A friend of mine asked me an interesting question last week: what's the best business I had ever seen? The point was to make a list of answers about the "best businesses" and then gauge whether one could discover a common theme of how to find and address market opportunities.<p>By "best business", I don't just mean highly profitable, but also the elegance of addressing the market need, the scalability of the solution, the ease/capital-efficiency of launching and running it, the potential positive external effects it has.<p>We came up with a list that was as wide as Google, Kiva and Cash4Gold. What's your preferred "best business" and why?
I think Google probably has created more value for more people than any technology firm in the last decade.<p>I also really admire Wal-Mart. An example: I pay $50 to ship money between Japan and the US, which is fairly competitive for international wire transfers from first world financial institutions. Wal-Mart wanted to offer financial services to Mexican immigrants to let them ship money between the US and Mexico. They said "Screw it: this is going to cost $2.99. Until we find a way to lower the price." They impress me with their relentless, all-consuming, borglike quest for improved efficiency, which I think does wonderful things for poor people. I wish all businesses I deal with had Wal-Mart forever nipping at their heels. (For example, I wish they could bring that pricing pressure to bear on my behalf for financial services.) I know, I know, I'm supposed to feel class-based superiority to their customers and pretend that their $12 China-made shirts are grossly inferior to my $100 China-made shirts... but I've never been good with that sort of mental gymnastics.<p>Oh, and one from the home team: I love Toyota. I don't even care for cars -- I just love their much-vaunted management style. They got to "you can apply statistics to a business and roflstomp over your competitors with it" <i>decades</i> before us web folks showed up at the analytics party.
De Beers<p>Convincing people they need a carbon rock through a brilliant marketing campaign ("A Diamond is Forever" named best advertising slogan of 20th century by Advertising Age). This slogan convinces Americans and global consumers to change their courtship practices; that it is completely normal and expected to spend 2 months salary on a diamond engagement ring as a symbol of love.<p>Another ad urged consumers to hold on to family diamond Jewelry as heirlooms. This cutoff the aftermarket of diamonds and increased the market power of the firm.<p>De Beers then artificially keeps the prices very high. These carbon rocks aren't rare in the natural world. The company restricts supply through a cartel system. Less than 200 companies are allowed to buy from the firm.<p><a href="http://science.howstuffworks.com/diamond5.htm" rel="nofollow">http://science.howstuffworks.com/diamond5.htm</a>
Starbucks, which, though originally it was demonized for driving mom-and-pop coffeeshops out of business, seems to be the original impetus behind the 'coffeeshop renaissance' that a lot of American cities are going through.<p>EXPANDED: not only that, but the new coffeeshops in order to compete have to offer much better coffee than the pre-Starbucks generation. And of course, the product is addictive, so they are not going away any time soon.
What makes a business good?<p>To me, there are multiple inputs: profitability, efficiency, building value for customers, ethical behavior, innovative-ness, leadership, brand.<p>Companies like Swoopo / C4G are really profitable, but they score very low on everything else (except perhaps brand). They prey on people's stupidity, which can be really good for a smash and grab type operation (high profitability over a short time), but I don't see them being sustainable in the long run (could be wrong on this -- anyone know how long C4G has been around?)<p>Companies like Apple are 2nd tier to me -- their strength is in leadership and branding (they aren't bad in the other areas, but they aren't <i>really</i> that innovative except for form factor).<p>My all star list has companies like Amazon on it. Started as a bookstore, now is one of the leading providers of cloud services (in addition to everything being sold there). They put a huge investment early on in infrastructure, which was a really interesting tactic that looks to be paying off.
Enterprise Rent-A-Car. A buddy of mine did a case study on them during his graduate coursework and let me tell you; they got it right, at the right time, in the right places.<p>Here's a short article about the founder, Jack Taylor, and how he did it: <a href="http://magazine.wustl.edu/Summer03/mywashington.html" rel="nofollow">http://magazine.wustl.edu/Summer03/mywashington.html</a>
Interesting types of examples so far - not many are focused on "best" defined by investment merits, which was my first inclination. I tend to think of businesses as being great in those terms - requiring little incremental financial capital to support significant growth opportunities at high incremental margins, protected from competitive encroachment, etc. Others have already identified some of these from among the well known large businesses, so here are two less well known (or at least not as often thought of) in this vein: wireless towers and WoW (World of Warcraft - or I would have said so before this issue I just saw via google regarding losing Chinese users). The former are local monopolies protected by very strong NIMBY characteristics, have fixed costs that are not subject to significant inflation, and have attractive growth prospects as cell density continues to go up. The latter is just a phenomenal business, though how long it lasts is certainly open to debate...
netflix probably ranks pretty high in my book. completely outsourcing the shipping infrastructure to the usps and then adding on-demand viewing to one-up other traditional rental stores that finally caught up to them by shipping movies.
Coca-Cola:<p><a href="http://stableboyselections.com/2008/03/25/charlie-munger-turning-2-million-into-2-trillion/" rel="nofollow">http://stableboyselections.com/2008/03/25/charlie-munger-tur...</a><p>Warren Buffett <i>allegedly</i> described the tobacco business as the easiest in the world: "You make it for a nickel, and sell it for a dollar, to addicts with tremendous brand loyalty."<p>Lots of software companies turn out to be great businesses, because you can combine very low marginal costs with lots of ways to cheaply experiment.
Insurance.<p>You're sold relief from disaster priced solely on the probability of your likelihood of enduring said disaster.<p>This basic concept is the foundation of every insurance business in the world, and it's highly profitable and stable.<p>Traditional Banking.<p>Here's some money that we borrowed from other people. As long as we charge you more to service that debt than we pay others for entrusting their money to us, we're golden.
While the idea of buying commodities <i>might</i> fit your criteria (though I would disagree with that notion), Cash4Gold is not a great model: <a href="http://consumerist.com/5144296/10-confessions-of-a-cash4gold-employee" rel="nofollow">http://consumerist.com/5144296/10-confessions-of-a-cash4gold...</a><p>Ebay, despite its problems with scammers, is a good example: a store that sells almost everything, with no inventory costs.
Red Bull. An Austrian spots Krating Daeng in Asia, buys a license for all continents, designs a can, puts some carbonic acid in that “syrup”, positions Red Bull around extreme sports … and is now a billionaire (according to Forbes: No. 151 of the richest people). And his company doesn't even have a production facility.
I have a short list of businesses that I absolutely adore because of how they treat me as a customer: L.L. Bean, Costco, Apple, and Pat Metheny (yes, yes, a musician, but he really delivers the goods). For me, all these follow one rule: make great things (and treat your customers well).
Apple takes top slot for me.<p>Seems like the best businesses always do four things: 1) know what their market needs, 2) develop something novel that fulfills that need, 3) communicate to their market about their product or service, and 4) charge appropriately to make money.
Best business by far, High-End Finance, of course depends on which angle you look at it from.<p>But, when you get to a point where no-one really no-one can agree on what you are selling and if you are selling it at a good price or not. Well, you have got it made.
Harvard University<p>The business has managed to create one of the strongest global brands after more than 350 years in its market, and is expected to produce the best quality product among its competitors without charging the highest prices.
eBay - they take a cut to list, sell, and on payment (through paypal). It costs them almost nothing to host an auction. The community driven nature of the business means naturally leans toward a monopoly and makes it very difficult for new startups to compete.