3 Important Business Model Factors to Consider Before You Invest

As Foolish investors, we love focusing on the businesses behind the ticker.

One way to understand the characteristics of a superior business model would be to start with its top-line contributors: Its customers.

For this, we can look at factors like the customer segments that the company serves, the nature of the firm’s relationship with its customers, and how many customers it can reach.

Customer segment

Let’s take a look at the customer segments topic first, using Boustead Singapore Limited  (SGX: F9D) as an example.

From the graph below, you can see that Boustead Singapore broadly participates in four different industries: real estate solutions; energy-related engineering; geo-spatial technology; and water & wastewater engineering.


Source: Boustead Singapore’s Earnings report

In this case, each customer group will offer different industry dynamics, market sizes, and unique challenges for Boustead Singapore to consider.

For instance, the geo-spatial technology division is a smaller division (in terms of revenue) but saw stable growth over the firm’s past five financial years. Real estate solutions meanwhile offers significantly higher revenue levels, but is way more volatile in nature.

Nature of customer relationships

As for the exploration of the nature of a company’s relationship with its customers, I shall stick with Boustead Singapore as an example.

Boustead Singapore’s relationship with its customers may differ between segments as well.

At the end of FY2014 (financial year ended 31 March 2014), I noted the comments of Boustead Singapore’s Chief Executive Officer (CEO), Wong Fong Fui, on the state of the competition in the firm’s real estate solutions division:

“Over the years, the CEO [Wong Fong Fui] quipped, the market has become more crowded with competitors emulating its success. Additionally, he also shared that local clients for Boustead have also been demanding for “rock bottom” prices.”

The intense competitive conditions may have prompted Boustead Singapore to move towards pharmaceutical and aerospace real estate projects. Over the past week, new projects involving a major pharmaceutical company and an aerospace facility were announced by Boustead.

Customer channels and reach

The ability of a business to reach its customers matters as well. And to illustrate this dynamic, I’d be using a number of different companies as examples.

With Raffles Medical Group Ltd (SGX: R01), the healthcare provider leverages on its network of almost 100 multi-disciplinary clinics across Singapore to serve more than 1 million patients annually. The large network of clinics also helps the firm feed patients to its specialist services or flagship Raffles Hospital.

Elsewhere, BreadTalk Group Limited (SGX: 5DA) reported 737 boutique bakery locations around the world (but mainly in China, Singapore, and Indonesia) at the end of 2013. This level of reach enables the company to serve one signature pork floss bun every 10 seconds. By increasing the number of stores in the future, the ability of BreadTalk Group to reach more customers may further increase.

I hope you find this insightful. Check back in the coming weeks for other important factors to consider in business models.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.