What a great business model

This New Yorker article went around today - basically they computed the profit of a variety of businesses in New York: from pizza place, to private school, to a soup kitchen and more.

Now, obviously, Goldman Sachs has a huge profit ($9.34 billion), Nina’s Argentinian Pizzeria - not so much: $18,000 profit.

But here’s the one that blew me away - this business model has all the characteristics of one that you would want:

• high positive cash flow
• ability to have smaller units and lower purchase prices, so that customers of all spending power can buy from you
• motivated customers - low marketing costs
• barrier to entry due to limited suppliers
• non-subscription based - payment up front
• low labor costs

Sound good? Check it out:

‘Nick’ - A Drug Dealer - The Profit Calculator — New York Magazine
Annual Revenue: $1.02 million ($813,600 is profit) with fifteen-hour workweeks and no taxes.

Best Way to Make Money: Sell to many users in small quantities. “It’s like taking a pound of coffee and selling one grain at a time,” says Nick. “If you sell by scoops, you’ll make a couple thousand dollars, but if you break it down into quarter grams and work for a few days, you’ll make tens of thousands.” Most top dealers don’t actually do this, and lazily sell in bulk, as Nick did.

Wow… a 79% profit margin! That’s better than Goldman! And, you only need to work 15 hours a week.

Of course, there are some risks to this:

Profit Catastrophes: Prison. “One day you open your door and there are five cops, and they take you to prison for two and a half years, where you spend all your money on lawyers and make 10 cents an hour in the prison shop, like I did. It’s almost inevitable, which is the downside of the business.” Dealers avoid police by using only a small, trusted group of associates, which eliminates selling to undercover cops. Nick went to jail when an associate ratted on him.

However, observe that even these risks are known, well understood, and actively mitigated  - so they’re not even Black Swan level.

So there you go - now you know more than you probably wanted to know about being a meth dealer.