The Beaver that Built it
Beavers in some cases are known to make excellent habitats for moose, fish and other wildlife this is because the beaver transformed the surrounding wetland into a productive ecosystem. Now imagine your business as the beaver, your product as the dam, and your community as the surrounding ecosystem. While some dams fail, others are maintained, expandanded and rebuilt for the next generation. The real value and story doesn’t simply fall on who built the dam, but what makes it possible, what keeps it functioning, and who might build the next one.
zero reason to read what is beneath this.
Sup, BIG DAWGS, it's me, Gabe Azar, Head of Burrito Rolling, intern at Azar Capital Group, and Head of Research and Chief Morale Officer of Azar Research Collective. Currently writing to you nerds from my L desk. Today I will be introducing you nerds to what I will be calling throughout this shindig the Backbone Economy and the Bottleneck Economy. Now sit back and enjoy my crappy writing. And remember, buy low and sell high, my friends.
A beaver has no economic interest in building a Dam, it's not thinking about an infrastructure bill, population growth, or the long term prosperity of its neighbors. The beaver is simply wants to build a safe place for it to live, access food, fuck, and somewhere to raise its family. So the beaver does what a good builder and operator does, it gets to work, it cuts the trees down, drags the branches and shit into the stream, packs mud in between the gaps and eventually cooks up a freaking Dam. Once this Dam is in place, water is able to collect, and it changes the surrounding landscape enabling Wetlands to form, vegetation to spread, fish and mammals are enabled to find new habitats, birds arrive and other animals begin using this environment. The beaver built something it needed to survive but in doing so it changed and created new value for the surrounding area.
Something similar happens within a real economy, when a large company invests in a large factor, opens a shipyard, establishes an institutional or manufacturing presence. The company's objective is different from the beaver, as they need to sell something and profit from that thing. As a company grows, businesses around it are able to grow as well; suppliers are able to expand operations, workers develop more specialized skills that lead to increased wages, machine shops acquire new machines, and the distributors carry the parts that each of these firms need to operate. Eventually, the entire ecosystem/community develops around the initial economic activity from the anchor capex/company. The beaver or company that makes the initial investment may be the one history remembers, but much of their work could not have been done without the surrounding ecosystem, despite them being a major player in growing, repairing, and maintaining it.
This is the central area on where Azar Research Collective will be studying, the physical and operational systems businesses that make the modern economy possible. Most people only encounter the economy through finished goods, they see the aircraft, eat Taco Bell, use the toilet paper, ha, drive the automobile, text on their smartphone, and participate in the buying of finished goods. But they don’t view these products in the same view as the ARC lads, investors, operators who are looking at a product and see a network of manufactures, infrastructure operators, engineering firms, distributors, regulatory cucks, technicians, logistic providers, and specialized suppliers. The companies operating in these ecosystems are always household names, with some operating in the shadows of an industrial park or small tahn’s. Others have been producing the same part for decades with their products representing a fraction of the final end use case cost but an interruption in their supply chain may hold up the rest of production.
Economic importance does not always equal revenue, market cap, or public visibility within the industrial ecosystem. The lads at Azar Research Collective (ARC) research is based around two deeply connected ideas. First is the ‘Backbone Economy’, this is the productive infrastructure, industries, assets, and capabilities that enable the physical and digital economy to function. Next, is the ‘Bottleneck Economy,’ this is the scarce inputs, processes, people, and infrastructure that limit what productive capex can accomplish. So basically the backbone is telling what keeps things moving and the bottleneck is what it can’t run without. The ecosystem explains how these capabilities are created, spread between companies and communities and how some can survive for decades while others are just flash in the pans.
A recurring ecosystem / area we will be bringing up through this piece is the El Segundo and surrounding communities due to the region's knowledge base that has accumulated through defense, aerospace, manufacturing, defense engineering, and government related research over the past few decades. When SpaceX entered the region, they did not enter a barren landscape, but they were able to draw upon capabilities that were established by previous generations, while developing a new ecosystem of its own. This does not mean that SpaceX deserves credit for every company in the area now, but it explains why certain businesses follow and are able enhance the current ecosystem with new or upgraded capabilities
This same principle can apply to more than just the aerospace industry, a Dam might be demanded, but that doesn’t mean that the ecosystem around it has lost all the value around it that once made it a productive ecosystem. An old manufacturing town may still possess valuable equipment, industrial land, utilities, transportation connections, experienced workers, and institutional knowledge long after its anchor beaver left town. A new business with a different product set and a strong customer base, can rebuild a once dying ecosystem and create new capabilities that the next generation of entrepreneurs can take advantage of to continue to strengthen the ecosystem. Understanding the relationships between the ecosystems is the goal of Azar Research Collective.
The backbone economy consists of the industries, assets, peoples and services that move, build, power, supply, repair, and maintain the world. This includes everything from factories, railroads, machine shops, waste facilities, food processes, engineering business, construction contractors, and the thousands of small businesses that supply them. We also include the less obvious bits of this ecosystem that enable its capabilities like the maintenance crews, laboratories, spare parts inventories, inspection services, and the accumulated knowledge of the experienced workers. What connects these businesses is not the conventional sector or industry classification but their role in making each other economically possible.
Take something like going to Taco Bell, all we see is the building, the menu, the staff, the tasty treats they offer. But that entire operation runs on a much larger option; farmers and ranchers produce ingredients (yes, even for Taco Bell), processing plants turn output into usable products, warehouses preserve inventory, distributors assemble and deliver the orders and specialized equipment keeps the food safe. Taco Bell also needs electricity, clean water, waste collection (amirite), functioning HVAC systems, and people capable of operating everything. The Crunchwrap supreme is a final product, but the backbone is everything required to make serving it possible.
A rocket is technically more demanding, but the underlying principle is somewhat similar. A rocket shop manufactures its final products with metals, precision machining and engineering, electronics, propulsion components, testing components, specialized facilities, and highly trained personnel. So with that in mind, even the most technical and advanced programs can depend on businesses that also serve more ordinary use cases. The relationships may be interconnected between the two firms, but the economics are not similar at all, which is why the Backbone Economy is harder to understand as a collection of uncorrected but related sectors.
Manufacturing depends on power, power infrastructure requires metals, machinery, electrical competitions, and construction labor. Which requires transportation, which is built on an existing network of equipment, fuel, and distribution networks. While waste management, professional and industrial services allow them to continue operating within the physical regulatory limits. With such intertwined relationships, a railroad, transformer manufacture, Taco Bell, and an industrial distributor may all support the same end customer yet earn revenue in very different ways. It is a large game of getting the right product to the right customer at the right time.
In some circumstances, the fastest way to increase productivity it not to construct another plant or hire a bunch more employees, but its to reinvest in what you currently have. Reinvest in, maintain, and repair existing capital assets while investing in workforce training to improve employee productivity, increase their value, and expand their earning potential. Are all proven ways to increase output without the need for a new facility. This is what makes the unremarkable and boring companies extremely important to the industrial ecosystem despite them not attracting the same amount of attention. The company that specializes in coatings, heat treatments, and equipment repairs may never become a household name, yet these businesses frequently service customers whose operations can’t continue without their products or services.
This is where our beaver analogy returns with the geographic dimension, as often industrial capabilities and knowledge are accumulated over generations. One employer creates demand for specialized workers, which develop experience and move between firms, suppliers invest in equipment across regions to service customers needs, enabling knowledge to be replicated and shared to repair and improve current systems. The beaver returns as the Dam changes the rest of the landscape and the entire ecosystem becomes more valuable. Shifting the question, what company built a Dam in the ecosystem to revive it to, what will make rebuilding the Dam possible, who will depend on it, and whether the surrounding ecosystem can continue to flourish post Dam creation.
The Bottleneck economy is the productive ecosystem within the backbone ecosystem and every productive system has its constraints. A factory can only produce as much as its equipment, materials, workers, power supply, production capex allow. A port cannot move faster than its available infrastructure, and even when it can it is restricted by regulatory operating processes. Even the defense manufacturer cannot deliver its final goods faster just because Uncle Sam places a large order. Somewhere in each system is a limiting factor, where spending more capital won't achieve results compared to understanding the constraint. One of the more interesting things in the physical economy is that small things control very large things, so a $47 part could delay a $470k CNC machine until fixed.
Imagine a factory that produces your favorite bomb, its equipment is installed, its workforce is trained and Uncle Sam is waiting, although one highly specialized component is unavailable. The part only may represent a small percentage of the final output cost but without it, the bomb cannot be complete, tested, or delivered into a beeper. The component's economic importance is not determined by its price or the CEO of the company but is determined by what happens if it's not there. Also known as failure leverage, the ability of a small input or service to determine whether a much larger productive piece of capex can function. This concept goes far beyond a simple bearing, but could include a qualified manufacturing process with qualified materials, a special machine operator, testing facility which may slow or delay delivery schedule or even cost millions to deal with.
What makes these constraints interesting is that you can’t just simply replace the part like you’d replace the toilet paper at a Taco Bell. A replacement supplier may need to bend the knee and demonstrate that its materials, equipment, processes, documentation, and quality controls can satisfy specific customer requirements. Some applications or shindigs require expensive testing and certification before a substitute can be accepted. So, companies can use capital to acquire machines and buildings, but they cannot acquire the years of operating, exasperating, trained specialists, or complete an extensive qualification process. This makes the replacement process pretty important for understanding the broader industrial production and industrial scarcity process.
Often you will only be hearing about a shortage when it's too late, you should be thinking about what could cause the shortage and if one occurs, what are the downstream suppliers that are most likely to be impacted. In most markets, shortages will often lead to a supplier substitution, but in industrial production replacement is not always on the table. If electrical transformers are delaying the completion of a new facility, the immediate conclusion might be the economy needs more transformers, but increasing transformer output requires increasing output in a whole nether supply chain. So the transformer shortage may reflect a deeper limitation somewhere else within the component supply chain, workforce availability, or manufacturing output.
A factory's maximum advised output and its reliable, sellable output are two totally different numbers. Just like how a restaurant or building will have a max capacity sign, though if the Taco Bell has 100 people in it there is no way it will be operating as “smoothly” as it would be if there were only a handful of customers. So this leads to understanding how much productive capacity is available, how reliably it can operate, and what repairs or maintenance needs to be made before an investment announcement can become commercially useful.
So imagine the data center developer finally receives the bundle of transformers it's been waiting for, the project may still need approval for construction, testing, and a reliable grid access. Once one problem is solved another appears, this same dynamic is across nearly every industry. Which explains why a high final output capacity does not necessarily mean the manufacturer can make the final products with great speed if the specialized materials require processing cycles or testing requirements before reaching the end customer. This also may explain why large investments may generate less output than expected. But like a black swan, you cannot predict when, where, or how that limiting factor will emerge or if it will at all.
The lads at Azar Research Collective combine the two: the Backbone tells us where to look, while the Bottlenecks tell us what to look for once we get there. While many stop at the crunchwrap supreme or THAAD missile, we follow the supply chain several layers deep. What must be purchased, what processes must work, what suppliers cannot be replaced with a phone call, where are the highly skilled specialized workers, and who owns the equipment and infrastructure that everything else depends on. Even when a product reaches its final goods form, it still may not be ready for the final customer (more THAAD missile than crunchwrap supreme for this example, hopefully.) Which is why it's worth following the product until it reaches its final destination.
Each stage has its own economic leverage, sometimes it belongs to the large manufacturer whose scale enables them to negotiate favorable terms with suppliers. While other times it could be a small business that controls an old school process that cannot be easily replaced. Within each stage sits. So the goal is to learn and establish who captures value at every layer rather than just assuming the most important company sits at the end of the chain because their market cap is the largest. This approach removes you from the obvious, as a small machine tool manufacturer could tell you about the future of a certain industry depending where their R&D dollars are going. So a small regional distributor could reveal changes in a certain type of manufacturing activity before the rest of industry data shows it.
We are also interested in understanding how these ecosystems develop and survive. How and why did certain cities become hubs for aerospace, steel, manufacturing, chemicals, logistics? How certain companies are able to continuously attract talent to existing high cost of living areas? How institutions help develop skills and what infrastructure makes it possible for an ecosystem to compete. Though the growth is never automatic, equipment breaks, workers retire, suppliers go bankrupt, and the town that once had plenty of industrial shops now lacks the technical know-how and ability to compete with more production regions.
A beaver or a SpaceX cannot simply revive an old pond because they showed up with some spunk and a checkbook. It must be able to build something that works, and the surrounding landscape must be able to support the new anchor asset. El Segundo and the large region will be brought up through this note, as they have a strong history of building out the capabilities, plateauing due to slowed growth and lack of R&D funds, and the resurgence of new companies and the moves that engineers and entrepreneurs built upon the foundations. This is where supply chain connections between seemingly unrelated industries become critical to growth, alongside the broader supply chain supporting the larger company, firm, or beaver.
Azar Research Collective isn’t interested in finding the next stock that will rip to the moon, we want to understand how the real economy moves, creates, and preserves the beautiful ecosystem the industrial companies have built. And where capabilities become scarce and what happens when new demand arrives faster than the current system can respond. This requires looking beyond the announcement for a new factory or a large procurement product or infrastructure project. You can follow the money, but a crowded order book doesn't necessarily mean a crowded production line. To understand what can actually be produced, identify the constraints preventing orders from becoming finished components and which businesses stand to benefit from removing those bottlenecks.
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Conclusion / Short Thesis
The modern economy is a fuckin’ rad collection of businesses, people, and machinery that most of us rarely think about. But unless you’ve pulled into a Sheetz or your local gas station at 5 a.m. and watched the lads fuel up their trucks, grab their coffee and treats, and head out to keep the world running, you might never fully appreciate what makes it all work.
While that early-morning gas station ritual may seem ordinary, it's the calm before the storm of what might unfold later in the day. A factory shuts down because a critical component is unavailable. A construction project stalls while waiting for a certified electrician. A disrupted shipping route delays thousands of products headed to destinations thousands of miles away. Suddenly, the obscure businesses and workers that rarely make headlines become the most important parts of the economy.
This is the world that the lads at Azar Research Collective care the most about, not just the industries, assets, and capabilities that keep the world going but also the people behind those companies, where do their dollars go? So the Backbone economy follows the industries making the shit and the Bottleneck economy identifies what limits those businesses to produce, expand, and operate reliably.
Azar Research Collective studies the physical economy through a collection of interconnected industries, each offering a different window into how the modern world is built, powered, supplied, and kept running. We believe some of the most interesting businesses, investment opportunities, and economic stories exist in the industries that rarely dominate the headlines but make nearly everything else possible.
Our research spans Aerospace, Defense, and Reindustrialization; Machinery and Advanced Manufacturing; Metals, Mining, and Critical Minerals; Transportation and Logistics; Electrical Grids and Power Infrastructure; Building Products and Physical Infrastructure; Food, Dining, and Distribution; Waste and Environmental Services; and Professional and Industrial Services. Each sector provides a distinct perspective on the economy, from the materials pulled out of the ground to the machinery that transforms them, the infrastructure that moves them, and the people who keep everything working.
None of these industries operate in isolation. They depend on one another, compete for the same resources, and create opportunities and bottlenecks that ripple across the broader economy. A shortage in one corner of the system can reshape the economics of businesses thousands of miles away, while a breakthrough in another can unlock entirely new markets. Understanding those connections, and recognizing their importance before everyone else does, is where our research begins.
Now think about the beaver and the dam again, and return to El Segundo. The area’s modern aerospace industry not emerging from an empty landscape, earlier generations of manufacturers, government institutions, engineers, and tons of specialized businesses had established parts of the foundation. SpaceX entered the environment, developed new capabilities, and supported the next generation of commercial activity.
What's most interesting is how many beavers have left SpaceX to build dams of their own, strengthening the broader El Segundo ecosystem in the process. A machinist learns a specialized process at one company before eventually opening their own shop. An engineer leaves SpaceX to develop a product or launch a new business. Each new venture creates demand for suppliers, distributors, equipment, and specialized services. As the customer base grows, distributors can justify carrying more inventory, service providers can expand, and the entire industrial ecosystem becomes more capable. What began as one company's investment in talent and infrastructure eventually supports an entire network of businesses, each building on the capabilities of those that came before it.
Across America, hundreds of towns and cities were built around factories, railroads, mills, shipyards, mines, and industrial sites that once supported entire communities. Some have lost the industrial employers that sustained their local economies, leaving behind vacant facilities, declining populations, and shadows of what they once were. Others are finding new life because the industrial capabilities, infrastructure, and relationships built generations ago still exist. A new company can move into an old manufacturing town and tap into an established network of skilled workers, suppliers, transportation routes, and specialized services. What once supported an entirely different industry can become the foundation for a new one, attracting fresh investment, reopening facilities, and giving these communities another opportunity to grow.
This transforms a collection of companies selling products into an interconnected network of assets, capabilities, workers, suppliers, infrastructure, and relationships that collectively enable the final product. Within every ecosystem are backbone and bottleneck assets worth investigating. Which machines take months to replace? Which capabilities take years to replicate? Where do critical dependencies exist, and how could investments in existing infrastructure unlock economic activity far beyond what the ecosystem currently supports?
Our objective is not to argue that every factory, railroad, mine, or industrial supplier deserves investment. It is to understand which productive capabilities matter, what makes them difficult to build or replace, who controls them, and where the economic rewards ultimately accumulate. A factory may exist to manufacture a single product, but the capabilities it develops can support entirely new businesses, attract specialized workers, strengthen suppliers, and create opportunities that extend far beyond its original purpose. Some of these investments become the foundation for generations of economic activity. Others lose their usefulness, fall into disrepair, or are replaced by something better.
And through it all, we return to the beaver. A beaver does not set out to create an ecosystem. It builds a dam because the dam serves a purpose. Yet that single structure changes the surrounding environment, creating opportunities for other forms of life to take root and flourish. Companies can do much the same through the factories, infrastructure, relationships, and capabilities they develop. Some dams fail, others endure, and new generations arrive to build upon what came before.
The real story is not simply who built the dam, but everything it made possible, what keeps it functioning, and who might build the next one. That is the Backbone and Bottleneck Economy, and that is what Azar Research Collective exists to investigate.
Fuel The Keyboard
This blog runs on caffeine and 10-k’s. Send a cup of joe my way to keep the words flowing! Support me here.
Disclosure
Educational analysis. Not investment advice. No recommendation made or implied.
These views are my own and have not been influenced by friends, family, or enemies of the state. This content is for informational and educational purposes only and does not constitute financial, investment, legal, or professional advice. Past performance is not indicative of future results, and the author assumes no liability for any investment decisions made based on this content. See you later, spacecowboy.
this is my first draft, had 20k more words but deleted those. shipped this because I wanted to be done with it. basically covers the idea. the thesis is a single sentence, the rest is theater.
