Businesses That Last

We’ve seen the headlines - businesses are liquidating at record pace. And they love to give their reasons why, but none of them are true.

Here’s why they actually fail.

First of all, I give you money; you give me something in return. That's how capitalism works, and the free market works, right.

When that value exchange is roughly balanced, businesses produce, and consumers consume.

What's unspoken about this exchange is the balancing of accounts.

Consumers rarely part with their money when the value exchange is equal. They want a deal. And that deal differs a lot depending on the product.

For an apple, a 50% discount might be a good deal. For healthcare, we’re sometimes willing to pay fair value. But for most products and services, we expect a significant discount.

We pay $80 a month for access to unlimited high-speed Internet. And complain about it. Yet, can you imagine life without it?

Even for our gym, an old-school brick-and-mortar business, the Internet is critical to our infrastructure. Held to ransom, we'd pay $1,000 per month and probably much more for it if we had to.

Luckily for us, due to competition and sometimes rules and regulations, we don't have to pay replacement costs; we're privy to market rates.

This difference between replacement cost and market rates is a framework you can use to assess a business's ability to defend its market position - its moat.

Businesses with large moats are hard to replace; their replacement cost far exceeds market prices. They have pricing power and, to some extent, are free from market prices.

Those without moats are forced to suffer the whims of markets and fight for ever increasingly small margins.

If you want to assess your moat, ask your customers, "How disappointed would you be if you could no longer use us?" it's a common question used to signal product market fit. But it's even stronger at telling you how replaceable you are.

Businesses that last are the hardest to replace.

Deciding Where To Live

In 2019, Silicon Valley's GDP per capita (basically how much one person is worth) was $128,308.

That number for New Zealanders in 2019 was $42,796.

Where you live makes a huge difference in your earning potential.

That being said, I choose to live in Dunedin.

Our businesses are online, and the criteria for choosing where I live are as follows:

1. Access to the things that I love and how quickly I can get to those things (Think beach, forest or other recreational activities)

2. Access to the things that make me functional (Think gym, swim & food)

3. Access to my favourite people (How long will it take you to get to them and for them to get to you)

4. What social factors surround you (Are you keeping up with the Jones or comparing yourself to your neighbour)

I may overlook opportunities like attending a fancy networking event in the Arts District in LA or a wananga in Tāmaki.

The cost of living in those places though are:

• Increased rent

• The cost of living is higher

• My time in non-productive settings skyrockets - e.g. being stuck in traffic

Fundamentally, being the happiest version of yourself will likely produce better returns than trying to fit into a place that drives you crazy but “fits” because it’s where the rich are.

If you are a founder, focus on making yourself happy, and work will be easier.

Also, here is a wee clip explaining why I chose Dunedin as my home to support this piece.

P.S. I’d love to know where our readers live - shoot me back a reply about why you’ve chosen the spot you are in.

We can compare notes.