statement

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i got this idea from singaporedaily.net, a site which gathers a lot well thought-out blog posts and articles about politics and life in general about my home country and posts them in a spot on a daily basis.

this blog will be similar in a sense; i’ll find articles and blog posts on entrepreneurship on a regular basis – but they won’t be ‘the latest headlines’ – if i find an interesting article that’s dated a few years back, i’ll still post it. i foresee sometimes in the future i might have repeat postings, if i do this regularly enough.

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just to post a video to kick start things: Guy Kawasaki’s
Art of the Start 

think it’ll be very appropriate
(refresh the page if the video doesn’t show up properly)

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