The Secrets Below The Surface

In this book, I will describe the top 10 business models that I uncovered over my career in the financial world. They are not described in any textbook and the names I gave them are a mix of being descriptive and creative. They uncover the inner workings of companies in ways that management may not even realize. Arming you with this knowledge will help you distinguish between one company that is simply limping along with no long-term business plan, and another that is seemingly similar on the surface but is very different and very powerful underneath. You should seek out these powerful companies to work for and to invest in. They provide their employees with countless more opportunities for career growth, and they provide their investors with superior long-term returns. These are what I call companies with successful business models. Also will do talks to groups if you are interested.

My career helped me realize that the products and services sold by the good business model company are definitely secondary when it comes to predicting the company’s success. There are only a limited number of successful business models around the globe, but billions of products and companies. This means that investors can find exactly the same business model in totally different companies in totally different industries in totally different parts of the globe. That is when it becomes very interesting. Companies that execute winning business models can take market share, enjoy abnormal profits and become great investment choices regardless of geographic location or industry served.  They execute their business model first and their success is based on the execution of the business model. The product they sell could in many cases be substituted with another product in another industry in another geography, and the firm would still be successful.

For example, it will not be possible to hold down the share price in the stock market of a particular company if there is tremendous value creation happening below the surface.  And working for a company that creates tremendous value will help springboard you into a successful career a sit creates all kinds of opportunities and options for your future. Charles Darwin, the author of On the Origin of the Species, brilliantly dedicated his life to research in nature.  He theorized about how two seemingly similar species can have extremely different outcomes in the course of survival and evolution.  One sub-species could for example seek nourishment on the ground and never need to learn to derive sustenance from anywhere else. The other sub-species may have to spend their lives feeding on the highest branches of the surrounding shrubbery due to the lack of food available on the ground.  

After many generations, the second sub-species, species B, could even evolve with an ability to balance on two legs to reach as high as possible giving them other advantages such as eating from trees and predator spotting.  Two sub-species that started off seemingly similar generations ago could have completely different success rates in the ultimate goal of survival.

So too in the business world. Two companies that sell laundry detergent around the globe can experience very different success rates for their stakeholders. The success can exhibit itself in different opportunity sets for its employees, different returns for its shareholders, and different profit abilities of the businesses. As a note, my favorite measure of profitability as a professional investor is called return-on-capital-employed, which is essentially a measure of how profitable a business is becoming if you consider all the money that was ever invested and re-invested back into the business to make it the complex organization it is today. In the last chapters of this book, I go into a little more detail of the calculation of return-on-capital-employed.

It is the underlying business models of the companies found deep in the cores of their inner walls that matters. Just because two companies look similar on the surface and perhaps sell the same product, does not mean that their business models are at all similar.

And it’s the business models that will determine the amount of value created by the company in the coming years. This value will be the determinant of security price appreciation (stocks, bonds) and the number of quality opportunities (promotions, growth) that they can offer their employees over the next years.

The book is organized by chapters.

• Each business model is described in a separate chapter with examples and clues to help you find them operating in the world around you.  

• At the end of every business model chapter, you will find a HOT BOX which will act as a handy reference to help you identify them using practical cues.

This knowledge is no longer restricted to the privileged few at top management of a company. You should take this knowledge and consider 2 courses of action.

Firstly, decide to work for a company that has a winning strategy, a successful business model that has shown itself to create value time and time again over its history. If you do, you will be more likely in a position to contribute to their value-added processes through the work you do for them, and they will be able to provide you with more opportunities, growth, challenges, happiness, and all the ingredients for your successful career.

Successful business model companies offer their employees all kinds of opportunities versus those that simply exist or struggle along.  

Just ask all the people that became millionaires that started working at Walmart as cashiers and shelf-stockers. These Walmart workers participated in the abundance of opportunities provided to them as employees of a successful business model company. They also joined the company’s stock ownership plan and had their wealth grow as Walmart executed its value-added business model. Very smart! By the way, other companies have successfully executed the same business model of Walmart in other industries around the globe (the business model is called “Stealing from One-Offs”) and is only one of the business models highlighted in this book.

Secondly, don’t waste your hard-earned savings dollars by investingthem in the wrong place.  Make sure yourinvested dollars work for you every day, allowing you to concentrate on otherimportant things in life.  Try to havethese dollars grow for you so one day you can use these dollars to fulfill yourlife goals. My suggestion is to invest your money in the form of public stocksor bonds, in companies with winning business models. Let the management ofthese companies take everyday decisions to create value and help grow yourhard-earned dollars.  You willundoubtedly come across some of these businesses in your working life. Lookaround you, research a bit, and ask questions.

What is the business model of this supplier we use, this customer, the document storage company, the uniform company that comes every day?

Use this book and start seeing the companies around you in a different light.  Find ones with winning business models that deserve your commitment and time-investment as an employee, and also potentially deserve to be a place where your hard-earned savings dollars can grow.

Each of the top 10 business models are discussed in a chapter in this book and are presented in no particular order. Each is unique and has its own value. At the end of each chapter on a specific business model, I provide a “HOT BOX” including a handy “How To Detect” section to help you identify some of the characteristics of the value-added business model, so you can spot them for yourself with the right questions and some research.

THE POWER OF COFFEE: Many have asked mehow they are to go about getting the information that is suggested in thisbook, specifically in the HOT BOX at the end of each chapter.  

For financial analysts, the information is usually obtained in company interviews and public filings with the appropriate stock exchanges.

For people looking to verify if their own employer’s business model is a winning one, or even if they are looking for other places to work, it is not as obvious.

This is where the 15 minute coffee meeting shows its power.

Why the name: Secrets Below the Surface?

• The business models often reside as a Secret Below the Surface. They are inherently hidden and only top management knows of their existence. Not sure why that is a good idea. You want people to know so you can attract top talent and investors.

• When I was working and started to see the patterns of the same business models operating in different industries in different geographies, I could not keep it inside as a Secret Below the Surface. It was an incredible epiphany for me and became one of the most important keys for me to become a successful investor for the pension fund. I had to write it down to be able to sort it out and fully flush it out.  I needed to write it down to be able to share it with others. I moved it from below the surface into the light.

• The individual who is responsible for the illustrations in the book is a remarkable geologist who spends his life finding Secrets Below the Surface.