Or pay $10/month.
Or pay $12.50/month
Business cycles. That is, business does cycle.
A lunch counter experiences three cycles a day - breakfast, lunch and supper. Snowblowers have an annual cycle. The product cycle on pet rocks was months. Ketchup was king was over a century before salsa came along to be the most popular condiment. And then there's the biggie - the economy, which cycles between boom and bust with an uncertain time period.
When times are good for a particular product, most of the producers seek to offer a "good value" proposition. It's better quality than the cheapest, less expensive than the best. That looks like it should be the "sweet spot", what people should want to buy, and what you should want to sell. It's not.
If you're resistant to that notion, you're not alone. I try to follow The Law of Wine. I look for the cheapest brand in the category I'm buying, add 20-25% to the price, and that's the price of the wine I buy. I figure I can't taste much difference between a $12 wine and a $1200 wine, but there's going to be a difference between the cheapest wine, and one a little better, that anyone can taste.
But I've been paying attention to the "best or cheapest" law for nearly two decades. It seems to work without exception. In a downturn, the people who can afford the best can still afford the best. Those who can't, will tend to buy the cheapest stuff they can find.
That doesn't mean you can't find customers - and good profits - in the middle. In good times, there's plenty to go around for everyone. It's just that when push comes to shove, you're the one that will be pushed off the cliff, the one that will be shoved under the wheels of the bus. People have to do what they can afford to do.
A bigger fool may come along, just when you need to exit a "middle" business. You can tell him that you're just tired of the XYZ business, you need a vacation, and when your vacation is over, you want to try this other business instead. If he asks about the impending down cycle, you can truthfully tell him that, hey, all business is cyclical.
And tell him business is like sex. When it's good, it's great. When it's bad, it's not bad. Don't tell him that he's going to lose his keister. Be on the lookout for a downturn, and sell out at the first sign, before prices drop. And whatever you do, don't take back a note. Insist on cashing out. Tell him that you can't relax on a vacation if you're worrying about whether you're going to get paid. Tell him that there are no guarantees in business, and business isn't like having a treasury note, where you can just clip coupons; you have to make it work.
Or if you're not up to saddling someone with a bad investment, eliminate the need: aim to become the best or the cheapest.
It's hard to be best. It's not always clear what is the best. In computer operating systems, there are three major options - Windows, Apple, and Linux.
It'd be easy to argue that Apple is best. With annual upgrades costing $129, it's certainly the most expensive. On the other hand, it doesn't run Active-X controls. South Korea users opt for Windows 99% of the time because they need Active-X to access banking sites, government sites, e-commerce sites.
It'd also be easy to argue that Linux is cheapest; it's free. But if you already know how to do most things in Windows, switching to Linux may involve taking a course at a community college - expensive in time, even if the course were free. And your friends can help you with most Windows problems; they don't know Linux. For many people, Windows is cheaper than Linux.
I would argue as a server owner, that Linux is better than Windows, because it is more secure, and because I need fewer servers to handle the same number of websites. What's more, it's a lot easier to find websites scripts that run on Linux servers than it would be if I converted to Windows. If both operating systems were free, I'd choose Linux for my servers.
If Linux is best what's Apple? Well, maybe there are two bests - one for desktop, and one for servers. Or maybe Apple's not best. The company has skated close to bankruptcy several times, and now they're even dropping the "Computer" part of their name. It seems that they're neither cheapest nor best.
So which is it to be? Should you be cheapest, or should you be best? Neither one is easy.
One in every six millionaires in the US is a millionaire. I think this is partly a consequence of what I call Ben Franklin Law. This law wasn't named for the founding father, but for the dime store.
When I was in high school, I worked at the local Ben Franklin store, getting $1.25 an hour. One of my friends, John, worked at the bowling alley, earning 65c an hour. Another one, Steve, was a carryout boy at the local supermarket, earning $2.00 an hour. It's easy to see why. Bowling is fun. Everybody wanted to work there. Carryout boys have to lug heavy groceries, and in the winter, they had to keep going out into the snow and ice.
Except that's not how it really worked. John wasn't bowling when he worked. He was stuck in the back, working on greasy equipment, in really noisy surroundings. Steve, meanwhile, usually pushed out the groceries in a cart, instead of carrying them, often in pretty nice weather. He spent most of his time bagging and flirting with every girl who came through the checkout line with - or without - her mother.
You don't get paid for what you do, according to Ben Franklin's Law. You get paid for what it's perceived that you put up with.
And it works in other places as well. A tax preparer and a travel agent do the same work. They interview people, and fill out forms according to complex rules. If anything, the travel agent's job is harder, because the rules change from day to day, while tax rules only change once a year.
Paying taxes is unpleasant, so the tax preparer's job is considered undesirable. Going on vacation is nice, so travel agency seems like a fun work. For doing the same work, a well-established one-man tax preparation firm will make more before May 1 than a well-established one-man travel agency will earn through the entire year.
Ironing clothes is hot work and "perc" is smelly. Nobody wants to do laundry, yet everybody wants to look nice. What's more, many people need to wear dry-clean-only clothes in order to work. With a lot of demand and minimal competition, that makes dry cleaning a fairly good business to be in.
It costs quite a bit to start up a dry cleaning business. You can start a lunchroom in an urban location for less than $20,000, but it costs about $200,000 to start a stand-alone dry cleaning store. That's a big enough "nut" to scare off many people from entering the business.
What's interesting, though, is the ability to expand. Once you have a central plant, you can open a satellite store. The satellite store doesn't require much - a counter, a cash register, some racks to hold clean clothes, and some bins for incoming dirty clothes. You also need a truck to haul the dirty clothes to your central plant, and to haul the clean clothes back. That satellite store can doubles your volume, with virtually no additional investment.
You realize, of course, that it's not quite this simple. People fail in the dry cleaning business, the same as in any other business. It takes hard work and a smart manager to succeed in any business.
But part of being a smart manager is choosing the right business in the first place. The dry cleaner zigs when everyone else zags. A restaurant involves hot work as well, and you have the odor of hot grease instead of the odor of "perc", but while a restauranteur competes with every housewife with a frying pan, a dry-cleaner is behind an investment wall that limits his competition.
You can stack the deck in your favor - or you can set yourself up for a fall. You need to be best, or cheapest in your product category - and if you choose a business that discourages competition, you'll be that much better off. Choose your business well.
