Over 1500 one-on-one interviews with CEOs and entrepreneurs over a 30 year career of investing has revealed that there are a limited number of strong business models operating in the world.
Often during the interviews with these business leaders, I would discuss what I was observing in their operating model and how it was similar to some other company in some other industry around the globe. The conversation would often immediately shift and top management would begin probing me for examples of how the other businesses maneuvered through certain operating stress points that they themselves are currently trying to tackle. This was the ultimate validation that I was on the right track of uncovering what was going on BELOW THE SURFACE of the organization.
"Many business model books discuss business models by industry. This is a mistake. You can find the same business model in a totally different industry in a totally different geography."
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.
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.
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.
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 stockownership 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 investing them in the wrong place. Make sure your invested dollars work for you every day, allowing you to concentrate on other important things in life. Try to have these dollars grow for you so one day you can use these dollars to fulfill your life goals. My suggestion is to invest your money in the form of public stocks or bonds, in companies with winning business models. Let the management of these companies take everyday decisions to create value and help grow your hard-earned dollars. You will undoubtedly come across some of these businesses in your working life. Look around 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.
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