Choose Wisely! 6 Very Difficult Businesses to AVOID

This is the video where I discuss the worst business sectors in which you should invest money, start, or grow. I’m sharing this from a position of experience. We're standing in my warehouse right now. I run businesses myself, employ people, and I’ve made some mistakes as well as some significant wins.

And I want to sort of wrap that up into a video here on YouTube so that you know what you should avoid with a ten-foot barge pole. Here's the funny thing about this video: I’m actually going to talk about some of the sectors I’m already trading in and what I’ve done to tweak them so that they're actually better businesses. When you can get a good model, then you can scale that model up, knowing that you can rinse and repeat it—just like the McDonald's model. They know it works, and they keep going back to it.

We want to find the right models so that we're setting ourselves up for profitable businesses. Restaurants are one of the worst sectors that I've come across, although there are some unicorns. I actually feel like I own one of those unicorns, which I will explain at the end. What do I mean by unicorns? Yes, there are a few that actually do make money.

But as a rule of thumb, I think it's a really terrible business sector. There's also a little fact here: if banks are willing to lend to restaurants and hospitality businesses, and they're not, it means they don't like them because the failure rate is absolutely huge. You've got low revenue per employee. Now, if you've got sectors that have high revenue per employee, it usually means they're a lot more profitable. Let me give you a quick example.

You've got a million pounds or a million dollars in revenue, and you only have two staff members. You have half a million pounds worth of revenue per employee. There's a good chance you're going to be super profitable. This is not the case with restaurants. A restaurant could have a turnover of a million pounds and have 30, 40, or even 50 staff members.

Why so many staff, you might say? We can have a lot of people just working part-time hours. Friday, Saturday, and Sunday, everything's going like gangbusters, but it could be like the Mary Celeste Monday to Thursday. That's something that you don't really want in a business. We want nice, boring, predictable cash flow.

I don't like the high capital expenditure (capex) costs. For instance, if you're going to set up a restaurant, it's going to cost you a million pounds to get everything started. You have to pay that off over a period of time through depreciation. If your restaurant makes between five and ten percent net profit, you'll need to use part of your profit to repay the loans or the capital that was invested to establish the restaurant.

You pay that off over five or ten years. Everything's great now. We've paid all of our capital costs off. But, hey, loads of competition are opening within the sector. There are so many restaurants, and they are going to steal some of your market share, even if you are better than them.

And that means you've got fickle customers. It's a sector where the customers are so fickle that they want to try what's new in town. This makes it really hard to build loyalty, unlike other sectors like accounting. You know, as long as your accountant is doing a really good job, they're with you for the whole of your lifetime. One final challenge in this sector is the high rates of turnover taxes.

You've got business rates, VAT, insurance premium tax, and all the other cocktail of turnover taxes, which means that the government is taking more of your turnover than you are actually keeping as profit. But I did tell you that I have a restaurant. I actually own a big ice cream parlor. Why does that ice cream parlor make money? And why does it do better than most in the sector?

Well, it's big enough. So, if you really want to open a restaurant, make sure you have the capacity. Without sufficient capacity, you can't leverage management, overhead, your catering team, or your marketing.

You need to make sure that you preferably own the thing that you operate, especially since high rents are a constant concern and they keep rising. Try to find legacy businesses; it's better to buy one that has been around for 50 to 100 years, as everyone knows it. That's what I did—I bought a 100-year-old ice cream parlor that is big enough for the overheads to be really low, with very little competition because we are the legacy brand in town. This gives us that unicorn status, where most businesses are just getting by; we are not only getting by but also making profits, paying down our loans, and refurbishing the place. Here are my little tips: if you are going to be in sectors like dog walking, cupcake making, or party planning, remember that these are very low barrier to entry sectors. When starting a business, you want to be in sectors with as high a barrier to entry as possible because it protects you against competition.

Now, those three sectors that I spoke about literally get yourself a lead, and you're in business. This means that you’re vulnerable. People think, "Come on, they’re making some money over there just walking a dog; I’ll do the same." This perspective makes customers reluctant to pay much because so many people can do it.

You're effectively swapping time for money. Any business sector that exchanges time for money and cannot be structured to be a commercially profitable enterprise that operates independently of you should be avoided at all costs. Yes, it may seem attractive because you need no money to start it, but it is not appealing because no one wants to buy something when you sell it. Essentially, you are just creating a profitable job for yourself, and no one wants to buy a profitable job. If you want to create a profitable job, the smart thing to do is simply to get a job and avoid the risks of self-employment.

The big top piece of advice is to maintain a high barrier to entry. Adopt that mindset and eliminate all the low barrier to entry ideas. Boutique clothing shops often attract many people with the enticing notion of opening a small shop. However, what you'll likely get are mediocre results, which I want to avoid for you. I don’t want you to invest your effort, time, and energy into something that won’t yield significant results. Retail is really difficult.

The big boys really struggle with it, and you might think your little shop idea is going to work well, but look at the facts. High streets are dying, and if you want to be a truly successful retail shop, you've got to ensure you're in an area with massively high foot traffic. You need to keep your overheads low because you're going to face challenges. You'll be holding a lot of inventory, but you probably lack experience in determining what inventory to stock.

And so, therefore, you’re going to sit on a lot of stock and cash. I know this because I hold £1.6 million worth of cash for one of my other businesses, and holding stock can really cause cash flow problems. One way you could make boutique retail work—though I still don't particularly like it—is by ensuring you're in a niche. Remember, there are riches in niches. This could mean specializing in clothes for larger people or tall people, as those individuals will go out of their way to find you. However, you need to make sure that you’re known, and you should have a substantial off-street marketing campaign to attract customers. Think of your retail shop as a showroom rather than just a place to conduct business.

We're seeing cars moving into shopping centers right now and using that passing trade to show people the cars, but they're not actually buying the car on the day and driving it off from the shopping center. The retail that’s going to work now is experience- and showroom-based, where you don't actually need the shop to drive the revenue. It's a really difficult business to be in, and I would avoid doing boutique retail at all costs. I speak from experience—I used to own three party shops. The rent, the rates, the staff, and the fickleness of the turnover made it challenging.

It was one of the most stressful times of my life that I would avoid at all costs. I'll tell you how difficult it is to make money in this business. The worst I've come across is hotels. The funny part is, I actually own the hotel that we're in right now.

And I only bought it a few months ago, knowing that they are very difficult to make money from. Why? Well, they’re hugely capital-intensive. You know, you need millions of pounds to set one of them up. Then, once you’ve set them up, you have customers that come and go, so you don’t have a regularity of customers.

Well, you might have some contractors that come regularly, but it's not like a day nursery, a school, or an accountancy practice where the customers are very, very regular. Additionally, you need a lot of staff, and usually, they are hospitality and leisure staff who are low-skilled. Then you've got to train them up to make them highly skilled, but they are in a fickle marketplace. They could be working, or they could be at university. The recruitment process is becoming increasingly difficult as fewer people want to work in these industries. There is huge capital expenditure involved, and it's very challenging to staff.

Now we've got a situation where we have third-party booking agents, like Airbnb and Booking.com, that actually own the data of your customers. It is really important that if you want to enter the hotel industry, you need to have very deep pockets. This creates a high barrier to entry, which, in my opinion, is a significant aspect of business. Additionally, you have a hugely depreciating asset; you renovate these rooms, and then in three years’ time, they tend to deteriorate because people don’t really take care of them – they come in and out.

You have to redo them all the time, so there's a constant need for more capital to remain very competitive in a highly competitive marketplace. There are lots of hotels, but why do I like them? Well, for inheritance tax reasons here in the UK, you can pass the hotel on to your family inheritance tax-free.

They are a trading business with commercial property intertwined with it, which is very tax-efficient in the UK. I also like the idea of being able to create multiple revenue streams. When you have an asset like this, you need to maximize its potential. Yes, we have a very active pub, bar, and function area, as well as a restaurant. We also offer meeting rooms and hold wakes, in addition to hosting my own seminars here. So, why have I bought this hotel?

It's because I've tweaked the model to ensure that we maximize its potential. Therefore, we turn it into a commercially profitable Wednesday price. Most hotels don't implement these strategies, which is why they struggle and just manage to get by. We don't want you to just get by; we want you to be super successful.

Selling on e-stores that you don't own, such as Amazon, eBay, Not On The High Street, and Etsy, has its pros and cons. While these platforms have established brands that consumers trust, which can quickly elevate your revenues, there are significant downsides as well. The main issue I have is that they own the customer, not you. They control the email addresses and customer relationships, which is one of the biggest red flags in business. I believe two key factors contribute to a business’s value: an effective, profitable team that operates the business—creating a commercially viable enterprise that functions independently—and a robust customer database, which holds immense value. I've even purchased companies based solely on their customer databases—the loyal customers who trust and love a brand are assets I want to invest in.

But if you're selling on Amazon, eBay, Etsy, or Not on the High Street, they own all of that. If they decide to shadow ban you or remove your products from their website because they can buy it themselves and sell it cheaper—and yes, they do that—then that's the end of your business. So it's actually better to take a slower, more deliberate approach and build your own customer base using content marketing and your own e-web store. That's why I bought Party Pieces; it's a brand that's about 35 years old. Everyone knows it, and people come to our website directly. We get their email addresses, we own the customers, and we have the database. Additionally, we are building a significant wholesale business, which is why I have this massive warehouse. Literally every day, we're shipping out £10,000 to £20,000 worth of wholesale orders, giving us the volume to make smaller, more frequent orders as well. I am on Amazon, and I am on eBay.

The problem is I feel like I'm just professionally moving money around for them. You know, we've employed someone full-time to do all of our listings. Amazon keeps most of the money, but I am on there because I like the awareness. If you are going to be on these e-marketplaces that are not your own, make sure you're building your own brand. Otherwise, it can be literally the worst of the worst.

If you're not building your own brand, make sure you're establishing your own identity. Otherwise, you could end up in a very unfavorable situation. If you're not creating your own brand by selling on various other websites, it's a recipe for disaster. So, avoid that at all costs. Focus on building your own brand, selling on your own website, and developing a wholesale business.

That's the way to smash the internet. Another awful business to get yourself involved in is the events business. And they're really ego-driven enterprises. I mean, many of the types of businesses that I'm discussing today, particularly in hospitality and leisure, are like, "Oh, we own a coffee shop," or "Oh, we own a restaurant," or "Oh, we own a hotel." Well, look, this one here is yet another one of those, "Oh, I run my own events."

But really, you want to be thinking about this from a business point of view, from a profit and loss perspective. I'll tell you why events are so tough to make money. You need to get a lot of people to buy from you just once, and that's not good business sense. What's much better for business is to make a little bit of money from a lot of people, a lot of the time.

What you've got with the events business is money once; that's it, it's over. You're not building a database. You might come back in a year's time, but you have loads of competition. You don't own the site that the event operates out of, and you've got to hire equipment and buy things to use just once. Now, here's the oxymoron to this little description that I'm talking about: we are standing in a location that we own. This is Marsh Farm Animal Adventure Park, and in many ways, it's an events business.

But what are we doing differently? What have we done to improve the business model for profitability? Well, we own the site. We sell an event to someone, and then we create another event on the site that we own. We own the database, and we have events happening all the time on a site that we own.

So when we invest cash into capital expenditure, we're able to reuse that capital. We own the marquee, the big top behind me. We don't rent this; we buy it once and get to use it for years and years. We also have the car park and take care of all the infrastructure there, and we own that as well. We're not renting and paying a lot of money for things we never own. Additionally, there are significant tax advantages to owning assets rather than renting them.

They're some of the worst businesses that I've come across. Hope you like this video. Do me a massive favor—if you do like it, hit the like button, subscribe, and let me know in the comments below what videos you would like us to make next. See you real soon!