• The Lean & Mighty Portfolio features companies generating exceptional returns with small, highly efficient teams.
• Technology and automation are key drivers, enabling unprecedented scalability and high profit margins.
• AI integration offers a significant growth catalyst for these already efficient business models.
• These efficient operations offer resilience during economic downturns, providing a defensive investment characteristic.

Why Corporate Bloat Might Be a Bigger Risk Than You Think

The Folly of Counting Heads

I’ve always found it a bit absurd, the corporate obsession with size. For decades, the prevailing wisdom was that a bigger company, with more staff, more offices, and more layers of middle management, was inherently a better, more successful one. It was a simple, almost primitive metric. More people must equal more output, right? Well, that particular piece of orthodoxy is now looking rather tired, and frankly, a bit foolish.

Let’s be honest, we’ve all seen it. The sprawling conglomerates that move with the agility of a tranquilised elephant. General Motors, for instance, needs over 150,000 people to run its show. Compare that to some of the newer players on the block, companies that generate staggering revenue with a team you could fit in a decent-sized pub. It strikes me that the game has fundamentally changed. The new measure of success isn't how many people you employ, but how much you can achieve with as few as possible. It’s about efficiency, not sheer mass.

Technology as the Ultimate Staff Member

So, what’s the secret? It’s not exactly a secret, is it? It’s technology. The companies getting it right have realised that software and automation are the ultimate force multipliers. They’ve built systems that do the heavy lifting, allowing a small, focused team to punch far above its weight.

Think about a company like HubSpot. They provide a sophisticated marketing platform to thousands of businesses worldwide. Once that software is built, it can serve one hundred customers or one hundred thousand customers without needing a proportional army of new hires. The platform itself is the workhorse. This creates what the economists get excited about, increasing returns to scale. Every new customer adds more to the revenue line than to the cost line, creating profit margins that would make a traditional CEO’s eyes water. It’s a beautiful, logical, and incredibly powerful model.

Primed for an AI Future

This lean approach isn’t just about today’s profits. To me, it looks like a brilliant strategic position for the next decade. The artificial intelligence revolution is no longer a distant sci-fi concept, it’s here, and it’s poised to amplify this trend dramatically.

Companies already built on a foundation of technological efficiency are perfectly placed to integrate AI. They don’t have to navigate the messy politics of replacing thousands of jobs, because those jobs never existed in the first place. For them, AI isn’t a threat, it’s a turbocharger. It could amplify their existing capabilities, allowing them to innovate faster and operate even more leanly. While bloated legacy companies are stuck in committees debating AI’s impact, these nimble outfits could already be reaping the rewards.

The Investor's View, Risks and All

For an investor, this presents a rather compelling narrative. You’re looking at businesses that are not only highly profitable but also potentially more resilient. When an economic downturn hits, companies with huge payrolls and fixed costs face agonising choices. Leaner operations, however, have a lower financial centre of gravity. They can weather storms more easily and might even be able to invest when their larger rivals are forced to retreat.

This focus on operational excellence is the core idea behind a collection of companies like the Lean & Mighty basket. Of course, no investment is a sure thing. There are always risks. With small, elite teams, the departure of a key person can have an outsized impact. Burnout is a real concern when so much rests on so few shoulders. And let’s not forget valuation. The market isn’t blind to quality, and you might find that the efficiency of these companies is already reflected in a premium stock price, which could temper future returns if growth doesn’t keep pace with high expectations. Still, the trend itself seems undeniable. The future, I suspect, belongs to the efficient.

Deep Dive

Market & Opportunity

• The investment theme focuses on companies generating high returns with minimal overhead and small teams.
• The core principle is leveraging technology and automation for operational efficiency and scalability.
• These companies often exhibit "increasing returns to scale," where each new customer adds revenue without proportionally increasing costs.
• The model is positioned to benefit from the adoption of artificial intelligence, which can act as a force multiplier for already efficient operations.

Key Companies

• Hercules Capital Inc (HTGC): Manages billions in assets with a small workforce, achieving high revenue-per-employee figures.
• Upwork Inc (UPWK): Operates a global marketplace connecting freelancers and clients, using a platform to manage transactions and matching algorithms with a modest internal team.
• HubSpot, Inc. (HUBS): Provides a customer relationship management and marketing automation software platform that serves thousands of businesses globally.

Primary Risk Factors

• High dependency on a small number of key employees.
• Potential for staff burnout and challenges with employee retention.
• Stock prices may already have premium valuations that reflect their operational efficiency, potentially limiting future returns.
• Extreme leanness could constrain a company's ability to pursue multiple growth opportunities at once.

Growth Catalysts

• Sophisticated use of technology and automation to drive unprecedented efficiency.
• Inherent scalability, particularly in software-as-a-service models, where serving additional customers has minimal incremental cost.
• Enhanced resilience during economic downturns due to lower fixed costs and operational flexibility.
• Positioned to amplify capabilities through the adoption of artificial intelligence without significant payroll expansion.