1/ What's the best way to determine which business is creating the most value below? Growth is beneficial if cash inputs in early years of a business don't exceed the discounted value of the cash those assets will generate in later years. The more that happens, the better it is.
2/ The numbers in the previous chart are from @jaminball. They provide clues to the amount and timing of cash flows into and from the business, but they aren't the only clues available. My approach is to evaluate the growth on a bottoms up per customer basis via unit economics.
3/ The value of a business is the sum total of the value of present and future customers. The more micro my focus (eg, what is the value of a customer?) the less I am guessing about an uncertain future. What a real world customer is worth right now is the starting baseline value.
4/ If you are an operator of a business your approach shouldn't be any different. You are allocating capital and you want to make sure cash inputs in the early years of the business do not exceed the discounted value of the cash that those assets will generate in later years.
5/ Unit economics always appealed to me because it involves what you know is true rather than what what you hope is true. Understanding unit economics is essential if the business has an up front "nut" you must pay back. You must be able to explain this to investors and banks.
6/ What made me a believer in unit economics? The early days of the cable industry were similar to SaaS. Acquiring a subscription cable television customer required up front nut expenditures and you had to pay them back and more with future cash flows. Lenders needed convincing.
6/ Between 1998 and 2001 I started seeing Application Service Provider businesses. I was spending time at Benchmark evaluating VC investments. The unit economics of these early attempts to create SaaS businesses looked just like I had seen in cable TV and mobile phone businesses.
7/ The late 1990s CLEC phenomenon put unit economics front and center. The nut of serving an office building was big and it had to recover that by selling a services bundle which required up front CAC. It was both brutal and fatal for a CLEC. Cash sources dried up, and they died.
8/ As an early test of ASP economics in 1999 we hosted software designed for an on-premises client-server use over the internet. COGS/CAC of providing what was then called "software as a service" produced ugly unit economics. The SaaS business evolved from failures like that.
9/ The real work on SaaS started after recovery from the Dotcom crash. Years of work were put into building what would become IaaS, PaaS and SaaS. People ask me what it was like between 2002 and 2008 when stock prices weren't rising fast. My answer: building services is big fun!
9/ Success is vastly more satisfying if you put in the work to make it happen. It's nice to benefit from work done before you arrive, but not nearly as great as something you helped build. Similarly, food you grow tastes better and makes you happier. Off to catch some crabs now.

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More from @trengriffin

19 Dec
1/ Launch insurance "covers complete launch failures as well as the failure of a launch vehicle to place a satellite in the proper orbit."

Circa 2002, launch insurance rates were as depicted in this chart. Not a small cost number as A %. faa.gov/about/office_o…
2/ SpaceX just launched the Turksat 5B mission toward geostationary transfer orbit to aboard a Falcon 9 rocket. Booster has landed already. Stage2 separation happens soon.

As satellite launch becomes more reliable and routine, what happens to launch insurance prices?
3/ This report estimates insurance covers the launch plus one year of satellite operations on Falcon Heavy was priced at a rate in the “mid-teens," likely higher than what Astranis would have got with a Falcon 9. spacenews.com/astranis-unvei…
Read 5 tweets
14 Dec
1/ "A profit pool shows the distribution of an industry’s value creation at a point in time. The horizontal axis measures size, typically invested capital or sales as a percentage of the industry, and the vertical axis measures economic profitability." research-doc.credit-suisse.com/docView?langua…
2/ "The value chain is “the sequence of activities your company performs to design, produce, sell, deliver, and support its products."
3/ "The objective: to assess each activity’s specific contribution to the company’s ability to capture and sustain competitive advantage." Mauboussin
Read 4 tweets
11 Dec
I skied at Crystal Mountain yesterday.
Silver Basin is a backcountry area.

"Everyone in the group was wearing an avalanche beacon, which helped ski patrol find and rescue them."

A witness was able to call for help.

100 mph winds at the summit today.

kiro7.com/news/local/1-d… Image
Silver King,where the deadly avalanche took place, is here. I skied only in bounds yesterday. But I did ski the edges of what was open to get a little fresh Pow. Only two chairs were even open.

To skin up and ski down from 6300 feet (Silver Basin) you must go to the Guest Services ticket booth to sign ski area waivers and obtain Crystal's "Backcounty Card." You leave the resort boundary a few feet from the top of Quicksilver where this photo of me was taken yesterday. Image
Read 5 tweets
11 Dec
1/ Costco: "About 79% of our import containers are late by an average of 51 days. Chip shortage is still impacting many items, some more than others. For Q1 '22 we estimate that overall year-over-year price inflation to be in the 4.5% to 5% range."

seekingalpha.com/amp/article/44… Image
2/ Costco's Richard Galanti: "I can't think of any company that has the buying power per item that we do, because we do roughly $200 billion in sales with 4,000 ish items versus anybody else that's doing it with hundreds of thousands of items, or 50,000 items." Image
3/ My blog post on Costco co-founder Jim Sinegal is here: 25iq.com/2014/05/24/a-d… I met with the other co-founder Jeff Brotman and thought about writing a post on him too. Bill Gates Sr was a board member and Charlie Munger is still at 97. Munger now owns ~$ 100 million of COST.
Read 4 tweets
4 Dec
1/ What SPAC is involved in this?
2/ For people playing the at home version of this game, the SPAC brought only $16 million cash from trust to the company, while the company paid $35 million in transaction fees (-19 million net)! The the SPAC sponsor received 4.7% of the equity in the company as a welcome gift!
3/ Final clue: About 94% of the $287.5 million the SPAC raised was withdrawn by investors.

The company generated revenue of $90.1 million in the third quarter but it lost $3.6 million in that quarter.
Read 5 tweets
3 Dec
1/ Charlie Munger today: "The dotcom boom was crazier on the valuations even than we have now but overall, I consider this era even crazier than the dotcom era. You have to pay a great deal for good companies and that reduces your future returns,” afr.com/markets/equity…
2/ To be clear, there are lots of things I disagree with Charlie Munger about, including certain issues related to China.

"We agree on Costco tho: “Amazon may have more to fear from Costco in terms of retailing than the reverse."
"You want companies that have high earnings on capital and have a durable competitive advantage. If they’ve got good management instead of a bad, that’s a big plus too. But the great companies of the world have been discovered. They’re very expensive to buy.” Munger
Read 5 tweets

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