Welcome to The Business Academy with Sieva Kozinsky. Here's what we have in store for you today:

1. Investing a billion dollars into Chipotle
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2. Don't quit your job before buying a business
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3. An $18m telecom contractor

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​One problem I solved...

At my company Enduring Ventures, we manage over 50 bank accounts across 17 businesses… That’s a lot of accounts to keep track of.

To view our cash balances and transactions, my finance team used to spend hours every week, logging into a bunch of banks. It was a pain…

Then my friend introduced me to Vesto.

Vesto made it easy to connect all of our banks into one simple dashboard. With real-time balances, transactions, and cash flow monitoring – we went from 50 account logins to one.

For any company managing multiple banks, Vesto is a no-brainer

Thanks to Vesto for sponsoring today's newsletter

​Check out Vesto here​

In 2016, Bill Ackman took a stake in Chipotle - and the stock is up 550% since then.

His firm Pershing Square made billions off the investment.

Bill is one of the greatest investors of our time.

I've studied how he makes investments for years to improve my own approach to analyzing businesses.

And today I'm going to break down his Chipotle deal to show you his thinking behind a great investment.

Investors like Ackman don't think of an investment as buying stock; he thinks of it as buying a share of a company.

So he doesn't really look at stock charts or try to time the market- instead, he analyzes the business as whole, and asks himself if he'd want to own that business. Keep that in mind while reading.

Here’s how Bill Ackman identified Chipotle as a great investment (you can copy this strategy):

In September 2016, Bill Ackman found an attractive investment opportunity and bought a 9.9% stake in Chipotle for $1.2 billion.

Today, that stake would be worth ~$7 billion.

At the time of the investment, Chipotle was in the midst of a foodborne illness scandal:

• 1,000+ customers sick from Chipotle’s food
• Sales down 17% in the most recent quarter
• Stock down 40% over the last year
• Net income dropped by 95% year-over-year

Investors were terrified. The stock was tanking and everyone else was running away.

So why did Ackman invest?

In a letter to shareholders, he said:

Ackman believed that the problems with Chipotle were solvable.

All the panic had nothing to do with Chipotle’s core business model. As soon as the crisis was solved, Chipotle could return to being an exceptional business.

Management had to firmly address the cause of the foodborne illness problem and fix it quickly. Ackman and his team worked with Chipotle’s management to ensure this was happening.

Once they gained the public’s trust back, Chipotle could return to its phenomenal growth and strong brand.

In Ackman’s view, Chipotle had extremely strong unit economics:

• $2.5 million average store revenue in 2015, much higher than fast food competitors while only being open half the hours
• Only 2,100 US locations at the time, but demand to support 5,000 locations
• +16.8% same-store sales growth in 2014

Chipotle remains one of Ackman’s largest holdings (17% of his firm’s portfolio, or $1.8 billion) even after selling billions in shares

Years later, the crisis is in the rearview mirror.

• Revenue up from $3.9B (2016) to $9.9B (2023)
• Net Income increased from $23M (2016) to $1.23B (2023)
• Stock up 520% since Ackman invested
• Ackman helped Chipotle hire CEO Brian Niccol in 2018

The Lesson: Businesses sometimes sell for lower valuations because of temporary problems that can be fixed.

If you identify a business with a problem that scares other investors off, check if

(1) that business has strong underlying unit economics, and

(2) the problem can be fixed (even if the fix will be difficult).

If the answer to both questions is yes, you may have just found a great investment opportunity.

Bill Ackman's investing approach

Here's a summary up Ackman's approach to constructing a portfolio:

1. Concentrated - Ackman manages billions of dollars, but usually only has five to ten companies in his portfolio. He makes high-conviction, concentrated investments in companies that his team knows well. If you want diversification, just buy an index fund.
2. Control - A benefit of Ackman's concentrated portfolio is that he can buy a large chunk of each company he's invested in. This gives him influence and some control over the companies' operations and governance, allowing him to push a company in a certain direction. Ackman prefers to make investments that he has some control and leverage over.
3. Value Investing - He likes to buy good, predictable companies that the market is misunderstanding. When buying Chipotle, he knew the company would do well in the long-term given their popularity. The company just had to handle the crisis and get the market to move on.

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🔑 What you need to know before buying a business

My friend Codie makes some of the absolute best videos about buying businesses.

This one has great advice for what to do (and not do) before buying a business, including how to find a business, how you should fund the acquisition, and what size business you should buy.

Check out the video to find out why you should keep your day job while you search for a business (among a dozen other valuable lessons)

​Watch the full story here

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🔑 One interesting deal

Here's a nice boring business I found in Florida:

What I like

This is an 8-year old telecom infrastructure company in Florida. The age of the business is okay, though I usually try to buy companies that have been around for 15+ years.

The margins of the business seem good (24%), but I'll talk about those in the next section. Revenue has grown quickly - 33% annually over the last three years, according to the listing.

Grants - the US Government has brought out the bazuka on fiber internet.

What I don't like

We've seen this issue a few times before: I don't like when listings have cash flow & EBITDA listed as the exact same figure. It makes it hard to rely on the listing since it's really unlikely that they could be the same number. So I'd want to reach out to the broker to get the accurate numbers before analyzing this one more.

These businesses are feast or famine. In good times, you win big contracts and you staff up to execute on them. If your ability to contracts slows down, you can run into trouble fast.

The cash flow dynamics in these businesses are hard. You're usually getting paid net-90, which means you need to float your expenses for that period. It's painful.

The new administration is cutting a lot of programs. Personally I think it's inefficient to spend $50Bn on Fiber, when Starlink or Fixed Wireless competitors can do the same as 10% of the cost. The new administration may withdraw some of these grants (this is pure speculation but a risk to explore)

​Check out the listing here​

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Have a great week,

Sieva

P.S. Last week I announced our yearly Enduring Ventures Duration Summit. We hand-pick the attendees which includes holding company owners, investors, business owners, and long-term thinkers. If you'd like to apply for a spot, learn more and apply here.​

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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