“Simplicity is natures first step, and the last of art.”
Many more variables determine the future of the equities of early stage growth businesses than for equities of mature businesses, or other types of financial instruments
Understanding the Relevant Variables
Like a fine meal, an extraordinary outcome is only achieved when one starts with the best ingredients. We closely examine the most important ingredients to make sure they are best in class, and that they remain as robust in later years as in their early years.
Business Model
We look for businesses that are simple and scalable. The most successful growth businesses become more annuity like as they increase in size. The best businesses also have above average gross margins that rarely fluctuate. Low gross margins lead to more variables that make operating such businesses more complex.
Management
Assessing management is the most difficult part of the process, and requires close examination of their decision making acumen. The best decision makers are thoughtful and seek better information from data sources, and advise from subject mater experts. Great management teams create a culture that instills purpose in their employees that goes well beyond the profit motive.
Competition
A company’s unique value proposition is best understood by looking at the competitive dynamic. A crowded marketplace ultimately leads to commoditization. The best growth companies have sustainable competitive advantages.
Macro environment
We closely examine the demand/supply dynamic of every growth investment. Generally, demand should far outweigh supply even in recessionary environments. This is because the company’s product or service remains far superior to the alternatives in any macro environment.