Startup Archive
Netflix founder Reed Hastings’ #1 piece of advice for young CEOs

When asked for his best advice for young CEOs, Reed responds:

“I would say memorize the first 86 pages of Jim Collins’s first big book, Beyond Entrepreneurship. Someone gave it to be in 1994, and I’ve read it every year since. And the first 86 pages are absolutely incredible. So that would be the very practical advice.”

Video source: @StanfordGSB (2014)
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Dimitry Nakhla | Babylon Capital®
15 Quality Stocks With >40% Incremental Operating Margins (LTM) 💸

In other words: every $1.00 in 𝐍𝐞𝐰 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 in LTM turned into >$0.40 in 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭

1. $GE 43%
2. $NFLX 47%
3. $LRCX 49%
4. $NVDA 53%
5. $ASML 53%
6. $MCO 55%
7. $MSFT 58%
8. $META 59%
9. $TSM 65%
10. $MA 66%
11. $MU 69%
12. $HWM 69%
13. $FICO 70%
14. $TDG 71%
15. $SPGI 76%

Chris Hohn, founder of TCI, views high incremental margins as one of the strongest signals of a company’s moat & pricing power💸

Incremental operating margin tells you how much additional operating income a business generates for every additional $1 of revenue.

Here’s how to calculate it:

Pick two periods (Year 1 → Year 2)

Year 1 Revenue: $10B
Year 2 Revenue: $12B
Δ 𝐂𝐡𝐚𝐧𝐠𝐞: $𝟐𝐁

Year 1 Operating Income: $2B
Year 2 Operating Income: $3B
Δ 𝐂𝐡𝐚𝐧𝐠𝐞: $𝟏𝐁

𝐈𝐧𝐜𝐫𝐞𝐦𝐞𝐧𝐭𝐚𝐥 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐌𝐚𝐫𝐠𝐢𝐧 = Δ 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐈𝐧𝐜𝐨𝐦𝐞 / Δ 𝐑𝐞𝐯𝐞𝐧𝐮𝐞

So: $1B / $2B = 50%

𝘔𝘦𝘢𝘯𝘪𝘯𝘨: 50 cents of every new $1 of revenue fell to operating profit.
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Why this matters: High incremental margins usually signal low incremental costs, pricing power, & structural operating leverage — the traits that allow a great business to compound faster as it scales. It’s one of the cleanest ways to see whether a company’s moat is strengthening & efficiently scaling.

I’ve included 4 high-quality stocks with their incremental operating margins since 2021 for further example 👇🏽

$FICO $MSFT $MA $NFLX - Dimitry Nakhla | Babylon Capital®
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