Competitive Position

High barriers of entry into a company’s focused business is ideal.  With most established companies, this is typically identified on the company’s financial statements through high, sustainable profitability.  In a capitalistic society, high margins attract competition, but astute management teams can overcome competition through patent protection, intellectual capital and know how, ownership of limited assets, locked supply of industry resources, etc. and can build a formidable wall to keep competitive forces at bay.

Strong Drivers for Revenue Growth

Influences on a company’s revenue growth can vary widely, but we are seeking drivers that are easily identifiable and sustainable for the long-term to provide a tailwind of growth greater than the Gross Domestic Product (GDP) to a company’s business model. That means, regardless of the conditions of the general economy, the company’s business should grow faster than the economy. Whether it is a new product or changing behaviors of the consumer, these long-term drivers help cushion the volatility and allow us to act quickly when the market gives us opportunities to take advantage of general market short-sightedness. Regardless of which type of drivers are influencing the company, we prefer glacier-like trends that are powerful over the long-term, but sometimes, as with the coronavirus pandemic, drivers can change in a short span of time and may have lasting results.  

Scalable Business Models

We prefer capital-light business models, not companies that require significant capital to reach the next level of sales. Our companies typically self-finance through the cash flow of their operations or can prudently optimize their capital structure for the benefit of long-term growth, which benefits equity shareholders. While not all companies can self-finance their growth, of those within our premier list that do have debt, we seek companies with prudent levels that don’t place the equity shareholders in a precarious position.  Management is constantly seeking ways to optimize operations to improve margins or can quickly pull levers to decrease operating expenses in economic slowdowns to minimize losses to shareholders.

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Competitive Position

High barriers of entry into a company’s focused business is ideal.  With most established companies, this is typically identified on the company’s financial statements through high, sustainable profitability.  In a capitalistic society, high margins attract competition, but astute management teams can overcome competition through patent protection, intellectual capital and know how, ownership of limited assets, locked supply of industry resources, etc. and can build a formidable wall to keep competitive forces at bay.

Strong Drivers for Revenue Growth

Influences on a company’s revenue growth can vary widely, but we are seeking drivers that are easily identifiable and sustainable for the long-term to provide a tailwind of growth greater than the Gross Domestic Product (GDP) to a company’s business model. That means, regardless of the conditions of the general economy, the company’s business should grow faster than the economy. Whether it is a new product or changing behaviors of the consumer, these long-term drivers help cushion the volatility and allow us to act quickly when the market gives us opportunities to take advantage of general market short-sightedness. Regardless of which type of drivers are influencing the company, we prefer glacier-like trends that are powerful over the long-term, but sometimes, as with the coronavirus pandemic, drivers can change in a short span of time and may have lasting results.  

Effective Commercialization Strategy

Perhaps the most important of the MFF is the ability for management to have an effective commercialization strategy. Measuring the success of the company’s ability to establish and communicate the value of its products or services can easily be tallied by the trajectory of sales. End markets always vote with their currency. Effective companies have established their brand while transitioning their targeted end-market’s desires and wants into human nature’s most powerful emotion: Needs.

Superior Capital Allocators

We seek companies that have management teams that are successful in implementing a disciplined approach to capital allocation.  Of the resources available to management, primarily cash flow from operations, we evaluate how they allocate capital to grow the business through three key areas: 1) internal investment to grow organically, 2) external investment for inorganic growth, and 3) how value is returned back to shareholders.

Scalable Business Models

We prefer capital-light business models, not companies that require significant capital to reach the next level of sales. Our companies typically self-finance through the cash flow of their operations or can prudently optimize their capital structure for the benefit of long-term growth, which benefits equity shareholders. While not all companies can self-finance their growth, of those within our premier list that do have debt, we seek companies with prudent levels that don’t place the equity shareholders in a precarious position.  Management is constantly seeking ways to optimize operations to improve margins or can quickly pull levers to decrease operating expenses in economic slowdowns to minimize losses to shareholders.