outcompeted their peers to get there and are spending a small fortune primarily

Outcompeted their peers to get there and are spending

This preview shows page 54 - 57 out of 263 pages.

outcompeted their peers to get there and are spending a small fortune primarily to get the credibility of an MBA from a top school. Learning
Image of page 54
something is secondary. After they graduate most of them will find out that a kid with five years in the Procter & Gamble management program knows everything HBS teaches and knows it better. If they’re honest, they’ll tell you they went for the prestige, because that degree gets better jobs, faster advancement, and mo’ money, mo’ money. These future CEOs are not the Bill Gateses and Steve Jobses of the world. Jobs and Gates are college dropouts who wanted to change the world. Your average Ivy B-school grad wants to climb it. That’s why we get these financial debacles. Boards of directors put these people in charge— people who live their lives chasing the almighty dollar for the prestige it brings. It used to be that $5 million a year was a lot of money. Now these guys aren’t happy unless they’re making $20 million. If your average B-school grad is running your company, you are probably a long way from perfection. Face it. If we’re going to invest, we’re going to have to settle for less than perfect. And anyway, our list is too long. Let’s tighten it up a bit. Some of our ten requirements for perfection will be the natural outcome of others on the list. For example, if a business has durable barriers to competition, typically some form of monopoly, it will also have big profit margins and can raise its prices with inflation. These latter two qualities follow directly from having control of a market. Also, I think I’ll just combine all of the product qualities, except habit-forming, which is too good to let go of quite yet, and, of course, we must have great managers. So a perfect business: 1. is as simple as a lemonade stand (#1) 2. is protected by some form of monopoly (#2, #5, #6, #7, #8) 3. has universal appeal (#3) 4. is habit-forming (#4) 5. makes the world a better place (#9) 6. is run by people who are owner-oriented , passionate, dedicated, and honest (#10) Take the illegal drug business, for example. The business is simple (#1); they shoot competitors, so their market is protected (#2); plenty of people love to get high, so it’s universal (#3); the customer is
Image of page 55
hooked on the habit (#4); it makes the world a … whoops. And it’s run by honest…. Well, four outta six ain’t bad and there’s no such thing as perfection, right? Except, according to at least one very smart guy, the soda pop giant Coca-Cola. Coke sells carbonated, caffeinated sugar water, so the product is simple (#1), universal (#3), and habit-forming (#4). It’s protected from competition by a secret formula, brand awareness, and its quasi- monopoly on shelf space (#2); and it’s run by owner-oriented , passionate, dedicated, and honest people (#6). Is it the perfect business? Well, there’s that pesky #5 thing about making the world a better place. Maybe the world would be worse off without Coke. I’m hooked, so I’m the wrong guy to ask. (Charlie Munger, Warren Buffett’s longtime investing partner, gave a talk on the perfect business to Harvard Business School students and used Coke as the example. So if you want to argue
Image of page 56
Image of page 57

You've reached the end of your free preview.

Want to read all 263 pages?

  • Spring '20
  • Warren Buffett

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors