When it comes to researching companies, it helps to understand the fundamentals—management, the business model, cash flow, “market size” (sometimes some madeup figure to get investors excited) etc etc. You can have a great business and a bad balance sheet. You can have a great business idea, good financials, great funding, and very large competitors who aren’t napping either (the Day One mentality of Amazon).
But it also helps to understand whether it’s a “one to N” or a “zero to 1” business—a concept that Peter Thiel (an investor in SpaceX, FB, co-founder of PayPal) came up with. He taught it at Stanford and co-wrote a book about it. It should be a number one business read in the 21st century.
Are these companies doing something that—like Coca-Cola or McDonald’s—almost have no real large competition? There were sugary drinks before Cola, it must have been not the first and not the last. Great marketing > lemonade?
Red Bull is a zero to one business. Great marketing.
Fast-learning differentiated businesses > Businesses with loads of competition
Experience != Future performance
Fast learning > Experience
Imitation is for competition
“Do one thing uniquely well.” - Peter Thiel
He also said:
“What great business exists that nobody is building” — businesses that don’t conform.
If a company enters a busy market—real estate, for example, that is ready for disruption—what will it be doing that is so different that users will be flocking to it? Zillow etc use tech—data driven stuff. They can value all houses in the US.
The history of energy drinks is full of imitation. So many are trying to be like Red Bull. Great marketing and a unique formula, like Coca-Cola.
The history of financial services is full of imitation and competition. But when you compete like crazy all the profits will be competed away.
JPMorgan has been up against HSBC, Barclays, Bank of America, Morgan Stanley, Goldman Sachs, Deutsche Bank etc etc. When you compete like crazy, “you lose sight of what’s important”.
Early Netflix did things differently. Now the giants are trying to imitate it and some of them have vertical business models.
Netflix should probably be doing something now that is so differentiable, Disney can’t offer it. Perhaps it’s the original content, “private cinema”, and unique insights into its users.
Airbnb is different. Have you used Homeaway (no)? Booking.com now offers apartments. But Airbnb also does experiences. OYO is nowhere near yet.
Google—not the first search engine to start in late 90s—is different (the algorithm, the UX).
SpaceX vs old big pocketed companies.
What are they doing that is so different? Do they have serious competition?