9 Lessons From Warren Buffett For Entrepreneurs
Based on his annual letter, there will be many articles on Buffett’s wisdom for investors. But as I watched the interview in February, I realized that he had lessons for entrepreneurs as well. Here are nine key lessons for entrepreneurs from his interview with Becky Quick of CNBC.
Wisdom from Warren Buffett
Admit your mistakes: Given that Kraft-Heinz had a lousy quarter last week, it was only natural that Buffett would be asked about it. Unlike many who come on TV and struggle to admit their mistakes, Mr. Buffett essentially admitted that he had underestimated the impact of private-label brands on branded food sales. The lesson here for entrepreneurs is to understand the impact of emerging trends because these trends create opportunity for entrepreneurs and dis-opportunity for entrenched corporations. Another key lesson is to admit your mistake so you can decide whether or not to change.
Know your limits: Buffett was asked about his exit from Oracle’s stock. His admission was that he did not understand the cloud. I wonder why he got in in the first place if he did not understand the cloud. It’s important to know what you don’t know. And what you know.
Persistence is key: Short-term issues do not seem to bother Buffett. Expect problems and plan for them because it then becomes easier to profit from opportunities as they emerge. But know where the opportunities are, and this requires due diligence.
Do your due diligence: When Buffett talks about companies, it is fascinating to see the numbers about his key investments and portfolio companies flow so smoothly from his brain. Obviously, he has done his homework and does not rely on instinct. Entrepreneurs need to learn how to reduce the role of instinct and use their analysis. And if you do not have the time for analysis, try to make time. Instinctive entrepreneurs are gamblers. Sometimes they win. Mostly they lose. Unfortunately, the media always hypes the entrepreneurs who like to talk about their brilliant instincts.
Learn the skills you need: Buffett obviously has the skills needed to value companies. Many entrepreneurs think that skills are not that important, either because they do not think anyone can teach them, or because they have a higher sense of their own self. This is still the black hole of entrepreneurial education. Entrepreneurial educators focus on helping students evaluate the opportunity, develop their strategy, and find financing. But business schools seldom teach skills. Maybe we should learn from Buffett and start teaching business skills needed to start and develop new ventures.
Work with great people and give them freedom to succeed: Buffett seems to have an uncanny knack for finding great people, and sensing integrity. This was especially evident when he was talking about the entrepreneur from whom he bought a furniture company. It would be helpful to know how he separates the crooks and the pretenders from the real thing. My experience is that besides crooks and pretenders, there are also many who are incompetent for the position they have or want. How does Buffett find the good ones?
Get emotions out of investing: Buffett seems to have mastered the basic investing emotions of greed and fear. A good question would have been whether he is able to do this naturally or did he train himself?
Jump on emerging trends: Buffett has invested in Chinese electric-car companies. He obviously knows the trends and noted that China is offering a lot of benefits to such companies to gain an advantage in the emerging trend of electric cars. He also noted that electric cars were likely to be part of America’s future. But the problem is that if China dominates electric cars, that is one more reason to worry about America’s trade deficit and jobs. Perhaps Buffett should have been asked about how China’s dominance in an emerging trend will affect America’s future, especially given his faith in America.
Have faith in America: What comes through when you listen to Buffett is his total faith in America, and how this faith has paid off for him in the last 8 decades. But if I might quibble, America grew when it had little real competition, and it put together the greatest system of economic growth the world has seen. But for some of us not gifted with Buffett’s wisdom and insight, it would be interesting to know how the growth of a tough and ruthless competitor that steals what it wants and dominates weaker competitors will affect the future. This is particularly important when you note that many of the companies that have helped China’s growth, at the expense of America, have been American corporations who liked the lower costs and higher profits.
MY TAKE: Great interview. Great lessons. From a great investor.
This article originally appeared in Forbes.