Searching for the Next Megatrends: Here's how to identify if a company is going EXPONENTIAL!
Every Wednesday, we publish articles about these kinds of topics with hopes to help you strategically think about your financial choices. In this article, we’ll focus on a coaching comment my friend and colleague, Professor Joel Litman, delivered to his workforce at Valens Research. Continue reading to know a few ways to tell when a business is going exponential.
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Searching for the Next Megatrends: Here's how to identify if a company is going EXPONENTIAL! Are you familiar with Canadian serial entrepreneur Salim Ismail? Ismail is best known for his theory of exponential organizations (ExOs), or companies that focus on specific tools, processes, and ideas that help them grow profits and valuations exponentially. Firms that score high marks on Ismail’s ExOs list tend to record impressive performances… and the results are astounding! The top 10 “most exponential” companies on the list are far beyond those with poor scores, and report 40 times higher returns than the bottom 10.
According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, one of the great things about ExOs is they’re easy to identify. In fact, you don’t need to be a Wall Street professional, have an advanced degree in finance, or spend hours poring over complex filings to recognize these companies! As a regular investor, you can lock in unprecedented gains from companies going through ExO accelerations. You just have to know what to look out for… How to Identify Companies that are Planning to Go Exponential Professor Litman says one of the easiest ways to do this is by listening to management. Based on Ismail’s report, there are 8 BIG technological waves occurring at the moment:
These trends are changing the face of many industries right now. Such innovations are creating new opportunities for both companies and investors. So, if a management team is talking A LOT about these trends on the ExO checklist, that could be a hint that positive changes are coming. … but you still have to be careful because it’s easy for management to just say the company is working on some new technology. Sometimes, it’s just lip service. What’s another way for you to tell if management is truly serious about its move into any of the technological waves mentioned above? Here’s where this key metric comes in: Maximizing the workforce with non-traditional workers. Professor Litman says when he and Ismail both spoke at a conference in Austin, Texas in March 2023, he was fortunate enough to catch the Canadian entrepreneur’s presentation. There, Ismail discussed an interesting phenomenon at the companies that embrace the latest technologies long before their competitors. According to Ismail: “Staff on Demand: Leverage external workers rather than ‘owning’ employees in order to increase speed, functionality, and flexibility while decreasing fixed costs.” What does this mean? The smartest companies don’t just rely on employees to build their businesses. Those that want to go exponential will find ways to pull a much wider network of people and expertise. Now that’s one of the ways to accelerate growth! Old line managers of dinosaur firms only see employees as their available workforce. They don’t consider contractors, personnel vendors, interns, and other non-W-2 personnel as part of their workforce assets. [Dinosaur Firms: An organization that is large yet inefficient and out-of-date.] Why? They think such workers won’t help the business grow in the long run… but that’s a BIG mistake! There’s a growing pool of talent that doesn’t fit with the traditional one-employer-only concept nowadays. Based on MBO Partners’ State of Independence in America Report in 2022, nearly 65 million Americans have chosen to join the gig economy, assisting on project-based work and eschewing the traditional employer-employee model. That’s not all! These contractors also happen to be among the top experts in the fields of computing, energy trends, and technology. Because of this, they’re a HUGE benefit to the workplaces that embrace them. This isn’t just a theory. According to Professor Litman, the average aggregate Uniform ROA of companies with larger contract workforces is 11% higher than those with smaller contract workforces. Remember: These simple factors should be on your checklist as an investor. Don’t fall into the trap of the mainstream media’s antiquated approach and traditional metrics! Instead, look for signs that a company is taking advantage of opportunities in growing industries AND using independent contractors as a force multiplier. Who knows? These companies might be going through the same kind of ExO transformations that led to outsized gains in Ismail’s list. Happy midweek, everyone! Apply these tips to identify the next great place to put your money and achieve success in your investments. Hope you’ve found this week’s insights interesting and helpful. Stay tuned for next Wednesday’s The Independent Investor! News about inflation and poor market performance have investors concerned about their wealth. Many of them think they might not be able to meet their long-term financial goals. Learn more about the differences between private and public investments in next week’s article! |
