By the “Power of We”, LinkedIn has discovered the Holy Grail of Business Relationship Management: how to transform candidate pools, business prospect leads, and business customer bases from depreciating into appreciating assets.

It is interesting how you can spend so much time working on something – and it is not until the last second that you get a revelation that brings everything together. This is what happened to me. I just finished the final draft of my research report on LinkedIn I had been working on for the past few months and was sharing with my husband, Greg, how LinkedIn’s new Talent Pipeline platform allows companies to keep their applicant data current. I didn’t think much of it until he explained to me that this is one of the biggest challenges facing companies and he actually struggled with this same problem back in the mid-90s when he created Recruitex, one of the first web-based Applicant Tracking Systems (ATS). And the next morning, it dawned on me…LinkedIn has discovered the Holy Grail of Business Relationship Management.

I still remember the email exchange I had back in the Fall of 2007 with one of my institutional clients who was puzzled and suspicious of the mysterious invitation he had just received from me. “What is LinkedIn?” he inquired. I thought about it for a second and responded “LinkedIn is Facebook for Professionals”. I had just joined LinkedIn and was excited about the prospect of being able to create a virtual Rolodex of all my professional contacts. However, back then LinkedIn only had 15 million members, less than a tenth of its current base of over 160 million members and judging by the lack of enthusiasm I received, the finance industry was apparently not an early adopter.

LinkedIn has been an invaluable tool for me over the past four years, allowing me to re-connect and stay in touch on a professional level with former colleagues, clients, classmates, and friends. But it was not until six months ago, when I launched Brady Capital Research and started to try to reach out to professionals on my social capital investment thesis that I began to appreciate the true value of the LinkedIn platform…

I spent countless hours trying to figure out LinkedIn’s cost structure and the company’s revenue drivers so I could model its future free cash flows and come up with a realistic discounted cash flow (DCF) value. However, as the company is already well-covered by the Street (by 21 analysts according to FactSet), I honestly don’t believe I can add any incremental value on the accounting or numbers side of the equation. But where I do believe my research report adds value is on the qualitative strategic side.

In the report, I discuss how LinkedIn empowers professionals to take active control of their careers by enabling them to build bonding, bridging, and linking capital. Guy Champniss’ book “Brand Valued” provided me with insight into these different forms of social capital. Although linking capital is the transaction and value-capture part of the equation that investors care about, I am excited about the potential for LinkedIn’s bridging capital power to create a Medici Effect and spawn a Second Renaissance in intellectual capital.

Just before Christmas, I read Umair Haque’s incredibly thought-provoking book “Betterness” in which he asserts: “destroying the Common Wealth is easy, abundant, and cheap. It is what the vast majority of organizations do. Enhancing it, in contrast, is the scarcest, rarest, and single most disruptive capability an organization can possess.” He then makes the following profound statement: “next-generation advantage isn’t merely competitive; it is generative” which made me start to question many of the principles underlying the traditional view of the economic moat. And it got me thinking about how the Social Revolution will erode the traditional economic moats of companies whose competitive advantage is derived from their ability to exploit their customers, employees, business partners, communities, and the environment. And I realized how it will foster in new generative moats for companies, like LinkedIn, whose business strategy is focused on building higher levels of social capital for their stakeholders.

Back in January, I connected with Rod Beckstrom, who co-wrote the incredibly visionary book “The Starfish and the Spider” in 2006. I shared with him how the insights in his book gave me the conviction back in January 2008 to go against the Street and downgrade Yellow Pages to a SELL, which intrigued him and he invited me to share my story, which appeared in the April issue of “The Beckstrom Starfish Report”. I believe the following quote foreshadows how LinkedIn, with its starfish-like DNA, possesses the power to disrupt the business relationship management market: “Spider organizations weave their webs over long periods of time, slowly amassing resources and becoming more centralized. But the starfish can take over an entire industry in the blink of an eye.”

And if you want some great advice on how to take active control of your career, I highly recommend you download or pick up a copy of Reid Hoffman’s recently published professional empowerment manifesto “The Start-Up of You”.

As you know, I started Brady Capital Research so I could focus on companies that are working to make a positive difference in the world that I am passionate about and truly believe in. And LinkedIn is one of those rare companies.

If you would like to receive a copy of my research report titled “LinkedIn: Disrupting By the “Power of We”” please email me at barb@bradycap.com.

Disclosure: I have a LONG position in LinkedIn Corporation (LNKD-NYSE).

Executive Summary

LinkedIn offers a unique opportunity for investors to take a stake in an early-stage, high growth professional social networking company with the potential to disrupt the $100 billion plus Business Relationship Management market.

Our investment thesis on LinkedIn can be distilled into six simple words: “Disrupting By the “Power of We””. Through the “Power of We”, we believe LinkedIn has discovered the Holy Grail of Business Relationship Management: how to transform candidate pools, business prospect leads, and business customer bases from depreciating into appreciating assets.

LinkedIn empowers professionals by enabling them to build social capital. This greater purpose creates the “Power of We” as it inspires a thriving stakeholder ecosystem and creates the following new generative economic moats:

1. Low-Cost Producer: Members are the source of LinkedIn’s raw material.
2. Intangible Assets: LinkedIn created “Long Tail” of Business Relationship Management.
3. High Switching Costs: Freemium aspect and social capital benefits create stickiness.
4. Network Effect: Leads to appreciation in value of LinkedIn’s structural asset.

The prize at the end of the path to disruption is the $100 billion plus Business Relationship Management market. LinkedIn’s new revolutionary Talent Pipeline platform positions LinkedIn to disrupt the $85 billion Talent Relationship Management market. Its Marketing Solutions is poised to capitalize on the shift from transactional to relationship-oriented marketing and disrupt the $25 billion B2B Marketing market. And LinkedIn’s recent launch of Sales Navigator marks its entry into the $18 billion Customer Relationship Management market.

The Book

“…org chart is losing its value along with a company’s financial statements – neither does a very good job at explaining how value is being created in the knowledge era.”

Most businesspeople have heard of the growing importance of knowledge workers, information technology, innovation, networks, reputation, and performance management…The book takes the ten basic building blocks of traditional, industrial-era businesses and defines their knowledge-era equivalents–intangibles as the new raw material, intellectual capital (IC) as the new production line, IC assessment as the new balance sheet, and networks as the new organizational chart.

The Authors

Twitter Feeds

Revenue was up 26% with comparable store sales growth of 13% – the 7th consecutive quarter of double-digit comparable sales growth. The restaurant operating margin was up 220bp to 27.4% (lower labor, occupancy, and promotional costs were slightly offset slightly by higher food costs). EPS came in at $1.97 up from $1.46 last year – a 35% gain. The company opened 32 new restaurants in the quarter, bringing the total up to 1,262 – with average sales volumes reaching a record high of $2.072 million. And the company ended the quarter with $370 million in cash and equivalents (and no debt!).

I have to admit I am a latecomer to the Chipotle story. If you recall, back in January 2011 I published my paper titled “Social Media: An Exposing Disruptive Force” and identified lululemon (LULU-NASDAQ) and Starbucks (SBUX-NASDAQ) as companies having heart and soul and Yellow Media Inc. (YLO-TSX) as being a “shell”. As I watched the stock prices of LULU and SBUX rise and YLO fall, I gained more confidence in my thesis and started to search for other companies with heart and soul. After reading John Mackey’s thought-provoking “Conscious Capitalism” essay, I decided to take a look at Whole Foods Market (WFM-NASDAQ) as a potential company with heart and soul. Soon after, one afternoon I was watching Mad Money (I think poor Brady watches more hours of CNBC than cartoons!) and Cramer started singing the praises of Whole Foods Market – and then Chipotle Mexican Grill. I have to admit I was skeptical as I have a personal dislike for fast-food and I had never visited a Chipotle as they only had two restaurants in Canada (but in Toronto, not Vancouver). But I decided to put my analyst hat on and take a closer look…

I really liked the playful and creative tone of the company’s website – it felt very authentic and human. And as I started to dig into the story behind Chipotle I discovered the company is about much more than selling burritos. Its founder, Steve Ells, is actually a graduate of the esteemed CIA (Culinary Institute of America) and began Chipotle Mexican Grill inspired by the simple philosophy to demonstrate that food served fast doesn’t have to be a traditional “fast-food experience”. And his vision has evolved to now change the way people think about and eat fast food guided by his mission of “Food With Integrity”. The company advocates this mission by addressing the topics of animals, people, and the environment and talks about “we work hard to find farmers and ranchers who are doing things the right way”, “we can talk about all of the procedures and protocols we follow and how important they are – but it really comes back to the people”, and “we work hard to source ingredients in ways that protect this little planet of ours.” I also respected that the company had built its entire restaurant base from scratch, resisting the temptation to accelerate its growth through taking acquisition or franchising short-cuts. And as I read through the past few year’s of quarterly conference call transcripts, I was struck with how genuinely passionate management was about its “Food with Integrity” mission.

Excited that I might have found a company with heart and soul, I decided to crunch the numbers and figure out its business model so I pulled up its annual/quarterly reports and its conference call transcripts for the past few years. The numbers looked impressive – in 2010, Chipotle earned $1.8 billion in sales from its 1,020 restaurants, equating to average sales per restaurant of $1.8 million. And through the dark years of 2008 and 2009, the company managed to achieve both positive same-store sales growth and double-digit unit growth – likely a testament to its strong stakeholder equity foundation. But it wasn’t until last spring when I drove down across the border to Bellevue, Washington (the closest Chipotle from Vancouver) and walked into a Chipotle restaurant that I understood why people fall in love with Chipotle and become loyal and frequent guests. Even though it was 2pm on a rainy Sunday, there was a long line-up. I was really impressed with how friendly, professional, and efficient their front-line crew was. But what blew me away was the food itself – so fresh and flavorful – I swear their guacamole is the best I have ever tasted. I was sold!

Back to the conference call… Steve Ells started talking about how the major drivers of the company’s business are its unique food and people culture – and this theme continued throughout the call. I have to point out this is not the norm as most conference calls are focused on just the numbers and how the company is achieving operational and cost efficiencies. I encourage you to take a look at the conference call on Seeking Alpha (SeekingAlpha). One of the highlights of the quarter was the increased awareness and public dialogue Chipotle generated for its “Food with Integrity” greater purpose when it aired its 2-minute animated “Back to the Start” film during The Grammys. If you haven’t yet seen this multi award-winning soul-stirring film that is set to Cold Play’s haunting song “The Scientist” sung by Willie Nelson, I highly recommend you watch it (below). The airing of the film generated 22,000 tweets, over 33 million Twitter impressions, and 150 million media impressions. I believe this really highlights how authentic companies with a greater purpose will be able to leverage social media to build emotional connections with customers and psychological attachments to what the company stands for.

The bottom line is that I believe companies with heart and soul, like Chipotle, are best positioned to outperform in this decade of the Social Revolution. I am convinced that companies that derive their competitive advantage by exploiting their stakeholders will start to see their economic moats erode. Meanwhile, heart and soul companies, like Chipotle, that are working to build higher levels of social capital will be able to create new generative moats and achieve higher than expected growth. And that is why I believe Chipotle is a story worth sharing.

Disclosure: I have a LONG position in: Chipotle Mexican Grill (CMG-NYSE), lululemon athletica, inc. (LULU-NASDAQ; LLL-TSX), Starbucks (SBUX-NASDAQ), and Whole Foods Market (WFM-NASDAQ).

The Book

“…transparency and authenticity build trust.”

Smart Trust has met the strict scrutiny of business leaders around the globe and is validated by research from multiple sources that confirms that high-trust organizations outperform low-trust organizations by nearly three times. Smart Trust shares findings that verify how enduring success, vitality, and happiness are directly related to the level of trust in our relationships.

The Authors

Twitter Feed

The Author’s Blog

• Reading great new book by Stedman Graham – February 22, 2012
• Stephen M R Covey Cover Story Linked In and Business Magazine – February 17, 2012
• Why Trust Matters–Fortune Jan 27, 2012 – January 27, 2012
• Smart Trust Telecast Replay Available – January 14, 2012
• Radio Interview on Smart Trust – January 11, 2012
• Trust Across America Names 2012 Thought Leaders – January 11, 2012

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“Win by being more ordinary, more standard, and cheaper. Or win by being faster, more remarkable, and more human.”

“We’ve been taught to be a replaceable cog in a giant machine… We’ve been taught not to care about our job or our customers. And we’ve been taught to fit in.”

There used to be two teams in every workplace: management and labor. Now there’s a third team, the linchpins. These people invent, lead (regardless of title), connect others, make things happen, and create order out of chaos. They figure out what to do when there’s no rule book. They delight and challenge their customers and peers. They love their work, pour their best selves into it, and turn each day into a kind of art.

The Author

Seth Godin

Author’s Twitter Feed

The Authors’s Blog

• A true story – May 20, 2012
• Where's the heat? – May 19, 2012
• Not everyone – May 18, 2012
• The quickest way to get things done and make change – May 17, 2012
• Digital analogs are no longer sufficient – May 16, 2012
• Hard work on the right things – May 15, 2012

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Social media is leading to the creation of a new form of appreciating equity called social capital. This will accelerate the value creation/erosion process for companies. As a result, investors need to start looking beyond traditional quantitative analytical and valuation metrics. When they do, they will find that so-called ‘heart and soul’ stocks offer long-term strategic investors a good play on the appreciating value of social capital.”

“Huge corporations still stalk the earth. We still report to hierarchical structures that cut us paychecks in exchange for obedience.”

“The only advertising that was ever truly effective was word of mouth, which is nothing more than conversation. Now word of mouth has gone global.”

The Cluetrain Manifesto began as a Web site (cluetrain.com) in 1999 when the authors, who have worked variously at IBM, Sun Microsystems, the Linux Journal, and NPR, posted 95 theses about the new reality of the networked marketplace. Ten years after its original publication, their message remains more relevant than ever.

The Authors

Christopher Locke

Author’s Twitter Feed

The Authors’s Blog

• Lion fixed my SuperDrive. (Alternative title: Snow Leopard broke my SuperDrive) – May 20, 2012
• [eim] The actual order of the Top Ten – May 18, 2012
• [2b2k] Peter Galison on The Collective Author – May 16, 2012
• Goodies from Wolfram – May 15, 2012
• [2b2k] The Net as paradigm – May 13, 2012
• Awesome James Bridle – May 10, 2012

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• The Real Story of Send – May 19, 2012
• So long, and thanks to the bird – May 17, 2012
• Won and done – May 16, 2012
• An AR treat – May 14, 2012
• A way to see what you get – May 13, 2012
• Tsé Bitʼaʼí – May 10, 2012

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• Unjunk Your Junk Food – February 7, 2012
• Best Bites: The Loving Cup – January 11, 2012
• Creamy, Dreamy, Love – January 7, 2012
• Allergic to Air – December 2, 2011
• Sun Cups on bonappetit.com/New York Times! – November 22, 2011
• Nexus Magazine – November 16, 2011

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“Substantive missions are not concocted by some strategic planner, nor are they financially driven. They flow from values.”

“…genuine stewards don’t need their names on computer rooms or on big banners touting their sponsorship of cancer fund-raising races. Gifts given quietly speak loudly about true community stewardship.”

Good Company explains how this new era results from a convergence of forces, ranging from the explosion of online information-sharing to the emergence of the ethical consumer and the arrival of civic-minded Millennials. Across the globe, people are choosing the companies in their lives in the same way they choose the guests they invite into their homes. They are demanding that companies be “good company.”

The Authors

Book Twitter Feed

Author’s Twitter Feed

Author’s Twitter Feed

The Book’s Blog

• New interview with Laurie Bassi – May 7, 2012
• Yes, it does pay to be good – April 30, 2012
• Who knew my matchmaking would lead to the Workforce Educational Organization? – April 26, 2012
• Three things you must get right to be a good employer – April 19, 2012
• Proposed human capital reporting standard released – April 11, 2012
• ASTD blog posts – March 27, 2012

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The Authors’s Blog

• New interview with Laurie Bassi – May 7, 2012
• Three things you must get right to be a good employer – April 19, 2012
• Proposed human capital reporting standard released – April 11, 2012
• Join us for McBassi webinar: It Pays to Be Good! – March 8, 2012
• Does your company make the grade? – February 9, 2012
• Big data: coming soon to a company near you – January 5, 2012

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“…knowing where you come from (your roots) will help you know who you are (authenticity) and where you’re going (your calling).”

“…positivity influences productivity in the workplace, as it creates an “upward spiral” of momentum.”

Using brilliantly simple math that illuminates universal emotional truths, Emotional Equations crystallizes some of life’s toughest challenges into manageable facets that readers can see clearly—and bits they can control…Emotional Equations offers an immediately understandable means of identifying the elements in our lives that we can change, those we can’t, and how they interact to create the emotions that define us and can help or hurt our progress through life.

The Author

Twitter Feed

The Author’s Blog

• WHAT’S YOUR DAILY OFFERING? – December 28, 2011
• Mastering the Anxiety Equation: A Remedy for Fearful Times – November 18, 2011
• Palo Alto is the New Hollywood – October 17, 2011
• OUR ECONOMY WITH PERFORMANCE ANXIETY – August 9, 2011
• THE TOP 10 EMOTIONALLY-INTELLIGENT FORTUNE 500 CEO’S – July 27, 2011
• What Drives an Entrepreneur? – July 1, 2011

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