3 Frameworks That Create Durably Wonderful, Cash-Flowing Businesses | Ep. 36

Episode Summary

This episode outlines three foundational business strategy frameworks to evaluate market dynamics, create meaningful differentiation, and establish durable competitive advantages. Hosted by Brian Spear of Sunrise Capital Investors, the discussion translates academic concepts into an executive framework for business owners and investors evaluating capital allocation. Spear synthesizes Michael Porter’s Five Forces from Harvard Business School, the Blue Ocean Strategy from INSEAD, and Hamilton Helmer’s Seven Powers from Stanford to address three core operational questions: market selection, business model differentiation, and economic durability. Using the mobile home park asset class as a primary case study, the briefing illustrates how constrained supply, zoning barriers, lack of third-party institutional property management, and high switching costs insulate operators from rapid competitive entry. Spear contrasts these characteristics with defensive sectors like self-storage, where low barriers to entry and low switching costs can erode profit margins when capital floods the market. The analysis emphasizes that business owners must look beyond short-term internal rates of return and focus on long-term absolute free cash flow, prudent capital structures, and buy-and-hold strategies. Ultimately, the briefing provides investors with a framework to determine whether a company’s historical performance stems from structural market advantages or temporary economic conditions.

Key Takeaways

• Evaluating a business requires analyzing market structure, model differentiation, and moat durability rather than relying solely on a good idea.
• Michael Porter’s Five Forces determine whether a market’s underlying economics allow business owners to retain attractive returns after accounting for suppliers, buyers, and competitors.
• High customer switching costs provide structural insulation against competitive threats, protecting long-term cash flow durability.
• A true Blue Ocean strategy requires altering the underlying value proposition and capital strategy rather than simply operating in a fragmented market.
• Business moats and strategic powers must be continuously evaluated, as shifting technology, market entries, and changing customer expectations prevent any advantage from being permanent.

Key Topics Covered

• Business strategy versus business ideas
• Porter’s Five Forces and market structure evaluation
• Blue Ocean Strategy and value proposition differentiation
• Hamilton Helmer’s Seven Powers and competitive moats
• Mobile home park economics and zoning barriers
• High customer switching costs in real estate assets
• Self-storage market saturation and supply risks
• Capital allocation, capital structure, and buy-and-hold investing
• Managing for long-term absolute free cash flow vs. short-term IRR

Episode Chapters

00:00 Good Ideas AREN’T Good Strategy
Brian Spear introduces why a good business idea fails without a strategy to withstand competition and market dynamics.

01:29 The 3 Golden Frameworks
An overview of core frameworks from Harvard, INSEAD, and Stanford that answer where to build, how to differentiate, and how to stay durable.

06:07 1. Porter’s Five Forces
An explanation of Michael Porter’s framework for assessing market structure and economic power distribution.

07:04 Real World Example (Mobile Home Parks)
Application of the Five Forces to mobile home parks, detailing supply constraints, zoning laws, and management requirements.

15:15 2. The “Blue Ocean” Strategy
How to stop competing on standard industry terms by altering the value proposition and capital structure.

22:21 Results of Doing It Right
A discussion on how long-term capital allocation strategies yield consistent distributions and downside protection.

23:44 3. Building Your “Moat”
An overview of Hamilton Helmer’s Seven Powers, distinguishing temporary business strengths from durable economic power.

25:55 The “Switching Cost” Killer
A direct comparison between self-storage and mobile home parks demonstrating how high switching costs protect profit margins.

34:18 A Static Strategy Won’t Work
Why business strategy requires continuous iteration as markets evolve, new capital enters, and technologies change.

Full Transcript

[Transcript begins]

Brian Spear: Too many entrepreneurs have a good idea but have no real business strategy and upon entering the market they get punched square in the face. Maybe they chose an oversaturated market. Maybe they created something useful but not meaningfully different from everything else already available. Or maybe a larger, more capitalized competitor comes in and copies their business model and crushes them like the cockroaches they are. A good idea might get you into the business, but it doesn’t tell you whether or not you’ve chosen the right business. And that’s why having a really solid business strategy is so unbelievably important. Today, we’re going to take a look at three major frameworks for developing a rock-solid business plan. We’re going to talk about how to choose a market where the economics can work in your favor. We’re going to talk about how to differentiate yourself from the competition and then how to build a moat that makes it very hard for the competition to copy you. Even if you’re not an entrepreneur, okay, let’s say you’re an investor. It is very important that you understand these frameworks because when you invest, you’re allocating capital to a business. And you need to understand whether that business has a legitimate business strategy or whether recent performance is hiding some of the structural weakness underneath it. OK, so welcome back to the Sage Investor. I’m Brian Spear. My mission is to help you generate cash flow and build legacy wealth in a tax efficient manner, because that’s what I’m trying to do for my family. And I’m sharing all the secrets that I learn along the way. I want to give you a high-level flyover of three books and three frameworks that helped organize how I think about business strategy. Let’s say that you wanted to become substantially better at business strategy. Where would you start? What would you do? It would be prudent to go to the best business schools in the world. So you might begin at Harvard Business School, internationally renowned, where Michael Porter developed one of the foundational frameworks in modern business strategies called the Five Forces. Okay. You might then go across the pond to INSEAD over in Europe, which is the best business school overseas, where professors teach the Blue Ocean Strategy. And then you might come back stateside over to the West Coast towards Silicon Valley in the work of Hamilton Helmer, who taught business strategy over at Stanford for a decade and eventually distilled his thinking into seven powers. I’ve studied these frameworks at different points in my career over an extremely long period of time and allowed these business strategists to just simmer and ruminate over time as I’ve built a business and grown and invested for decades now. But I’d never heard anybody really connect them. precisely in the way that I’m discussing to you here, trying to find a way to connect the dots on the best business strategist globally. That connection for me became much more clear when I spent a little bit more time up at Harvard University, doing some executive education, surrounded by extremely accomplished real estate entrepreneurs from YPO. And as I listened to kinda how these guys had built their businesses and scaled their companies and what they’re seeking to achieve downstream, I began to see that a lot of these frameworks, these three different frameworks, they answer three distinctly different questions. From my perspective, the first one is, in what market should I build a business? And the second one is, once I’ve chosen the appropriate market, how can I differentiate my business model from the competition? And the third question is, once I’ve chosen a market and I find a way to ultimately differentiate myself from the competition, how can I ensure that I have persistent differentiated returns over long periods of time? How can I ensure that those phenomenal economics last consistently? for decades and decades and decades to come. Michael Porter begins with the market. Before you think about the product or the brand or how well you can execute, you have to ask whether you’re entering a business, entering a market where the economics can actually work. So blue ocean strategy comes next. Okay. Once you’ve chosen the market, how will you become different and unique within it? How are you going to avoid competing on the same exact terms as everybody else? Then the seven powers asks the longer term question. Once you’ve entered a really good market and created something differentiated, how do you make that advantage durable? Okay. How do you create what Warren Buffett would call a moat, something that protects differentiated profits over extremely long periods of time? So this episode is built around three questions. First, market. Are you in the right market? And who holds the economic power within it? Second is differentiation. Right. What makes the business meaningfully differentiated from all the alternatives? And then third is durability. What prevents a well-funded competitor from copying the advantage and eliminating the profits? As Jeff Bezos has stated, your profit margin is my opportunity. And as we always see on the old Shark Tank, right? Why doesn’t the competitor come in and crush you like the cockroach you are? In very, very simple terms, it is the market, then the model, then the moat. And this is not only a framework for entrepreneurs, right? If you’re investing in a company or a private business or a real estate operator, right, you’re really underwriting whether the strategy that produced the historical results can continue to work in time. So let’s start with Michael Porter, tee it up on the market itself. A great operator cannot outperform a dying market. So before asking how to win, Porter asks whether the structure of the market allows attractive economics to remain with the owner. His five forces framework looks at five different things. One is the current competition, competitive rivalry. Also, the threat of new entrants coming in, new competitors. Also, supplier power, buyer power, and then lastly, the threat of new substitutes. The point for us here today isn’t to memorize all these five categories, but to understand where the economic power sits. There’s a lot of different forces coming together to determine in a market where the full economic pie gets split amongst all these respective parties. After the customer, the supplier, the lender, the competitor, the regulator, and the substitute take their share of that pie, how much value remains with the business owner. And also what happens after everybody notices that the business is actually making a bunch of money. A market can look really attractive while the demand is strong and the competition is really, really limited. But if competitors can enter very easily, customers can switch without much friction or suppliers control a very critical input, the excess returns that you had been generating, they might not last. So let’s use investments in mobile home parks as an example here. When we first started buying mobile home parks 15 years ago, there really weren’t a lot of people out there doing what we were doing. The industry was fragmented, overlooked, had limited institutional competition. There were only a couple of permanent capital vehicles, i.e. publicly traded REITs, and the vast, vast, vast majority of the 45 or so thousand mobile home parks in the country were owned by mom and pop operators, which allowed for more attractive margins and really high quality acquisition opportunities. There wasn’t a ton. What about the threat of new entrants? Well, let’s think about it this way. Once you own a mobile home park and you’re renting out those lots to residents in the community, one of the unique things about the industry of mobile home parks is that they’re really not building any more of these. The supply of brand new communities is constrained by two main forces. The first is the NIMBY syndrome and the second is burdensome zoning regulations. So let me just give you an example here. Let’s assume that you have a high demand for affordable housing in your neighborhood, which you likely do, because virtually that’s an issue everywhere in the country. And I wanted to build a brand new mobile home park because it’s likely to produce quality economics. So I propose that I’m going to buy all the land immediately next to your house. And I’m going to go construct a 500 space mobile home park literally right next to your house. How do you feel about that? Well, the truth is you probably don’t wanna live next to that mobile home park. Most people would say they don’t want to because the NIMBY syndrome, not in my backyard. So people, when a new mobile home park is proposed, people come out with torches and pitchforks and they really don’t allow these to actually get approved. Secondarily, even if you can get past the resident, the community opposition, the local municipality has burdened some zoning regulations that typically do not allow for brand new manufactured housing to be developed. Why? Because mobile home parks provide less revenue for the municipality than that which you would receive from building virtually any other type of real estate. Why? Because that other real estate is literally considered real property. Mobile homes are taxed as chattel, very much like a car or a truck. It’s personal property tax instead of a real property tax. So when you develop a mobile home park, the government actually loses money because they’ve got to pay for police and public school tuition for 18 years for hundreds of children on a relatively small parcel of land. And it’s for these reasons that the threat of new entrance is very, very minimal in the mobile home park sector. As far as new competitors coming into the industry, it’s very, very difficult to become established in the mobile home park sector. Why? Because you really can’t just come in with a big chunk of money and buy a big portfolio really quickly. This is because there are zero institutional property management companies in our asset class. This as opposed to virtually every other asset class where if you understand the business, you think it’s a good economic decision to invest in said niche. You can basically hire a third party property manager that has a brain in his head. It’s actually got some pretty good skills to manage that business on your behalf. But that does not exist in the mobile home park sector. In order for you to actually get reasonable scale inside of the mobile home park sector, you must build a vertically integrated property management company, which decreases the threat of new entrants. Why? Because, you know, in the multifamily space, you might have rents that are $2,000, $2,500, $3,000 per month for rent. Right. Well, in the mobile home park sector, we might charge $300 for lot rent. Now imagine the property management cost. Let’s say we got a 5% property management fee. For the privilege of serving that resident on a monthly basis, the property management company receives $15 of top line revenue. And with that $15, you as the business owner are required to basically fund an entire property management company to hire the on-site staff, get all of the software, build out multiple layers, travel to the communities, a litany of things. just with that very de minimis amount of revenue. It’s very, very hard. And it’s really why property management in our niche is kind of a necessary evil. It all points to being a real estate investor. You don’t really have margins on the property management side. It’s why that business model hasn’t really been scaled or institutionalized in terms of institutional property management in the mobile home park sector, again, which minimizes the threat of new entrants. Now let’s go back to another one, the threat of new substitutes. What does this mean? When somebody is looking to reside in a property, they have a lot of options. They can choose to buy their own home. They can choose to rent a class A multifamily property. They can choose to purchase a condo or a townhome, rent in a townhome, rent in a condo. They can choose to rent a B-class or C-class multifamily, or they can live inside of a mobile home park. These are all the substitutes that are available. Once somebody is already residing inside of a mobile home park, what are their options in terms of substitutes? I’m going to invert that by basically stating, let’s say somebody owns their own individual single-family residence. Typically, when that is the case, they’ve had the luxury of building a little bit of equity. They might have a higher W-2 income. They have more optionality. If you have the ability to go out and get a mortgage and buy a single-family home, you can choose whether you want to do that or rent a Class A, Class B, Class C multifamily. You can choose how you want to live. However, if you don’t have the ability to afford a single family home and own it, you might have to go rent. And if you have to rent, you might be forced to go rent class A. And if you can’t afford that, you might be forced to go rent class B, class C. And if you can’t afford any of those, typically we serve the most unsubsidized form of affordable housing in the country. All those residents typically go to mobile home parks. It is the last bastion of unsubsidized affordable housing. And the truth is folks go from class A to class B to class C to mobile home parks. And once you live in a mobile home park, what is a substitute option if you cannot afford a mobile home park? The truth is there really aren’t other options out there in the marketplace. It’s a sad state of affairs. But here in this country, from a purely objective competitive strategy perspective, if you can’t afford the rent on a monthly basis in a mobile home park, oftentimes the next step is being unfortunately under a bridge or in need of severe assistance. And it’s for this reason, there are not a lot of substitutes or opportunities once residents ultimately reside inside of their respective communities. And it allows you, again, from the competitive perspective to know you’re in a pretty good market. So there’s a handful of reasons why we believe that mobile home parks are a wonderful market in which to invest. And that is the difference between evaluating an opportunity and simply becoming excited about the new shiny object coming across the desk. Okay. The question isn’t only can we operate this asset really well. The question should be, does the structure of this market give a strong operator enough room to produce and retain attractive economics? Okay. And that’s why Porter’s framework really, really matters. Investors should ask whether a business is succeeding because the market structure genuinely supports attractive economics or because it’s temporarily benefiting from conditions that might disappear once more capital comes in and competition arrives. So once you choose the right game, it improves the odds, but it still leaves you with another problem. Once you enter an attractive market, what prevents you from looking exactly like everybody else? So let’s talk about the second concept, which is the Blue Ocean Strategy. The goal of the Blue Ocean Strategy is not merely to beat competitors. It is to stop competing exclusively on the same terms. Most established markets have accepted conventions, okay? Customers expect certain things. Operators price in similar ways. Companies make similar trade-offs. Everyone competes along the same dimensions. Okay. Blue Ocean asks whether a company can change those dimensions. Can it eliminate something the industry assumes is necessary? Can it reduce a cost customers do not truly value? Can it raise an element that the industry has neglected over time? And can it create something that did not previously exist? The strongest blue ocean strategies create distinctive customer value while also changing the economics of delivery. But there’s an important distinction here. An uncrowded or fragmented marketplace is not automatically a blue ocean. A business might just simply have been discovered in a market before larger competitors come in. Those can still be valuable undoubtedly. But a true blue ocean requires more than just a few bidders. It requires a different value proposition that you bring to the marketplace. So from our perspective, when we got into mobile home parks, there weren’t a lot of people bragging about owning mobile home parks around the water cooler 15 years ago when we first started doing this. Again, not a lot of people were involved in the industry, were relatively fragmented. And over time, more and more capital has become interested in the asset class, which is wonderful. But what differentiates us compared to, I would say, competitors in the industry? My contention would be that the capital strategy separates our firm from a lot of other firms in the marketplace. We have talked on numerous occasions about the capital strategy. And so the capital strategy is our framework for allocating capital. It’s got seven pillars, one for each letter. Cash flow first, add value, protect the downside, invest, don’t speculate, tax efficient structure, assurance of outcome, and legacy built to last. Each pillar rests on three of the 21 Sage Evergreen Principles, timeless wisdom drawn from history’s greatest investors and proven across more than a billion dollars of our own transactions. We teach this openly through the Sage Investor, and we implement it every single day over at Sunrise Capital Investors. And why this differentiates us from the marketplace is the following. There are only a couple of publicly traded markets folks that are involved in our asset class. Meaning, capital oftentimes is quick fix and flip. We much prefer buy and hold in a tax efficient manner over extremely long periods of time. This is how you generate cash flow and build legacy wealth in a tax efficient manner. Those who don’t have permanent capital structures with that buy and hold mentality are invariably on a fix and flip process and the only permanent vehicles are really those publicly traded REITs. So when you have the mindset of buy and hold durably wonderful businesses over a long period of time, it unlocks a lot of opportunity to differentiate yourself from the marketplace. It allows us to think over the long term. Too often times, businesses are pressed to hit the quarterly number and not focused on the long term benefits of the business model. The market is a voting machine in the near term and a weighing machine over the very long term. And our job is to just get heavier and heavier and heavier. So we prioritize long-term, absolute free cash flow rather than maximizing short-term internal rate of return through a fix and flip strategy. And that thought process allows us to have a longer investment horizon and change the capital structure that we would put on any given individual asset and the enterprise as a whole. With a prudent capital structure, you can reduce risk, you can improve survivability, you can make better long-term decisions. And if you have the ability to make better long-term decisions, it allows you to create a significantly better resident experience. Every time that we ultimately acquire an asset, we go in and we survey all of our residents to gauge how we can serve them better. If it is a pseudo 55 and over community, sometimes they would prefer to have an upgraded clubhouse because folks are driving around in golf carts trying to go to the clubhouse and hang out and play bingo on Fridays and play cards with all the ladies and all have a good time, that’s beautiful. Sometimes inside of a family park, folks would prefer to have a new basketball court or a new soccer field or a brand new playground if there are young children. The point is, it allows us the opportunity to reinvest in the amenities that our residents actually value as opposed to trying to drive the highest internal rate of return, which would force an operator to minimize the amount of capital they’re willing to inject into the asset in an effort to drive the highest internal rate of return over a one or two or three year period, as opposed to creating the best mutually beneficial structure for you and the residents so that all stakeholders benefit. And if you think over the long-term, that’s going to provide you with the highest amount of absolute free cashflow, which is a much better long-term result. What else are we doing to differentiate ourselves when we come into the marketplace, right? As I mentioned, there’s really no legitimate institutional third-party property management companies in this asset class. So we onboard and we bring in institutional property management systems and processes. We bring in folks that have decades of experience in management, be it within the manufactured housing sector and institutional best practices from multifamily and the like to ensure that we’re serving the residents to the best of our ability and finding a way to drive more of the top line revenue to the bottom line than that which a lot of our competitors have when getting involved in this asset class. It’s a way to differentiate yourself, in my humble opinion, and it all starts with how we manage money, how we think, not just what we do, but how we think. And from my perspective, that capital strategy is a huge delineating factor, completely blue ocean in the way that we bring our philosophy to the marketplace, amongst other things. And so how has this played out over time? We’ve now implemented this for 15 years inside of our organization. And across a billion dollars of transactions, we’ve had 35 consecutive quarters of on-time distributions to our partners since the inception of our first fund. That’s where that statistic derives. It goes back farther than that, but we basically stayed from the very beginning of our first fund structure, as opposed to just deal specific stuff. 35 consecutive quarters of distributions, zero capital calls, zero pause distributions, zero investor capital loss. It’s just been a wonderful, wonderful ride over long periods of time. And I don’t believe that we would have otherwise had that luxury when so many different folks have had difficulty in the last handful of years if we did not have the appropriate mindset and blue ocean strategy on how best to ultimately allocate capital for the betterment of all stakeholders involved. To me, that is most assuredly a differentiator in the marketplace. A true blue ocean changes what customers and sellers or partners value. And there’s some built-in tension there, right? The more successful the strategy becomes, the more visible the opportunity becomes and competitors begin to arrive. The blue ocean begins to turn red. Differentiation creates the opening, but it doesn’t guarantee that you’re ultimately going to retain those economics over the long term. And that really brings us to the third question. Once the opportunity becomes visible and institutional capital starts flooding the market as it has in the mobile home park sector over the last 15 years, what stops somebody else from copying it and taking away your profit margins? The seven powers are scale economies, network economies, counter positioning, switching costs, branding, cornered resources, and process power. We’re not going to do a deep dive into all of these, okay? A more useful distinction is really going to be between a strength and a power. Just give you a high level here. A strength helps a company perform. A power produces persistent differential returns and includes a meaningful barrier to imitation. A business might have a super talented team, right, a good product, a strong culture, all wonderful strengths. Those are important strengths. But if a well-funded competitor can recreate them, they might not protect any of the economics of the business. It might not be the best strategy. Amazon is an obvious example of scale and process power. Its distribution system, its purchasing power, all the logistics infrastructure that it’s built, and the willingness to operate at lower margins make it very, very difficult for a smaller competitor to challenge it directly. again, running back to the phrase, your margin is my opportunity. So whenever they see a new business model that’s out there, that’s doing pretty well, that has a pretty fat margin, they come in and they can intentionally run at a loss for an extremely long period of time to run you out of business because they’ve got so much free cashflow from all the other areas of their business that they can run at a loss intentionally to run you out of business and then bring the margins back up. A smaller entrant, they may understand exactly what Amazon is doing, and they still would be unable to reproduce the economics. And that’s power. Understanding the strategy is not the same thing as being able to copy it. So in our business, one of the clearest examples of power is switching costs. I was literally just at an investor event. And the reason this podcast is being recorded is because one of our investors, we were down in Houston touring a property. And anytime that we’re touring a property, we sometimes will invite investors over for dinner to have a good time and spent some time in person, which is wonderful. And this investor is an amazing guy, wonderful background, sophisticated guys, invested as an LP across a lot of different asset classes, asked the following question. He said, Brian, I’ve invested a pretty healthy amount of money in both self-storage and mobile home parks over the last handful of years. Both of those assets were pitched as defensive sectors. I’m not sure. Unfortunately, over the last several years, my self-storage investments haven’t performed the way that I thought they were going to and most assuredly didn’t prove to be as defensive as what the investment thesis stated. I’m now fearful about mobile home parks because they’re starting to have a lot more capital come into the asset class. Tell me how you feel about mobile home parks and will we see the same sort of unfortunate circumstance that we’ve seen in self-storage now that more people are aware of the merits of this wonderful sector? And my response was the following. I took it to business strategy and why I do not believe that self-storage is even in the same realm as mobile home parks in terms of their durable competitive advantage. And I walked him through these three frameworks that we’re talking about today. Why I do believe it’s a wonderful market. I talked about why we kind of have a differentiation, but the main reason why self-storage is not the same as mobile home parks is because of switching costs. Let me give you an example. Let’s assume that you own a wonderful self-storage facility that’s producing really healthy cash flow as so many folks were in 2020. And for this reason, institutional capital came in in droves and said, this is a wonderful asset class providing unbelievably phenomenal margins. I’d like to allocate more capital to this, please. All you have to do is go down to the local municipality, request a permit to build a brand new facility. And let’s say a big operator purchase the parcel of land immediately juxtaposed to your asset, which has unbelievably fat margins. And just like Amazon, they can come in and construct a brand new self-storage warehouse because there’s not a lot of construction cost involved in doing so. So within eight months, 10 months, 12 months, a brand new facility is immediately juxtaposed to yours. And it’s brand new and likely can charge the same exact price. And customers would likely go to that one because it’s a brand new facility, etc. In addition, if it’s Amazon, just like we mentioned, they can intentionally run at a loss of remove your margin because they have scale economies until you go out of business and they can buy your property for a song. And it is because they have the ability to create so much immediate supply. Virtually everybody here, you listening to this, have seen random self-storage facilities pop up in droves over the last handful of years because it just so much flooded the market right during the COVID era. And this is why a lot of these businesses ended up being in precarious situations. And the reason is because if that new self-storage unit gets developed, what can the customer do who had historically been in your unit? Let’s say you were charging $100 a month. Well, let’s say the new guy comes out and he’s saying, hey, I’ll charge $80 a month. It’s very easy for that customer to switch. Again, the switching costs are exceedingly diminuous. All he has to do is drive over with a pickup truck, pick up all the stuff, move it over to the next one, plop it down, and all of a sudden he’s saving 20% on a monthly basis. Okay. Very, very simple to switch. Let’s juxtapose this now to the mobile home park sector. Let’s assume for this hypothetical example that we own a mobile home park and we’re charging $400 per month inside of the mobile home park. And let’s assume that we’re $50 above the market rate. And the highest competitor in the vicinity is only charging $350. Now, in no mobile home park are we above market 50% like that. But nevertheless, 50 bucks. But nevertheless, let’s assume hypothetically that that’s the case. Well, it means that if our resident chose to move to the competitor down street, that they would save $50 per month. In order to run the break-even costs, they have to determine how long it would take to ultimately justify making that move. Well, how much would it cost to move their home? Mobile homes, moving them from one location to the next, it costs at least $10,000 to move a single wide and more to move a double wide. So if you’re saving $50 per month, obviously the payback period is exceedingly long. And once you get that home over to the competitor, there is nothing to say that that competitor down the street isn’t going to immediately change the lot rent from $350 to 400 or $450. And for this reason, the switching costs for a customer are extremely high. So once you have a high quality paying resident inside of the community, they typically stay for years and years and years. Our longest tenured resident in one of our manufactured housing communities has been on the rent roll for nearly 50 years. In what niche do you have that sort of durability of income stream? And it’s why mobile home parks are such a durably wonderful business. They have, it is an unbelievable market with a unique differentiated business model. And it has unbelievable power, which creates durably wonderful economics over long periods of time. And it’s important for me to share what I mean when I say durable. It is not just that the revenue increases and the income increases on an annual basis. It is the durability of the income. I’ve now owned mobile home parks in about 20 states across 15 years, 10,000 different residents we’ve served. I’ve never had one of my mobile home parks ever where the rent went down on a monthly basis. It has never happened. I cannot name another niche where that is the case. In every other asset class, supply and demand economics change and ultimately rents go down in multifamily, self-storage rents go down. It has never happened 20 states, 15 years, thousands and thousands of lots because you have persistent differentiated returns due to the unique aspects of the asset class and oftentimes the switching costs that are so high for the customers. And I will say that that final point does matter. Switching costs create power, but power creates responsibility. A weak operator, they might view customer captivity as an opportunity to extract more. A long-term operator should view it as an obligation to deliver value, to maintain trust, and to reinvest into the relationship with your customer. Exploitation may increase short-term revenue in the near term, but it also weakens the long-term durability of the business. And I would much prefer to prioritize the long-term absolute free cash flow rather than maximizing the short-term internal rate of return through a fix and flip strategy. The strongest advantage is one in which the customer still receives meaningful value, even when leaving would be very, very difficult for them. So in my humble opinion, investors should apply that same test to any business that they own. Could a well-funded competitor copy that business model tomorrow? What remains protected even after the competitor understands exactly what your company is doing to produce high quality margins? A blue ocean is going to get you some attention. But the enduring power, the power that you have, determines what keeps the economics after everybody arrives. And the secret is out. But even the powers, they’re not permanent. Okay? So let’s assume that you’ve worked through all these frameworks. You understand the market. You found a good market. You’ve created something that’s different and unique. You’ve got the blue ocean strategy. Life is good. And you’ve built a meaningful moat around the business. You might feel like you’ve won, right? You checked all the boxes. But you still haven’t made it. Because markets are not static. New capital comes in. Competitors learn. Technology changes. Customer expectations move. Disruption happens. A market that looked very attractive 10 years ago might now be very crowded. A differentiated offering may become the industry standard over time. A moat that once looked impossible to cross may begin to narrow. And that’s why business strategy can’t just be treated as something that you complete once and then you place it up on a shelf. Thanks for listening to the Sage Investor, guys. If this episode helped you in any way, shape, or form, I want to ask you one thing. Please do share this episode with one of your associates, one of your friends, that you feel it would benefit. It would be very much appreciated. Until next time. You’d be great.

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