We’re discussing ways to analyze investments. When discussing leverage, we touched on this next point, but let’s take it further. God made each person in this world absolutely unique. When a unique individual applies what he has been given in an effective way to the marketplace, something special is created. (Obviously it takes more than just being unique or every single person would have a world revolutionizing business, but those areas are discussed in the other investment criteria.)
In addition to one individual’s uniqueness, a collaboration of people coming together and utilizing each one’s unique abilities in a coordinated way can produce a magnified result in the marketplace. This can be as small as two people coming together in the form of a partnership or thousands coming together in a great corporation. The key we’re focusing on here is the application of unique ability in a profitable endeavor.
When analyzing an investment, ask yourself, “Is this company’s product or service unique in the marketplace?” And if so, in what way is it unique? Of course, the way in which it is unique is also important. Is this attribute something which can be capitalized on in a profitable way? If I develop a Ferrari that for whatever reason is the most appealing to a homeless person, that is not a unique ability that can be capitalized on. On the other hand, if this innovation directly appeals to people who have just sold their business for $1,000,000 or more for some reason, then it is exactly the type of unique ability that you are looking for.
This criteria should be considered whether you’re thinking of going into business with an independent entrepreneur or investing in a large corporation. What do they do which is unique and how might that uniqueness be embraced by the marketplace?
For example, let’s pretend that you are considering investing some capital in one of two ways:
- On one hand, you were approached by a friend, James, who wants to set up a store right next to Walmart selling Giguse (a new Chinese widget that everyone will want once they find out about it) at the lowest price possible. You also find out that Walmart is in conversation with the manufacturer of Giguse to carry it worldwide.
- On the other hand, you have another friend, Fred, who is familiar with Giguse and has in fact used it for a while, but has noticed many faults with the way it works in his life. After researching the matter with many other early adopters of this revolutionary product, he finds that many others have noticed this same defect. After more investigation, he realizes that Giguse can be adapted in the way that it would make it a better product, but that it must be done by hand and is thus probably the reason that the original manufacturer does not wish to make a product with those benefits.
This friend realizes that although the market would be much smaller for this adapted product, it would still be a considerable market for a small profitable operation and so he is going to make a product called WayBetterGiguse and sell in his store at a higher price, but focused on the the market that he has found wants this better product and is willing to pay for it.
Which is the better investment (only considering this one factor)?
We know that Walmart is the world leader in bringing products to market cheaper than anyone else. James may be a great guy, but there is absolutely no way that he can compete against Walmart in the area of their unique ability (unless he were to have some other compelling unique ability that is not presented here.)
Fred on the other hand, is competing with Walmart, but he has decided to compete in an area of his own unique ability. That of making a similar product that Giguse, that yes, does cost more, but also delivers far more powerful benefits to a subset of people who are willing to pay for it.
This is Unique Ability in action. You should always consider how the company, individual, product, or service capitalizes on its unique ability before determining whether or not to invest.
This is Part 5 in the series Investment Due Diligence. To continue with this series, click on Pt 6. To use this as a growth tool to better understand your own calling, you might start by reading Part 1, Pt 2, Pt 3 and Pt 4.