The Key to Success is to Be in the Right Business

the key to success is being in good businessesIn my last article I mentioned 9 Success Theories.

But I sneakily left out what I believe is the single most important factor.

In this follow-up article, I will deal with this 10th theory.

“There’s no substitute for being in good businesses, and there are not many of them.”  ~Tom Murphy

I concur.

Out of the people I know or have met, who have achieved an out-sized success at a young age (25-35), all of them picked the right business. Some on their first shot.

Nothing is more important to success than being in the right business. Nothing.

Not talent. Not good looks. Not charisma. Not high energy levels. Not good grades. Not even being born in a rich family, etc…  

There is no substitute for being in the right business.

Working in the right business. Starting your own company in the right industry. Investing in the right industry.

It’s the most unfair advantage you can get.

I read a Tweet the other day, that went something like this: “You only need to be right once to be smart and rich in Silicon Valley……”

True or not true, in most lines of work you can be right lots of times and it still won’t make you rich.

Finding a good business

Thomas Murphy was the CEO of Capital Cities, a broadcast company that grew its earnings per share by 19,9% annually for 29 years. That means if you had invested $1000 at the beginning, you would have had nearly $200,000 at the end. Murphy is also a billionaire and considered by some (like Warren Buffett) to be the best business manager in the United States.

In a biographical text, Tom Murphy said the following:

Pick a business that really has a future. If you wanted to be in the railroad business during the last twenty-five years, it’s been pretty tough. The railroad business in 1950 was sensational. Today, the cable business is a pretty good business. It’s probably better than the broadcast industry, although the broadcasting business has been pretty good in the past several decades too.

And, he added:

There are not many great businesses that come along in a lifetime.

Murphy explained why broadcasting turned out to be such a gold mine:

In 1954, television was just starting. People were losing a lot of money in the business, but it was about to explode. Because of the limited availability of licenses, there was limited competition, and so it exploded over the next thirty or forty years. I was very fortunate to be in broadcasting. The business is not capital intensive, nor is it labor intensive. There was a little government involvement but never any price controls. In the last forty or fifty years, broadcasting has been one of the great businesses of this nation. It’s less so now because of synchronous satellite, cable competition, and things like that, but it’s still a very good business.

And he goes into more detail:

Eventually, it became clear to both of us that broadcasting was quite a business. We were smart enough to figure that out and I don’t think everyone else did. This was a business that began to explode, and as we grew, the margins grew. The costs are somewhat fixed so as you had greater and greater sales, the margins would just continue to grow. Other people would look at the business as it was at the time and say, “Well, gee, there’s a 25 percent margin. That’s sensational.” The fact was, it could have been a 50 percent margin and Frank and I were able to see that. So just by being sensible about our business, we continued to grow the company and buy businesses from other people who didn’t see the potential profitability that we saw.

Examples of being in a good business or industry

In terms of career, a good industry is one where there’s a lot of unexpected growth, and you can focus on being creative/innovative, rather than territorial and conservative.

A good business is typically a simple business. Perhaps because the products sell themselves without much hassle. Or they customers don’t compare prices, stay loyal, and are easy to please. Or because the demand for the good is so strong that supply never seems to keep up (people want it so bad that it doesn’t matter if the quality is average or poor), like the first decade of Nike, where sales doubled each year. 1

If you’re employed at a good company in a growing industry, you’re likely to be promoted more often. Because it’s growing and changing and therefore you can grow with it, and your responsibilities change.

The difference between being in a good vs an average business is tremendous over a 5 year period. Two peers may start out equal, and the one that enters a good business will be miles ahead after 5 years simply due to this one choice.

Characteristics of a good business

Here are some salient points:

  • High sales growth. Sales should keep growing into the foreseeable future, perhaps as a natural byproduct of organic growth to the total accessible market. Or other factors (refer to Nike example).
  • High operating margins (large profits). Low production costs in relation to sales price, like a digital product, software, or a branded physical product sold in large volume.
  • Cash-flow positive. Recurring revenue or easily-predictable revenue, such as a subscription service or up-front contract payment, preferably something that’s essential to customers.
  • Requires few employees. Like a heavily-niched website, Ecommerce store, SaaS business, or popular app.

And, most important, the business has a future. 

There are always opportunities and profitable trends, but they are generally short-lived. They don’t have a future. 

Market gaps tend to get filled faster these days, due to Internet, social media, and improved dissemination of information.

This also applies to Internet business trends. Finding such a niche may be very lucrative, but it’s generally short-lived, as the barriers to entry increase. When you hear about it from strangers, it’s typically too late.

The best businesses are not just durable, they are also part of an industry that grows

Read that again. It’s the difference between rich and mega-rich. The difference between a well-off entrepreneur and someone like Warren Buffett.

Speaking broadly, there are lots of rich people (say: +$1M in investable capital). This is the typical successful entrepreneur who has either a decent and stable business over several years, or a very lucrative business that lasts a short period of time, or a small and fast-growing business that becomes acquired for a high multiple by some bigger corporation.

But there are not a lot of mega-rich people (say: +$50M in investable capital). There are basically only three types of mega-rich people: IT-entrepreneurs, those born into an elite family, and old or middle-aged businessmen who got into a good business when they were young and compounded their returns over decades. Though all three are rare for sure, the last category is by far the most common. Probably 100x more common, relative the two others. But it’s not an interesting story, extreme stealth wealth, so it doesn’t get covered, gossiped about, or discussed much in popular culture.

To simplify, there are two standard types of businesses that have a future:

(1) The sort that’s at least average, in a growing industry. Growth is here defined as: higher sales, more users (expanding market), higher margins, or even in some cases – higher customer retention or more capital invested into the industry). These businesses will compound their returns at a rate above the market index. By simple math you can see how this can make you rich if you are prescient enough to find one, and patient enough not to sell it.

(2) The sort that’s heavily niched and not easily replaced, in any kind of industry that doesn’t die. In this case, the industry doesn’t need to grow, it just has to avoid being replaced by superior technology or rendered obsolete by some other substitute good (including indirect substitutes). Most newspapers and media companies have been slaughtered by online and social media distribution in the last 10-20 years, but their better-niched equivalents (newsletters, business publications, and scientific publishing are still going strong. Case in point: Elsevier had an operating profit margin of 38% (!) in 2018)

The Rogue Card

There are also businesses that are profitable, growing, but are part of a dying industry. This is a very dangerous “Value Trap” because you might get seduced into working in that industry, or investing into such a business while it appears to be peaking, but it’s really the beginning of the end.

There are many famous examples of this phenomenon from software, hardware and IT–where companies with a particular business model or popular product were showing enormous promise until suddenly a new and better technology, or a new industry standard, completely swept them off the map. A great book about this is Andy Grove’s Only the Paranoid Survive.

Again, if you had gotten personally involved (whether as an entrepreneur, investor or employee) in those businesses while they were seemingly showing the most promise and potential, you would have incurred a large loss of time, energy and capital.


The single most important factor contributing to financial success is being in the right business.

It’s a simple, but extremely powerful idea.

Yet, it’s an elusive insight to act on. Because the world is changing fast. And because great businesses and sectors are rare.

If it were easy, everyone would already be doing it.

So if you find a fast-growing industry, or a particularly good business, you should realize that these insights don’t come along so easily. Like Jeff Bezos’ realization as a financial analyst working at D.E Shaw, that the user-base of the Internet in the early days was growing at 3000% per year. Or John Malone’s realization, as a consultant at McKinsey, that the dynamics of the cable industry was superior to anything he’d seen. This prompted both men to change their jobs, move to new cities, and bet it all on being early in these super industries.

I leave you with this quote from Tom Murphy:

Other than picking a good industry, I don’t have any particular advice for anybody who is thinking of starting a company except to get in front of a business. Find something that you can improve on in an area, and always have enough cash to weather the good and bad times.

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Can you think of any particularly good industries today? 

Ones that have a future?

Recommended reading:

Tom Murphy Biographical Text – The text I quoted above.

The Outsiders by William Thorndike – A book about 8 spectacularly good businesses, their CEOs and founders, and the business climate at that particular period. My three favorites are John Malone (TCI), Henry Singleton (Teledyne), and Tom Murphy (Cap Cities).

The Star Principle by Richard Koch – A highly actionable book about finding, investing, or working for a “Star Business” (a business that is the leader in its niche, inside an industry that’s growing with at least 20% per year, for 10 years straight; preferably faster and longer).


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  1. why did sales double each year? First, great product (high quality running shoe for a lower cost than Adidas). Second, because of great direct sales. Third, running went mainstream; reaching the early majority. Fourth, brand endorsements of famous athletes.


  1. Concerning the original topic of this post: it’s necessary to distinguish between a field being a good investment, a good career, or good for a start-up. E.g. biotech is probably a great career, if you have the aptitude, but a risky investment. One breakthrough invention could erase multiple companies overnight, but their employees will soon have jobs again.

    Lobotomizing people will certainly continue to be a huge field, as Manticore said, but Pod People don’t pay for their lobotomies directly. The money is on the back end, finding ways to monetize their personal information and attention. One opportunity will be (already is?) selling control of Pod People.

    I agree with Manticore that there will be (and are) opportunities driven by creativity and self improvement – not /being/ creative, but assisting others to be, or at least feel, creative or improved. But there’s a flip side that may be larger.

    For some time, there has been a growing movement /against/ personal standards, social responsibility, and value. Early manifestations like Dada, Beat, and the Hippies were sporadic and fringe, but the worthlessness movement has been gathering momentum and cohesion. In the last decade or so, it has ballooned, largely under the euphemism “Diversity”, and it is still accelerating. Catering to monstrously obese people is now a huge industry. Fat, unkempt actors appear in advertisements. Social media is infested with trolls pretending not to know what sex they are and searching for any opportunity to be offended. The amount of people with freakish tattoos has skyrocketed. Nitwits and sociopaths compete to come up with the most absurd “identity”.

    The biggest market may be helping “people” construct “identities” as bizarre and worthless as possible, and helping sociopaths believe that worthlessness is a virtue and that merely being “different” (or just fat and lazy) makes them better than normal people. Think people won’t explicitly adopt worthlessness as a value? Ever heard of “tune in, turn on, drop out”?

    There may also be a market in helping normal people (with a little chutzpah) access the privileges of “diversity” without causing damage or undue stress. Maybe face-painting tribal markings and “identifying” as a Zulu warrior? The whiter you are, the better – an albino Zulu warrior is even more diverse!

  2. Hi Ludvig,

    This is a fascinating topic you bring up.

    As you say, I also think it’s elusive. One reason for this might be that there’s an inherent dilemma. Namely this: If a person gets it right on their first try, who is to say whether it was luck or skill? Especially in the case that the person, like Murphy, just needs to stick to that one industry.

    This Introduces a form of survivorship bias. Similar to the example you gave about Silicon Valley.

    I suppose you could say someone like Richard Branson, who has experience with many industries and has successfully disrupted several, knows how to do this and has a knack for it. But has he said how?

  3. Talking about future trends: I think that green healthy Tea will beat Coffee. Tea will be a key ingredient for setting up a base trying to live longer and with less illnesses. Coffee might pretty spon be a proven cancer trigger due to the problems witt Acrylamid showing up in black coffee when you have roasted the beans.

    • This is an example of why, in another reply, I described business/investment as gambling.

      How the hell is anyone going to predict how this really turns out? It seems unlikely that the world will suddenly give up coffee, but it’s not impossible. Is coffee dangerous? Will research prove that coffee is dangerous? Will people believe the research? Will they drink coffee anyway? If they stop, will they switch to tea? Will tea turn out to be even more dangerous? Will governments intervene?

      How in the hell would you assign meaningful numeric values to any of these things?

  4. Manticore says

    Whilst what you’ve written is pertinent, there are many examples where it’s not.

    Your allusion to Nike, for example, could be correlated to GymShark in the UK.

    GymShark was started in some guy’s garage and used social media influencers as a means to get their product out to a new audience (new strategy in 2012).

    Their business has now ballooned to £300m+ in yearly rev – were they in the “right market”? What about their product? They started out as a dropshipper & silk screen tshirt company. Neither of these are innovative.

    I suppose you could argue that their “industry” was social media promotion. In that regard, your point may be pertinent. But that’s not an industry, it’s a promotional channel. One they do not own.

    *** Can you think of any particularly good industries today?
    Ones that have a future? ***

    I believe that the future of industry is the people within them.

    The big issue we’ve got today, and maybe Abgrund could share his thoughts on it, is the “how” has outpaced the “why”.

    Industries are a product of demand. Demand comes from people willing to purchase the commodity the industry has grown to disseminate.

    If you want to look at the “future” of an industry, you need to identify what commodity it is there to share/expound, and whether that commodity a) has a future (quill/ink-well), or b) can be warped to accommodate future tastes or shifts in demand (CD’s/Spotify).

    What we’ve witnessed, particularly recently, has been a shift in the delivery mechanism (Internet). You’ll note commodities themselves have not changed; the difference lies the way in how they are accessed.

    Thus, when considering “future” industries, it’s my opinion that you need to boil it down to basics:

    – People need to live, and so household commodities will always exist.

    – People want to be entertained, and so new ways of lobotomizing them will come around. Maybe the Internet will be the last frontier in this regard, but (as mentioned), the underlying commodity will not change.

    – People need an outlet to create. This, to me, is where the future lies – the means for someone to exert themselves professionally (to feel as if they have accomplished something) has no limit, as different people have different talents, growth levels & risk tolerance.

    It’s my opinion that the latter is where most growth lies. The idea of people becoming an “industry” unto themselves is quickly being represented by the “digital” economy, and will likely be the underlying reason “why” many will purchase products/tools/services in the future.

    It’s actually demonstrated perfectly by yourself. You had a spate of playing video games, which is a common issue in the Western world. You lifted yourself out of that, and replaced it with personal development.

    Personal development encompasses everything, and has no limit on how far you’re able to grow. However, it’s not “necessary” that you should be doing it.

    Writing this blog is not necessary. The Future Skills program is not necessary. Your “work” does nothing to solve pertinent problems (world hunger etc)… so why don’t you just get a McDonalds night job and play video games all day?

    The answer is you. You want to grow, to feel accomplished, like you made a difference. This is why people travel to Dubai rather than St Ives. They want to experience the richness of life, and now have more means than ever to do it.

    Perhaps creating more of that richness is what will determine the best place to put yourself in the future? Again, would love to hear Abgrund’s thoughts (and yours!).

    Sorry for text wall.

    • Hello Manticore,

      In the case of Nike, the product was both new/good, and it coincided with the big trend of Running going mainstream. Which expanded the market tremendously going forward. I don’t know enough about Gym Shark to comment, but based on what I’ve heard, you’re probably right that they got big via social media and influencer endorsements, not because they had a superior product. It could also be the case that gym bros on Instagram who were “working out as a lifestyle” grew the market (similar to running for Nike).

      Interesting thoughts about future industries, but keep in mind, that just because there’s a big demand for something (whether a necessity or entertainment) doesn’t mean it’s a good business. Take the example of Tom Murphy with broadcasting, and compare it to the airline industry. Everyone needs to fly, but most airlines haven’t been profitable.

      • Manticore says

        Thanks for the reply, Ludvig!

        I think you’re right about GymShark. I guess my point was that if Nike was part of the reason why “running” grew, and GymShark partly helped the “workout as a lifestyle” thing – does that not go against the mantra of “finding” the right industry? I don’t understand how either a) were “found” + b) are industries at all?

        Industry, to me, is the creation of some underlying technology which revolutionizes the use/application of a commodity. The means of creating said technology is what gives the business value, and the means to sell it becomes its competitive advantage.

        If we take (what would become) Intel, as an example, the real reason why they were able to build a business at all was because of the Planar process, developed in Fairchild in the 50’s. This process enabled the creation of the first silicon transistors en mass, allowing for the integrated circuit to become feasible.

        The “industry” birthed from this would give us the digital revolution we enjoy today. How would you “find” this industry? After the Planar process (which I presume was patented), no other company would be able to compete with the first mover?

        Yes, I appreciate what you’re saying about profitability etc. My point was that, when you boil it down, most industries are there to facilitate the whims of people. Perhaps, rather than looking at the “mechanics” of the industry, observing the patterns of the people within it would be more appropriate?

        I’m really just trying to get to the core of your message. Observing “finding the right industry” as being critical for success, and translating it into actionable advice, are two different things!

    • The nature of demand and of value is something humanity has ignored so far (and will continue to do so until it is far too late). There isn’t room here for a treatise on the whole mess, but consider:

      1. The scarcity, necessity, and therefore value, of human labor is the underpinning of every society and economic system. We have reached a stage where (most) human labor is increasingly irrelevant to the satisfaction of human needs – yet the amount available continues to grow rapidly.

      2. Human needs are increasingly arbitrary, artificial, unclear, and unstable. You write about the satisfaction of the top of Maslow’s pyramid as a business opportunity, and I agree, but how many people can that employ? It’s nothing new, by the way — self-improvement was a growth industry in the Twenties.

      3. Technology has painted us into a corner where the most desirable work is poorly compensated because it is too hard to get paid for. Computer software is painfully stagnant because (among other reasons) there’s little incentive to put effort into it.

      4. The whole /Weltanschauung/ of the West is built on a model of voluntary association, impersonal exchange, and unlimited natural resources that is historically recent but already incapable of dealing with facts 1-3. E.g. we expect entrepreneurs to step forward to meet human needs by organizing and rewarding human work, but we longer understand what those needs are, our reward mechanisms only apply to finite and tangible goods, and we haven’t a clue what to do with the growing masses that no one has any use for.

      • Manticore says

        100% – “too many people with not enough to do”.

        Do you have any musings on a general solution? I think a personal solution is to focus on yourself.

      • For a personal solution, that’s about as good as you’re going to get. Humanity as a whole has consistently proven itself unable to adapt to change in less than about a century, and sometimes takes much longer to even recognize a problem.

        The only solution to our fundamental issues will come in the form of a virus.

  5. “If it were easy, everyone would already be doing it.” And there you have it. By the time an opportunity becomes discoverable to people with ordinary resources, it’s too late. Those who get in early have insider resources or capital, or they’re just gambling.

    Current business fads include marijuana, space, solar energy, and robotics. All these things were also fads in the Seventies; investors and early movers got burned bad (except by pot, obviously). Now that marijuana is being legalized, some people may get rich – but it’s too late now. The only winners in that business will be those that risked their money when legality seemed unlikely. The value of legality is now already priced into the market (and then some).

    Robotics was “the future” half a century ago. It died out IMO because
    Asian slave labor obviated any value of robotics in manufacturing. Solar energy and space exploration died out due to basic physical facts that haven’t really changed.

    Sure, some people get rich from fads – a few lucky ones that get out early, maybe big players that can buy favors and subsidies from the U.S. Congress. For the little player to do well, he has to get in on something really early – before its potential is evident. He has to gamble.

    • Abgrund, I wouldn’t underestimate the usefulness of gambling, as long as it’s an informed bet. If you deduce there is a significantly larger upside, then it is intelligent to make such a bet, as long as you can afford it .

      The challenge then becomes how to deduce where and how to find those big upsides.

      I would think this requires a dedication of energy and research, regular checkups to invalidate previous conclusions, and ofc the cash ready once you find something big.

      Would you agree?

      • Sort of. “Deduce” is not really the right word; there’s never enough information to really gauge the odds or payoff. And effort spent trying to refine a guess, while wise up to a point, is still resources used – and a delay – without any certainty that the research will make things more clear.

        Business/investing isn’t a casino where you get to be the House. It’s more like betting on sports against guys who cheat. Knowing about sports, and knowing who cheats and how, will help you but you still have no idea what the real odds are in any particular game. You have to have good intuition, some luck, and enough resources to survive some losses.

        Syding’s “The Retarded Hedge Fund Manager” paints a picture that I think applies to entrepreneurs, not just speculators. Not that I know.

    • Manticore says


    • Are you sure Marijuana is a fad?

      Interesting take on Robotics vs Asian labor.

      Btw, I found this comic of yours funny:

      Speaking of which, is there any difference between Bayesian and Ergodic? I see lots of people throwing around the latter word lately, but they seem to be the same thing to me.

      • Thanks Ludvig. Marijuana, /per se/, is by no means a fad. What’s a fad is the notion of Getting Rich Quick by inhaling pot stocks or starting a weed business. The formula is supposed to be “buy low and sell high” not “buy high and get high”.

        Bayesian and Ergodic are not even in the same taxonomy, although some people seem to be abusing the latter term – I had to look it up, actually. Bayesianism is a methodology that provided improved information about what probabilities “really” were in the past – the better to predict what they will be in the future.

        “Ergodic” basically describes a system that is homogeneous in time and space. “Probably” the most common error in statistics is to project past probabilities into the future without justification (implicitly assuming ergodicity). Some people seem to be calling this “Ergodic” statistics, but it’s not a method, it’s just an error.

        In the comic, both the Frequentist and the Bayesian make that same error – i.e., assuming that “Kansas” is an unchanging system. That’s a bit much even for Kansas.

      • I see.

        The way I see both terms used (and my own understanding of it) is the notion that you should update your reality based on each observation, or on a case-by-case basis, rather than cling to an old assumption that describes the outcome.

        E.g, if it’s supposed to rain every third day, but then it rains 20 days in a row, it might be time to check your assumptions.

        Anyway, the main reason I brought it up is because I’m seeing lots of people use these terms interchangeably.

      • Lies, damned lies, and statistics! Nothing is abused quite so relentlessly as statistics and statistical terms, and there is hardly any subject about which the general public is so ignorant.

        ALL statistical methods take new data into account – anything less would be as bad as politics or public school. All statistical applications make assumptions. All are subject to error and abuse.

  6. Jason Collister says

    Hi Ludvig!
    I found this topic to be a difficult one because in your 20s the meaning of success is changing so very often. Depending on environment, your peers, your family and friends etc.,…

    Especially nowadays success-schemes (get-rich-quick) are easily exploited by con-man and shady people who want to make a quick buck by cheating people for their money. An expensive lesson for those willing to learn from it…

    “The difference between being in a good vs an average business is tremendous over a 5 year period. Two peers may start out equal, and the one that enters a good business will be miles ahead after 5 years simply due to this one choice.”

    I can only applaud you for that one. A university colleague of mine started working for a company in finance management a year and a half ago. Conservative business but growing market because the company stays under the radar and doesn’t get recognized by the big players in the finance industry. (A tremendous advantage!) He’s been there for 1,5 years and in the next 3 months he will get his own team and his first leadership position. He’s not even in his mid-twenties but this one choice elevated his career.

    Success is like a unicorn. Not everyone is able to see one, let alone catch one. You also need to be at the right place at the right time.

    Only very gifted people would be successful in whatever they would be doing or pursuing. (Napoleon, Horatio Nelson, Frederick the Great).

    If you took Cristiano Ronaldo and made a tennis player out of him he wouldn’t even be mediocre. Well exept for selling his own products maybe (good looks again).

    Thank you for the post! It was very interesting to read.

  7. Great article. Here’s some areas I think have a future:

    Pet foods
    Branded consumer goods
    Social media
    Possibly mining

    And products that cater to upcoming homeostasis dwellers

    Perhaps too broad, but I can go into more details if someone’s interested

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