OBESSION: you should be dreaming about the business, obsession is the price of perfection. Moody’s Stock Manual was memorized by Warren Buffett. How obsessed are you about what you do? Top managers are obsessive people. You can tell how successful someone will be, if they had an early interest in business. It’s not smarts but obsessiveness that makes the manager or leader in business.
The Power of Honesty: candor benefits us as managers. A manager who is truthful with others is more likely to learn from them. When the manager ignores his own mistakes, then he will more likely lie to himself. The willingness to fuddle the numbers will mean willingness to break other rules, you should be fearful of those who make up the numbers. You don’t want to be in business with people who need a contract in order to perform.
Manage Costs A.k.a: the Good Business Manager; profit is the life blood of a business, the only way to make a profit in a business is if you a profit margin, you either make a profit or not. If you make a lot of profit, you can become rich. So you need to inspire the sales force, and you need to inspire the manufactorer and buying teams. It take two to tango and two to make a profit. You need to develop your own sales skills before leading a team of sales people.
Have an Eye for the Long-Term: being a manager makes you a better investor. You should try to invest for forever, not for short-term gains. If you are short-term motivated then you will not be successful, management is focused on the short-term, this kills long-term planning. Buffett believes in long-term planning. Managers are determined to make the short-term numbers, and they do not plan for the future so they fail. Reactive management is all too common. Avoid being a reactive manager.
The problem is that people throw good money at a mediocre business, and when management tries to get a short-sighted promise passed they spoil the long-term value of a business model. Warren studies a lot of different businesses. Warren learned that he is looking for a great investment which means great people, products, and new businesses.
Determining Salaries: You will want to pay great managers well, they are very rare. How do you measure whether a manager is good?
- Industry Comparison: If you own a business that is earning a 20% GP margin, they may not be doing all that well compared to other businesses. You need to compare the business within the industry which indicates whether or not the manager is doing a good job.
- Performance Based Pay: bonuses are paid if the manager improves the underlying economics of the business, NOT whether the manager performs well because the business is already highly profitable. You need to find tangible ways to prove whether that manager is improving a company or not. A poor manager in a highly successful startup is still a poor manager.