Warren Buffet's Principles for a Sound Business

We startups often get distracted in our own world, management practices, business models, financial structures, etc. We like to think that the “other side” (big business / the dark side) is totally different and lacks the approaches / insights we have. It’s true that the startup / technology space is unique in many ways, but quite often there are very direct parallels between the most successful big business and the most successful startups (once they become a business, that is.)

Berkshire Hathaway, philosophically, get many things right (and their website is amazing.) I ran across an article the other day in which Warren Buffett listed his 6 guiding principles for building a solid business, in the context of acquisition targets:

  • Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units);
  • Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations);
  • Businesses earning good returns on equity while employing little or no debt;
  • Management in place (we can’t supply it);
  • Simple businesses (if there’s lots of technology, we won’t understand it); and
  • An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown.

Source: How Buffett’s Most Recent Big Deals Have Done by Michael J. De La Merced