I Second the Motion for UnSexy
Rafer's Rule #1: "˜Un-sexy' is good business. This is a riff on a market
principle Rafer picked up from a couple of his ancestors back east: one
who ran Rafer's Kosher Meats; and his grandfather, who ran Rafer's Army
Navy Surplus (both were in business in the 1950s, long before Rafer was
born.) The idea here is that there is potential in furnishing a
(seemingly) boring business that plenty of people need, but which few
people want to do - a.k.a. stuff that ain't sexy. Which also means
you're likely to have a reliable market for your business, and might
not have so much competition - good!
I absolutely agree. I have been in sexy and I have been in boring, and from a long-term profit perspective, boring is better. Here is the way I put it to friends: "Avoid any business where there are substantial non-monetary reasons why people might want to start a business there." For example, the bankruptcy roles are littered with brew-pubs. Guys have a male fantasy of owning their own bar and brewery, and, shazam, there are way too many of them. Many parts of aerospace are the same way, filled with guys who love aviation more than making money.
From reading the press, it would seem that what the world is short of is "bold new visions." But in fact bold new visions are a dime a dozen. I had to try to sell a number of them when I was in the Internet world. I would argue that what is in fact in desperately short supply is managers and companies who can focus, day after day, ruthlessly on operational excellence. I worked for years for a company called Emerson Electric in St. Louis, a conglomerate that owned the world's greatest collection of boring businesses. In their prime, under CEO Chuck Knight, they were unbelievable at blocking and tackling in boring businesses.
This point about boring and sexy is so important that when I was at Harvard Business School, the first two classes in the first year competition and strategy course hammered these points home. Class one was the story of Rockwell Water Meters. Class two was the story of some go-go semiconductor business (maybe Fairchild?) These two cases epitomized "cool" and "uncool", but in the end it turned out the semiconductor firm never made a return on capital, while the water meter business had stratospheric returns.
The common response I get to this is, "but what about all of those Internet millionaires?" With a few exceptions (Amazon, eBay), most of the folks who made millions in the Internet did not make them from operating profits. They made them with timing, selling out inflated stock to the public or to a bigger sucker (e.g. Yahoo) before the whole Ponzi scheme crashed. Does anyone really think that Maria Cantwell created real value in the marketplace?
Thomas:
Considering the brewing industry is growing at 10% a year right now I would disagree that there is any sort of glut in that industry, but I'll agree your larger point.
If you look back to the brewing industry in the mid-90s at that point the situation fit the model you provide with more people getting into the industry who didn't have right approach and the bankruptcy served them right. The market wasn't quite ready for that many of breweries then, now people's taste are becoming more used to diversity in beer. But the customer base does have a long way to go I'll admit.
October 21, 2007, 10:35 amAndrew:
Sounds like Berkshire Hathaway
$110 billion of Dairy Queen, Coke, insurance, and other boring things.
October 22, 2007, 9:02 amJohn Dewey:
William Danko and Thomas Stanley make that very point in The Millionaire Next Door. Millionaires in the U.S., who in 1996 represented the top 3% or 4% of wealth holders, were likely to be owners of such dull enterprises as dry cleaners, rice farms, paving contractors, exterminators, or mobile home parks. Not only do such businesses generate high revenues, but they also tend to attract the non-flashy but frugal owner/managers.
October 22, 2007, 9:36 amScott Wiggins:
Concur with your assessment of sexy vs non-sexy. My own story...I flew for a living as a military pilot. I wanted to have a career in the airlines after flying jets in the Military. It turned out that me and about 20000 other guys wanted to fly for the airlines in the late 1990s. At peak hiring then the major airlines were hiring about 5000 pilots a year. They picked from a pool of about 20000 qualified applicants with thousands more new pilots coming into the market each year. The competition for interviews was so stiff that guys were stepping all over each other to get letters of recommendation, paying for interview coaching, taking a Captain out to dinner, calling old friends that had made it for advice. There was an entire industry that catered to airline hiring with books, seminars, resume services. It was absolutely ridiculous. Unfortunately, most of the lucky pilots hired in this era were furloughed following the industry down-turn after 9-11. Pilots turned out to be a dime a dozen. Now for the non-sexy, I started buying rental property in the early 1990s. Most guys I flew with laughed loudly about my owning rental property. I can't tell you how many time I was told that I was a slumlord or that "yeah, I would buy rental property but I don't want to be called in the middle of the night to fix a broken toilet". Well, my wife and I stuck with it. We made several million over the years and the best part is that I did not have to get another job after flying in the military. I manage my Real Estate portfolio, fly my own plane, drive a new Range Rover, live in a waterfront condo. You get the picture...In summary, I have lived both the sexy and the non-sexy career/business/investment vehicle. Non-sexy is the sleeper in American investments...Much of this was covered in the book, "The Millionaire Next Door".
October 22, 2007, 3:08 pmPhil:
Warren, I can't believe you did not mention the best example of the unsexy business that is almost a guaranteed 6-7 digit salary: funeral home operation. There is always a steady stream of clientele, and people will pay outrageous prices, probably because few people want to think about death.
October 23, 2007, 9:04 amBob R:
Does anyone really think that Maria Cantwell ever created real value
in the marketplaceanywhere?There, fixed it for you :-).
Living in Washington state, I'm thinking the answer is "no" to both the before and after question. And, yes, I realize it was a rhetorical question -- I just can't help myself.
November 1, 2007, 11:19 pmScott Rafer:
This slipped past my ego feed a few months ago but thank you. Ben Graham investing a la Hathaway indeed.
My current unsexy biz is beginning to show itself.
January 31, 2008, 10:28 pmhttp://www.techcrunch.com/2008/01/31/how-much-is-a-facebook-ad-worth-lookery-guarantees-drum-roll-125-cent-cpms/
Sweetiepie:
Very entertaining piece and thanks for writing this.
June 2, 2008, 10:10 pm