Building a multi-bagger
The multi-bagger recipe
Hi Folks,
Hope you are getting new insights from my posts! Today I am trying to find the recipe for multi-bagger by keeping in mind the ideas that have turned into great companies and made investors the happiest. I will try explaining each point in two angles - Founder’s and Investor’s. For Both the parties it will be a multi-bagger on their respective stakes.
Let’s start!
In general, now a days, lot of startups globally focus on value creation in short span of time which is obvious as some of the ideas are a need of the hour and needs immediate focus and investments on large scale.
Starting from a small base
If you are a founder, please keep in mind that foundations need to be strong if we want to build a great structure, so it needs to be well laid out. Companies/Founders need to discount the fact that they are building something really new and have an uncertain future. The idea may or may not click- Yes, the risk is always present. Initially they need to start small but with firm steps and build brick-by-brick. We all know the example of Google which started from a Garage and now a leader. They started operations in 1998 and made IPO in 2004.
How the Larry Page & Sergey Brin. How many of us know the Google, the popular search engine which actually replaced the of name search engine to just “google” it, was known as backrub. Larry and Sergey were on a mission to organize and make the world’s information universally accessible and useful. Now we all know how that small idea has taken shape to its current form.
If you are an investor and evaluating an investment opportunity in a company with great ideas & people, look at how the whole story has started. This can be made by going through their history and how they handled initial challenges & hurdles. This will provide insights how far they can go to take the future challenges head on.
Be Brand-Conscious
Founders should think always know how to create value in terms of branding. People should be remembering the company as “that was first company to present this idea” This thought will go very far… Paytm was the brand which popularized mobile online payments in India… even when smartphones were not so popular.
An investor should go through the brand building and customer acquisition/engagement process. This will help in evaluating what were the challenges and how the founding team tackled the same. Marketing efforts and not the budget is to be checked for innovation, customer engagement, brand loyalty etc. which makes a company to go very far.
Reliable Management/Founding team.
The founding team should be so strong in their respective function areas. If hiring from outside, make sure they are committed and share similar aspirations for the Idea/company. Please note that funding can be arranged but the skill set, and commitment is quite personal and can’t be bought. It needs to come to the table from the respective candidate getting hired.
Investors planning to invest in such companies should know all relevant facts about the founding team and individual track records. This will help in knowing how the idea will grow and prosper.
Increase the strength of the MOAT or create it.
Founding should focus on areas that can have strong moat for the company. Build sustainable competitive advantage. If a strong moat is not present, try to create by adding uniqueness to the product or service that the company is offering.
Needless to say, investors should look for areas where moats are present. Investment decision should be based on the strength of the moat.
Robust Cash flows and low working capital
Founders should know how to manage the cash flows and have lesser turnaround for the inventories which helps to keep minimum working capital requirements. Tweak in the payment models in such a way that cash is received as soon as the product/service reaches the end customer. This is a bit tough to achieve in the initial stages but can be worked out via building customer reward programs etc.
Investors should look at how the company is able to maintain and function at low working capital. Positives are less inventory turnaround and faster cash receipts and faster supply chain process.
Tailwinds
This is a bonus for founding team, if they can start at the right point where tail winds are present. For example, starting an online food delivery app during Covid Pandemic.
Investors can look out for tailwinds in the sector which may help the idea seed to germinate and prosper into a big tree.
Conclusion
In nutshell, founders need to act like investors in all respects thus multi-Bagger is created!
Welcome comments!