The Monoperator Business

The natural state of capitalism is a hyper-competitive race to the bottom in both prices and profit margins. Think Walmart, Costco, and Amazon. These companies compete at scale, driving ever-lower prices and low profit margins. 

But there are rare exceptions. Some businesses have persistently high margins for many years. When you see a high profit margin endure over time, that should pique your curiosity—because it shouldn’t happen.

Why not? Because high profit margins are a signal to competitors that there’s money to be made in that particular business. The strong profits give competitors the incentive to compete by lowering prices, shrinking profit margins for everyone. 

The simple reason why a high margin persists is because competitors can’t do what that company is doing. Sometimes that’s because competitors are not allowed to—think government-granted monopolies, or patents. These are rules that say others cannot compete. 

But there are plenty of situations where competition is allowed, but others just can’t execute effectively enough to pull it off. These are the businesses we’re trying to find—the businesses that are doing something that’s difficult to copy, that allows them to sustain high margins and to grow for a long time. 

I made up a word for this type of business: Monoperator 

Definition: “A business that executes so well that they’re hard to compete with simply because they do a better job. They maintain high profit margins and grow at interesting rates for long periods of time because what they do is hard to copy.”

We’re trying to find and own these monoperators—companies that establish a dominant position in the market, not because of arbitrary rules or trickery, but simply because they do a better job than their competitors.

Best regards,

Evan McGoff

Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Amazon (AMZN), Walmart (WMT), and Costco (COST). This article is not intended to be used as investment advice.