Living Like Warren Buffett

I was reading Warren Buffett's "predictions" for 2009 this morning. They're not really predictions, they're more along the lines of Mr. Buffett's thoughts on the economy. The essence of what he said was that economies go through cycles, it's what they do. We happen to be in a low spot now, but that followed numerous years of expansion (albeit on the back of a housing and mortgage bubble). Mr. Buffett is not alarmed by the recent meltdown - he's a 'value investor', he purchases investments that have a good value (low cost to future earnings potential). He's looking at the current environment and seeing opportunity. Of course, there's more opportunity when you have a pile of cash in your corner....

Rather than get into economics and investing theories, I mention this because I thought about how this economic cycle impacts Mr. Buffett...which is 'hardly at all.' On the other hand, it seems those at the lower end of the economic pile in this country (or in this world) bear a disproportionate burden - sort of like being at the tip of the whip - it makes the widest arc and experiences the sharpest change of direction.

I mention this because many small business owners are over-extended financially right now - they're experiencing being at the end of the whip. I know several people in various business segments who were preparing for continued prosperity (or outright expansion) in the months leading up to the notorious 'crash' of 2008. They, like so many others, are now running on credit and hope - a dangerous foundation.

Mr. Buffett on the other hand may have seen his personal fortunes decline but when you have billions, that's not a hardship story by any stretch. However, Mr. Buffett is a unique individual in another sense and one that's worth noting right now even while you're experiencing the sharp pain of economic whiplash.

I've never met Mr. Buffett, but I did make a tenuous connection to him. I was invited to make a presentation on business and technology at the University of Nebraska a couple of years ago. I was told that Bill Gates and Warren Buffett had given a presentation in the same room, at the same podium just the year prior. One of the school officials told me that it was a fascinating day. Security for Bill Gates came in and spent the better part of a day securing the area and that he showed up surrounded (and protected) by his staff. Mr. Buffett drove himself in from Omaha in his old pickup truck.

I don't begrudge Mr. Gates his security detail, his face and fortune are well-known. However, Mr. Buffett still lives in a modest home in Omaha and drives an old pickup truck, despite being among the wealthiest men in the world.

My point? Even as a small business owner facing slowing sales and rising debt, you can use Mr. Buffett as a role model. Chances are good you started your business because you believed in what you were doing and you wanted to control your own fate (and fortune). No doubt you were also looking for the potential payoff down the road. Have you been living beyond your means in hopes that the payoff would come sooner than later? Have you spent too far ahead - personally or in your business? A you living more like Mr. Gates or Mr. Buffett?

What about value? Have you examined how you create it, how you measure it, how you demand it? Does your business provide value in its products or services? Do your current customers appreciate the value you offer? (Note: if not, don't chastise them, just do a better job communicating it or go find customers who do value your offerings). Have you looked at how you create value and whether or not what you create is of value in this economic climate? Do your vendors and staff provide value to your company or are they just coasting along?

You might want to start the new year by doing a value inventory - where is your company in the value chain? How can you increase the value you provide? How can you increase the value you receive? If you look at this economy as an opportunity to increase value, you'll be well positioned for any economic cycle. (Note: that doesn't mean things get easy, it just increases your chance of surviving this economy).

Here's an example. A real estate broker is struggling to pay rent for offices he signed a five year lease on in early 2007, when he thought things were going to continue along. He's had to let most of his agents go and the big office is now just a huge anchor on his finances. After coming to grips with the current economic outlook, he decided to change direction a bit. He's now working with homeowners to help them through the mortgage minefield to help them keep their houses. He is consulting, for a reasonable fee, with homeowners who still have some funds to pay for assistance and who are willing and able to continue paying their mortgage if they can make it through the current maze. He also is inviting financial professionals who might be looking for smaller digs to move in.

Time will tell if this approach will work, but what he did was shift his value proposition. He looked at his skills, knowledge and experience and found a way to put those skills to work in ways that are valued right now. While the approach may or may not work, it certainly is a better approach than continuing to go down a path that would simply lead to dwindling cash and the closing of his business. And who knows? By applying his skills in a new and different way, he might discover a unique path that leads to a more fulfilling and profitable future.

So, in this tough economic environment, look at the value you're providing and the value people are looking for. Find a way to meet that need within the context of your skills, expertise, knowledge and constraints. Be creative in value creation and you might find untapped earning potential you might never have discovered otherwise.

Here's to a better year ahead.