Don’t Grow Your Business by Going After Every Opportunity

Telecom towers

You, like many business leaders, may be growing your business by going after any and every opportunity that comes your way but not seeing any results. Don’t do it. You will just exhaust yourself and everyone around you. Your business must have a clear value proposition which allows your clients to create demand for you. As demand grows, your business model must be simple enough that you can scale it to meet the growing demand. Now you will see the results you are looking for.

As some of you may know, one of the services we offer is portfolio management which requires us to apply the ROKC ™ Method to publicly traded stocks. In the last quarter of 2015, we generated a 10.81% annualized return for our clients. Not too shabby given the down trend in the market. How we achieved this result was by looking to invest in companies with a clear value proposition and a simple business model. The same advice we give our leadership coaching clients. Doh! So here is an example.

One of the sectors we invested in was wireless towers. If you aren’t curious about how your cell phone works you would never even know there are multi-billion dollar, publicly traded, companies that make the magic happen. In the US, aside from the wireless operators themselves (Verizon, AT&T, Sprint, T-Mobile USA) there are three major players: American Tower Company ($37B market cap. as at the close on 2/19/16), Crown Castle International ($27.5B), and SBA Communications ($11.3B). Reading their annual reports you learn they own and control the land on which they place their towers and they rent out space on their towers to wireless carriers (so you can get service). Music to our ears! Pure ROKC companies.

A business exists when it owns and/or controls a legally recognized property that is used in their products/services, which customers will seek to acquire if it provides them with a benefit.

These companies own and/or control the land: the key component without which nothing else is possible. The key component is used in their products/services: the product is the tower while the services involve the antennas. The benefit for the client (the wireless carriers) is lower costs than having their own.

But wait! Didn’t I write above that the wireless carriers have their own towers?!! Yes, I did. So why is there a benefit? Simple, in some locations the cell traffic may be limited so having a single antenna on a single tower would not be cost effective with respect to usage. Consequently, by saving on the cost of that tower by sharing it with competitors works in everyone’s favor.

In fact, when examining the annual reports, management tells the reader what the average number of antennas is per tower. For example, at the end of 2014, SBA Communications averaged 1.8 antennas per tower while Crown Castle International averaged 2.2. This 22% difference in revenue falls directly to profit because, for all intents and purposes, the cost of the tower is fixed. As you can see, notwithstanding the simple business model the difference between just getting by and being “successful” hinges on very little. In this case, lie any real estate company it is all about location, location, location!

That goes for you, too. Don’t grasp at any and every opportunity that comes your way. Have a simple business model with a clear value proposition and just keep doing that one thing over and over again as you scale because that, my friend, is already hard enough.