13 lessons every startup can learn from Warren Buffett
By: Stuart Thomas, Senior Staff Reporter “VentureBurn”
Warren Buffett was once the richest man on the planet. He’d still probably hold, or at least be close to, that spot if he hadn’t started giving away large portions of his wealth.
The multi-billionaire is deservedly looked to as something of a guru by many when it comes to investment and, perhaps even more deservedly, as voice of reason when it comes to the global finance sector.
The way Buffett lives his life and runs his business interests also contain a number of important lessons that can be applied to every startup.
Ventureburn has identified 13 of the most significant lessons from the magnate, investor, and philanthropist and how you can apply them to your startup.
1. Sometimes the next big thing is an old thing
Buffett is known for his investment prowess, for finding small businesses on the up and bringing them into his Berkshire Hathaway empire. But that’s not always the case. In the late 80s he invested a large part of his fortune in Coca Cola.
When you’re starting up a new venture, it can be tempting to apply every new and exciting business model you come across. But sometimes you’ve got to see the merits of a good business built on a solid platform.
Coca Cola wasn’t in exciting place when Buffett bought his stake in it, but it’s earned him millions upon millions of dollars in the years since.
Just because your startup model seems boring, doesn’t mean it’s not good.
2. Be able to talk to people
Throughout his teens and into early adulthood, Buffett was incredibly shy. He knew that would be serious impediment when it came to doing well in business. In a bid to fix the problem he took a public speaking course by Dale Carnegie, author of How to Win Friends and Influence People. After taking the course, he felt confident enough to teach an “Investment Principles” night class at the University of Nebraska-Omaha.
If your startup is going to succeed, you have to be able to sell it and yourself. Even if you’re bootstrapping, go to as many pitching events as possible and hone your technique. No matter how good your product is, no one will pay attention to it if you can’t convince them it’s worth paying attention to.
3. Don’t let the market rule what you do. Learn from it
Buffett’s investment principles when it comes to the stock market are guided Benjamin Graham’s allegory of Mr Market as outlined in the Intelligent Investor. The idea’s fairly simple.
Instead of viewing the market as a guiding force, you should view it as a person who’s willing to sell you a product. Sometimes he’ll sell those products at price that’s too high, sometimes it’ll be too low. It was this principle that led him to invest in Goldman Sachs at the height of the global banking crisis.
When it comes to building your own business, you shouldn’t be guided by what’s doing well “at the moment” or what people want “right now”.
Like the stock market, those things fluctuate. Aim to build something that will last and isn’t subject to trends.
4. Own your business
Whenever he can, Buffett owns businesses outright. That means he makes all the money outright. Yes some people need funding but giving investors equity means the money and, in many cases, control of the business isn’t in your hands.
Don’t ever forget that this is your baby and if you want it to be part of a lasting legacy then you need to see it through to the end.
5.Don’t get into debt
When Buffett’s daughter wanted to extend her kitchen, she approached him for a loan. He refused. Yup, one of the richest men on the planet refused his daughter a loan. But that’s part of Buffett’s success. He’s never been in debt.
This isn’t always a philosophy that’s easy for startups can stick to. After all a business loan can kick-start your business and not everyone has the capital to get a new venture up and running. But when it’s possible, bootstrapping is always your best option. Your growth might be a bit slower, but from the moment you start making a profit, it’ll be yours.
6. Hustle, hustle and hustle some more
When Buffett was a kid, he ran a newspaper route, sold used golf balls and generally did whatever he could to make money. By the time he was in his early teens, he was earning more than his teachers and was a dollar millionaire (a far more impressive achievement at the time) before he was 30.
This ties to the previous point. You don’t have to quit your job and get into piles of debt to launch your startup. A small ecommerce venture or tow that you manage in your spare time could be the foundations of an eventual empire if run correctly.
7. The house always wins
Buffett once installed a slot machine in his house. His kids started putting their allowances into it. The lesson here is that if you’re going to gamble, you have to accept the pivotal rule of gambling: the house always wins.
Launching a startup is risky enough as it is. Don’t gamble on the important things. Work with people who you know will help you achieve success. If you’re online-based, everything has to work all the time: servers, platforms, content management systems. Make sure they do.
Gamble on something untested and the likelihood is you’ll lose out.
8. Invest don’t speculate
Buffett has always said that he invests in a business based on the fact that it will have real and increasing value. Speculators buys things because they believe someone will buy it off them later at a higher price.
Two startup models operate in a similar way. Given the right model and product, people who build their startups and invest in them will almost always be successful. It might take them longer, but they will do well. Those who build businesses on the basis of a trend, and in the hopes that someone will buy it out quickly, might get the occasional big win but they’ll also lose pretty frequently.
9. Keep it basic
Buffett still lives in a relatively modest house in Omaha, Nebraska. When he was brought in to head of banking giant Salomon Brothers meanwhile (at an incredibly difficult time for the company), he rode the subway to the office while all the company’s other senior executives were being driven in private cars. That common touch has earned Buffett a lot of respect as a business person and as a human being.
The likelihood is that your startup’s product is aimed at ordinary people. Try to remain as ordinary as possible. Ride a train or a bus from time to time, speak to people on the street. You will learn something and earn a lot of kudos in the process.
10. Give back
Buffett donates billions of dollars a year to charity, large portions of it through the Bill and Melinda Gates foundation. He’s never asked that his name be put on anything in return for his donations. In 1988 he articulated this attitude in a pretty profound way:
I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10 000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10 000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die.
Even if you aren’t flush with billions like Warren Buffett, you can still give back in some way. Once you’ve got a little success, you can give your time mentoring other startups, or you can give an internship to someone who really needs it.
If you’ve got a heavy tech focus, you can lend your expertise to a school. That way, even if you live by a Gordon Gecko-style “greed is good” philosophy, you could potentially be ensuring you always have a fresh crop of talent to pick from.
11. Think independently
Buffett’s wife Susie left Omaha to go in live in California in 1977. Despite this, the two remained married and continued to have a good relationship. Shortly after leaving, Susie introduced Buffett to Astrid Menks, who became his companion and (after Susie’s death) his wife.
For a time, Christmas cards from Buffett included signatures from all three. Yes, it was unconventional but it worked for them.
It’s tempting to go with the crowd and follow fashions, especially online. You could do okay if you catch a trend on the way up but you’ll fall hard if it falls too. You’ll also never do as well as if you lead and forge your own path. If you know something works for you, keep doing it no matter what anyone else says.
12. Don’t micromanage
Buffett and Berkshire Hathaway own a lot of companies. Apparently he only applies the lightest of tillers to each of those companies. That makes sense. It would be impossible for him to be intimately involved in each of those companies. For the most part he allows the people in charge of the business to keep doing what they were when he bought it.
At a certain point, the same rule is going to apply to your startup, You can’t manage every tiny detail. If you’ve employed the right kind of people then you should be able to leave them to do what you hired them to do. Interfere too much and you’ll only end up stressing them and yourself out.
13. Break your own rules
There was a time when Buffett wanted nothing to do with derivatives, calling them “financial weapons of mass destruction”. He later broke his own rule, with Berkshire Hathaway investing in them.
When it comes to the rules you set out for yourself and running a startup, you need to have a certain amount of flexibility. If, for example, a content management system you swore you’d never use suddenly starts looking like the best option for you, then you have to at least consider it.
(April 2014 Newsletter)