Five reasons Warren Buffett will look at your business

by Ashvini on October 1, 2010 · 1 comment

in Entrepreneurship

Of course everyone knows Warren Buffett. He has earned billions of dollars by just being at the right place at the right time. All of us are seduced by the simplicity of his principles. He is definitely not an ordinary man considering the wealth he has built over years.
Buffet’s way of measuring the success of business are simple to understand but difficult to apply. As an entrepreneur we need to apply certain sets of criteria to our business to make it attractive to Warren Buffett. Why only Warren Buffett? Because if he says yes, then you can be assured that your business is worth it.
Jokes apart, even if you cannot contact him, you can use this ‘test of fire’ as I call it to find out if will ever buy your business.

  1. Does your business have a strong moat?
  2. Is your idea difficult to copy? Do you hold any patents? How long it will take for a competitor to get in and create a similar product? Answer to these questions is important before Buffet takes a peek into your business.

  3. Is your business model simple to understand?
  4. Business ideas that are complicated confuse both employees and customers. The simpler the business is, the more easily it can be explained to customers. If you are a product company , your product clearly spells out what it does and if you are into service, your warranty conditions are simple. Buffett definitely looks into such businesses.

  5. Is your valuation realistic?
  6. Do the simple math. Project the revenue for five years, subtract the cost and find out the profits each year. Discount each years profit to today using simple compound interest formula. Use a slightly higher rate to discount than the government bond. If it is higher than the price you are asking Buffett, he will buy your business.

  7. Do you have a competent team?
  8. Buffett looks at the quality of the management team. He gives a huge emphasis on having managers that keep the profit growing. So hire good people now or inspire them to join you.

  9. Can he understand your business?
  10. He does not like complex technologies that he does not understand. He loves simple revenue models that are easy to understand and are scalable.

    If you have all these things going for your business, there must be a knock on your door. Just check who is it?

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{ 1 comment }

Veronica Cervera December 8, 2011 at 10:01 am

Their philosophy in looking at businesses are quite simple. Handled by able and honest management, has a durable competitive advantage, and has a price tag that makes sense to them. Pretty simple yet brilliant at the same time.

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