Sirwin
Sirwin

A simple way to invest into micro businesses


In this post we consider a simple way to invest into micro or mini businesses.

There are many definitions of a micro business. The Small Business Administration (SBA) defines a micro business as a small business with less than 10 employees. The state of Vermont defines a micro business as a business that employs less than five people and generate less than $25,000 in annual revenues. These definitions are convenient to governments for taxation purposes, but not convenient to investors and entrepreneurs. In this post we use the following definitions: a micro business is a small business run by a single person with set up costs less than $5,000. A mini business is a small business run by not more than two persons with set up costs not more than $20,000.

The two most popular types of investments in businesses are:

-buying shares of businesses;

-direct investments (loans), without buying shares of businesses.

Unfortunately, these methods of investments, usually, are not possible with micro businesses.

For investors, micro and mini businesses are two classes of projects with low risks (high degree of diversification in multiple micro/mini businesses), high profitability and very high ROIs, which increase with time without increasing levels of risks.

A simple indirect way to invest into a micro/mini business is via this business income sharing program (ISP). First of all, an investor needs to register in the ISP. Secondly, the investor needs to pay (initial investment) to some experts, influencers, marketing companies, etc. for finding customers who become participants of the ISP (direct and indirect referrals for the investor). As the investor’s network of direct and indirect referrals grows, so the investor’s income from the ISP grows as well. The investor’s ROI will be equal to (income from the ISP/initial investment -1)*100%.

Let us consider an example.

Suppose, that an investor wants to invest $2,029 into a micro business having an ISP described in [1].

The investor buys one year license for $29 to choose the payment scheme with 4 levels. Then, the investor pays $2,000 to a marketing company to find influencers who refer new customers as participants in the ISP. Suppose that each participant referred 10 new customers, who become ISP participants, etc. The numbers of participants on each level and income from the ISP are shown in the table below.

 

t1

 

At the end of the year the investor has 11,110 referrals, which generate income of $32,219.

The ROI for the first year is equal to (32,219/2,029 -1)*100%=1,487.92%.

For the reason that the main motivation of ISP participants is to have regular income, they will continue participation in the ISP as long as income exceeds expenses or they believe that an expected future income will exceed the expenses. Therefore, our calculations will be based on the assumption that all participants stay in the ISP. We consider a conservative case when the number of participants is fixed in the following years. In real life this number is growing until a saturation level. Based on our conservative assumptions, the ROIs will be the following.

The ROI for the first two years is equal to (2*32,219/2,058 -1)*100%=3,031.09%.

The ROI for the first tree years is equal to (3*32,219/2,087 -1)*100%=4,531.38%.

The ROI for the first four years is equal to 5,990.54%.

The ROI for the first five years is equal to 7,410.25%.

The ROI for the first six years is equal to 8,792.08%.

The ROI for the first seven years is equal to 10,137.53%.

The ROI for the first eight years is equal to 11,448.02%.

The ROI for the first nine years is equal to 12,724.90%.

The ROI for the first ten years is equal to 13,969.43%.

As we can see, the ROI is growing with time, but the level of risks is not growing. In other words, this type of investment allows the ROI to increase with time, without taking new additional risks by the investors. This is the first big advantage of investments into micro businesses via ISPs.

The second big advantage of investing into micro businesses via ISPs is that there is an option for investors to increase ROIs by means of additional investments on a fixed time interval. Some call this method as active type of investments or controlled investments. Here is an example.

Suppose, that the investor makes an offer to the direct referrals to pay $10 for additional referrals and these 10 participants refer each 5, and in total 50 new participants, which refer each 10 new participants, etc. The numbers of participants and incomes are shown in the table below.

 

t2

 

At the end of the year the investor has 16,660 referrals, which generate income of $48,314.

The ROI for the first year is equal to (48,314/(2,029+500) -1)*100%=1,810.39%.

The ROI for the two years is equal to (2*48,314/2,558 -1)*100%=3,677.48%.

The ROI for the three years is equal to (3*48,314/2,587 -1)*100%=5,502.7%.

The ROI for the first four years is equal to 7,287.46%.

The ROI for the first five years is equal to 9,033.08%.

The ROI for the first six years is equal to 10,740.83%.

The ROI for the first seven years is equal to 12,411.94%.

The ROI for the first eight years is equal to 14,047.58%.

The ROI for the first nine years is equal to 15,648.85%.

The ROI for the first ten years is equal to 17,216.84%.

As we can see, for additional investments of $500 the investor increased the first year ROI from 1,487.92% to 1,810.39%, the two years ROI from 3,031.09% to 3,677.48%, the three years ROI from 4,663.77% to 5,502.7% …. the ten years ROI from 13,969.43% to 17,216.84%.

If investors want to increase ROI even more then they can use do it yourself (DIY) approach. Instead of paying $2000 to a marketing company, they need to find direct referrals and cover their first year costs.

ROIs in this case will be the following.

The ROI for the first year is equal to (32,219/(290+29) -1)*100%=10,000%.

The ROI for the first two years is equal to (2*32,219/(290+58) -1)*100%=18,416.67%.

The ROI for the first tree years is equal to 25,538.46%.

The ROI for the first four years is equal to 31,642.85%.

The ROI for the first five years is equal to 36,933.33%.

The ROI for the first six years is equal to 41,562.5%.

The ROI for the first seven years is equal to 45,647.05%.

The ROI for the first eight years is equal to 49,277.77%.

The ROI for the first nine years is equal to 52,526.31%.

The ROI for the first ten years is equal to 55,450%.

The table below shows how ROIs depend on the rate of references (rr). In the first column are rates of references (how many referrals each participant has). In the second column (nr) there are total numbers of referrals (on 4 levels). In the third column (roi1) there are ROIs (in %) for the first year. In the fourth column (roi2) there are ROIs for the second year. In the fifth column (roi3) there are ROIs for the third year. In the sixth column (roi4) there are ROIs for the fourth year. In the seventh column (roi5) there are ROIs for the fifth year.

 

t3a

t3b

 

If we compare investments in small businesses via stocks and via ISPs, we see that investments in stocks have higher risks and lower ROIs.

t4

It is expected that in the coming global recession about 5 million experienced people will be laid off. Most of them will start micro or mini businesses to monetize their skills, experience and knowledge. This create a lot of opportunities for small investors to build highly diversified, low risk portfolios of investments in these micro/mini businesses with high ROIs.

Today we have political, economical and moral crisis all over the world. Such situation is similar to the situation in the 14-th century when economic crisis in Europe was so bad that the churches were selling indulgences (acceptance of money in exchange for relief from committed sins). Independent craftsmen and thinkers of Italy, armed with new ideas, started then the European Renaissance, which lasted from the 14-th till the 17-th century. The history is cyclical in nature. Micro/mini businesses armed with new technologies and ideas will start a new Great Renaissance of 21 century and everyone will have a chance to participate in this movement.

 

In the next post we consider a simple betting strategy in soccer.

 

P.S. All investments have risks. Do not invest in anything if you can not afford to lose your investments.

 

 

Reference

 

[1] A simple way to get stable regular yearly income from income sharing programs.

 

https://www.publish0x.com/simple-solutions-to-complex-problems/a-simple-way-to-get-stable-regular-passive-income-from-incom-xwygpgr

 

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I_g_o_r
I_g_o_r

I am curious about science, technologies and their applications to solving real problems.


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