Reading time – 2 minutes
TDLR – Financial empires are built around simple processing of raw materials to produce things like milk, screws, soap etc.
From a financial standpoint, a business is mainly judged by the margin after all the costs, and the tax regime your product is under, are factored in.
And that criteria introduces levels to what business really is.
There are first level businesses, they are usually really complex and they require some sort of licensing and for you to be an active agent in the business. They are laws offices, doctors, restaurants etc. You can make it to the top with these but they again require a lot of heavy lifting – hedge funds are the only exception I can think of right now.
Second level businesses include software applications, laundry mats, vending machines etc. It’s usually plug and play and there’s little to no maintenance/daily operation costs. It also is the beginning of hide-in-plain-sight/empire money.
Third level businesses are those who push products like coffee, milk, coke, water, vitamins etc. This is where the real money is, because the product is so basic and essential to life that a customer cannot or doesn’t deny him or herself their uses.
The nice part is that they also require little to no education but nobody wants to do it because they are not glamorous enough. Think about it when was the last time you heard someone say “Hello my name is Ahmet and I manufacture screws”.
And the margins are ridiculous too. Take coca-cola for example, a two-liter bottle costs about 2.5$ give or take, so about 1500 FCFA. If you watch those old CNBC reports, you’ll hear that it is estimated that it costs under 5 cents to make 20gallon (75.7 liters) of coca-cola. At 5 cents per 75.7l that’s 0.06¢/l when the two-liter bottle costs 2.5$. Yes you have to factor in bottles, transport, conservation etc. but there’s plenty of room for the healthiest margins. Same thing applies to vitamins, I used to take Melatonin in college, it costs 7 Canadian $; how much does it really cost them to extract the product and grind it into a tablet. Think of juices, you harvest a couple of fruits and just step on them. What about fertilizer and cow manure?
That’s how you build brands like Nestle or Unilever. Anyway, we’ll come back to that next week with private labels!