When Legendary investor Warren Buffett, widely known as the Oracle of Omaha, released a memorandum to Berkshire Hathaway Managers (a list of people he called “The All-Stars”) introduced with this insightful and inspired line:
“The five most dangerous words in business maybe..”
Most importantly, if you were among those managers, you might have brightened up when you saw that memo come across your email.
Over the years, his words of wisdom, the annual letter to shareholders of Berkshire Hathaway, and views on stocks and sectors have made him a favorite among different types of investors.
He is the longest termed CEO of an S&P 500 Company.
He bought his first stock at age 11. By the age of just 21, Buffett’s net worth income was $20,000.
It took him over 13 years to become a millionaire and over 33 years to become a billionaire at the age of 55.
And by the end of late 2000, Buffet was the richest man in the world.
In 2011, he was awarded the Presidential Medal of Freedom by then-President Barack Obama for his philanthropic contributions.
His basic idea of buying quality stocks at a marked-down price was the first main life lesson for many-valued investors.
The five most dangerous words mentioned in the memorandum were “EVERYBODY ELSE IS DOING IT”.
Let’s understand what he meant in this memorandum.
1. Always Maintain Your Originality
Warren Buffet in his memorandum said that –
“So, at Berkshire, let’s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper, and never proceed forward simply based on the fact that other people are doing it.”
Well, for every business entrepreneurship comes with high-level risks that are surrounded by money and potential influence.
Peer pressure builds under the influence of high risk and large stakes.
This eventually turns many business owners to follow the crowd rather than following their conscience.
Warren has guided everyone to maintain their character and persona.
Once he quoted “It takes 20 years to build a reputation and five minutes to ruin it.”
He always focussed on that every startup owner should realize their full potential and constantly thrive to become a better version of themselves.
Therefore, If you want to avoid the “everybody else is doing it,” sit down and think about your core values, moral compass, and refuse to deviate from that path.
2. Promote an Innovative Culture
“Your attitude on such matters, expressed by behavior as well as words, will be the most important factor in how the culture of your business develops. And culture, more than rule books, determines how an organization behaves.” – Warren Buffet
Innovation is predominant and the most important part of entrepreneurship.
Every entrepreneur should cultivate a culture of promoting honest innovation with good leadership.
From what I have observed is that many entrepreneurs set themselves with higher standards than they feel comfortable placing on their employees or their company.
Buffets convey that more than just rule books, this culture will only determine how your organization will behave in the long term.
Additionally, this will help your organization to grow under the corporate culture that is well needed.
Prefer not to compromise with innovation and promote it as much as you can to strengthen your reputation.
3. Chase Excellence And Avoid Deviation
Warren highlights in his memorandum on a final note that:
“Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it.
That’s inevitable: We now employ well over 200,000 people and the chances of that number getting through the day without any bad behavior occurring are nil.
But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest odor of impropriety”.
He emphasized that as you will achieve growth and success, then someone will do something that is not up to the standard.
Of course, we are not google and as a human, we can make mistakes.
Moreover, perfection is not attainable.
So, as an entrepreneur, your task is to guide your team and help them in getting back on track after a mistake.
But you must be wondering how leadership could minimize such activities?
Well, jumping straight away on anything isn’t going to work.
Therefore, if you want to make sure that everyone else is doing it, induce more effort in getting back towards excellence.
I know you can’t erase every mistake.
But you can help in minimizing their negative impact with your good judgment and experience.
This will indeed make you a strong and successful entrepreneur.
4. Apply Morality and Transparency
Lastly, he mentioned that:
“A lot of banks and insurance companies have suffered earnings disasters after relying on that rationale.
Even worse have been the consequences of using that phrase to justify the morality of proposed actions.
More than 100 companies so far have been drawn into the stock option backdating scandal and the number is sure to go higher”.
Warren Buffet has a well-deserved reputation. He never believed in doing anything that he is not comfortable about.
He adopted this policy even after becoming CEO of Salomon Brothers in the wake of a scandal that threatened to sink the firm.
But to be honest, others never continue this behavior as they feel they can get away with it.
Just recall the Hewlett Packard board case, even after details of the criminal scandal came to light, they allowed Patricia Dunn to remain on the board.
Though Dunn finally resigned, the board members who showed such terrible judgment are still there.
So, every investor should follow Mr. Buffett’s lead.
Companies that follow a good structure and behave well should be assigned a valuation premium.
Those who don’t get it, like Hewlett Packard, should undergo a tracking and be trading at a discount to compensate for the risk of future scandals.
The main point to remember here is that others will never change if you can’t stand behind your work.
A strong moral affinity will help in encompassing your character and reputation.
It is never driven by higher profits or higher valuation.
Stay true to your values and never think that you might be able to get away with it and no one would ever know.
Last but not the least, apply your immense knowledge and skills. Spend countless hours on hard work and perseverance with the passion inside you.
As in the end, your main focus should be on providing the best version of yourself as an entrepreneur.
Author – Claire Mark is an investment and strategic planning consultant at Alcor, a global investment bank. She’s best known for her insightful blogs on business growth, startups, small businesses, and investments. Claire also has a good network in the Finance industry, especially the investors’ community. Apart from her work, she loves to bake and go out for gadget-free nature walks.