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Warren Buffett’s annual blog is out

His annual letter to Berkshire Hathaway investors is out. While everyone and their cousin praises Buffett’s reports for their financial good sense, clarity, or just plain aw-shucks folksiness, I’ve always considered them textbooks of good management lessons. It doesn’t matter if you’re a work-at-home solo business, a hard-scrabbling start-up, a struggling small business, or a mega-manager at super-duper company, there are tons of takeaways for managing your own business.

Business is about going all-in for the long-term
The Berkshire annual reports are all about building long-term success with companies. And they positively drip with disdain over folks who are looking for quick bucks:

Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin (though we prefer thick and thicker).

Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.

The standard investment wisdom that you should invest in companies for the long-term is, to my mind, the way to approach your own business. Even if you’re just a down-on-your luck Web designer scratching out a living with a desktop and an Internet connection. There is plenty of crap out there promising you four hour work weeks and twenty million dollars in as many months (and there are people who succeed at this — there are also people who win the lottery, but I don’t consider buying lottery tickets to be a workable business strategy, and neither are four-hour work weeks or make millions overnight), but the reality is that the overwhelming majority of business success goes to those who go all-in for the long-term.

What you don’t understand kills you
What makes Buffett appealing as an investor and a businessperson is that he doesn’t screw around with stuff he doesn’t understand.

Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”

It doesn’t matter how small your going concern is — if you get into something you don’t understand, it will bite you from here to Tuesday. It may be something as simple as your hosting service or your PBX system. I have seen shoestring businesses put out of business when their Web site became popular. Why? Shouldn’t a popular Web site be good for business? Not if they get whacked with thousands of dollars of bandwidth overage charges they can’t afford. These are people who predicated their success on a popular Web site, but didn’t understand enough about hosting to get themselves into an “unlimited bandwidth” contract (which would seem to be logical if you’re tryng to build a popular Web site), and then couldn’t pay the bandwidth bill when they succeeded.

Even the CEO is a salesperson
It never ceases to amaze me how Warren Buffett, the most listened-to businessperson on the planet, has no problem stepping forward to hawk his wares. Right smack in the middle of discussing Geico’s financial success (owned by Berkshire), Buffett puts on the sales hat and says:

GEICO is now saving money for millions of Americans. Go to or call 1-800-847-7536 and see if we can save you money as well.

All good salesmen know that every single purchase counts. Here’s Buffett describing the upcoming annual meeting:

If you decide to leave during the day’s`question periods, please do so while Charlie is talking.`The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-squarefoot`hall that adjoins the meeting area with the products of Berkshire subsidiaries. Last year, the 31,000 people`who came to the meeting did their part, and almost every location racked up record sales. But you can do better.`(A friendly warning: If I find sales are lagging, I lock the exits.)

As a marketing guru (or at least go-to guy), I have always said that everyone in marketing should spend at least one year in face-to-face sales of any kind, prefereably the kind that involves a pretty hefty dose of cold-calling. There’s a saying among doctors that psychiatrists are the ones who as med students would faint at the sight of blood. (I also once interviewed a cardiologist at Mayo Clinic who said “Radiologists like to pretend they’re doctors.”) Well, marketers like to pretend they’re salespeople, but they faint at the slightest hint of a cold-call.

As I get older and less wise, I’ve become utterly convinced that everyone who wants to build and run a business — or who wants to be CEO of something or other someday — should also spend a year in face-to-face sales. Preferably with a liberal dose of cold-calling.

Persuading customers — one at a time — to buy is what keeps businesses in business. And I have found that once people learn sales, like breathing, they never forget it.

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