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Sunday, May 16, 2010

What I Look For in a Company ?

1)Management:This is the first and foremost thing I look in any Investment Opportunity (IO).I believe that if I can get a right competent Management in an IO then it is almost half the battle won as a good, competent management team can covert a common idea into a great business opportunity.It is actually the management which runs the IO and if it has the capability and vision to excel then there is no factor which can come in the way of such IO becoming a winning IO of the future.

Main qualities which I look for in the management of an IO are :
(1)Management Team's technical know-how,
(2)Management Team's Background,
(3)Track record of Senior Management (CEO, President, Vice President, etc.) with regards to any other ventures they have promoted or of other Entities (respective Divisions of other entities) they have worked in previously,
4)Management Team's conviction regarding their business plan,
(5)Vision and Goal of Management Team with regards to their Venture,
(6)Honesty, Integrity and Transparency,
(7)Ability to manage Finances.

2)Niche Focus:I love investing in an IO with a niche focus. Niche Focus could be in the form of niche products an IO is offering in a crowded environment or some niche service an IO is offering or a niche business area an IO is operating in. Niche Focus is a major factor which I look for after "Management" to take a positive investment call in an IO. If I get the right management team with a niche focus then my evaluation process gets completed within a very short time and it doesn't take too long to take a positive investment call in favour of such IO.I believe that Niche Entities always operate at a relatively higher margins even at a small scale and they always achieve scalability much faster than others.

3)Business Plan:If an IO doesn't have a "Niche Focus" then its "Business Plan" is of prime importance for me as it is actually the business plan of an entity which can place it ahead of others in a crowded business environment.

The major factors I look for in a Business Plan are:
(1)The strategy IO plans to adopt to beat its competition,
(2) How it plans to tap existing clients of its competitors as also how it plans to acquire new clients,
(3)What marketing arrangements it plans to put up to popularize its offerings in the market,
(4)How proactive it wants to be in R&D in case it is operating in products space.

4)Competitiveness of Offerings:Competitiveness of the products / services an entity offers is a major factor which decides whether it will be a future winner or not. A competitive product / service coupled with an effective business plan can easily put an entity on top above all its competitors. The major points I consider while assessing competitiveness of my IO's offerings are their Features, Pricing, Compatibility, Uniqueness, Perception amongst Industry Analysts / Observers & Consumers, etc. Actually speaking, "Competitiveness of Offerings" is a very IO-specific concept and so it can't be detailed in just few words. It is very specific to each IO I consider for investment and depends upon the industry it is operating in, its market size, whether it is a product offering or a service offering, the stage at which an IO is i.e., whether it is a Startup, SME or Listed Mid-Cap Entity, etc.

5)Market Size:Market Size of the offerings of an IO is a very deciding factor of how much efforts the IO will have to put in to win against its competition. However, it has to be looked at from two angles - If an IO is having a "Niche Focus" then "Market Size" will be less relevant than the relevance it will command for an IO without "Niche Focus". This is because, it is generally observed that "Niche Focus" can help an Entity survive and excel even with a small "Market Size" of its offerings. However, whether the company is having "Niche Focus" or not but, the factor of "Market Size" can't be ignored totally as it is ultimately the Market Size which determines the real opportunity present in an IO.

6)Time it will take for Self-Sustainability Without Major CAPEX:This is a major factor after "Management" & "Niche Focus / Business Plan" which I look for in an IO. It is defined as the 'time it will take for an IO to become self-reliant without major CAPEX or Outside Funding'. Agreed, CAPEX is required at every stage of a growing business and no business can sustain or grow without CAPEX or investment. However, an effective financial management can bring a stage of self-reliance for an entity after which it normally requires low CAPEX / Investment for the same growth or it can fund most of its CAPEX requirement on its own from its internal cash generation.If I explain more specifically, I like to see my IO reach one of the following two stages :
(1) a stage wherein it enters an era of low CAPEX for same or higher growth rate,
(2)a stage wherein most of its CAPEX requirement to achieve same or higher growth is satisfied with internal cash generation.

Achieving of any of the above stages calls for a very prudent financial management for which Management of the IO needs to instill in itself a determination to see its enterprise reach a stage where it is not dependent on anyone for its growth. After few initial rounds of funding, management needs to chalk out a plan to reach such a stage.There are many other factors too but for newbies and begineers these is more than enough to contempt with.

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