23
May 12

Painting your own painting

This is a very short post but it contains an essential guiding principle for investors in dealing with CEOs.

At this years Annual Meeting at Berkshire Hathaway, someone asked Warren Buffett and Charlie Munger how they intend to keep their managers of Berkshire‘s subsidiaries. This and another question triggered Warren to explain that he does not do micromanagement of his firms. He said he speaks only maybe twice a year to several of the CEOs of companies Berkshire owns. „If we thought that they needed us to be successful, we would get out“ . He then went further to explain: „Charlie and I like to paint our own painting without someone else telling us to use more red or more blue. And we think that the Berkshire CEOs feel the same and want to paint their own painting“.

This attitude contradicts massively with what I sometimes observe in the behaviour of investors in startups. There is a difference, the argument goes: In startups, we often have inexperienced founders, and sometimes more experienced VCs.

Nevertheless: I strongly believe that most VCs would do well to remember the basic truth in “Painting your own picture”.  Nobody becomes a startup CEO because they want to do what Investors tell them to do.


21
May 12

My three favourite Buffett & Munger quotes.

I am a regular visitor to the Berkshire Hathaway Annual Shareholder Meeting in Omaha, Nebraska. I don‘t go there because I hope that something  magic rubs off, but because it is a lesson in sanity and clarity in thinking.  I have now more than my fair share of Buffett or Munger quotes that I can instantly pull out of my memory and I wanted to share three of the less known ones that have helped me with my own thinking.

  1. If it ain‘t worth doing, it ain‘t worth doing well“ 
    is Charlie Mungers way of saying that it is not worth going after too small opportunities.
  2.  „I am a better businessman because I‘m an investor, and I am a better investor because I‘m also a business man“ 
    has become a confirmation of my choice of profession.
  3. „I‘d rather pass on a fantastic opportunity, than lose one night‘s sleep over it“
    – this one has helped me save more money than any book on investing.

22
Mar 10

The Fab Four

There are four excellent companies who dominate how we search, how we shop, how we communicate, and which gadgets we use: Google, Amazon, Apple and Facebook.

The first three of these companies also are among the top 5 of the Fortune Magazine’s 50 most admired companies in 2010 . (Facebook is not in this list and this fact does not so much discredit Facebook as discredit the Fortune list).

But why write about this obvious fact of the Fab Four?

All these companies are product driven. This of course applies to Apple. The product is the hero, not the service around it, or the pricing. At Google, an engineer is much more important than a sales person. Just look at the amazing Zurich facility of Google and compare this to any sales office. If you listen to Mark Zuckerberg of Facebook, he will mostly talk about the product and new features that help Facebooks users to use the site in yet another way. Amazon has lead in meticulous A/B testing of it’s website, to make sure it stays ahead.

The other point I want to talk about is the sheer share of mind of these companies.

“Which startup is hot at the moment?” this question by a friend made me think recently. No offence to my fellow startup entrepreneurs, but it seems to me that at the moment where even a small redesign by Facebook will automatically be more talked about than the most exciting new business idea.

Even the slightest new announcement from Apple, Facebook or Google, – the aptly worded “buzz” as latest example – commands more press interest than a new car model or even the most fantastic new startup. Bloomenergy.com is at least here in Europe virtually unheard of. This share of mind is even more scary than the user numbers, as it makes life harder for new entrants.

The good news: Five years from now, the Fab Four will not be the same companies. Someone will get it wrong, someone else will get it right.

Five years ago, I would have included Ebay in that list, today no more. There is a nice account of how companies historically fail to stay at the top in the Black Swan by Nicholas Taleb. At writing of that book in 2006 , only 74 of the S&P 500 companies of earlier times had survived. But I am willing to bet that even in 5 years from now, at least three out of the four dominating companies will be from the West Coast. Probably the fourth as well, you never know with these Black Swans…


27
Jan 10

Loving what you do.

I spend quite some time these days coaching friends, former colleagues or fellow entrepreneurs about “what should I do next“. There are some interesting parallels in these discussions. Strikingly, the self-imposed limitations of what people feel they can do constrain people’s choices in an amazing way. And this is true for any income group. Despite the fact that single mom with a low wage job has fewer choices than the millionaire several times over.

I found over time that many people can not simply tell you what they love best. But when you ask people why they are unhappy in their job, it is rarely because they don’t love what they do, but  more often because they feel they can not do things the way they want, or because the someone as a boss who does not value them and their achievements.

In this context, stumbling upon this very inspirational blog post from Cal Newport, author of a study guide, (thanks, Dave Ambrose for the link) has structured my thinking on career achievement amazingly.

Newport quotes work from Edward Deci who found that

“To be happy, your work must fulfill three universal psychological needs: autonomy,competence, and relatedness.

  • Autonomy refers to control over how you fill your time. As Deci puts it, if you have a high degree of autonomy, then “you endorse [your] actions at the highest level of reflection.”
  • Competence refers to mastering unambiguously useful things. As the psychologist Robert White opines, in the wonderfully formal speak of the 1950s academic, humans have a “propensity to have an effect on the environment as well as to attain valued outcomes within it.”
  • Relatedness refers to a feeling of connection to others. As Deci pithily summarizes: “to love and care, and to be loved and cared for.”

So for students, Newport argues that they should find something the really like and then become excellent at it. This will nearly always enable people to find a work environment where they can achieve a great sense of autonomy, competence and relatedness. Newport:

Your love of a subject will grow with your level of competence and autonomy

This also explains why many CEOs are unhappy in their jobs. Even if they are competent, the often suffer from a lack of autonomy. And if you encounter an entrepreneur who is unhappy, you can check with him whether his level of autonomy is where it should be.


09
Feb 09

Business ideas that excite me.

Finally getting to talk to people again. Discussing ideas, market developments, the underlying trends, barriers to entry, business areas worth disrupting and all these things just plain fun for me.

I will get bored eventually as I prefer to do things instead of talking about doing things, but for the moment I enjoy the conversation. Most of it, at least. People have been trying to drag me into their ventures and ideas and a surprising number of people, even good friends, have pitched business ideas and concepts that are just not for me.

So, here is what I find interesting:

(1) Businesses that make life easier for everyone

When I started working on  TravelChannel in 1998, I wanted to make it easier to book flights. We build the first engine that could compare flights in two totally different pricing mechanisms – the official IATA tarrifs and the so called grey market in one go, enabling people to find the cheapest flight.
Qype was started from  a similar starting point: If everyone starts telling everyone about their experience in restaurants, butcher shops or dentists, then there will be less bad experiences.

Bigger examples that fit this category. Google, Flickr, Facebook, you name it.

(2) Business that make markets more efficient and disrupt the status quo
The fun being involved in DocMorris, Europe’s largest mail oder pharmacy that delivers prescription drugs and allowes people to save was that it worked against the existing distribution structure with it’s extremely high cost to the public.
Qype also is ideally positioned to challenge existing near-monopolies like the yellow pages in each market to give local businesses more efficient advertising.
Other examples that make markets more efficient: Ebay, of course. But also craigslist, hitflip , nestoria and many others.

(3) Businesses that help us to reduce emissions
Together most other people on this planet, I am convinced that we are in a massive climate crises ,  and that mainly our carbon emissions are at a suicidal level.
I am therefore  – like many other entrepreneurs I know – particularly interested in businesses that help us reduce our carbon emissions. This is where I do most my research at the moment.
So I will try to combine my background – a degree as mechanical engineer –  with my experience in business-to-consumer internet and starting up companies.
Here I am not alone. Look at people like John Doerr, Shai Agassi, the Google guys with google.org – lot’s of inspiring examples.

In summary: Useful, disruptive, saving the environment. These are the discussions I enjoy and the businesses I will get involved in.