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Warren Buffett and Secrets of Management - 39

Concerning two of his favorite companies, Coca Cola (KO) and Gillette (PG) Buffett has said this:

‘Is it really so difficult to conclude that Coca Cola and Gillette possess far less business risk over the long term than, say, any computer company or retailer? Worldwide, Coke sells about 44 % of all soft drinks, and Gillette has more than a 60% share (in value) of the blade market.’ Leaving aside chewing gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading company has long enjoyed such global power.’ He said this in the early 1990s.

He was referring to the competitive advantage that great companies and managers have over the long term.

To gain a competitive advantage over our rivals, brings a company to the place of low risk growth over a long period of time. It offers predictability and the ability to measure profits pretty accurately for years.

It puts a company in the place of driving where the market will go. You're the leader, the rest are tying to follow and catch up.

One thing we need to understand when listening to Warren Buffett talk and give out his wisdom, is that he talks in the light of running a company that he must narrow down investments to those areas that will have a strong effect upon the bottom line of the company.

In other words, he doesn't look at small companies anymore for Berkshire Hathaway (BRK-A). The point is that there are more than a few great companies in the world. It's just that Buffett's expertise is in the larger ones as he won't invest in companies that are too small to make a dent in the companies value.

Having a competitive advantage isn't relegated to a few big companies, any company of any size can have it within the market they serve. Let's face it, every sector and niche has one company that leads the rest. They have a competitive advantage.

Competitive advantage also doesn't mean necessarily being the biggest company in your niche. I know of a number of companies, for example Wegman's, that is not as big as some of the huge grocery stores out there, but there are very few people that know them that don't think they're the best at what they do.

Competitive advantage (not being a commodity company) has more to do with profits, predictability, low risk, and longevity than it does with gross sales and the number of outlets there are. Those types of things can change a lot over time. Those companies with a competitive advantage stay around as consistent performers for decades. That should be one of our main goals as business leaders to strive for.

Other Buffett Resources:

Wisdom of Warren Buffett

Warren Buffett, investor

Warren Buffett: The trouble with being a legend

Warren Buffett: 'I told you so'

Company growth

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