What is a good business model

When talking about investment, you must talk about the moat. When you mention the moat, you must talk about the business model. When discussing the business model, you must talk about the industry. In the end, I came to the conclusion that Moutai Niu B is because the liquor industry is born with a good life, strong brand, less research and development, and light assets, so the business model is excellent and has a wide moat. That’s true, but it’s a bit of an oversimplification of the moat theory.

We all know that Buffett attaches great importance to the moat. His old man compared the company to a castle. The castle must have high walls, a wide moat, ferocious crocodiles in the river, and a noble and honest owner in the castle. This actually includes two aspects of the moat: one is business barriers (patents, franchises, first-mover competitive advantages, etc.); the other is management capabilities and corporate culture. Both are indispensable.

Just imagine, there are high walls and wide moats in the sky, but the masters guarding the city are ignorant, the morale of the soldiers is low, and the city will fall sooner or later.

Indeed, some industries have higher barriers to entry. In addition to public utilities with policy monopoly, industries such as liquor and medicine are more difficult to enter. However, the barriers in these industries are not created out of thin air. The reason why new entrants find it difficult to gain a foothold is because the products in these industries have an extremely long return on investment period and a large initial investment. The first movers began to develop new drugs decades ago. Years ago, we began to improve the quality of wine and build our brand little by little. You can think about it, which high-end liquor company was established in the past ten years, and which high-end liquor brand was newly established in the past ten years? Large international pharmaceutical companies have not added new drugs for decades. The ultimate fate of newly established biopharmaceutical companies is either to disappear or to be acquired by major pharmaceutical companies.

Conversely, in the volatile fields such as technology and fast-moving consumer goods, some companies have been at the top of the industry for decades and have not been subverted by latecomers. For example, Microsoft, $Tencent Holdings(00700)$ , etc., do they have a moat, of course they do. But their moats do not rely on the natural barriers given by the industry, nor on the protection given by policies and geographical environment, but on the confidence and ability of entrepreneurs and managers to constantly solve difficulties, and on the cohesion of employees and corporate culture. $ Costco (COST) $ has been imitated by major supermarkets for so many years and cannot be surpassed. Is it just because the price is cheap?

It is lazy and unrealistic to be satisfied with finding an “advanced” business model and then lie on it to make money, just like trying to find a certain pattern from a K-line chart to make a fortune.

I have always believed that the reason why $Kweichow Moutai (SH600519)$ has become the leader in the liquor industry is not because it makes liquor and sauce wine, nor is it because it was given a high-end brand by the leaders early on, but because no matter in the 1960s or 1970s, the company In difficult times, when everyone was earning money after the reform and opening up, or in the unbelievably high profit period of the past ten years, this company always puts the quality of wine in the first place, and the quality of wine has not declined for decades. I don’t believe that Moutai’s leadership can be done well by anyone, and that Moutai doesn’t have a special corporate culture. On the other hand, why other high-end brands of liquor are overloaded, in fact, the root cause is the unstable product quality. When the low-end becomes popular, OEM outsources mass production, and when the high-end becomes popular, the middle-end is used to fill the high-end. In essence, this is not a problem with the business model, but a problem with the corporate culture and the quality of managers. The root cause of transcendence.

Society is constantly evolving, and markets and industries are constantly changing. It is a rigid investment dogma to respond to the ever-changing market and society with a business model, and it is only the value investment in the textbook. Moutai has only made one high-quality Maotai-flavored liquor for decades, and it has succeeded; Tencent’s business has been changing from mobile value-added services to social communication software to games, and it has also succeeded. Soldiers have no fixed method, and water has no constant potential. A successful enterprise must be the result of entrepreneurs sticking to their beliefs, assessing the situation, and constantly taking optimal countermeasures according to the current situation.

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