On a recent plane trip I finished reading Ken Follet’s historical novel The Pillars of the Earth, a mid-12th century story of the building of mammoth Gothic cathedrals in England. With two hours remaining in the flight I reached into my travel bag for more reading material and pulled out the most recent letter to shareholders written by Warren Buffett, CEO of Berkshire Hathaway.
Buffett’s letter is a fascinating document. This year’s version is particularly interesting because on page six he shares with readers in simple language his five pillars of business success.
The first is simplicity. Is your business and its value proposition easily understood by customers and prospects? Complexity is the enemy. If you cannot easily explain your business to prospects, how can you explain to them why they need your products or services?
Second on Buffett’s list is “favourable long-term growth economics.” Is your business in a market that is growing? Or shrinking? Do you even know?
Buffett looks next for businesses that have “able and trustworthy management.” Fourth, he notes, Berkshire Hathaway rivets its focus on sensible pricing relative to the competition. Companies should figure out if their prices are too high or too low.
If you have a business value proposition that is easily understood by customers, if you operate in a market with favorable long-term growth economics, if you have a great management team and if your prices make sense, congratulations!
But don’t stop too long to celebrate. You surely have lots of competitors trying to assail your castle-which leads to Buffett’s final criterion for a successful business. How easily can competitors breach your moat by commoditizing your business?
As CIO, your job-like the builders of those 12th century castles-is to make sure your moat is wide, deep and unassailable. Unlike stones and mortar, technology is your key tool.
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