Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which result in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

At every AGM, you are asked to vote on the directors of the company and compensation for senior executives. As a shareholder you are looking at the people which run the company and you are looking at the leadership of the company to allow the company to celebrate an anniversary of their founding for years to come. In most companies there is the founder, but who is the co-founder or the people that helped the founder realize the dream of the company?

In every company, they will need to rely on OPM or Other People’s Money – from bank loans, government grants or loan guarantees to people investing in the founders. Eventually that company went public and as a shareholder, you are investing with others. How did the company move from small startup to medium sized to the size you are investing in?

Change is a constant in business, because what works when you started can and does change over the years. In every industry they are constantly trying to evolve and sometimes what was not available a few years ago, is now available for different and better uses in products. The easiest place to see that is the fashion industry and what is the trend for the summer season. Many men will wear shorts and a golf shirt, but will they be the same style of last year? something will have changed. Companies change and that is ok if they change for the correct reasons. As a small business, if change is not part of their DNA, you would not likely want to invest in it.

Everyone loves small businesses, until they become a certain size. Once they reach a certain size the competitors notice them and will challenge them both legally and by the unwritten rules in the industry. The big fish will allow the small fish to eat the scraps they do not want to service, but once the fish start nimbling on their customer base, things will be different.

Large companies use pricing discretion, toll bridge and different methods to erect barriers to entry to limit the competition. Some of the barriers are natural forces that rise and shift within a market as competitors enter and exit, grow and shrink, evolve and pivot. Some of the barriers are conscious strategies deployed by old guard blue-chippers.

The trick for new companies is find the side door or path the least travelled where the gate is wide open. For example, the protein bar RXBar did not want to go onto the shelf space in the supermarket, they went to gyms first where they had no competition. The company 5-hour Energy did not want to be place on the shelf beside Monster, they wanted to be near the cash register in a new market category. (in the grocery world, shelf space matters and the large players have the most shelf space).

Wal-mart is a mass merchandiser, a retail company such as GNC is always looking for new products because if a product is in Wal-mart, few people will buy it at GNC. In the retail world thanks to the chain stores, retailing is slightly different for all of them. You will need to do your homework to understand the differences and which companies are open to new businesses or where is the side door in your industry?

Linking to dividend paying stocks, as an investor you enjoy the benefits of moats and you like them and look for them to invest in. The issue of all companies are they paying attention to the side doors and ensuring the moats stay. If they are not paying attention to the side doors or what gates are open, the result will be the larger company losing market share, they will lose margins and you will need to find alternatives. At the AGM ask what are the side doors to entry in your industry?

There are more questions than answers, till the next time – to raising questions.