Imagine a scenario where you invested all of your money on a lucrative scheme that turned out to be a scam. You will be devastated for sure. Just like you, millions of people worldwide are also embezzled off their hard-earned money each year by companies and individuals involved in fraudulent schemes. A prime example is the Madoff Investment Scandal which was actually a Ponzi scheme. Bernard L. Madoff duped thousands of his clients and robbed them of billions of dollars.
You don’t have to be a genius to know how to spend and invest your money wisely. Saving and investing your hard-earned income can get you amazing results. Similarly, if you own a business or want to start one, the use of capital is one of the key issues you need to consider. And what better person than Mr. Warren Buffett, the Oracle of Omaha, to help you out in this concern.
The Maverick of Investment
Warren Buffett is like an institution when it comes to giving people advice about investment and how to conduct business. The stocks he buys and the companies in which he invests become hot commodities all over the world. This is the reason that each word from him is regarded as the authority on the subject.
According to Mr. Buffett, if you want to run a business, the following factors will you help you out greatly. While some of the points are written concerning stocks and investment, they can be applied to running and managing any business.
- Keep Calm in the Face of Volatility
People usually panic in the wake of an adverse event and haphazardly do things that usually aggravate matters. Warren Buffett once told his shareholders that he doesn’t bother much when the price of his company’s share fluctuates sharply. His famous quote in this regard is “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
The above quote means that an adverse situation is an opportunity to invest, although a calculated one. While you need to refrain from investment as much as you can when there is a buying spree going on as the bubble will burst anytime. Similarly, you need to tackle bad or favorable scenarios keeping in mind the above quote.
- Keep your Focus
A company’s reputation can take a beating within a short period if the management is not focusing on the core issues. One of them is not making managers/supervisors accountable for the work done by their subordinates. In his own words, Mr. Buffett sheds some light on this matter as the “value stagnates in the presence of hubris or of boredom that caused the attention of managers to wander.” And the concluding part about the result is in an even serious tone; a sidetracked leadership can “neglects its wonderful base business while purchasing other businesses that are so-so or worse.”
The above quote is all about making sure the owner or management of a business entity do their best to make sure their venture is heading in the right direction. The intellectual level of the manager can make or break the team and eventually make it impossible for a product/service to take off. That’s why the focus is critical for a company’s success.
- Keep Costs Low
Starting a business is a costly affair for sure. Even if you put in the entire capital in the product development and marketing phase, one can still be not sure whether the product will hit the bull’s eye or not. So keeping costs low at all levels is the basic necessity for a business to succeed in these testing times. And surely you would like to hear something from Mr. Buffett to offer you some advice in this regard. Read on.
Warren Buffett once elaborated the fact of keeping costs low at the success bash of Berkshire’s GEICO auto insurance subsidiary by saying, “Low costs permit low prices, and low prices attract and retain good policyholders.” And when those customers referred their friends and relatives back to the company, it was an even greater success story for Berkshire giving it “enormous savings in acquisition expenses, and that makes our (Berkshire) costs still lower.”
- Keep out of Trouble
While no one can predict the future with cent percent success rate, proactive measures can make sure to avert adverse scenarios happening regularly. Businesses can get into trouble easily with internal and external threats playing a major role. You can easily guess Warren Buffett has something special in this regard too to save the employers and the employees too. The solution is rather a unique one that and he calls it “reverse engineering the future.”
According to Mr. Buffett, “If we can’t tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds.” There is no rocket science involved in this theory. You just need to be extra-cautious while looking at the industry trends and the results of the other companies’ strategies. In this way, you can plot your future path with cent percent accuracy. The use of a freelance management software can also help small businesses and startup to a great extent.
- Keep Your Undervalued Stocks for Future
A quite common practice for several companies these days is that they use whatever option they have to buy in dire need. Using the undervalued stock is perhaps the first thing they use to sell as they try to save the cash and other valued stocks. Warren Buffett gets very angry when companies practice this as he is always critical of using undervalued stocks which are not fully valued by the market.
This is what he always tells his employees and the shareholders which is pretty much self-explanatory. “Under such circumstances, a marvelous business purchased at a fair sales price becomes a terrible buy. For gold valued as gold cannot be purchased intelligently through the utilization of gold — or even silver — valued as lead.”
- Keep it Small
Small businesses started to make a kill in the market right around the early ’70s. These businesses are easier to manage with not many employees to look after, and the ROI is pretty much in line with the expectations of the investor. But big businesses attract big investors as they look for higher margins of profits in quick time. Warren Buffett is not that hopeful in this regard. In his opinion, “size seems to make many organizations slow-thinking, resistant to change and smug.”
The working of Berkshire Hathaway has always followed this principle with its unit managers handling all of the work instead of the headquarters doing the bulk of the tasks. That’s why Warren Buffett shed some more light on this issue, “It is a real pleasure to work with managers who enjoy coming to work each morning, and once there, instinctively and unerringly think like owners.”
- Keep your Reputation
It takes ages for the companies to make a reputation for themselves in the market. To create the goodwill, the product needs to be satisfying the requirements of the end user with quality at its core. The recent incidents at United Airlines with the passengers didn’t go well with the airline’s clients as well as the general public. Their reputation nose-dived at an all-time low, and it will take quite some time for them to recover from this. The blunders from their PR department make matters worse for them.
Maintaining the reputation of the product or service is one lesson on which Warren Buffett lays so much emphasis. It is perhaps the most important piece of advice for new people in business and aspiring entrepreneurs. The following quote says it all, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
Over to you
Have something to add to the story? Or are you looking for some more advice regarding this topic? Share your concerns in the comments section below, and I will respond back to you at my earliest.