BIBO: Business Investor, Business Operator

A cohort based course taught by Ali Ladha and 10-K Diver

What this course is about

Warren Buffett often says he's a better investor because he's a business operator, and a better operator because he's an investor. In other words, operating businesses and investing in them are complementary skill-sets. Each reinforces the other.

That's why we're creating this course. We want to help folks understand businesses better — from both these standpoints.

We want business owners/operators to think like Warren Buffett and other great investors, so they can run their businesses in a way that makes financial sense.

And we want investors to deeply understand the economic characteristics of various businesses, so they can identify wonderful businesses and buy them at reasonable prices (whether through privately negotiated transactions or publicly via the stock market).

Who this course is for

We think anyone who is fascinated by businesses, and curious about how they work, will benefit from this course.

We have 2 main target audiences in mind: small business owners/operators and new investors.

1. Small business owners/operators.

   Many people who run businesses don't know enough finance. For example, how to read financial statements. How to tell whether the money invested into a project is earning a good return. How to build simple financial models and use them to allocate capital intelligently. Why some businesses never seem to have any cash, despite showing strong profits year after year. Etc.

   Due to this lack of financial knowledge, business operators often end up taking sub-par decisions. These decisions can cause businesses to under-perform relative to their potential, and sometimes even fail. For example, some businesses take too much risk (eg, hiring too many people too soon, or borrowing too much money to invest into projects without an adequate margin of safety). Others aren't aggressive enough (eg, passing on lucrative acquisition opportunities, or advertising too little to grow their customer base).

   We think our course will help business operators understand their business's fundamental economic characteristics really well. This will help them take high quality business decisions, with more confidence.

2. New investors.

   Since 2020, millions of people around the world have started investing in stocks — for the first time in their lives. This can be a huge positive, as a culture of saving and investing can be good for society as a whole.

   But there are risks. For example, new investors may be more susceptible to fads and frauds. Also, their understanding of the fundamentals of investing (how to analyze companies, how to pick stocks, etc.) may not be as well developed as more seasoned investors. And so, new investors may be more likely to panic (and thus take rash/poor decisions) during market drawdowns — like the one we're currently experiencing. Losing a lot of money in a short time can permanently diminish a person's enthusiasm for stocks. That's a pity, because the stock market can be a tremendously powerful engine that ordinary people can use to build life changing amounts of wealth.

   We think our course will give new investors an appreciation for business. How businesses work. How money flows in and out of them. Revenues vs Earnings vs Cash flows. The relationship between what a business earns on its capital and what an investor earns on its stock. Why a great business may not be a great stock. Etc.

   We believe that understanding these fundamental concepts will help investors analyze companies well, become good judges of business quality, pick stocks with confidence, cultivate a long term mindset, and ultimately harness the power of intelligent investing to achieve financial security and independence for themselves and their loved ones.

What this course will teach you

This course will help you understand:

• How businesses work. They raise capital — from owners (equity), creditors (debt), and others (eg, suppliers and customers; float). They use this capital to build products and services that create value for customers. This lets businesses earn a return. They then re-invest part of this return back into themselves, to preserve and/or grow their earning power in the face of competition. Along the way, they distribute surplus cash back to their owners. In this course, we'll examine each of these steps in detail.

• How money flows in and out of businesses. Typically, businesses conduct transactions with several counter-parties: owners, creditors, suppliers, customers, employees, and the government. These transactions create cash flows into and out of the business. In this course, we'll go over several of these transactions, and work out the cash flows from each.
• What economic characteristics make a business wonderful to own and operate. Warren Buffett says it's better to buy a wonderful business at a fair price than a fair business at a wonderful price. But what makes a business wonderful? It's a laundry list of economic characteristics: high returns on equity capital, a long re-investment runway for future growth, durable competitive advantages (ie, a "moat" that competitors can't easily assail), anti-fragility, high cash flow conversion, operating leverage, bargaining power with suppliers and pricing power with customers, robustness to inflation, and more. In this course, we'll list these traits, and then analyze several businesses to see which traits each one has and doesn't have.
• How to read a business's financial statements. Virtually all of a business's economic secrets are hidden in its 3 financial statements — the Balance Sheet, the Income Statement, and the Cash Flow Statement. Operators can use these statements to figure out which parts of the business they should focus their time improving and optimizing. Investors can use these statements to tell whether or not a business is wonderful, and whether its economics are improving or deteriorating. In this course, we'll show you how to read and interpret all 3 financial statements, and what to look for in each of them. At first glance, it looks like these statements are written in a strange foreign language: accounting. So, we'll give you a crash course in accounting — cash vs accrual accounting, key line items in each financial statement, common mis-conceptions people have about accounting, etc. If accounting is a new language, we'll help you become fluent at speaking it, and at thinking in it. And we'll give you a 2-way dictionary, so you can translate accounting concepts to plain English and vice-versa.
• Earnings vs Cash flows. Just because a business earns $1 of profit, it does not mean the business has $1 of extra cash to distribute to its owners. Some businesses never seem to have any cash — in spite of a record of strong profits. That's because of non-cash costs, changes to working capital, and ongoing investments to maintain/grow the business's earning power. When businesses invest into projects, they usually put up cash upfront. Over time, they hope to take more cash out than what was put in. But the further out these "paydays", the riskier and less worthwhile the project. For example, many modern businesses are light on fixed assets. But they may need significant marketing and/or R&D budgets. These investments don't show up on the Balance Sheet; they go through the Income Statement. This may cause profits to be understated and returns on capital to be overstated. In this course, we'll dissect nuances like this and show you why both operators and investors should care deeply about a business's unit economics and cash on cash returns.
• The fundamentals of capital allocation. Businesses can use capital in several ways: they can invest into new projects, acquire customers, buy out competitors or adjacent businesses, pay down debt, issue dividends, buy back shares, or simply let cash pile up (to deploy when future opportunities arise). A business operator can create tremendous value for owners by allocating capital intelligently amongst these choices. In this course, we'll talk about the key factors that business operators should consider when making these decisions, and how investors can tell whether or not a business's capital is being allocated properly. We'll also do some practical financial modeling. Through hands-on exercises, we'll build simple financial models, simulate them under different conditions, and use the results to guide operating/investing decisions.
• How to assess and mitigate risk. Businesses are constantly subject to various kinds of risk. Competitors may try to steal market share. Regulators may impose new rules that reduce profits. Rising interest rates and stricter lending standards may reduce access to cheap capital. Inflation may raise costs, drive down profits, and increase working capital requirements. Customers, suppliers, and employees may try to negotiate better terms for themselves. Supply chain issues may create logistics challenges. Etc. In this course, we'll discuss how to assess a business's exposure to such risks, and what strategies an operator can adopt to increase their business's reliability, robustness, and resilience. For example, a lot of risks stem from concentration: over-reliance on a particular product, customer, geographic location, social media channel, etc. The antidote to this is diversification — a concept that both operators and investors should embrace.

The instructors

Ali Ladha and 10-K Diver are the instructors for this course. Both will be present (and available to share insights, answer questions, etc.) during all discussion sessions.

Ali Ladha is a finance and accounting professional with over 12 years of experience working in accounting, capital markets and financial advisory. Ali began his career working at the "big 4" accounting firms KPMG and Deloitte. He then continued his career working in capital markets at BMO and in tech at Apple before launching Vertical CPA in 2020.

Since then, Ali has been helping start-up founders and small businesses with accounting, tax, bookkeeping, forecasting, financial planning and analysis (FP&A), fundraising, and strategic planning.

10-K Diver is a computer scientist. He doesn't have much formal training in finance or investing.

Over the years, by piecing together information from various sources (eg, books, blogs, podcasts, YouTube videos, Warren Buffett's letters, 10-Qs, and 10-Ks), 10-K Diver gradually figured out for himself the fundamental principles of business, finance, and investing.

Now, he wants to help others learn these principles, so they can make better financial decisions in their lives. To that end, he writes detailed Twitter threads dissecting these ideas. He also has a social podcast, Money Concepts, where he talks about these ideas and answers live questions from his audience. He works hard to keep his writing and talking simple, clear, and jargon-free.

Course format

We want this course to be cohort based, fully online/virtual, fun, and respectful of your time.

• Cohort based. This means you'll be part of a "cohort" of students, who all start the course at the same time and make their way through it at the same pace. The benefit is: it's a group activity. Cohort members can motivate each other, help each other learn, etc. Also, throughout the course, you'll have live access to us instructors (Ali Ladha and 10-K Diver). You can ask us questions and such. (This is different from a self-paced course, where typically you have to work through all the material yourself, without live access to instructors.)
• Fully online/virtual. You can take this course from anywhere in the world.
• Fun. Businesses are fascinating. So, a course that teaches you about them shouldn't be boring. We want you to participate actively, share your business/investing experiences with us, discuss and learn from fellow cohort members, etc. To facilitate this, we'll organize demos and mini-projects, group exercises, breakout sessions, etc. Our philosophy is: learn by doing, not by listening to boring lectures.
• Respectful of your time. We want this course to be short, crisp, and impactful. Not a semester long or year long affair. Give us maybe 12 hours of your time, spread out over 2 weeks (6 or 7 sessions). And for that, we'll try to make sure you walk away with timeless business insights that'll serve you well for life.

Logistics

Here's what we're thinking:

• Platform. We're planning to offer the course through Maven. This is a platform that tries to make it easy for us to offer cohort based courses, and for you to participate in them.
• Discussion sessions. We want to hold maybe 6 or 7 discussion sessions over 2 weeks. At 2 hours per session, that's 12 to 14 hours of your time. We want to encourage live participation in these sessions. But if you live in an inconvenient time zone or can't make it to some sessions because you're busy, we want to give you the option to watch them later.
• Cohort size. We'd like to have 50 to 60 students per cohort.
• First cohort. We want to launch on Monday, Sep 5, 2022. Hopefully, our first cohort will start the course on this date and complete it over the next 2 weeks (ie, by Sunday, Sep 18, 2022).

Price

We want to price the course at about $1000 per student.

We arrived at this price by considering 2 things: consumer surplus for our students and income for us.

1. Consumer surplus for our students. We want people who take our course to derive far more value from it than what they pay for it.

   Value proposition for small business owners/operators. A reasonably successful small business owner in the US or Canada typically pays their accountant about $5K to $10K each year to do their bookkeeping and taxes. But such owner/operators often don't fully understand the financial statements their accountant prepares for them. They typically view bookkeeping more as a compliance requirement than as a source of valuable information they can use to shape their business strategy. For a fraction of what they pay their accountant, this course can help such owner/operators understand their books, derive meaningful insights from them, and use these insights to drive intelligent business decisions. This can potentially generate many thousands of dollars in annual savings, earnings, and cash flows.

   Value proposition for new investors. New investors are often prone to making mistakes. For example, 10-K Diver made lots of them when he first started out investing. If only he had known then the concepts taught in this course, he would have avoided losing many thousands of dollars in poorly chosen stocks. Then there's the opportunity cost of these decisions. If 10-K Diver had used some of this course's concepts to pick better stocks than the ones he put his money into, he'd be worth tens of thousands of dollars more than what he's worth today. So, we believe: because this course helps new investors think more clearly about businesses, it will likely pay for itself many times during such investors' lifetimes.

2. Income for us. As instructors, we want this course to produce decent income for us, considering the time and effort we're putting into it.

   Let's say "decent income" is $50K after taxes per instructor per year. There's 2 of us, so we need 2 * $50K = $100K per year. If our tax rate is about 33.33%, the course has to produce $100K / (1 - 33.33/100) = $150K of pre-tax income for us per year. If our operating margin is 80% (accounting for Maven's cut, credit card processing fees, etc.), we need $150K / (80/100) = $187.5K in annual revenue. If we do 4 cohorts per year, and take 50 students per cohort, we need to charge $187.5K / (4 * 50) = $937.50 per student to get to our target. We rounded this up to $1000.

If you think this price is too high (or too low!), please let us know by filling out the form below.

I'm interested! What should I do now?

We're delighted you want to take our course!

Please fill out this short form, and we'll email you as soon as we have more details. Also, as a token of our appreciation, we'll give you a 25% early bird discount (ie, you'll pay only $750 to take the course, not $1000) if you submit the form by May 31, 2022.