Win - Win - Win

Listening to great investors talk about their mental models and investment approach is always a learning affair. One of the investors I thoroughly enjoy listening to is Mohnish Pabrai and as many readers would know, he is a true Charlie Munger disciple. He possesses a vast repository of Charlie's insights & mental models. Now most, if not all, of these insights and mental models (especially when narrated by Mohnish) are perspective altering. They change how you view businesses, investing & life.

Recently, I heard Mohnish discuss a concept that Charlie applied in how he viewed businesses. Charlie described some business models as win-win, win-lose & win-win-win. Some business models are beneficial to both the company and its consumer. Most of the businesses would fall into this framework as capitalism ensures a win - win milieu. Any product or service a company sells which makes the life of the consumer easier/better is a win- win. Charlie had many examples of win- lose models like predatory lending, addictive substances etc, where the customer loses out in the long run & the company benefits from it. As Mohnish went on to say, Charlie took no time to identify a win-lose model and reject to invest no matter how good the possible returns were.

Now the most interesting were win-win-win models, where companies and their customers had a win & so did others associated with them. Meaning, multiple wins within the business. Charlie called one of his favorite investments, Costco, a win-win -win business. He observed how Costco's customers loved the shopping experience with cafeterias in stores, attractive prices & huge varieties. How Costco was almost a picnic spot for families. Charlie himself would go to a Costco store to have a meal every once in a while. This huge win for customers made Costco a retail Giant that it is, generating huge wealth & profits. Now what Charlie identified as the third win is in how Costco's employees were treated. Charlie believed that Costco's treatment of its employees were a major reason for its success. They were paid significantly higher than the industry standard, insured and taken care of very well by the company. Although in contrast to the rest of the industry focused on reducing employee costs, Costco turned this into a third win in its business model.

This had me thinking about other possible win-win-win models. This Charlie perspective helped me develop a knack for identifying business models with distinct multiple wins & one of which I found to be truly attractive is where the middle man is not a trader, not a broker but an entrepreneur. Where there are businesses within a business. One example of this would be the food delivery business. Zomato for example, has the customer winning through convenience, the restaurants and cloud kitchens winning because of the efficiency of the technology & employee base winning through new employment generation . Zomato's business model has entrepreneurs working for it. Not employees, but entrepreneurs. The sheer number of cloud kitchens & restaurants that came to life only because of the food delivery boom is a testament to how companies like Zomato have made new entrepreneurs out of their business model. This unique win has made it possible for Zomato to scale at this rate. Any business which has entrepreneurs within its model is a unique win-win-win situation which is probably destined to succeed.

The Indian markets are experiencing a significant drawdown as I write this. While studying business models, this perspective has helped us at Takshila look at businesses in a different way and identify moats. Pulz electronics ltd , for example, is a company engaged in manufacturing high end audio devices. When one looks at the business model, one finds that this business too has entrepreneurs selling for it. The high end audio market has specialized professional contractors who consult, procure and erect systems for end users. These contractors are businesses in themselves. Since the audio device market is technical in nature, end users rely on these contractors to suggest and select the best suited equipment. That's where the moat is. This model potentially creates a win-win-win situation where if the products are good, the contractor pushes them in the market and the customers have a good time. With a growing market like India, this win-win-win model can do wonders.

As we continue to navigate the complexities of businesses & our lives, it's essential to embrace the wisdom shared by those who inspire us. Happy hunting!

*Companies mentioned in this post are provided solely for educational purposes and should not be interpreted as investment advice. This content aims to inform readers about various companies and their business models, market positions, and potential areas of growth. However, it is essential to conduct thorough research and consider personal financial circumstances before making any investment decisions. The information presented here does not constitute a recommendation to buy, sell, or hold any securities. Always consult with a financial advisor or conduct your own due diligence when evaluating investment opportunities.