20 Characteristics Of Good Business

I have been collecting properties of good business, which will help you distinguish between a good investment or not. Without a further ado, here is the list.

  1. Good Business Model
  2. Easy to Understand
  3. Popular Product
  4. Loyal Customers
  5. Strong Brand
  6. Barrier to Entry
  7. Low Production cost
  8. Pricing Power
  9. Requires less Capital to Grow
  10. Untapped Pricing Power
  11. Easy Distribution
  12. High Switching cost
  13. Good Reputation
  14. Good Past Track Record
  15. Does not Require Constant Innovation
  16. Low Churn rate
  17. Excess Cash Flow
  18. High return on Capital
  19. Big Growth Opportunities
  20. Ethical Management

Now, lets pick a Company and run through this test. For the fun of it, lets pick Facebook (FB), soon to be Metaverse.

  • Good Business Model – Facebook offers free service to its customers to upload pictures and videos and other contents in their platform and then they charge businesses to advertise to its vast audience. Being able to offer a free service to its customers and let the third party pay all the bills is an awesome business model.
  • Easy to Understand – I think so.
  • Popular Product – Obviously, Facebook is one of the popular product out there. Everyone knows Facebook, even the Chines government, even-though they don’t let their 1.5 Billions citizens not use it.
  • Loyal Customers – Do you know anyone, who has a Facebook account, that go by without checking their profile zillions times a day? There you go.
  • Strong Brand – Lately, Facebook had beating with its Brand Image. With the growing concern for privacy, its brand image is being degrading. The good new is with the recent rebranding, I see the trend reversing.
  • Barrier to Entry – Google tried to launch Google+ some time back and their service is now in history book. Nevertheless, the new video app TikTok is ultra addictive, which is kicking Facebook’s ass.
  • Low Production cost – It’s contents are created by its 3.4 billion users. It is a free production.
  • Pricing Power – Very high. If you need to sell adds in Facebook platform, you have to compete with millions of other add sellers. The ad cost is growing each year.
  • Requires less Capital to Grow – One new server/data center can handle another billions of users.
  • Untapped Pricing Power – Metaverse and other areas that Make is now focusing on has some potential.
  • Easy Distribution – Nobody owns internet and each individual pay for their internet to be in the Facebook network.
  • High Switching cost – You have to fight a tall mental battle to be out of the Facebook even for a day. Let me know if you figure out a way to do for a longer period.
  • Good Reputation – Not really, especially with recent privacy concerns and scandals.
  • Good Past Track Record – Yes, financially.
  • Does not Require Constant Innovation – It does. People’s wish is evolving faster that we thought.
  • Low Churn rate – Yes.
  • Excess Cash Flow – Yes, it has 45 billions in cash.
  • High return on Capital – Above 30%. It is very high, even with industry standard.
  • Big Growth Opportunities – They still have 3+ billions users to be added to the system.
  • Ethical Management – Mark Zuckerberg is a founder of Facebook and he very ambitious, mission driven and level headed person. Can’t think of a better manager then him to run his show.

Facebook gets 18 out of 20 using the above checklist. Nevertheless, there are very few companies that get better rating than Facebook.

Having said that, it does not take much for some different addictive entertainment to win over our interest. TikTok was one of the example. If Facebook can not keep up with the trend and amass the masses in its platform, it does not take much to dry up its moat that it current enjoys.

For now, a bit of a news to our dear readers. We have been buying Facebook since last year and it has become the third biggest holding of ours. We will see what the future holds for us.

You will soon find out whether we will be flexing out muscle in Facebook page or we will do a chicken dance in TikTok!

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