Talking to Management, Part 1: The Big Questions
To give another example, Allstate (ALL) and Progressive (PGR) are leaders in customer segmentation, leading to individualized pricing of personal lines coverage. Other major personal lines companies are playing catch-up, and the smaller mutual companies are losing many of their most profitable customers.
So these companies have a clear advantage, which management should be able to communicate quickly.
What single constraint on the profitable growth of your enterprise would you eliminate if you could?
Companies tend to grow very rapidly until they run into something that constrains their growth. Common constraints are:
- insufficient demand at current prices
- insufficient talent for some critical labor resource at current prices
- insufficient supply from some critical resource supplier at current prices (the "commodity" in question could be iron ore, unionized labor contracts, etc.)
- insufficient fixed capital (e.g., "We would refine more oil if we could, but our refineries are already running at 102% of rated capacity. We would build another refinery if we could, but we're just not sure we could get the permits. Even if we could get the permits, we wonder if long-term pricing would make it profitable.")
- insufficient financial capital (e.g., "We're opening new stores as fast as we can, but we don't feel that it is prudent to borrow more at present, and raising equity would dilute current shareholders.")
- Analyze the quality of a management team and you'll have an edge.
- Sell-side analysts tend to lob 'softball' questions.
- Test your team on competitive advantage, constraints and (tricky) top-line growth.
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