6 Ways To Understand Business Model of Companies That Fit for Stock Investment

The year of 2013 was the golden year for conventional transportation companies such as Taxi Express and Blue Bird. At that time, Taxi Express was able to make profit of Rp 132 Billion a year. Similarly, Blue Bird was able to make profits of Rp 707 billion a year.

But not long ago from 2015 until now the companies’ earning continue to decline, even Taxi Express had lost some money. The cause of the decline of both companies are the appear of the new business model that is run by taxi online. The business model is an important factor to be considered by a businessman, and also by a stock investor in order to get the maximum profit in the investment.

So, how to choose a company that has a good business model to start business in Indonesia? What kind of business you can do?

It will explained in the following article.

What Are 6 Company Characters That Potentially Make Business Model?

1. Simple Business
Simple business will become easier to understand, everyone will be very easy to understand. Investors will be very easy to understand how companies make a lot of money and where did the money comes from.

Simple business doesn’t always works well. Every companies always goes to the up and down phase. However, a simple company will be much easier to understand than an offshore business or logistics company.

Simple business will be easy to understand and there will be no major changes for the next of 10 or 20 years. Have you ever invested in a simple business? what else needs to be considered? The next thing you need to learn is to understand the circle of competence.

2. Understanding The Circle of Competence
Warren Buffett says "You do not have to be an expert in every company or many companies, the most important thing is you can evaluate the company in the circle of competence."

As a successful investor with the good value, you must to learn harder and develop your knowledge even out of the circle of competence. However, However, before you expanding your circle, make sure that you’re understand your circle of competence first.

What are the circle of competence that you already have? it will be easier to understand the company’s business that is in accordance with your competence. It’s true? Is it enough for us just to understand a simple business and the circle of competence? Of course not, the next factor understanding the strength of your competitor.

3. Understanding the Strength of Your Competitor
In early 2000, many people are willing to wait for a glass of bubble tea. When the first of bubble tea shop Quickly opened, everyone loved it. Although the price of a glass of bubble tea was SGD 3 to SGD 5, people are willing to pay for it. After increasing public interest in bubble tea, many competitors started to sell it, until bubble tea shop was spread in Singapore.

Quickly is the first shop to become a trend. It’s means that the Fast business has no advantage, because market competitors and market share Bubble tea is an example of a business that has no excellence of competitive.

To truly understand the best strategy, we must understand who the competitors are. As the growth of the business we can compare the income with another competitors. By reading the annual financial report we can see how good the company competes with its competitors.

Is it easy to understand the strengthber of competitive? How strong is your company competing with competitors? If your company can compete well, the next factor to consider is to think as a customer.

4. Think as a Customer
A successful business depends on how customer satisfaction is. Sam Walton, the founder of Walmart, said "The only boss is a customer, they can complain to anyone in the company including an excecutive".

For example, McDonald’s can satisfy their customers with high quality service. You can not know what MC Donalds’ service quality by reading its Annual Financial Report or talking to Investor Relations personnel. You must go there by yourself, and taste the products and feel how their services.
Because to know the direction of the company in the future, we must identify the things that can encourage the company to keep the sales growth. So we should not predict but estimate the company based on its success in expansion.

Have you tried to be a customer? How do you feel the benefit of the product and the quality of service that provide by the company? If you feel happy about the product and service quality then the company is very good. Well, the next thing you should pay attention is the factors that driving the growth in the future.

5. Seeing The Factors That Driving The Growth in The Future
In general we can see the potential driving factors of the annual report. From the annual financial report, we can see the detail of description of the company’s core business, understanding how the company earns money and the factors that driving the business growth in recent years.
Understanding the company’s history can reveal the company’s growth strategy, and also its consistency. in order to stay superior, you must pay attention to the company’s expansion plans and see if it makes the company grow fast or slow.
Looking at the factors that drive business can make us predict the future. Have you found out what the factors that driving the businsess growth of the company in the future? If you have, the last thing that is not less important is to understand the risks of the business.

6. Understanding The Risk
It is very important for an investor not to be too confident in investing. we still have to evaluate and overcome excessive trust with the growth of the company. When a company is in a period of very rapid growth, it will make some problems. Which are:
– The Quality of product will be low
– The operation will be missed the deadline
– The satisfaction of customers are low
– The inability of management to handle with the fast growth
– Hard competition in the market

To know all the risks in a company (that you interested to investing) you can see it from thecompany’s prospectus. The prospectus of the company should be distributed to prospective by the shareholders when the company will be listed on the Stock Exchange.

SMART Legal Consulting is an Indonesian Legal Process Outsourcing provider. SMART has assisted Clients in establishing Foreign Direct Company and Representative Office more than 250 entities with 100% success rate. We also assisted local and multinational companies in handling their corporate legal matters, including providing legal retainer services for day to day business operations.

Contact Us Now to get your legal solution for your business goals.

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