For many small-business owners, Warren Buffett is a role model for turning an entrepreneurial dream into a wildly successful career. The chairman and CEO of Berkshire Hathaway, whose net worth is $44 billion, consistently ranks among the world’s wealthiest people. What if you could build your small business into one that he might invest in? What would it take to amass your own fortune?
Seasoned finance journalist Adam Brownlee’s latest book, Building a Small Business That Warren Buffett Would Love, which came out in March, sketches out how small-business owners can get there. Brownlee (pictured) recently chatted with the Intuit Small Business Blog about what he gleaned from his extensive study of Buffett’s investment strategies.
ISBB: What inspired you to write this book?
Brownlee: I’ve consulted with a number of small-business owners over the years and discovered that even though the business models may vary, from the hamburger stand to the online retailer, the underlying template for a strong business model is the same. It is found in the unique wisdom that turned an initial $100,000 investment into a $40 billion fortune over the years. Instead of applying guesswork to startups and existing small businesses, why not capture the “answer,” the pillars found in every great business, and wire it up for small business?
What do most small-business owners have in common with Warren Buffett?
Small-business owners are making an investment decision and “buying” a business just like Warren Buffett is, although he is scanning annual reports whereas small-business owners are scanning the local market and assessing their skill sets and interests. So, why not look for rate of return and choose to build a Coke or McDonald’s of the local market?
Are entrepreneurs usually surprised to learn about these commonalities?
I think it is more of a “circling back to the same spot and recognizing it for the first time” scenario. The book brings focus to a very important set of key fundamentals that folks might be aware of but perhaps are not elevating to the highest priority. I believe, at its core, that business is not complicated, but it is composed of very important fundamentals that deserve focused attention.
In your book, you discuss how Warren Buffett’s success is, in part, due to his investing in businesses that have strong fundamentals. Give us the Cliff Notes version of his investment methodology, please.
I think one of the cruxes of this book is showing how the strategies of the greats such as Coke, Kellogg’s, and Costco apply to the world of small business. The book is the “Rosetta Stone of business success” and contains the key principles of building a consumer monopoly, maintaining strong earnings, creating a healthy rate of return, putting those earnings back into the machine, indexing to inflation, and bringing about healthy margins. Building a Small Business That Warren Buffett Would Love explains exactly how to wire these touchstones into the business.
How can these be successfully applied to a small-business model?
Start with building a very distinct brand, whether it is at the local, regional, or global level. Next, make sure you have great monthly profit and loss tracking, and ensure that earnings are healthy and upwardly mobile. Pick up the book, study it, and model it. Remember, the key here is modeling after the greats, not limiting your passion or creative input. If anything, the framework found in Building a Small Business That Warren Buffett Would Love serves as an amplifier to your small-business success and passion.