Thread by @awilkinson

The ultimate businesses are uncapped and non-linear 📈

They can grow to massive scale, with no or limited additional capital (compound their own earnings), and have no inherent cap on growth:

✅Unregulated - move as fast as they want without approval

✅ Limited marginal cost to growth - very small cost difference between serving 10 and 10,000 customers

✅ Asset and Capex light - don't need to buy expensive machinery/build things that take a long time to scale

✅ No wholesale transfer pricing problems - not reliant on a commodity or middleman that can swing P&L lines wildly or can cut you out

✅ Compound earnings - Can reinvest the businesses own profits into itself to grow, not reliant on outside capital (dilution)

For example:

Say you buy a rental building 🏘️

Let's say it makes $50,000/yr in profit

Sure, you can increase the rent with inflation (limited to 1-3% per year) 💰

Or you can renovate it to increase values (one time step up in earnings)... 🛠️

But you can't grow profits at 30% annually forever.

You can only do it with one-time tweaks and linear incremental price increases, which are limited.

You can't grow $50k/year profits to $50MM/year profits by being innovative.

There is a ceiling. Literally and figuratively...

On the flip side, say you buy an internet business...

A marketplace for buying and selling shoes 👟

Let's say it's doing $50k/year in profit this year.

Through sheer creativity and force of will, you can scale it to $50MM/year in profits by being innovative...

It isn't easy, of course, but it is possible.

Internet businesses, in their purest form, have no capex. No middlemen. No regulation. Nothing limiting growth other than the intelligence and creativity of their management teams.

This would have been unimaginable in 1970 🤯