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Original article

Vitality - Vital for Investors - TDM Growth Partners

Key takeaway

• For entrepreneurs: Developing a culture that encourages experimentation and learning, while focusing on providing incremental value to existing customers, is crucial for achieving Vitality and sustained growth.
• For investors: Identifying companies with high Vitality, characterized by their ability to successfully expand their total addressable market through new products and services, is key to finding multi-decade compounders and superior long-term investment returns.

Summary

The article "Vitality – Vital for Investors" by Harrison Moot from TDM Growth Partners discusses the concept of Vitality, a critical component of their investment framework. Vitality refers to a company's ability to expand its total addressable market (TAM) over time by developing new products and services that provide incremental value to existing customers. The article highlights the importance of Vitality in achieving sustained growth and superior long-term investment returns, using Hubspot as a case study to illustrate the concept.

Insights

• Definition of Vitality: A company's ability to successfully expand its total addressable market (TAM) over time by developing new products and services that provide incremental value to existing customers[1].
• Characteristics of high-Vitality companies:
  • Test and learn culture
  • Management focus on balancing existing business performance with future bets for sustained growth
  • History of successful new product execution
• Importance of Vitality: It is often the key driver of long-duration growth and superior long-term investment returns, as it extends the TAM and potential for higher sustained growth[1].
• Case Study – Hubspot: Demonstrates how Vitality contributed to the company's sustained growth and superior investment returns, with 40% of incremental ARR coming from products outside the core Marketing Hub since 2015[1].
• Market Expectations: High-Vitality companies often outperform market expectations, leading to positive share price movements as new opportunities are continually revised upwards[1].

Implications

• For Entrepreneurs: Fostering a culture of experimentation and focusing on providing incremental value to existing customers are crucial for achieving Vitality and sustained growth.
• For Investors: Identifying companies with high Vitality is essential for finding multi-decade compounders and achieving superior long-term investment returns.
• Industry Application: High-Vitality businesses can be found in any industry, and those outside of technology can often be the greatest investments due to lower market expectations[1].