A textbook (wikipedia) definition of a business is – the activity of making one’s living or making money by producing or buying and selling goods and services.
When I set up my first business with my best friend 15 years ago, that’s exactly what we set out to do – but it’s a story for another day. By the way – we are still best friends, so screw “Don’t go into business with friends” maxim. To add a contrarian insult to common knowledge injury – I am also a shareholder in my sister’s company and this adventure has delivered the best ROI of all my investments, so screw “Don’t got into business with family” wisdom also.
Paraphrasing an old proverb: “Conflict is in the mind of the beholder”.
But I’m digressing.
In the last 15 years my understanding of great investable businesses has evolved and at the moment it is as follows:
A scalable profitable organization:
- that measures what matters;
- committed to constant learning and innovation;
- with a well functioning team;
- healthy culture;
- clear vision;
- with predictable growth;
- in a growing market;
- with above average unit economics;
- ever deepening protective moat;
- and respect for all stakeholders (associates, clients, investors, suppliers and society in general).
Of course millions of businesses are great by definition – the fact that someone is solving a problem for a large number of clients and manages to turn a profit – makes it great by default. But it does not necessary make it investable.
With time – my understanding will evolve and I will revise it accordingly, but for the time being this definition (a Freudian slip, perhaps) should give you a much better understanding of what we are and why we are what we are.