Warren Buffett is a name you’re guaranteed to have heard of if you’ve paid any attention to the international business landscape in the last fifty years. There is practically a whole sub-industry of literature out there promising to unveil the secrets of Buffett’s success. Buffett – also known as the “the Oracle of Omaha” – has earned an almost mythic status and unparalleled reputation for success.
But the truth is, Buffett’s success has been built on a commitment to a short list of very simple investment and leadership principles. Today we’ll give you an overview of how Buffett became the investor he is, and the principles that have made him so enormously successful.
Who Is Warren Buffett?
Even if you’ve heard people speak reverently about the Oracle of Omaha, you still might be wondering, who is Warren Buffett? Warren Buffett is an investor and the CEO of Berkshire Hathaway. Berkshire Hathaway is a massive conglomerate holding company that maintains ownership shares in a large variety of companies across many different industries.
Buffett famously studied at Columbia University under Benjamin Graham, who is considered the father of “value investing.” Buffett has amassed a fortune approaching $100 billion through investing in various enterprises for almost 70 years. He remains an active investor and CEO, even at age 90! Fun fact: even though he commands more free capital than just about anybody in history, Buffett still adheres to the same frugal routine every day. He wakes up in his relatively modest home, drives his modest car to pick up a cheap McDonald’s breakfast, then goes into work for the day at his Omaha office.
How Was Berkshire Hathaway Built?
Berkshire Hathaway is actually much older even than Buffett, originating as the textile-producing Valley Falls Company in 1839. The company would grow to a large operation with revenues in excess of $120 million, but profits started to decline after WWI. In the late 1950s and early 1960s, several investing partnerships Buffett led had begun to earn large profits.
Following the value investing principles he learned from Graham, Buffett began buying shares in Berkshire Hathaway in 1962. He had majority control by 1964. Though the textile operations were in decline, to Warren Buffett, Berkshire Hathaway was an ideal vehicle to expand into other industries. First (and most notably) insurance, with an investment in the company today known as GEICO. Berkshire Hathaway ceased textile manufacturing altogether by 1985. Yet, by this time their investments had proliferated into a multitude of other industries.
Berkshire Hathaway persisted as the holding company through which Buffett executed the majority of his corporate investment. Today, the company is famous for the consistency of its returns. It has averaged roughly 20% annual growth over Buffett’s long tenure as CEO, even as it deals in ever larger amounts of capital. Today, the company boasts annual revenues approaching $300 billion.
Becoming Warren Buffett: Little Lessons
If you’re looking to start (or accelerate) a successful business career, it makes all the sense in the world to study one of the most successful business people of all time. Here are a few reliable tips for following the Warren Buffett way.
- You’re in it for the long haul. If there’s an overarching message in Warren Buffett’s story, it’s that becoming Warren Buffett doesn’t just happen overnight. Value investing is almost the opposite of the quick returns sought by day-traders today. Value investing is based partly on the tenet that the market goes up and down over the short term but tends to go up over time. The answer to the question “How did Warren Buffet make his money?” is a relatively boring one: he made it one dollar at a time.
- The business is paramount. The overall functioning of a business is more important than any of its employees, including the CEO. The implications of this lesson are sometimes noble, as it encourages the elimination of ego from business operations. But other times the emphasis on the overall business can seem brutally unsentimental, i.e. when management decides layoffs will improve the bottom line.
- Trust is important. Leading and growing a business depends on having the trust of partners and employees alike. Without trust, such business accelerants as synergy and collaboration become impossible. A famous Warren Buffett tenet is: “It takes twenty years to build a reputation and five minutes to ruin it.”
- Invest in people. This means that it is essential to have the right people in place to do the right job. But it also means empowering employees—with resources and support—to solve problems themselves. And another Buffett truism is that the most important person to invest in is yourself.
- Keep it simple. This principle ties back to Buffett’s emphasis on investing in companies with strong business fundamentals, as well as his emphasis on helping employees solve problems themselves. While the intricacies of the business world often make it seem forbiddingly complex, Buffett has reduced that complexity to a simple list of straightforward criteria for analyzing situations and making decisions.
Warren Buffett Leadership Style
The Warren Buffett leadership style is an outgrowth of many of the principles outlined in the previous section. Buffett’s investing approach demands hard work. Every decision about what to invest in and how to operate those investments must come out of a deep familiarity with a specific business’ operations & finances. Can you say “due diligence” anyone? But once Buffett has decided to invest in a company, his strategy is relatively hands-off. He does not presume to be more of an expert than the people running that company. The management teams in charge of the companies Buffett controls are there by virtue of having earned his trust. With that in mind, he gives them free reign to run things as they see fit. This is in sharp contrast to many of the activist investors of today.
However, if a company experiences continued problems, Buffett is not afraid to make a quick change in management. In this way, the Warren Buffett leadership style has been described as involving a balance of over-management and under-management. At the end of the day, his leadership style really boils down to building relationships.
What Consultants Can Learn from Warren Buffett
Some believe that Buffett’s reputation for great relationships is the reason he makes so much on his private deals. If people successfully operate, he lets them operate. This strength of relationship is also why he gets business opportunities that others don’t. For example, when the Haslam Family needed capital for Pilot, a large chain of truck stops and gas stations in the U.S., they came and offered Buffett an equity stake first. Why? They knew he would not try and force them out of leadership, but instead would give them time to turn the business around.
Warren Buffett doesn’t micro-manage, and consulting is often similar. Great firms and great partners build books of business based on relationships and consistently doing the right thing for clients. They may seek to generate intellectual property and innovate for their clients, but the truth is, there’s no magic trick. That is why the MBB firms have been around for so long and will be around long into the future. Relationships, unlike ideas or methods, are difficult to disrupt.
The most consistent thing Buffett’s principles offer is a simplification of the nature of running a business. The fundamentals of any business are critical, as are the day-to-day operations. You also have to put people in a position to succeed, and allow them to do so. If you do, you are likely to achieve powerful long-term results. For anyone looking to better understand the nature of investment and business, Warren Buffett’s lessons are essential. His example is especially noteworthy in today’s volatile stock market. For strategic business training, have your teams work with us today!
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