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Growth

May 24, 2012
Written By: Pete Petersen

Strategic planning seems to get a bad rap from many business leaders, often being perceived by them as having low value even though they feel it is important. Just ask a few leaders about their thoughts on strategic planning and here is what you may hear:

  • We do a plan and end up with a to do list, but the plan ends up on the shelf collecting dust. Nobody does anything with it.
  • We did one five years ago; it’s probably time to do it again but I just can’t get people to talk about strategy.
  • Our planning process is boring and time consuming. We spend countless hours talking about vision and mission; and then discuss the same problems over and over again.

Strategic planning doesn’t need to be like this. We work with an ever increasing number of leaders that view the planning process as critical to their businesses performance, growth and financial success. And the businesses that do it well have strong competitive advantages in the market. Based on our 25+ years of developing and implementing business strategies we have determined that:

  1. Strategic planning creates high value for businesses if done right.
  2. Most companies don’t do it right.

Let’s take a look at the value that strategic planning brings to a business. The core reason for strategic planning is simply to improve the business’s ability to compete, which translates into improved growth, profitability and longevity.  Certainly there are other benefits to the process including aligning the leadership team’s thinking, getting employee buy in and just taking the time to work on the business versus working in the business. But being able to effectively compete in the future is what it’s all about.

Unfortunately without a regular disciplined process these important discussions frequently don’t happen. So instead of leadership actively planning for the future they simply react to competitive changes, try lots of different things, watch their competitive advantages erode, see growth come to a halt and lose key people who become frustrated with an uncertain future.

We know that effective strategic planning doesn’t happen in two eight hour days with fifteen people at the local hotel each giving a presentation. And it doesn’t work by filling in the blanks of a plan in a box format or by developing long winded vision and mission statements.

Our experience tells us that high value strategic planning includes:

The right people participating including key decision makers, those leaders who are going to drive the company’s future success and perhaps a company outsider who can ask hard questions and help the group maintain perspective. We know that having the wrong people or too many people in the room make productive discussions difficult.

The right discussion topics which include competitive changes, customer demand, core business strengths to build on, competitive advantages, difficult issues facing the business and obstacles getting in the way, assumptions the company is building on, growth opportunities and risks. Of these topics clearly defining the real challenges facing the business and ensuing obstacles is often the most difficult discussion.

Challenging discussions involving everyone at the table that candidly take on the difficult issues without fear of reprisal. Without a doubt this is often the toughest part of the process and frequently won’t happen without an outside facilitator.

Focused direction which includes a few important crystal clear plans and objectives that if accomplished through a few equally clear measurable actions will address the difficult issues and obstacles facing the business, and lead to a number of favorable outcomes. It means saying no to a wide range of possible directions and yes to a few. This is not the place for generalities, minutia or fluffy language.

Execution and disciplined follow up must be an inherent part of the entire process. If these are not built into the plan there essentially is no plan. We have found that regular gap analysis discussions led by those who are responsible for execution work very effectively for following up, but it takes a demanding and disciplined leader to make this happen.

The strategic planning process does not have to be an exercise in futility. Getting the right people at the table, having challenging discussions on the right topics, maintaining focus and executing rigorously will dramatically improve the process and improve the odds that a company can win in an increasing competitive marketplace.




August 12, 2011
Written By: Pete Petersen

Once again we are back to market inflicted economic uncertainty.

It is distracting and unnerving. Voices run through business leader, employee and customer heads asking: “What’s next? What happens to our businesses if this continues?”

The facts are few of us have any control of the market, but leaders can control how they run their business and where they put their energy. Based on our experience business leaders who win in uncertain times stay the course and focus on execution. Specifically, they:

  1. Limit their consumption of news … it may or may not be true and limit their discussion of the economy to people who offer perspective and insight not more uncertainty.
  2. Communicate clearly to their leadership team that performance expectations and accountabilities have not changed … no excuses accepted.
  3. Absolutely ensure that the customer sales and service experience is better than ever … customers are getting their own dose of deflating news elsewhere.
  4. Reassure employees and owners that the market is cyclical, we’ve been through this before, we are smarter than before and we will get through this again.
  5. Keep their marketplace surveillance at high levels watching for any disruptions with customers or the supply chain.
  6. Make prudent business adjustments based on facts and not emotion.

As a leader you have a choice.  You can stay the course and focus on execution, or you can let the market and the media control your focus, performance and direction.  Making the choice to stay the course is easy; having the discipline to stick with it is not. 

But when has winning ever been easy?




May 15, 2011
Written By: Jim Wahrenbrock and Pete Petersen

As more companies are looking towards joint alliances to address growth needs, we’ve identified 12 steps critical to ensuring success. 
 
  1. Start by answering questions. Why does an alliance make sense? What do you hope to achieve? What are your options? How will you measure success?
  2. Look before you leap. Identify potential partners and find out all you can about them before you get into any discussions with them.
  3. Share common values. If your business ethics and values are different than your partners, it’s likely the alliance will fail.
  4. Share common goals. Make sure both parties understand and agree to the goals.
  5. Align your interests so you win together or lose together. If the key members of the alliance can succeed in their companies without the alliance succeeding, you haven’t constructed it correctly and the possibilities of failure go up.
  6. Identify an exit strategy. Situations change and alliances end. It’s far easier to end them amicably if you’ve talked about it up front.
  7. Keep the principal leaders involved. Alliances have better success when the people who set them up remain involved. But people move on in their careers, so it’s vital to measure success and communicate results to maintain buy-in. 
  8. Identify the primary go-to people in each company. They may be the principal leaders or others who have been given the responsibility. 
  9. Create an atmosphere of trust and respect. Regular communication is key. The problems that arise can be dealt with if there is an atmosphere of mutual trust and respect.
  10. Identify how you will deal with differences. Company cultures vary. One company may have a strong marketing arm and be used to making quick decisions, while another may be outstanding in engineering and used to a more deliberative decision-making process.
  11. Design good metrics to measure results precisely. How you measure results depends on how you put the alliance together. One way is keeping track of profitability, allocating expenses properly so you have a real picture of profits, costs, and expenses.
  12. Share the results. The long-term success of any alliance depends on broad buy-in at many levels. To ensure the alliance doesn’t languish when the originators move on, it’s vital to share the results.
 
 
 




April 2, 2011
Written By: Jim Wahrenbrock and Pete Petersen

As companies search for ways to grow, three methods usually come to mind: organic growth, acquisitions or strategic alliances. Over the next several weeks we’ll focus on strategic alliances.

Strategic alliances cover a broad gamut of possibilities that range from loosely structured partnerships to full-scale mergers. Structured correctly alliances can leverage the strengths of both parties and accomplish significantly more than either partner could accomplish on their own. When considering an alliance the two words mutual and benefit cannot be overemphasized.

Do it if …

There is significant mutual benefit for both parties that cannot be easily achieved by other means—such as an acquisition or internal growth.

Don’t do it …

  • So you can get bigger. Bigger is not always better. Make sure there are sound business reasons for growth and explore whether you can grow your market yourself.

  • If you can’t grow internally. Be sure you’re not using an alliance to try and solve an internal problem. If you’re losing market share, ask yourself what needs to change in your company.

  • Because you like the person. Go to lunch or play golf together, but don’t create an alliance if this is your main motivation.

  • Because someone talked you into it. If it’s not your idea and you haven’t considered how it fits into your overall business strategy, then you’re relying on luck.

  • You always like to be in control. Remember the word mutual; you are aligning with another party. It has to be a give and take relationship to succeed.

 

 

 




March 13, 2011
Written By: Michelle Clark, Ph.D.

Pricing is the most powerful and least painful way to increase profit for your company (Fortier, 2011). It’s less painful than reducing costs or increasing your market share, and it has the fastest connection to your bottom line.

 

Over the past month, I have worked with three separate groups of CEOs on the issue of pricing. In each group, I posed the question:  “In your pricing strategy, how do you know you aren’t leaving money on the table?” Of the 30 very competent company leaders I posed this question to, only a handful had a confident answer to that question.

As a business psychologist, I don’t claim to be an expert in pricing strategies. I am, however, an expert at getting to the root cause of problems, how people make decisions, and difficult conversations. What I see over and over again in working with companies is that underneath it all, many internal pricing decisions are driven much more by emotion than fact, although the emotion often masquerades as logic.

In any decision to raise prices, there is a possibility for big gain, but there also is a big threat. The gain is increased profit for your company; the threat is loss of the business. At a time when the economy has caused widespread fear, the threat of losing the business is particularly powerful.

At a physiological level, the amygdala in our brain still responds to threats as if we were about to be attacked by a tiger, with a push to fight or flee. This is not the state from which we make our best, logical decisions. However, push back from our customers can lead us to make decisions in this way. 

How often have you heard this feedback from your sales force?

“The customer won’t buy at that price.”

“If you price it that way, we’ll lose that business.”

For most sales staff, it’s less uncomfortable to push back on pricing internally within the company than deal with the customer’s negative reaction to price increases. So, how do you know if your trusted sales member (above) is accurate in this assessment or taking the easier path?

One company I work with recently revised its incentive program. In the past, the sales force was incentivized based on sales figures. This company had recurring difficult conversations about pricing, generally with the sales staff pushing back whenever there was a price increase. The revision of the incentive program shifted the incentives from sales figures to profit. Thus, instead of making their life more difficult, a price increase now increased the commission of the sales staff. Over the course of 18 months, this company successfully increased the price 14% in the key segment of their business.

In a 2007 front-page article in the Wall Street Journal, Timothy Aeppel describes a revolution in pricing at manufacturing company Parker Hannifin. The historical pricing strategy was based on the assumption that pricing should be approached from the perspective of cost plus a profit margin on top. Their revolution involved shifting to a retail-based strategy. Instead of asking: “What does this cost us to make, and what margin do we need?”, the question changed to: “What is the value of this product to our customer and what is the customer willing to pay?”

As you reflect on your pricing strategy, ask yourself the following questions:

  1. Is your brain convincing you the risk is bigger than it truly is?
  2. Is your sales force choosing the lesser of two difficult conversations and restricting your prices?
  3. Are you building the right relationships with your customers so you get accurate market intelligence? 
  4. What assumptions are you starting from, and how do you question those assumptions?

 

 

 

Aeppel, T. Seeking Perfect Prices, CEO Tears up the Rules. March 27, 2007 Wall Street Journal

Fortier (2011), Presentation to Chief Executive Network, Atlanta, GA.

 




November 19, 2010
Written By: Jim Wahrenbrock

Often when we’re contacted by a business owner who has decided to sell the first question is”What’s my business worth?”  

We often leave that first meeting wishing that they would have called two or three years earlier.  Why?   Because if the owner had better prepared the business for sale in advance; the value would have been vastly improved.

Here are a few basic questions that should be addressed well in advance of a sale so that adjustments can be made to make the business more attractive to potential buyers:

  1. Is our business dependent on relationships and does one individual in our business personally own all the key relationships that really matter? Buyers will be wary of businesses that hinge on one person; if that individual is gone so is plenty of the business.
     
  2. Is our business too dependent on one or two key customers? Single customer concentration greater than 30% is a red flag for buyers and lenders because the loss of a customer of that scale may make the difference between profit and disaster.
     
  3. Will our customers be the survivors in this increasingly competitive business environment and be solid buyers in the future, or are they tier two competitors that will only be around a few more years? Potential buyers will be more likely to pay up if you have long term viable customers.

Perhaps the best overall question to ask two to three years ahead of time is “What would a potential buyer look for if they were interested in my business?” And what is that? Simply put, a smart buyer wants to know that what makes the business work will stay in place after the sale. If the good parts stay intact they can confidently decide how to grow and make the business better.

The simple concept of Prepare to Sell can make a very big difference in the sale price of a business but it takes thought, planning and change. Owners often get so involved in their business that they lose the objectivity that a potential buyer would have in evaluating the business. We have seen many sad stories where owners just didn’t have their business ready to sell and consequently received far less than they ever anticipated. It doesn’t have to be that way. Significant value adding adjustments can be made to many businesses but that requires an honest evaluation of the business. Often getting an outside in look by an experienced advisor can make that process more objective, easier and more effective. 




September 24, 2010
Written By: Russell Jensen

One of the central planning issues our clients have been facing over the past year is answering the question “how do we achieve real growth in this new normal?” We recently worked with a client who described this as shifting from playing Defense to playing Offense.

Playing Defense
This client has spent the last three years coming through a turnaround situation.  Theirs is a difficult, complex business; the sales cycle is long, the value proposition is difficult to articulate, they face operational and regulatory complexity and change, margins are slim, and technology and scale are important for success.  

 

For the past three years their strategy and planning has been all about strong, detailed operating plans with a focus on execution.  They fall victim to the fire drill syndrome at times as they are forced to deal with challenges and surprises they didn’t see coming.  Growth over that time period has happened in large part because of their excellent reputation, but the growth has come from unexpected sources that haven’t been in the center of their sales target.

This is a talented leadership team that has successfully turned the business around and positioned it for growth.  They know how to play great defense, but are uncertain about their ability to play great offense.

Playing Offense
Understanding this was important for all of us.  We worked with them to develop a different approach to strategy and planning than they’ve used in the past.  We helped them take a methodical, clear-eyed look at their customers, the marketplace and themselves.  Like many clients, they have been so caught up in day to day operating challenges they just don’t get much time together as a team to talk in depth about the bigger issues.  The result is a one year plan for them that has a very different look and focus than in the past.

  • The 2011 plan is primarily about growth (playing offense)
  • The plan includes just three key focus areas: Growth, Process Improvement and People
  • The plan includes just seven strategic initiatives, and five of them are all about growth
  • We also mapped out the ongoing technology and operational initiatives that are critical for company success

The secret sauce, however, consists of the three huge strategic “ah has” the team experienced in the planning discussions that kicked them from playing defense to playing offense.

  1. They realized their growth from non-sweet spot sources has become a niche market with enormous growth potential.  They are creating a dedicated business unit for this niche and are making it a central focus of their growth strategies.
  2. They discovered that sales from customer referrals close faster, close at a higher rate and carry higher margins than other sales.  Their core growth strategies now center around customer referrals.
  3. Given the complexity of their business and their narrow margins, aligning sales, operations and product design with market segments and niches will impact both growth and profitability, so they will begin tackling that challenge in 2011.

For this business, growing in the new normal means some very visible changes to play offense rather than defense.  What does it mean for yours?

 

 




September 3, 2010
Written By: Russell Jensen

I had to laugh last week when a long time client pounded his desk and loudly exclaimed “I am wasting a perfectly good recession!” “Luke” (not his real name) got my attention. He was thinking specifically about failing to make some difficult staffing decisions during the downturn. His reasoning is pretty typical for a small town employer; I see these people in church, I know their families and their personal situations, and it is still harder for me to let them go than to “accommodate” them.

I couldn’t stop thinking about Luke’s comment that day, so I fired off an email to a number of clients and business acquaintances and asked them if they were wasting a perfectly good recession, and if so, how?  Apparently that was an interesting question, because I was peppered with responses almost instantly. My phone rang within seconds of sending the email, and it was my client “Scott” (not his real name) calling. “Which of my senior people have you been talking to? Some of them have been telling me that exact same thing!” He went on to tell me he knows he has some senior people the company has outgrown and he really needs to address that situation, but he just can’t bring himself to do it. What’s interesting is that several of his key people are putting more pressure on him, holding him accountable for leading and making the hard decisions.
Responses to my question fell into two clear camps. A frustrated “yes, we are wasting this opportunity” and a quiet “no, we’ve taken some actions we otherwise might not have.” Here are some of the responses.
Yes, we are wasting a perfectly good recession
  • Our strategic plan outlines strategies for acquisitions, targeting customers of vulnerable competitors, and upgrading talent in key roles, but we’ve been paralyzed and have not acted on any of these. We’ve missed some great opportunities and it looks like we’ll miss more.
     
  • We’re still avoiding some tough personnel decisions.
It is interesting to note that key leaders in both of these businesses are not on the same page regarding these issues.
 
No, we’ve taken some actions we otherwise might not have
  • We took advantage of some attractive pricing and bought some heavy equipment. Based on what we’re seeing in that market today, that was a very good call.
     
  • We accelerated our plans to buy land and a build new building. The market was too favorable to stick to our original timeline.
     
  • We’ve been intentional about upgrading talent at key positions. Competition for good talent is actually pretty stiff right now, but we’ve been able to hire some experienced talent that we most likely wouldn’t have been able to attract a few years ago.
     
  • We worked hard to streamline our operations, improve our processes and right size our workforce, all things we should have been paying more attention to in the past.
     
  • Our value proposition has always been about demonstrating a measurable ROI to our clients. We made this a clear priority and are pleased with the results
And, as you figure out to which camp you belong, I’ll leave you with a final thought. One business leader sent this thoughtful response that echoes what we are hearing from others throughout the course of our client work. 
 
He wrote:
 
”I get the feeling that some companies use the recession as an excuse to do what a good manager should have done in the first place – staff efficiently, manage performance, manage supplier costs, etc. Worse yet, I wonder how many firms eliminated salary increases, stopped 401K matches, reduced staffing without business justification only to pump short term profits but with the recession as an excuse. Reducing costs to increase profits or in response to a downturn in revenues is a perfectly good thing, presuming that it is sustainable or if the short term benefit (survival) can justify the long term impact on the organization.  But, to blame “the recession” for management’s actions is just lazy management. Your employees and customers will see through the insincerity and won’t be there when you really need the help.”



August 6, 2010
Written By: Pete Petersen

I’m in the process of reading a book called Strategic Intent co-authored by Gary Hamel, one of the leading business management experts in the world. Hamel always focuses on competing in the marketplace and this time outlines part of his approach to strategic planning. The book is not a particularly easy read but there are a number of excellent insights to consider. 

One of the areas he touches on is analyzing competitors. We all try to do this with varying degrees of success. Hamel maintains that US companies do a very poor job of anticipating competitor moves because they only analyze their competitors at a given point in time. They look at a competitor’s current financial resources, current results (if they are available) and current strategies to determine the competitor’s direction for the future and if they will be a problem regarding pricing or market share in the next year. He likens this to taking a snapshot of a moving car … it doesn’t tell you much about the car’s direction or speed. The car could be going on a slow trip to grandma’s house, a fast drive on the Autobahn or headed for a crash.
 
Knowing more about where the competition is headed is the key. A better way to look at competitors is to study their obsession with winning at all levels of the organization including their focus, resourcefulness, ability to change and the strength of their competitive advantages. This isn’t easy but it sure beats the snapshot method. If you truly know more about competitors you can better position your business’s pricing, quality, marketing, service, sales and more. The less you know the more time you spend reacting to competitor moves, responding to new aggressive players in the market and playing catch up versus offense.   



July 16, 2010
Written By: Pete Petersen

One of the most savvy business leaders I have worked with has a way of keeping business very simple. Over the years he has reminded me frequently that the most important thing in business is customers and without them there is no business. This all seems pretty elementary and straight forward but, as important as customers are; we find that many of the businesses we work with really don’t know much about their customers. Consequently they are missing sales opportunities or are making plans and decisions without any facts. There is lots of information about customers on the market to sort through but having a good solid leadership discussion around a few basic customer questions is often a good start to help better shape business direction. Here are a few starter questions we have used:

  1. Why do people buy from us? Is it because of our people, our products, our quality or our customer service?
  2. How do we get new customers? Do they come by referral, the internet or by word of mouth? How do we lose customers? How do we know?
  3. What is the profile of a good customer for our company? How many “good” customers do we have?
  4. What does a good supplier look like to our customers and do we fit the description?
  5. What is important to our customers? Do we know their direction, issues and concerns so that we can be their supplier of choice? How do we know?
Our experience is that taking the time to know more about customers, studying the facts and adjusting the game plan is a great way to gain an edge in a very competitive market.



May 21, 2010
Written By: Pete Petersen

We have the opportunity to spend time with a wide variety of business leaders and have many discussions about how their businesses are performing. Here is what we are hearing fairly consistently, “It’s getting better but we still have a long way to go.”  

What we don’t hear very often is how business leaders plan to grow their topline. If there are plans to grow revenue they seemed mired in tactics from 2007.  But this is not 2007 and to think revenue growth will be generated in all the same ways as in the past is highly unlikely.
 
The question then becomes how do businesses plan to regain their topline? Will it be luck? Or that the economy will improve and a rising tide will raise all ships? Or will they simply save their way to prosperity?
 
Businesses that are growing have decided they can’t grow doing things just like they did in the past. Leaders are having challenging discussions with their teams about what must be done differently to build the business. The likelihood that these discussions will be uncomfortable is high and that is a positive for change.  
 
Here are some of the challenging topics and questions leaders are tackling:
  • Are we performing better or worse than our competitors ... why?
  • What does it take to win in this industry today … and how are we doing?
  • What are our real obstacles to growth?
  • How are we leveraging our competitive advantages?
  • What do we do best and how can we apply it most effectively in new ways?
  • Do we understand our customer’s issues, their direction and what is important to them?
Growth driven companies are also vigorously analyzing their sales team’s capabilities and sales processes that drive growth. Businesses that for years have had sales just come to them because of their great products are suddenly finding themselves in hyper competitive markets that demand a finely honed sales approach. Too often they are discovering that their sales teams are just marketing teams or order takers that have never had to compete in a tough market. They are asking questions like: What is the makeup of our sales team and what are their capabilities? Do we have the right people to win? Do our people strategies match our growth strategies? Do we have enough resources applied to marketing and sales to meet our goals? Do we really know what is in the sales pipeline … is it better or worse than what we are anticipating?
 
Without strong leadership and challenging discussions many companies will wander around in 2010 focused more on survival than growth, simply hoping the past will return. By challenging themselves and their teams to focus on growing the topline in new ways, leaders can ensure their companies are better prepared for the future.

 




April 2, 2010
Written By: Pete Petersen

A high percentage of our clients are talking a lot about growing the topline of their businesses as they chart a course to recover from the economic downturn. They have a very broad array of issues to consider including sales and marketing effectiveness, the competition and product shifts driven by the economy. One of the areas many management teams have overlooked is staying close to their customers. In fact many have discovered that they have become very isolated from their customers. In the past couple year’s management time has frequently been spent on cost cutting, operating issues, firefighting, bankers and a host of meetings. Gradually customer on site meetings have been replaced with phone calls which have then been  replaced with information from the sales team which may be filtered or at best viewed through a single lens. Ultimately the bulk of the information has come through customer reports or surveys and suddenly the old relationships have evolved into faceless transactions. At that point several things have happened. Company directional decisions have been made in a vacuum with limited real understanding of changing customer issues and needs. Next, customer relationships have become strained as management interaction has been limited only to stepping in when significant problems arise leading to “oh no not another customer call”. And finally customer loyalty has drifted away as their leaders become weary of dealing with mid level sales, service and management teams that just aren’t connecting. 

What’s the answer to getting back in touch with your customers?
 
It is important for Senior Management to remember that without customers there is no business. They have the money, buy your products and keep you employed. Additionally they too operate businesses and have a world of experience to draw from. Once these basic realizations are made it becomes a matter of priorities and execution. Why not a have mandate that all senior leaders, including HR, IT and R&D, spend at least 3-4 days of the year meeting with key clients on their turf?
 
There is nothing quite like meeting with customers at their business. Telephone calls and emails are useful but can’t replace on site visits. The company culture, the issues, the feedback all take on a new dimension when you are sitting across from the customer or touring their operations as opposed to being in the cozy confines of your office. Additionally customers really do like to show off their businesses and air their opinions. Ask questions, lots of them, about their direction, what is working for them, what isn’t working and the key issues their company is facing. Restrain yourself from trying to sell something and really listen to their answers. Your customers are successful for a reason ... there is much to be learned. And don’t be inclined to judge or discount their perspective too soon. Ruminate on their business model, their ideas and their strategies and consider the fit with your growth plans.
 
When you leave, your customers will thank you and when your management team uses what they have learned your business will be wiser and better prepared to grow the right way.
 



March 12, 2010
Written By: Pete Petersen

Berkshire Hathaway’s meeting was a couple weeks ago and with that comes Warren Buffet’s letter to the shareholders. Buffet’s letter is widely anticipated and reviewed by Wall Street, the media and investors who scour it for insights and direction. This year one of the topics of his letter that stood out for me was “What We Don’t Do”. There are a few lessons I’ve drawn out of his comments that apply for nearly any business.

What We Don’t Do
“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.”
 
Takeaways … Know your business, know your industry, make every effort to understand where your business margins are headed in the future.
 
“We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.
 
We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.”
 
Takeaways … Don’t plan on anyone helping you out except you, keep your balance sheet in order, cash is a good thing to have.
 
“We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.”
 
Takeaways …Trust your people and delegate; over managing will slow your business down and you can’t afford that in today’s economy.
 
“We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. Instead we want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur. If Charlie and I were to go into a small venture with a few partners, we would seek individuals in sync with us, knowing that common goals and a shared destiny make for a happy business “marriage” between owners and managers. Scaling up to giant size doesn’t change that truth.”
 
Takeaway …Pick your business partners wisely; make sure you like them, have common goals and a shared vision.

 




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