The Value Equation

Chapter 6Business Model Evaluation

Some businesses simply have better business models than others. If you want examples of companies having solid business models, the Forbes 400 list of richest Americans is a good place to start. The businesses behind the Forbes 400 list have historically possessed some of the finest models going. Not only do their V-Formula variables work in concert to deliver high equity rates of return, but the businesses are universally highly scalable. More than just scalable, they often have high levels of operating leverage, which means they can grow their impressive businesses with minimal amounts of added business investment. Finally, they can also use their scalability to address extremely large market opportunities, offering high levels of corporate growth potential. For many of them, the business investment was low to begin with and the equity investment even lower, which meant that it was easier for the founding team to keep much of the equity in the businesses that they created. Companies having the best business models generally have the potential to deliver high current equity rates of return, and can do a lot of whatever it is that they do with a great deal of business investment efficiency.

Of course, getting on the Forbes 400 list of richest Americans is hardly the only measurement of financial success. For that, the bar is substantially lower. There's “rich” and then there's “insanely rich.” While successful restaurant operators, as in our ...