Saturday, February 27, 2010

Life Lessons from Warren Buffett Letter and Seth Godin's Linchpin

I am an avid fan of Warren Buffett letters, and today is my lucky day because we have a new annual letter. And it comes with not just the update for the year but for the benefit of the new shareholders (due to partial stock deal in acquiring the Rail company) - a nice introduction and summary of how Berkshire operates.

I am neither a multi-million dollar investor (yet!) nor an investment guru so I read these letters for two reasons - learning how to think about your business (or business unit for some of us), and personal life lessons. I am also reading Seth Godin's latest amazing book Linchpin that asks a very simple question - Are you Indispensable? And while the two - Warren Buffett's shareholder letter and Seth Godin's book are on very different topics - I think there is a common underlying life lesson.

 Let me share my key takeaways from this year's letter in light of Linchpin:

How We Measure Our Selves: Intrinsic or Market Value?

Warren Buffett and his team evaluated several metrics and settled on one. Here is what he has to say:
Our metrics for evaluating our managerial performance are displayed on the facing page. From the start, Charlie and I have believed in having a rational and unbending standard for measuring what we have – or have not – accomplished. That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.
This question is equally important in our personal and professional lives. How do you measure your success? Here are some choices:

  • What car you drive? This one has an obvious appeal - everyone can see it and its hard to lie about it. However, just like a stock price that barely reflects the fundamentals - the car you drive says more about the size of your ego (and I am not going there), your inability to understand depreciating versus appreciating assets, or just taste. A fabulous car that makes you feel good when you drive or pick up your date can be a good thing - but has almost nothing to do with - how much money you make or how wealthy you are or even how interesting a person you are. It actually reflects how much you are willing to spend and how wealthy you want to appear and how boring you would be if you had a Geo Metro. This one was easy, let's talk about some hard questions.
  • What is your job title? Are you indispensable? I love getting promoted as much as the next guy but I learned a lesson many years ago that this again is an outcome that you have little control over - like the buy/sell decision by a Wall St. investor who just got money selling derivatives to a loser and wanted to 'buy something' or the investor who got a margin call and had to 'sell something'. In many companies, the promotions and titles are like that - in good years, we 'promote people' and in bad years, we have to 'trim'. If you let the management decide how you perceive your intrinsic value, you are going to be giddy when you should probably be scared and vice-versa. A much better question is - What value do I add? - and how can I measure it. In fact, job titles and roles are a limiting constraint that you want to break out of. Just because someone calls you a sales engineer doesn't mean that you can't build a super cool real world application or actually make a sale or help product team decide the next big thing. Superstars do what excites them, and then titles and rewards follow. I have seen this happen too many times in my 12 years of working life. As Seth Godin says in Linchpin, his latest book - Are you Indispensable? And if not, what's holding you back - and job title is a really poor excuse.
  • Why don't they pay me right? Everyone feels underpaid. And some are actually underpaid relative to the market, the contributions, and the skill set. But this is a wrong metric again - you should be optimizing for the net present value of all future earnings - and not this year's paycheck. If job A allows you to launch a (database) company's SaaS strategy for ISVs but pays less than many other jobs - you should still take that job because over the rest of your life path A will end up helping you make more. This is something very few people realize. As Linchpin author, Seth Godin says in his book-
    "You weren't born to be a cog in the giant industrial machine. You were trained to become a cog.
    There's an alternative available to you."
    and adds..

    "Do not internalize the industrial model. You are not one of the myriad interchangeable pieces, but a unique human being, and if you've got something to say, say it, and think well of yourself while you're learning to say it better. 
    - David Mamet"
I don't want to be a cog no matter how amazing the machine is. Do you?

What We Don't Do?

I am sure we have all read 100s of articles and books on deciding what not to do is as important as choosing what to do. In fact, what not to do turns out to be much more critical. But we as humans are really bad at NOT doing. I devoted an entire post to the topic of "Wisdom of Not". In this year's (FY 2009) letter Warren Buffett writes:
Long ago, Charlie laid out his strongest ambition: “All I want to know is where I’m going to die, so I’ll never go there.” That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled “Invert, always invert” as an aid to solving difficult problems.
Think about it. And let's see how we can apply his wisdom to our lives:

  • Best at Something. Don't Take That Job or Buy That House: Warren says 'Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.' When evaluating your life choices, don't do something unless you understand it - better, you grok it. If you lived through the dot-com boom and bought stock in and Exodus because your neighbor told you or worse, your neighbor bought it, got rich and tried to hide it from you and then you caught on and bought it!! Then, you probably learned your lesson. For others, the home buying market may have been the teachable moment - as they say it.

    We are ALL 'best at something' - Seth Godin points out that if you narrow your niche enough you can find out that while you may not be the best businessman (Warren took that title) or best Golf player (Tiger took that one and the waitress home) - you can often find that you are probably the best Thai food restaurant south of Market Street or the best tool for building web pages that do only one thing (Postlets).
  • Don't become dependent on the kindness of strangers: Warren Buffett says - 'We will never become dependent on the kindness of strangers'. I would add relatives and friends too. And for businesses these days, you can barely rely on bankers leave alone strangers. This means be a thoughtful spender (I didn't say frugal), invest if you can and make lots and lots of trusted relationships where you give. Strangers, distant relatives and surface-level friends may not be there for you when you need them but people that you were good to will often be there.
That's enough food for thought for a day's blog post. The Warren Buffett letter and Seth Godin's book have 100s of such insights if you look for them and have the right attitude towards it. Try it, and let me know what you think.

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Unknown said...

I've read neither Seth's nor Warren's latest. This makes me think I should.

Excellent post.

Unknown said...

Thanks, Thomas. The Warren Buffett letters are free. Seth has several excerpts on his blog. And Amazon has free sample. I highly recommend buying the book!!

Unknown said...

great post! Enjoyed reading it..Just finished reading Linchpin you said I also started looking at those insights in different or probably in right ways..I loved the phrase "emotional labor"..desire to create value rather that desire to avoid defects.

Unknown said...

I just bought Linchpin, looking forward to reading it. Thanks for the recommendation.

Unknown said...

I enjoyed your post.

It turns out that at HubSpot, we name our conference rooms after people who inspired us. We have one named Godin and one named Buffett. Love those two and love that you wove an article together that includes both of them.

Here's an article I wrote 100 years ago that I thought you might like: