I’ve invested for 14 years, worked as an analyst in banking, and I’ve met hundreds of managers all over the world, including South Africa, and companies from Europe.
I’ve curated all sorts of businesses – the good, the lousy and the confusing.
Sometimes, I ask myself: “Is there a perfect business?” And what should it look like?”
Well, the perfect business is not bounded by any one sector.
It must be profitable, not always leeching on investors’ money.
More importantly, it must make the life of a research analyst’s (I know, that’s me last time) work easy — analyzing financial filings with almost zero effort.
In other words, the perfect business is simple to understand.
So, what’s the perfect business for today?
The Perfect Business
In my view, this is what I believe to be the 12 points of a Perfect Business – one that accumulates wealth with controlled risk for its investors.
- The perfect business locks customers into its unique ecosystem. This makes switching out of the business product or services very costly and customers cannot even do without it – there’s recurring revenues.
- The perfect business can sell globally, instead of selling only to its local city, town or country. This allows the business to have unlimited upside potential since it has access to customers all over the world. In other words, scalable.
- The perfect business rewards shareholders, either increasing the value of shares, or through paying dividends – or both.
- The perfect business’s products and services are NOT a fad. They don’t follow a trend. Instead, the business sells a long-lived product or service that meets continued human needs – it must be “habit-forming”. And it cannot be easily copied or substituted.
- The perfect business is a “cash-flow” business. It doesn’t need to have its capital tied up, or be faced with complex supplier terms.
- The perfect business must be capital-efficient. Put it this way, it doesn’t require huge capital spending or massive outlays to run the business. It produces enormous profits with very little capital.
- The perfect business takes care of its customers. It constantly innovates to meet the needs of its customers, creating a loyal fanbase.
- The perfect business is a monopoly in its own niche market, enjoying strong pricing power.
- The perfect business can run even without an “A-star” management.
- The perfect business is a cockroach. It adapts very well to all kinds of government rules and regulations.
- The perfect business defies the law of capitalism. It enjoys consistently growing profits and high profit margins, despite facing competition. The more profit it makes, the bigger its market share, the more customers it attracts.
- The perfect business takes advantage of the latest technology, like AI today to reduce staff costs and improve productivity.
This is my definition of a Perfect Business today.
What’s yours? 🙂
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
