What We Invest In
Every now and again it’s important to revisit your value proposition to make sure (1) it’s still true and (2) you haven’t inadvertently drifted away from it. And so Brent and I did that recently with our investment approach. We wanted to clarify what it is we invest in and make sure that we remain on the same page.
Before we did that, though, we looked back at how we’ve characterized our investing approach through history.
In 2015, for example, we told the world that we “buy boring businesses.” Then in 2017 we called U.S.-based businesses valued under $50M the “greatest (legal) investment opportunity currently available.” The bar moved a little bit in 2018 when we said, “If we believe a company is staffed by a solid team, has a defensible market position, and can be bought at a fair price, we’re interested in anything above $2M in earnings.” And then we rebranded in 2023 when we said goodbye to boring businesses and look forward to working with companies that “care what happens next.”
Of course, there’s nuance to what you call something and what that something is, and so we compared the qualitative traits that made up those named opportunities. For example, here’s the CliffsNotes description of boring businesses from 2015:
Under the radar with thoughtful leadership and capable and loyal employees that are profitable and growing sustainably maintaining low levels of debt while improving the lives of their customers.
And here’s how we described a company that cares what happens next in 2023:
A business built over decades to not only deliver profits, but also employ communities with good-paying jobs and be in partnership with vendors and customers.
Different names, yes, but remarkably similar traits.
Armed with that background, we wrote down what it is we think we look for in investments:
Smaller companies with a track record of generating meaningful distributable free cash flow (i.e., beer money)
Situations where our value proposition (no debt, long time horizon, no assholes) give us an advantage in negotiating the price, terms, and structure of a deal relative to other buyers with willing sellers.
Business set-ups where there are clear opportunities for us to assist in areas where we can be helpful (hiring, technology, capital allocation/working capital management) and add value.
And when we put it that way, we concluded that our value proposition and investment approach still made sense. Onward.
-Tim
