three legs of business and business plans on stock investing
The three legs of business in my opinion are the three keys that make a successful business and a successful investment for that matter. Remember the size of the company that you invest in does not matter, but rather for its size it must have a good combination of these three things. In other words a company might only be a 50 million dollar company, but if half of that i.e. 25 million is made up of cash, then the company has lot of money for its size. So what are the three legs of business anyway? They are the three M’S of business which are money, management, and marketing. Like a bench needs three legs, a business will not work if it’s missing a leg, the same way a stool cannot operate correctly with just 2 legs because if you stand on it you will fall off. The examples of companies that have the three M’S are all around us if only we would look. I will show you an example of companies that have the 3 M’S bellow. When Wal-Mart had their IPO they had enough “money” to almost immediately pay shareholders a dividend, and they had smart enough “management” and “marketing” to make the business grow and prosper for the future. Coke spends loads of “money” each year on “marketing” so that people remember their products and continue to buy from them on a regular basis. They also have enough “money” to have distributors actively make sure that their products continue to be available to people who want them on a regular basis. Due to their stores many times refuse other products that compete with coke and prefer Coke products because of the intense “marketing”. -How can you find out if the business has the 3 M’S practical stock investingThe first thing to ask is how much of the market capital of the company is made up of Cash? I think that “money” is the lifeblood of a company and therefore at least 20% of its market capital should be made up of pure cash if it’s going to be successful in the future. Cash will allow the business to expand and invest in other things that make the business grow. Management: management is very important, and I think it is something that people overlook the most before they invest. The big question that is always on my mind is how much equity does the management have in the company? Not to get religious on you, but consider this bible passage “the hired servant who cares for nothing but his wages, runs away when the wolf comes; but how the faithful shepherd, when robbers threaten his flock, or wild beasts attack them, defends his sheep bravely, often laying down his life for their sake”. This means that people who are hired i.e. the management don’t really care as much as someone who is involved with the company and actually has a lot of stake in the company. Last but not least, marketing should be made up of advertising that shows that a company is better than their competition and clearly states why. For instance I thought Apple computer did a great job of showing why they were better in their commercials “they were telling people that PC’S have too many problems compared to Apple computers”; this form of advertisement is the most effective because you are giving people a reason to buy your products. Next time you invest or buy a business, consider or not if the business has or will have the three legs of business which are the three M’S.
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