Levels of Business

Codie Sanchez proposes a framework for categorizing businesses based on their potential for growth, profitability, and valuation. This "Levels of Business" concept helps entrepreneurs assess opportunities and set realistic goals.

Key Factors in the Framework

• Multiples: The valuation multiple a business could potentially achieve
• Margins: The profit margins the business can generate
• Growth Potential: How quickly and easily the business can scale to larger revenue targets

Level One Businesses

• Achieve profitability within 1-30 days
• Generally lower multiples and slower growth
• Examples:
  • Consulting services for niche markets (e.g., adoption consulting)
  • Service-based businesses with immediate cash flow

Higher Level Businesses

• Take longer to achieve profitability
• Potential for higher multiples and faster growth
• May require more capital and time investment

Considerations for Categorizing Businesses

• Ease of execution
• Time to profitability
• Capital requirements
• Scalability
• Market size and potential

Application of the Framework

• Helps entrepreneurs choose businesses aligned with their goals and resources
• Allows for comparison between different business models and opportunities
• Guides decision-making on which ventures to pursue based on desired outcomes

Examples Mentioned

• Laundromats: Potentially a level one business with quick profitability but limited growth
• Tech startups: Higher level businesses with longer paths to profitability but greater growth potential

This framework emphasizes the importance of understanding the trade-offs between immediate profitability and long-term growth potential when evaluating business opportunities.