Phil Terry is a dear friend of mine. He's the CEO of Creative Good—a company that helps other companies improve customers' experiences. I'm a member of a one of Creative Good's "peer-networking-for-executives" councils. At these councils, executives from non-competitives get together twice a year, brainstorm on business issues, provide each other with a network of support, and often become friends, too. It's a fantastic concept.
At a recent conference, Phil delivered a speech on the top 10 lessons we can learn from Warren Buffett's life and business strategies. Phil's presentation was so dynamic that I asked him to share it with our employees at Care.com. And, with his permission, I'm also sharing it with other entrepreneurs and readers of this blog.
10) There's a difference between perception and fundamental reality.
As in Plato's famous cave metaphor, the shadows we see aren't necessarily the truth. Four years ago, home prices had doubled and consumer spending made up the highest percentage of the GDP ever. It was easy to be lulled into a sense of security. But now, we're on the verge of an economic downturn that very few predicted.
Humans tend to respond to things in the short-term. It's a leftover survival instinct. When it comes to business, however, we have to make sure we're responding to long-term realities and not the shadows of the now. That's really how the strong survive.
9) Be courageous and stick with your convictions.
In 1999, Buffett predicted a 6 percent increase in the Dow over the next 15-20 years. That kind of ultra-conservative projection got him labeled a dinosaur by practically every dotcom investor. But when the bubble burst, Buffett had made the biggest profit of anyone. And he'd been proven right.
He's not a dinosaur, he's a hedgehog. He's protective of his resources, investments and shareholders, and he won't move unless he's absolutely sure he's absolutely convinced he's doing the right thing.
8) The importance of mentors.
Buffett, often considered one of the top minds in investment, seemingly never bought into that claim himself. He's always surrounded himself with mentors—people who's lives he can learn from. Some of his favorites:
- Charlie Munger—friend, business partner and Vice Chairman of Berkshire Hathaway.
- Benjamin Graham—friend, professor at Columbia University, economist and investor
- Benjamin Franklin—American founding father, inventor
- Abraham Lincoln—President and statesman
- Thucydides—Greek historian and philosopher.
Buffett's life is proof you're never too important, or wealthy, to learn from others. Surround yourself with mentors that will hone and improve your character. These mentors don't even have to be people you've met, as long as there are enough resources available on that person's life. Buffett is one of Phil's greatest mentors (hence, this top-10 list), but they don't know each other personally.
7) Read, read, read.
Buffett is a voracious reader. He habitually studies topics that interest him or are helpful to investing. The biggest lesson we can draw from Buffett in this regard is this: don't just read what you're comfortable reading. We need to read the things we don't know how to—science, math and the foundational, cross-discipline texts. If we're grounded in knowledge that's been historically proven, we're far less likely to be swayed by this week's fad.
6) Honesty is the best policy.
First, we have to always be honest with our customers. We should be doing whatever is in their best interest, not ours. In the long-term, our customers will reward us for that kind of loyalty with loyalty in return.
But we also have to be honest with ourselves. We must challenge our cherished ideals, staying true to our values but questioning what we believe. You're never too old to learn.
Buffett bought Coke-a-Cola stock in the mid-20th century. His investment philosophy dictates that investors should hold stock for life in order to see constant, predictable appreciation. He sees himself as buying into a company, not just turning a quick profit. So, in the 1990s, when Coke's stock became highly overvalued, Buffett didn't sell. After the stock price leveled, Buffett apologized to his investors, telling them that he'd made a mistake. In sticking with his old philosophies, he'd cost them money, and his response demonstrated both honesty and the ability to self-question.
5) Simplicity is everything. Be disciplined on what you know and don't know, what's important and what's not.
Take a look at Berkshire Hathaway's homepage. It doesn't get any simpler than that. Cut and dried, straightforward and functional—it sums up Warren Buffett.
If you track Buffett's strategy, you'll see that he keeps everything simple and within his sphere of experience. He's methodical, doesn't rush into the latest fads, and will only take on an investment that he completely understands. For example, during the dotcom boom, Buffett stayed away from technology investments. It wasn't because he didn't understand what those companies did; he just didn't know how to value them. So, instead of risking money for something he didn't fully comprehend, he stayed away. As it turns out, he was right.
4) Focus on the basics.
In the business and investment world, there's a constant litany of fads. They come, then they go, taking investors with them. Buffett's not a person who's swayed by the flavor of the day. Rather, he looks at what a company does and if it does it well. If he sees something he likes, he'll back it, whether or not it's a popular choice.
I'll use Buffett's investment in See's Candies as an example. In the 1970s, Buffett invested $25 million in the candy manufacturer's stock. He then added another $32 million in cash. It seemed like an exorbitant amount of money to pour into a chocolatier, but Buffett saw a company with a devoted customer base in an industry that grows an average of 2 percent annually. He knew that, with time, he'd see a return. And he has—to date, See's Candies has returned $1.6 billion in profits to Berkshire Hathaway.
3) Be on the same side of the table as the customer.
The best thing a businessperson can do for their company is to increase customer loyalty. And the easiest way to do that is to give them the best possible service. Unfortunately, that's not always among company priorities because you don't see immediate returns on these consumer investments.
But, in the long-term, that kind of thinking pays off. Berkshire Hathaway promises a 50/50 split on all gains above 4 percent, with half of the profits going to the company and half to its investors. Until the 4 percent barrier is reached, the investor keeps all of the profits. And Buffett also promises his shareholders a 25 percent "reimbursement" of their losses. In a world where the standard hedge fund charges a 2 percent annual fee and takes 20 percent of all gains, that kind of customer service from an investment company is unheard of. And it's why investors fiercely loyal to Buffett and Berkshire Hathaway.
2) Be a long-term thinker.
"I have written my work, not as an essay which is to win the applause of the moment, but as a possession for all time." – Thucydides
The world is split between short-term and long-term thinkers. Success is always proven in the long-term. Don't be focused solely on today. Rather, maintain simplicity, focus on the basics and ensure you're acting for the benefit of your company 50 years from now.
1) Buffett doesn't just make money. More importantly, he makes ideas.
Warren Buffett is an "everlasting learning engine," according to his friend and mentor Charles Munger. If there's one main lesson to take away from Buffett's life it's this, "How can I learn?"
Learning is not simply something you do for school. Rather, school should be a catalyst for a lifetime of education. Munger has also said that half of Buffett's success is the direct result of what he's learned in the last ten years. Think what that means—Buffett has been a business leader for ten, 20, even 50 years, yet he thrives to this day because of what he's learned along the way. He hasn't rested on his laurels. Instead, he's sought continual self improvement and found even greater successes.
Cheers,
Sheila
