#65: Follow Your Own Path

Nick Sleep and Qais Zaharia started out in 2001 with the intention of breaking the mould. Building an investment fund with the provocative notion that it wasn’t about the money. 

Instead, it was about doing as good a job as they could and solving the investment puzzle – what made an enduringly great company and how do you identify them early? They wanted to learn and were purely intrinsically motivated. The money was a happy by-product.

Nick and Zak studied great businesses over history - getting to the core of their DNA. What made them so special?

They looked at Henry Ford, who made cars affordable for the everyday person by slashing costs in his ‘Model T’. How Sam Walton crafted Walmart through small town America in a similar fashion. 

It soon dawned on them that Costco was operating the same playbook. An enigmatic founder, this time Jim Sinegal, who obsessed about ruthlessly cutting costs and then crucially passed on most of these savings to the customer.

They named this business model ‘scale economies shared’ in which a virtuous cycle of lower costs, lower prices, more traffic, all leads to even lower costs before the cycle repeats. Any company that utilised this model for decades had a great chance of reaching a favourable destination.

Most firms can’t do it, as most firms get greedy and fat. As they grow, they take on unnecessary costs, move away from their core market and can’t resist the urge to bump up prices to make a larger margin from customers. They win in the short-term and die in the long-term.

The precious few who don’t often take over the world. Nick wrote,

“That is the single best thought you may have ever had in your life. It needs to dominate everything because you’re not going to get many insights like that.”     

After discovering this ‘deep truth’ they bought Costco and slowly turned their attention to the internet. Was there any online retailer attempting to run the same customer centric model? By 2006, they had the answer – Amazon!

Deep analysis and their long-term perspective gave Nick and Zak the conviction to buy more of both companies during the great financial crash. 

After twelve years their fund made a huge 10x return, whilst the general market had only doubled. At 45 years old Nick and Zak retired the fund to set up personal charities. They had cracked the puzzle! Source

WISDOM 💎

‘I believe that good things grow’

Nick Sleep

Tip 1 - A SMART PLAY ✅

When they found their edge, they capitalised in two ways. They went big and then didn’t sell. Sometimes the hardest thing… is to do nothing.

Tip 2 - AVOID 🚩

The noise – they didn’t listen to the Wall Street information junkies and disregarded the daily soap opera of business news. They focused on long-term business fundamentals.

"The art of being wise is the art of knowing what to overlook."

William James

Tip 3 - ACTION 💪

Destination Analysis: They analysed businesses with three simple questions;

1. Where is the intended destination in 10-20 years?

2. What must be done today to increase the chances of arriving at this destination?

3. What things can derail such a result?

Try asking yourself these three questions in your business or in an area of your life.