Mar

30

The redheaded man (Monte Walsh's boss) chuckled. Later when Monte had finished wiping the table and counter and putting things in place and sweeping up assorted debris, the redheaded man pointed to the three new unused saddles on their racks by the rear wall. "Maybe you could use one of those." (Monte is leaving to join a cattle drive). "Shucks," said Monte, "I can't pay for it." "Don't I know that," said the redheaded man, gruffly, seeming angry. "I ain't dumb. Pay me when you come back through or send it by somebody."

I have been considering the subject of what investors can learn from business. These are preliminary ideas and I would appreciate any augmentations from readers so that I can do justice to this subject and perhaps influence a few youngsters to take this path.

Some thoughts that come quickly to mind:

1. Businesses hire and expand when business is good. When there are more goods, prices tend to come down. Thus, an increase in business, and especially profits, is very good for inflation. Not the reverse, as almost everyone who hasn't been in business thinks.
2. Incentives matter. You have to be rewarded for a task if you're going to perform it well. The incentive that matters to most people is the after-Service income they can spend on their families. Thus, changes in the amount the Service takes are a great influence on business. The reductions in capital gains rates in the 1980s and again in 2003 were a key to vibrant stock markets.
3. Individuals have widely varying talents. The way to elicit them is to show them the goal and then have them use their individual abilities to achieve it. Businesses run from the top down with authoritarian leadership, a la the golf expert from the conglomerate with ever-rising earnings from assets bought hundreds of years ago, are not as successful.
4. Business is amazingly competitive. There are substitutes for every product that a business produces. New entrants wait to rush in at any sign of above average profits. Innovators with new methods of production, and better products, are always in an arms race. When I was trying to sell Tyco Toys to Herb Everts at Consolidated Foods, I remarked that Tyco's model cars were the fastest. He wisely said, 'That's terrible. It won't be long until someone comes up with a faster one." The same is true for processing and production in all fields. The businesses that prosper are those with a complete business operation with proprietary marketing, production and research.
5. It's hard to make a profit on your initial sales. There's too much search cost and marketing cost involved. A company has to make its money from repeat business. That can only come by offering a product at a better quality, price, or delivery. Many mail-order companies lose money for the first 10 years on a customer, but the long tail gives them the edge. The early Internet companies were building up databases and customer lists. It takes time to make a profit. But once they get it, and enjoy repeat business without any marketing cost, they can be golden.
6. Business is a benevolent activity. The customer and the purveyor both gain from each transaction. It builds friendship. When I was young, an insightful businessman told me that more than half my friends when I grew up would be business associates. He was right. The businessman can prosper only if he can voluntarily provide good value to his customers, employees and suppliers. That's why so many businessmen who rise to the top are the finest people you'll ever meet, salt of the earth with nary a bad word for anyone and loyal to a fault to their employees, knowing everyone's name, for example. It's great if you find a business where the employees are really excited about the value of their product. A plan, a purpose, decentralized decision-making, and latitude for the employees to soar create the proper environment for business greatness.
7. The best books I've read on business are Monte Walsh, Atlas Shrugged, and Show Boat. Both Schaeffer and Rand know the subject as well as anyone ever has, and my metal industry friends have told me Rand got everything about the iron and steel business right. Schaeffer is a naturalist and knows his horses and terrain as well as Lamour. I also recommend the Broadway show Jersey Boys as a great business story of struggling to achieve success and wealth in a most challenging and competitive field. Every kid should read these books and see the movies (Fountainhead and We the Living, until Atlas can get by the destroyers) and be ready to travel the path to success in the heroic field of business.

J T Holley adds:

"Letters From A Self-made Merchant To His Son," by Lorimer, was one the Chair recommended earlier on. That book is truly a classic "business" text and one that I appreciate deeply. Not only is it a text that teaches business technique and survival, but it is a book about a father's relationship with his son.

To paraphrase Lorimer, one of my favorite lines is this one: a five-cent shine is as good as a five-dollar lunch. It's amazing how many people will meet you for breakfast, lunch, or dinner if you are buying and not do a lick of business. Not doing so and meeting them in their own environment in a well-dressed manner works ten times better.

That book definitely makes my "must" reads for life, business, and parenthood.


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