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At around 22:00 on the My First Million podcast Sam and Shaan discuss the pros and cons of starting and running a soloprenuer business versus a venture capital backed startup.
With the solopreneur business you work on something your passionate about, don’t have to worry about managing employees, work part time, and still potentially earn up to 6-7 figures per year based on your expertise and niche. This business type is low risk, but lower returns than a successful venture backed startup.
The venture capital backed startup has a potential for a huge blow out if it goes public or gets acquired. We’re taking $10M+. However, this business takes all your free time (which could be detrimental to family life), you have to manage employees (huge emotional swings), and you risk earning only a moderate salary without the huge blow out at the end. This business is higher risk, but higher returns.
Sam described his process for goal setting:
If you have a goal of attaining something, you must think about what you are going to sacrifice to attain that goal.
So which is best, venture-backed or solopreneurship? I think the answer is completely dependent on the type of person you are and what you value. Some are going to lean towards high-stress, “go hard” venture backed and others want low-stress, but still living a comfortable life.
Sam also makes the argument there is a middle-ground that toes the line between these two company models.
I would consider my sensor technology business a middle-ground between these two. My father started the company as a modest ‘re-sell’ company back in 1984. He made steady income by basically acting as a distributor for a sensor manufacturer. But because it was his own business he had tremendous tax benefits, chose his own hours, and did not have to manage many employees when the company was small.
After learning all about the product, industry, and what the market really wanted he eventually developed his own sensor and officially move from a distributor to a manufacturer.
I worked for him every summer as a child all the way through college. When I graduated college I moved to South America but eventually decided it wasn’t fun to be broke so I moved backed to Texas and joined up with him at his company. Knowing he was on the path to retirement, I took over the company several years later. After ten years I grew the company from 6 figures to 8 figures and got acquired shortly after.
I was making a significant salary along the way but was also fortunate enough to get a pay-out at the end.
This middle-ground between solopreneurship vs venture backed startup is by far the most common. I think service based businesses fit this bill perfectly. For example, you could start one of the ‘micro-franchise’ businesses talked about on the podcast episode or start a pest control or lawn care business or even a carpet cleaner rental business (see below). You then spend years growing the business and then look to exit by selling to one of the huge service based corporations when you are ready to retire. This gives you a steady income stream and a significant pay-out at the end.
Not every startup needs to be venture backed and can still be successful and fulfilling.
At 1:55 the guys start off the episode by describing opportunity for various “micro franchise” businesses. The best may be rentals. An example is Card My Yard. This service company puts a message in someones yard like “Happy Birthday, Jack” made out of huge colorful letters that stick in the ground.
Another micro franchise idea that came up (by Shaan) is a drone light show business that replaces fireworks:
Sam discussed the idea of starting a business that would rent out holograms:
Sam discusses how the rental business can be good. An example is a carpet cleaning businesses. The cleaners can last around 10,000 hours and you could charge $50/ hour to rent the machine. Multiply that by dozens of machines and you suddenly raking in the cash flow.
Bouncy / Moon houses for kids parties as well. Could you form this into a micro franchise?
The guys discussed the opportunity to purchase actual delivery routes for delivery companies like FedEx and even from Amazon.
With Amazon Logistics, you can become an Amazon Prime delivery company by paying $10,000 to join. Amazon Logistics has 13,000 franchisees and employs 85,000 people.
A franchisee who operates a 25-40 van fleet will make $1.5M to $4M in revenue depending on the market size.
There is a company called Route Consultant that helps you acquire these routes.
You purchase an exclusive route from FedEx, UPS or any company that needs more routes, set up a delivery fleet, and manage the logistics.
An example that Shaan gave is a guy selling a company that owns five routes for $1.9M. The business makes $2.5M in revenue with operating income of $550,000/year.
If you bought it for 20% down with an SBA loan, you are cash positive roughly $250,000 (including debt payments). You can then pay back your down payment within two years. Thereafter is all cash flow.
Well, that’s it for today’s letter. IF YOU ENJOYED IT PLEASE SHARE!
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