Motley Fool Money How to find a great business. April 15, 2022
Apr 15, 2022
Two analysts list traits that signal high-quality businesses and explain why using a checklist helps. They explore sustainable competitive advantages like brand, switching costs and network effects. They highlight predictability, gross margins and marginal profitability as key filters. They also flag risks from customer or partner concentration and stress combining traits to judge strength and vulnerability.
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Xero Example Of Subscription Predictability
- Andrew points to Xero as a predictable SaaS example with subscription revenue and strong retention.
- He highlights accountants pushing clients onto a common platform, reinforcing low churn and visibility of revenue.
Why Switching Costs Create Durable Moats
- Switching costs trap customers because replacements are costly, disruptive, or emotional, granting pricing power.
- Examples range from enterprise ERP implementations to Cochlear implants where customers rarely switch.
Cochlear As The Ultimate Trapdoor Moat
- Andrew uses Cochlear to illustrate the ultimate trapdoor: implanted hardware plus external processors means customers rarely change providers.
- He notes upgrades to processors keep users tied to the original implant maker.