Psychology plays a massive role in a customer’s purchasing behavior, and consumer products companies take advantage of this. Obviously, this is not news, but any company in which you invest must have a clear understanding of what motivates potential customers to buy their products.    Are you sure that the company’s buyers are just as motivated to buy as you are to invest?  Consider carefully...

A freight train without a track ahead is just 200 tons of metal.  Until a new venture has distribution channels and a robust pipeline, it's basically the same. One important aspect to determine when evaluating the future prospects of a company (and the investment you are considering) is whether the company has “laid the track” for current and future sales.  Actively managing a sales pipeline is...

Are there other businesses vying for the same sale and/or aggressively protecting their turf?  Competition can limit a new venture’s success — and your investment return.  So be aware of other businesses — or the status quo — before investing.  There’s good news about the competition!  More businesses are educating customers on the buying opportunity.  Unfortunately, the company must convince...

Any new venture can project growth.  Before investing, check the practical realities that support the 10x, 100x, 1000x growth.  All too often, the relatively mundane is ignored during the analysis process - the unexpected “snakes in the grass” often seriously derail business growth.  In general, businesses that are manufacturing a physical product are much more challenging to scale.  This is, in...

Let’s start with some facts: In year one, 20% of small U.S. businesses fail.  By the end of the 5th year, 50% do so.   Throw in a newbie entrepreneur, and those statistics may be generous.  Studies have pointed to a myriad of reasons; no market need, ran out of cash, and a wrong team rated high on the list..  Here’s a fundamental truth that we embrace at Carofin: You must believe in the...

You may not remember what was happening in information technology around the turn of the century (It’s known as the “The dot-com bubble”).  For many people, the lesson we’re talking about in this article was learned the hard way.  According to FactSet, in the early part of 2000, IT constituted close to 35% of the Market Capitalization of the S&P.  And, in about a year and one-half, when the...

If what you are investing in “rocks the world,” be prepared for the company to face unexpected challenges convincing customers.  Double any timeframe presented as well as the cost of success.    Significant sales will take longer (see  Crossing the Chasm by Geoffrey Moore) and cost more per early customer.       In our series of nine questions to ask before investing in a new venture, ask...

Sure, there may be 7 billion people in the world with close to 14B legs, but how many of those individuals will stop what they’re doing and switch to this company’s brilliant new brand of pants? Customers, or a lack thereof.  It’s why businesses thrive or eventually fold. Every business plan projects ever-increasing sales (often exhibiting a hockey stick growth line), but can the company truly...