As a value investor, I’m obsessed with business models!
Generally speaking, models with minimal variable costs that scale are king. Look at Visa/Mastercard – they take a tiny slice (~20 basis points) of every global e-commerce transaction with almost no variable cost per incremental transaction!
This week, I had a fascinating chat with Alexander Osterwalder, author of the brilliant book “Business Model Generation.” Here are some key takeaways:
Innovation & Size: Big companies struggle to innovate because they get caught up in innovation theaters such as running Hackathons :/ Real innovation needs a champion – a leader reporting directly to the CEO who vouches for it.
Explore & Exploit: Companies need products in both phases. Explore bets should be smaller. Meta went overboard with the bet size on Metaverse and was punished by the market.
PING AN is a lesser known example. This old Chinese company was stuck in the dull property insurance business. Only after the founder Ma Mingzhe decided to hire a dedicated Chief Innovation Officer, they entered in healthcare and banking, rocketing from 450 to top 30 in the Fortune 500 list!
Alphabet Inc. is another great example, with subsidiaries like CapitalG, GV (Google Ventures) fueling their exploration programs. In fact, Google DeepMind was one such bet, which is behind the Gemini model launches.
What are your favorite business models, and how do they influence your investment decisions?
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