Results of a Successful System

The way you invest your time, is directly linked to your success or otherwise. This is why it’s important for you to identify the activities that sucked your time up, without providing you with some kind of measurable progress. Equally, you need to determine what activities were most profitable for you.

Some companies are just better than others. It could be name recognition, innovation, market share or any number of other attributes that makes a good company stand out from the herd. The important thing for an investor is being able to spot the eventual winners before they become household names

Three Secrets of Success

So, what is it about one company that makes it a good company, and does that description equate to a good stock to invest in? The answer depends on whether you ask an accountant, an economist, a marketer or a human resources expert, but by pulling all of those disciplines together, you generally can define a good company by these three characteristics:

Competitive advantage Above-average management Market leadership

Competitive Advantage

Michael Porter pioneered the concept of competitive advantage and broke it down into two forms: differentiation advantage and cost advantage. Differentiation advantage is when a company provides a superior service or product for the same price charged by the market. Cost advantage is when a company provides the same service or product as the market, but at a lower price. Porter collectively refers to these as "positional advantages" because they define the firm's position as having the leading service or product in its specific industry. He also states that these advantages cannot be sustained for any length of time because the promise of economic rents invites competition.

Above-Average Management

The quality of its management is a big factor in whether a company is successful, and an important attribute in any management team is a blend of experience. Experienced managers can not only lead a company through market cycles, but they can also provide mentorship for the next generation of managers.

Another telling attribute is when management tends to stay at a company for a long period of time. Talented managers can be swayed to move from company to company with handsome compensation packages, but tend to stay at companies where they like to work and they believe in their company's future successes.

Market Leadership

One of the most important characteristics in becoming a good company is market leadership. Leadership can come in many forms, but the reputation that comes along with this tag is priceless. The label of "industry standard" is one that every company strives for. Examples include leading the market in quality, innovation, customer service or even warranties.

Market leadership is probably the hardest status to maintain. No competitor is content being No.2 in the industry. This is where barriers to entry come into play. If the company you are watching competes in an industry with high barriers to entry, it's much more likely that its market dominance can continue. Companies can also move toward market leadership by buying and merging with other successful companies to improve their market share, vertical and horizontal integration, and technological bases.