The Lupo-Kioutas Enterprise Business Model© is a unique, patent pending business modeling tool.  It reveals an enterprise's core profit and earnings driver in the three primary engines of profitability: growth, savings, and efficiency.  Every Financial Trader Research© report utilizes this fundamental model as part of the qualitative and quantitative research analysis we perform.  Although the model is patent pending, we can reveal the basic high level concept of the model as used in practice.

What is a growth company?

Many believe that so called growth stocks contain a growth business model, as though by default, but this is a significant misconception. Logically, if it were true, one would only need to buy a basket of growth stocks and in several years retire at leisure. But such is not the case.

Moreover, some large companies derive their earnings by growing business and profitability from areas that might not pertain to their core business model. For example, IBM changed from a hardware company to a services company in the early 90's. Even though IBM was losing growth in hardware, the fundamental business model changed to accommodate a new growth area, namely, services. 

While many companies like to state they are growth companies (column one below), the enterprise business model maps the core policies of the company's processes and procedures to determines exactly where the profitability of the company is derived.  For instance, GM might have a growth policy but if their processes and procedures are mapped to downsizing and efficiency, obviously they do not meet growth standards, nor are they a growth company.

Efficiency and Savings based companies

          Efficiency based companies (column two) do grow, but not at the rate of a true growth company. Dell and Sony are good examples of large companies that are based mostly on efficiency models. It is the business model itself that originally created growth for Dell, but it has since become the only growth area. Thus, Dell moves from the growth arena to the efficiency arena, which does not have a promising return.

The final column marks the savings business driver. Companies in this area are either distressed or so mature that the only way to achieve earnings growth for these large firms (some are less than large) is to simply cut costs or reduce head count. Not an attractive investment given the risk to reward of such a business model, and certainly not the type of company we usually research.

About the Authors

As a former consultant to IBM, LM Lupo won  two prestigious national E-Gov awards for outstanding enterprise architectures.  He is the chief software architect for WatlooSoft®, FinancialTrader.com's technical inference engine.  Prior to founding FinancialTrader.com, Mr. Lupo was a former Wall Street hedge fund manager where his clients included global investors, major oil companies, and money center banks.  Mr. Lupo has authored several international publications in the field of technical analysis and  hosted regional pro bono radio programs for agricultural producers requiring hedging and trading system support. 

Nick Kioutas is a program management specialist for the US Department Of Defense, Army.  Since graduating from West Point, Mr. Kioutas has held positions of increasing responsibility in enterprise leadership and management, from troop command in the Airborne Corps to development of the Department of Defense future information network. He holds advanced degrees in business, information technology, and systems engineering.

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