Warren Buffett and Secrets of Management - 34
Let's get a little deeper into the importance of why Buffett looks for companies and management that have strong resistance to commoditization.
What is the greatest disadvantage of becoming a commodity business? It becomes impossible to project out reasonably accurate profits and growth. Why is that so important? Your plans are really smoke and mirrors based upon guessing, rather than solid projections based upon your competitive advantage.
Remember that commodity companies are those that are unable to distinguish themselves from the products or services of other companies.
The weakness of this is that we compete based upon price alone, which for all but the price leader, is a losing proposition. That means that a company is especially vulnerable to what their competitors are doing, and are extraordinarily vulnerable to profit growth. If competitors lower prices, they also must do it to stay in business.
Any business owner, manager or executive must fight with everything they have to keep themselves differentiated from their competitors: both in reality and in the mind of their customers.
The next few posts we'll look at some of the insights Buffett has in identifying and combating this.
Other Buffett Resources:
Warren Buffett: The trouble with being a legend
Warren Buffett: 'I told you so'
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