https://calpaterson.com/porter.html
This is such a terrific essay about what makes for a good business.
The author argues that it is harder to build a lucrative business when a service or product is very fungible and fosters no real loyalty in the client base.
While he dwells a fair bit on AI businesses, I don’t understand how those businesses work. But it does not take a Warren Buffett to know that Nvidia is raking in some serious cash.
But I do understand airlines. And how interchangeable they are. I fly Indigo since they are cheap, safe and fly to plenty of destinations frequently. The Airbus A320 is just safe and I am sure Airbus have made more off Indigo than Indigo has made off me. And if a new airline came along offering equally competitive schedule and better, safer aircraft, I will switch in a heartbeat. The cute branded boxes filled with salted nuts is not enough incentive to stay.
And the business I operate in is even more fragile. Gyms are the definition of a fungible, fragile business. No one has an edge in terms of equipment. Everyone buys from about 15–20 suppliers (who are also fragile and interchangeable for most part). No one is loyal to a gym for the equipment. And someone can always find or pay for a bigger space in a better location. No one has ever told me your lever squat machine keeps me coming back for more :( or that the beach view is why they pay me every month.
What moves the needle is not being crowded, being clean and location. Being within 5-10
minutes of a client makes a difference.
And the bigger moat is the business of coaching. People are loyal to an effective coach. And effectiveness is incredibly subjective and it hinges on how a client feels about a coach.
It boils down to the comfort a client feels with a coach. And how they enjoy the training atmosphere. This again is a combination of communication, comfort, community, fun, competence and ultimately the client having some results to show for their effort, time and money.
The business of gyms is terrible. But the business of coaching can give the gym a moat and make it more rewarding financially. But without the hungry crocodiles (aka coaches) and a clean moat, the fort can very easily fall apart from disuse as everyone wants to go to prettier, newer fort next door
This is such a terrific essay about what makes for a good business.
The author argues that it is harder to build a lucrative business when a service or product is very fungible and fosters no real loyalty in the client base.
While he dwells a fair bit on AI businesses, I don’t understand how those businesses work. But it does not take a Warren Buffett to know that Nvidia is raking in some serious cash.
But I do understand airlines. And how interchangeable they are. I fly Indigo since they are cheap, safe and fly to plenty of destinations frequently. The Airbus A320 is just safe and I am sure Airbus have made more off Indigo than Indigo has made off me. And if a new airline came along offering equally competitive schedule and better, safer aircraft, I will switch in a heartbeat. The cute branded boxes filled with salted nuts is not enough incentive to stay.
And the business I operate in is even more fragile. Gyms are the definition of a fungible, fragile business. No one has an edge in terms of equipment. Everyone buys from about 15–20 suppliers (who are also fragile and interchangeable for most part). No one is loyal to a gym for the equipment. And someone can always find or pay for a bigger space in a better location. No one has ever told me your lever squat machine keeps me coming back for more :( or that the beach view is why they pay me every month.
What moves the needle is not being crowded, being clean and location. Being within 5-10
minutes of a client makes a difference.
And the bigger moat is the business of coaching. People are loyal to an effective coach. And effectiveness is incredibly subjective and it hinges on how a client feels about a coach.
It boils down to the comfort a client feels with a coach. And how they enjoy the training atmosphere. This again is a combination of communication, comfort, community, fun, competence and ultimately the client having some results to show for their effort, time and money.
The business of gyms is terrible. But the business of coaching can give the gym a moat and make it more rewarding financially. But without the hungry crocodiles (aka coaches) and a clean moat, the fort can very easily fall apart from disuse as everyone wants to go to prettier, newer fort next door