The best way to learn something is to study those who are the best in the world at their craft. Experts in other areas can teach us broader principles that we can take and apply to our own lives and work.
Warren Buffett is the best in the world at investing. Not only has he become amazingly wealthy through it, but his principles have helped many others succeed as well.
Buffett’s investment strategy is simple, and we can learn a lot from it for marketing our companies.
Buffett’s investment strategy is based on these principles:
- Think long term, in the 15-20 years+ realm;
- Invest more up front;
- Look for moats, which are unfair advantages a business has;
- Be greedy when others are fearful and fearful when others are greedy;
- Invest in what you understand;
- Keep cash on hand;
- Exponential growth and returns are your friend;
- Analyze the opportunity, not market sentiment.
Think long term
Buffett thinks long term – if he can see himself still using the company/services 10-15-20 years, then investing is a consideration.
The same applies to where you invest your marketing budget. The vast majority should go into channels that are established and can return your money consistently over time. As an example search engines are not going away, thus SEO is probably a solid investment for your company.
A new ad platform though is probably not the right place to put a substantial amount of your money until it proves that it has staying power.
We recommend an 80-10-10 split in your marketing investment.
80% of your spend should go towards the channels that have been proven to work for your company. This will likely be channels like SEO, PPC, and paid social media.
10% of your marketing spend should go towards channels that are currently break even. Work to make these profitable, then add them to the 80% above.
The final 10% of your marketing spend should go towards new channels. Use this to start new channels, assess their viability, then decide whether to cut or invest more. Do this with the understanding that if you do not put enough budget towards a channel from the start, it may not seem viable.
Invest more up front (if you can)
Buffett prefers to “pay a fair price for a great company than a low price for a mediocre company.” In his mind, a $200 investment up front for better goods is worth more in the long term than spreading that out over years. Buy better and it will last longer (as long as you can afford the upfront cost).
This applies to marketing because a lot of companies want to “start slowly and then if I see a return then I can invest more.”
The challenge of this is that you learn slower. As long as you are investing in an established channel and not taking a risk on an unproven platform, you can learn faster and get a new channel to profitability faster by investing more upfront.
If you are skeptical and don’t give the channel enough budget to succeed, then you are only reinforcing your skepticism.
Look for moats
Buffett believes in investing in companies that have a “moat”, things like positive free cash flow, good returns on capital, and strong competitive advantages.
For example Amazon has a moat in becoming the go-to place to buy things only and get them shipped cheaply. Google historically may have had a moat with their advertising reach, but in current days this may not be true. Facebook has a moat because almost everyone in the world has a profile there.
This applies in marketing because every business has something that makes them special that they can use to their advantage to grow more quickly. Some businesses have a lot of data which they can make public to users like never before (think Zillow). Some businesses can be transparent about their metrics, which drives the marketing flywheel when done well (like Buffer).
Be greedy when others are fearful
Buffett believes that you should “Be greedy when others are fearful and fearful when others are greedy”. In Buffett’s mind, when investing widespread fear is a good thing as an investor because you can get things cheap. Your own fear is your own worst enemy.
This applies to marketing because we are always hearing about the new channels that are going to “increase your business by veryspecificpercent% and you need to get in right now by listening to this webinar!”
Go back to the previous point of established and long term businesses. If others are being greedy, then there may be a short term opportunity but long term you’re going to struggle.
That said, if others are afraid of investing in a channel that you know is working for your business, then that is probably the time to get in and milk that channel for what it is worth.
Invest in what you understand
If Buffett thinks a company has a stable and predictable product, then it’s a safe investment. This is why he shies away from technology companies (caveat: learning about these could have made him a big return).
A lot of investors give general advice that you should “diversify your portfolio” and “invest across industries”, which to be fair is generally good advice to most investors who want a hands-off way to grow their investments. If you understand the principles behind things like ETFs and index funds that invest in different areas, and are not individually picking stocks, then this is in keeping with the strategy as well.
This principle applies in marketing as well. As a marketer or a business owner, you’re likely always looking for that next level of growth.
We all have our core strengths and channels that work for us. We advise investing in the channels that you know best and growing those to the best of your ability before branching out into other areas by beginning to learn about them and implementing new strategies. If you don’t have the time to develop a core competency in a new marketing channel, then you may be better off outsourcing it and tying it back to your business metrics to keep the agency/consultant accountable and growing your business.
Note: I do not think Buffett would say to branch out. I think this is one area where he has been wrong, as (to my knowledge and from doing research) he has historically not invested in many high tech companies save for IBM and Apple. If he had, he would have earned a higher return. Then again, he’s the most successful investor of our age so it’s an open question as to whether he should or should not have learned about new types of companies like the Facebooks/Googles/Amazons of the world.
Keep cash on hand
Buffett believes in keeping cash on hand because you never know when a good opportunity may come around, and when one does you want to be able to capitalize on it.
This is just solid business advice, and if you have the capital on hand to take advantage of an opportunity then you will have an advantage over your competitors whose budget is fully accounted for and thus they cannot move it around to pursue something new.
In the marketing world, this applies to many areas. The most common one I see is a mid-level manager being required to procure a purchase order before subscribing to a tool they need to do their job, but there are many others:
- Spending on a freelancer to expedite creation of ad creative or content writing;
- Increasing spend in an area where an event is trending;
One way businesses who are required (or whose executives require it) to define specific budgets is to try to set aside a sum into a “miscellaneous” or “innovation” budget. Other businesses give a reasonable “discretionary” budget to employees so that they can spend without heavy oversight and long procurement periods. This accelerates the velocity of new things being tried, reduces work across the company, and can have big returns.
But you cannot do it without cash on hand.
Look for exponential growth and returns
Exponential growth and returns are your friend. Dividends being paid consistently builds growth even faster, according to Buffett.
In the inbound marketing and tech worlds we often talk about things that are “10x”. VCs look for 10x returns on their investments (because this beats the stock market average of 8%), marketers talk about 10x content, and we’re always looking for the moves that will “10x” our businesses.
In reality, the things that will dramatically grow your business in a relatively short period of time are few and far between. This is not what Buffett means by “exponential growth and returns”.
By exponential growth and returns, Buffett means growth that builds upon itself. According to Google exponential growth is “growth whose rate becomes ever more rapid in proportion to the growing total number or size”.
I like to call this “compounding returns”, and it is exactly what marketing channels like SEO and content marketing can bring you. Other channels, like AdWords and Facebook, are absolutely worth investing in with the understanding that growth and returns are not exponential (with the caveat that your conversion costs will decrease as your quality score improves on AdWords and your Facebook results will be better as your conversion pixel is better trained).
Analyze the business, not sentiment
Buffett believes in analyzing the business, not the investor sentiment or market temperature. This continues naturally with his ethos of “Be greedy when others are fearful and be fearful when others are greedy.” This is why Buffett is not a cryptocurrency investor!
With marketing, you need to invest in the marketing channels that have been proven to work and the data points you to a large opportunity. That might be SEO or it might be advertising depending on your company’s marketing programs and experience.
What you need to be wary of are the channels and offers that everyone says are “too good to be true” and “you must take action right now”. You may be inundated with these advertisements featuring some marketing guru in front of a rented Lamborghini.
Be very suspicious of the hype and only invest when the business is solid and the marketing channel is proven.
What do you think of Buffett’s investment ethos and how it maps to our marketing activities?
Sound off in the comments!