Warren Buffett’s Fighting Stance
In martial arts the starting point for success is a good fighting stance. This is because such a stance is the foundation for every technique that is learned. Further, the stance provides the versatility to go on the offensive, to defend when necessary, and the ability to move quickly between the two. And in a fight, the stance also accomplishes the ultimate goal, which is to obtain a position to strike your opponent while depriving your opponent of the same opportunity.
So what does this have to do with the Business Leader? The quintessential Business Leader answers this question: Warren Buffett has made billions of dollars investing in companies. His strategy, however, is relatively simple and can be analogized to determining which company has the best “fighting stance.” That is to say, Mr. Buffett’s investment strategy is to (i) identify a company that is in a position to leverage some competitive advantage that allows for more of its product to be sold or for higher fees to be charged for its services, i.e., a company in a good offensive position; and (ii) Mr. Buffett looks for companies that are able to defend this position through a “durable” competitive advantage, i.e., a company that is in a good defensive position against competitors.
How has Mr. Buffett’s strategy for identifying a good commercial “fighting stance” worked out? Not too bad: For example, in 1973, Mr. Buffett invested $11 million in the Washington Post Co., a company he identified as having a durable competitive advantage. After 35 years, Mr. Buffett still includes this company in his portfolio. This investment, however, is now worth over $1.4 billion. See Warren Buffett and the Interpretation of Financial Statements.
Not every company will become “Buffett Worthy,” but there are worse things a Business Leader can strive to achieve. But to even compete for that title requires a position or “fighting stance” that provides the means to leverage a competitive advantage and the ability to protect this advantage. Business Leaders routinely identify or develop the “competitive advantage” that is the cornerstone of a Buffet investment. But a common mistake is to overlook the implementation of the strategies that will protect that advantage.
Protecting such business advantages take various forms, including patents, trade secrets, copyright, exclusive contracts, and locking up key industrial talent, i.e., putting in place non-compete agreements for key employees so this talent doesn’t wander off to work for competitors. What specific strategy or (more likely) strategies chosen should be done with the assistance of competent legal counsel.
Further, the importance of protecting a competitive advantage is underscored by the fact that U.S. companies lost between $59 and $300 billion due to misappropriation of their intellectual property (IP) over a three year period. And — from experience and literature — stolen competitive advantages routinely end up in the hands of competitors.
The bottom line for the Business Leader is you don’t want to be funding your competitor’s R&D (research and development). But to avoid this situation requires implementing an offensive strategy to protect your company’s competitive advantage. This requires the Business Leader to know what the company’s advantages are and what steps must be taken to protect them. It is also equally important to have a defensive business stance that protects against being accused of wrongfully acquiring your competitor’s competitive advantages through new hires.
There a number of points that the Business Leader should consider in developing a “fighting stance” to protect its competitive advantage and to defend against theft claims made by competitors. Feel free to e-mail me at firstname.lastname@example.org to discuss points to consider in protecting a company’s competitive advantages and points to consider to minimize having to defend against a theft claim. I would also welcome the opportunity to exchange thoughts and analysis on what an optimal fighting stance should look like. I’ve got the bruises to confirm what it should not look like.