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What Do You Think of My Business Idea?

Idea threads

Nate

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Soliciting any and all input from you guys. I am interested in what is mostly known out their as the "Cash for Gold" business. Right off the bat I do want to ask if anyone knows anything I should know about this business?

Ok, I became interested in this recently while reading a book about it that a friend of mine wrote on the subject. He has dabbled in this area for about 30 years, longer than I've been alive! So needless to say he had some good info. However, he still only lightly dabbles in it so one question I need to ask him is why he isn't "fully invested" in the idea. I have a feeling however that the true answer is the comfort and security of working for the man, especially with a wife and kids which I don't have.

I think it satisfies the CENTS criteria:

Need: People are in need of money these days more than any time I remember and trading in gold/silver from past decades is a quick way to do it.

Entry: I make my current living from a few ecommerce sites, and I don't see this one being quite so easy. There are certain government regulations that I'm becoming aware of, and you need to start out with some capital in order to actually give people cash for their gold.

Control: This one is tricky based on the personal touch I want to offer as a unique selling point (USP), but I want to go strictly mail order where people send in their gold, so we are talking nationwide and not just my area. In fact, I don't want people walking in at all as that feels like a pawn shop and there is probably a level of risk despite the 1911 I usually keep strapped to my hip.

Scale: I envision having/using/renting a call center of sorts that can answer people's questions if it got to that volume. So I think it can go big, again, not just local.

Time: Also a little tricky. To start I envision myself being the one testing the gold then making the offer of what can be paid for it. Honestly, that takes like 5 minutes and a couple hundred (or much more) can be made on a piece of jewelry. So if I were spending 8 hours a day processing these types of orders, that would be crazy money... but in regards to this commandment, even this process can be taught to a good employee if need be.

I am big into having Unique Selling Points that set you apart from the competition. I feel that companies like Cash4Gold are impersonal, and quite frankly pay out peanuts. Not having the overhead that they have I could beat their prices, and prices of pawn shops/jewelry stores, and really emphasize that point. The whole, "one-man shop, so I keep my costs way down allowing me to give you TOP DOLLAR for your gold" sort of thing. I would want a very personable, easy to use website, be available for questions through email/phone (I know, not the eventual goal as I'm strapping myself down, but you can get someone to do that), and also, a big one is instead of simply sending out a check for peanuts that the person can choose to cash or not, making it hard to get their gold back if they decide not to do it, I would contact first with a quote, re-emphasizing in a personable, one-on-one kind of way that this price is much better than anywhere else. I hate to run a business based on "being the cheapest", but it still leaves PLENTY of room for profit margins as pawn shops/cash for gold places routinely give anywhere from 20% to AT VERY BEST 50% (if you're lucky) of the worth of your gold, and I was thinking about hitting 60%. My friends contacts in turn give 95-98% of the worth with no additional fees, if you bring in a little bit of volume (which is another barrier to entry and a reason why Joe Blow can't just take his jewelry to these places). You have to set up a business relationship with them and bring a little volume.

Ok, I've rambled. Let me just leave it there for now. I'd love to hear what you guys think.
 
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mayana

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I was thinking about this the other day, actually, because I've seen a few Cash for Gold places spring up locally (actual retail locations). I don't doubt that a ton of money can be made...

If you think through a simple SWOT analysis, the biggest threat for me is.... what happens when gold prices fall?

There are always places (I'm thinking of the mail order infomercial I saw once) that you can exchange money for gold, but when (this is a when, not if) the price of gold falls, you will be in a "commodity" business. Depending on the amount of overhead that you have established during this time, it could break you.

This being said, if you are looking to capitalize on the price of gold being currently high and then want to get out of the market when the price falls, that is a different story.

Good luck on making your decision.
 

CPisHere

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What you are thinking of doing is the exact same things thousands of other people are already doing. There's online cash for gold companies, direct marketing (tv, mailings, etc), and retail locations.

As long as the economy sucks and the price of gold is high you will make money, but you can't control those things - thus violating the commandment of control. Because as soon as one of those factors changes, the number of people interested in selling gold will drop tremendously and there will be nothing but a sea of undifferentiated competitors fighting for a very small market.
 

Nate

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Thanks guys. As far as prices falling, I have thought about that one. I feel like if it goes down to $1200, $1000, even $800, there will still be a market. It was at $300 when my friend got into, during his hayday. I doubt we see that last price, but even if we did, it wouldn't take long to analyze and see if there was still a market, and if not simply close up shop. The way I want to do it, it wouldn't be hard to do that.

As far as this business working only during a bad economy, I'm not sure. Again, my friend was doing this in the 80's, then 90's mostly. So different economies. If it is a better business during bad economies then I feel pretty confident as I don't see things getting better during this decade, personally. With the debt, artificially low interest rates that still can't get lending and home-buying to really move, etc. etc., I worry about what it will take to get back on track.

I do appreciate any other comments as well.
 
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CommonCents

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easiest low cost way to get into the business? Gold buying home parties. Utilize social networks and have people get their friends/family/coworkers together and you or a representative can show up, analyze the gold pay cash on the spot and give the party organizer a comission. No retail store, no call center etc....Once that gets going you can look at scaling into mail order.
 

Nate

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That's a great idea CommonCents; it was a big part of the book my friend wrote. He did mention in some states you will have to finger print people. Oh well.
 

CommonCents

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The price of gold is actually irrelevant. It's the margin between what you can buy it and sell it is what matters. Whether spot price is 300 or 1600 an oz.
 
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CPisHere

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The price of gold is actually irrelevant. It's the margin between what you can buy it and sell it is what matters. Whether spot price is 300 or 1600 an oz.
The price of gold plays a large role in the size of his market. If gold is cheap, very few people are interested in selling their gold for cash. Plus, even if margins are the same - you'd much rather make 20% margin on $1,500 gold than on $500.
 

CPisHere

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Thanks guys. As far as prices falling, I have thought about that one. I feel like if it goes down to $1200, $1000, even $800, there will still be a market. It was at $300 when my friend got into, during his hayday. I doubt we see that last price, but even if we did, it wouldn't take long to analyze and see if there was still a market, and if not simply close up shop. The way I want to do it, it wouldn't be hard to do that.

As far as this business working only during a bad economy, I'm not sure. Again, my friend was doing this in the 80's, then 90's mostly. So different economies. If it is a better business during bad economies then I feel pretty confident as I don't see things getting better during this decade, personally. With the debt, artificially low interest rates that still can't get lending and home-buying to really move, etc. etc., I worry about what it will take to get back on track.

I do appreciate any other comments as well.
It was a different market back then. There are 10x as many competitors now. The number of competitors may not be an issue right NOW, but if gold drops in price and/or the economy recovers the market for people selling gold jewelry will drop tremendously. Then you will have a whole bunch of businesses competing for a very small market - and all at commodity prices. Very few, if any, will be profitable when (not if) that happens.

Maybe it will take 8 more years and you can make a decent profit in that time and get out. But maybe it will only take 1 year, and you lose money. Either way, I don't think it's likely that you have a fastlane business that you can sell or keep as a cash cow a decade from now.
 

Jonleehacker

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Make sure you have an experienced trader on your team, someone that knows how to hedge properly.

Otherwise if you have a large inventory or physical gold and there is a big price shock, which happens all too often with gold, you could be wiped out if you don't have some puts in your back pocket.
 
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Nate

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Thanks guys, those are all very good points.

@CommonCents, I disagree. I think the price of gold is extremely relevant. To use an extreme example, a 20% profit margin when gold is at $1500 per ounce is much, much more than if gold went crashing down to $300 per ounce.
 

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