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Warren Buffett's Management Secrets

Warren Buffett's Management Secrets

Proven Tools for Personal and Business Success
by Mary Buffett 2009 176 pages
3.73
1k+ ratings
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Key Takeaways

1. Choose the Right Business: Economics Matter

"There is a huge difference between the business that grows and requires lots of capital to do so and the business that grows and doesn't require capital."

Durable competitive advantage. Buffett emphasizes the importance of selecting businesses with superior economics. These companies typically:

  • Have brand-name products that rarely change
  • Produce high profit margins and inventory turnover
  • Generate excess cash without requiring constant reinvestment
  • Own a piece of the consumer's mind

Examples of such businesses include:

  • Coca-Cola, Wrigley, Hershey (unique products)
  • Moody's, H&R Block (unique services)
  • Wal-Mart, Costco (low-cost buyers and sellers)

To identify these businesses, look for:

  • Consistent and growing per-share earnings over 10 years
  • Low levels of long-term debt
  • High gross profit margins (e.g., Coca-Cola 60%, Moody's 73%)

2. Delegate Authority to Competent Managers

"We delegate almost to the point of abdication."

Trust and empower. Buffett's approach to delegation is radical yet effective:

  • Give managers complete control over their businesses
  • Avoid micromanaging or interfering with day-to-day operations
  • Recognize that each business culture is unique and requires specialized skills

Key principles of Buffett's delegation:

  1. Employees are experts in their roles
  2. Competent managers prefer autonomy
  3. Integrity is crucial for complete delegation to work

This approach allows Berkshire Hathaway to manage diverse businesses efficiently and grow exponentially.

3. Seek Managers with Integrity, Intelligence, and Passion

"Would you rather be the world's greatest lover and have everyone think that you are the world's worst lover? Or would you rather be the world's worst lover and have everyone think that you are the world's best lover?"

Internal scorecard. Buffett looks for managers who:

  • Have an internal locus of control (take responsibility for outcomes)
  • Love what they do and are passionate about their work
  • Possess integrity and intelligence

Characteristics of great managers:

  • Early drive to be in business (e.g., childhood lemonade stands)
  • Obsession with their work (e.g., Mrs. B of Nebraska Furniture Mart)
  • Belief in their products and businesses
  • Ability to think independently and go against popular opinion

These traits often lead to managers who make better decisions, inspire their teams, and drive long-term success.

4. Motivate Your Workforce Through Praise and Trust

"I consider my ability to arouse enthusiasm to be my greatest asset, and the way to develop the best that is in a person is by appreciation and encouragement."

Power of appreciation. Buffett's approach to motivation includes:

  • Making a good first impression to set a positive tone
  • Using praise generously for both small and large accomplishments
  • Giving employees a fine reputation to live up to
  • Avoiding criticism, which breeds resentment

Effective motivation techniques:

  • Praise by name, criticize by category
  • Encourage others to come up with ideas rather than giving direct orders
  • Admit mistakes quickly and emphatically to build trust
  • Speak to others' wants and needs rather than your own

These methods inspire loyalty, creativity, and high performance among employees.

5. Avoid Excessive Debt and Leverage

"Leverage is very tempting and always leads to trouble."

Financial conservatism. Buffett warns against the dangers of excessive borrowing:

  • Debt can amplify profits in good times but devastate during economic downturns
  • Companies with low debt levels are better positioned to survive recessions
  • Excessive leverage often leads to short-term thinking and risky decisions

Buffett's approach to debt:

  • Prefer businesses with little to no long-term debt
  • Maintain a comfortable cash cushion (e.g., Berkshire's $20 billion reserve)
  • Avoid using debt to improve short-term earnings at the expense of long-term stability

This conservative approach has allowed Berkshire to weather economic storms and capitalize on opportunities when others struggle.

6. Learn from Mistakes and Missed Opportunities

"Since mistakes of omission don't appear in financial statements, most people don't pay attention to them. We rub our noses in mistakes of omission."

Continuous improvement. Buffett emphasizes the importance of learning from both actions and inactions:

  • Analyze missed opportunities to understand why they were overlooked
  • Learn from mistakes but don't dwell on them excessively
  • Focus on ensuring successes outweigh failures

Types of missed opportunities:

  1. Those not on our radar (solution: expand field of search)
  2. Those seen but not acted upon (often due to miscalculation of risk)

By examining missed opportunities and mistakes, managers can improve decision-making and catch future opportunities more effectively.

7. Cultivate Honesty and Long-Term Thinking

"The CEO who misleads others in public may eventually mislead himself in private."

Integrity and vision. Buffett stresses the importance of:

  • Being truthful about mistakes to learn from them
  • Avoiding the temptation to manipulate numbers or misrepresent facts
  • Focusing on long-term value creation rather than short-term results

Long-term thinking principles:

  • Evaluate managers based on long-term performance relative to their industry
  • Allocate capital wisely, avoiding throwing good money after bad businesses
  • Make decisions with a "forever" holding period in mind

Honesty and long-term focus create a culture of trust and sustainable growth.

8. Manage Costs Continuously and Consciously

"The really good business manager doesn't wake up in the morning and say, 'This is the day that I am going to cut costs,' any more than he wakes up and decides to practice breathing."

Cost consciousness. Buffett believes that managing costs should be a continuous process:

  • Look for managers who are naturally frugal and cost-conscious
  • Focus on both large and small expenses (e.g., Tom Murphy not painting the back wall of his office building)
  • Understand that lower costs allow for more competitive pricing and higher profits

Benefits of cost management:

  • Increased profit margins
  • Greater flexibility during economic downturns
  • More capital available for investment and growth

This approach allows businesses to thrive in both good and challenging times.

9. Build a Reputation and Avoid Criticism

"I don't want to be on the other side of the table from the customer. I was never selling anything that I didn't believe in myself or use myself."

Reputation management. Buffett emphasizes the power of a positive reputation:

  • Build trust by believing in and using your own products
  • Give employees and teams a reputation to live up to
  • Avoid criticism, which can damage relationships and motivation

Techniques for managing reputation:

  • Appeal to people's sense of greatness rather than guilt
  • If criticism is necessary, start with praise and focus on the category, not the individual
  • Be quick to admit mistakes and take responsibility

A strong reputation builds loyalty among employees, customers, and investors.

10. Invest in Your Own Earning Power

"The best asset during inflation is your own earning power. Anything you do to improve your own talents and make yourself more valuable will get paid off in terms of appropriate real purchasing power."

Personal development. Buffett advises treating yourself as a business:

  • Continuously invest in education and skills development
  • Seek to improve your earning potential through experience and knowledge
  • Focus on developing unique and valuable skills that command higher compensation

Strategies for personal growth:

  • Associate with people who are better than you to "drift in that direction"
  • Take care of your health to protect your long-term earning potential
  • Avoid excessive personal debt that can limit your options and growth

By investing in yourself, you create an inflation-proof asset that can generate returns throughout your lifetime.

Last updated:

FAQ

1. What is "Warren Buffett's Management Secrets" by Mary Buffett about?

  • Focus on Buffett’s management style: The book explores Warren Buffett’s unique and highly effective management philosophy, which has contributed to his legendary business success.
  • Five-step framework: It breaks down Buffett’s approach into five key steps: picking the right business, delegating authority, finding the right manager, motivating the workforce, and navigating managerial pitfalls.
  • Practical tools and stories: The book provides actionable advice, real-world examples, and stories from Buffett’s career to illustrate each principle.
  • Personal and business success: It emphasizes that Buffett’s management secrets are applicable not just in business, but also for personal growth and life management.

2. Why should I read "Warren Buffett's Management Secrets" by Mary Buffett?

  • Learn from a master: The book distills the wisdom of Warren Buffett, one of the most successful managers and investors in history.
  • Actionable advice: It offers practical, easy-to-understand tools and methods that can be applied to your career, business, or personal life.
  • Broad applicability: The management secrets are relevant for employees, managers, entrepreneurs, and anyone seeking to improve their leadership and decision-making skills.
  • Inspirational stories: Real-life examples and anecdotes make the lessons memorable and show how Buffett’s principles work in practice.

3. What are the key takeaways from "Warren Buffett's Management Secrets" by Mary Buffett?

  • Pick the right business: Success starts with choosing or working for a company with a durable competitive advantage and strong economics.
  • Delegate effectively: Buffett’s willingness to delegate authority—almost to the point of abdication—is central to his management style.
  • Hire and develop the right people: Integrity, intelligence, and passion are the qualities Buffett seeks in managers and employees.
  • Motivate through praise and reputation: Positive reinforcement, giving employees a fine reputation to live up to, and avoiding criticism are key motivational tools.
  • Avoid common pitfalls: The book covers dangers like excessive debt, sycophants, and the importance of learning from mistakes and missed opportunities.

4. How does "Warren Buffett's Management Secrets" define a "durable competitive advantage," and why is it important?

  • Definition: A durable competitive advantage is a long-lasting edge a company has over competitors, often due to brand, unique products/services, or cost leadership.
  • Importance for career and investment: Companies with this advantage offer better job security, career growth, and investment returns.
  • Three business models: Buffett identifies three types: unique product sellers (e.g., Coca-Cola), unique service providers (e.g., H&R Block), and low-cost leaders (e.g., Wal-Mart).
  • Financial indicators: Consistent earnings, low debt, and high gross profit margins are signs of a durable competitive advantage.

5. What are the five steps in Warren Buffett’s management philosophy according to Mary Buffett?

  • Pick the right business: Choose companies with strong, sustainable economics.
  • Delegate authority: Trust competent managers to run their businesses with minimal interference.
  • Find the right manager: Look for integrity, intelligence, and passion in leaders.
  • Motivate your workforce: Use praise, set high expectations, and avoid criticism to inspire employees.
  • Managerial axioms: Apply Buffett’s rules for handling debt, mistakes, sycophants, and other challenges.

6. What are Warren Buffett’s rules for delegating authority as described in "Warren Buffett's Management Secrets"?

  • Recognize unique expertise: Every business culture is unique, and employees are often better at their jobs than the manager.
  • Let managers own their results: Competent managers like to be left alone and take pride in running “their” business.
  • Integrity is essential: Delegation only works if managers are honest; otherwise, they may misuse their autonomy.
  • Inspire, don’t micromanage: The manager’s role is to motivate and support, not to control every detail.

7. How does "Warren Buffett's Management Secrets" recommend identifying the best company to work for?

  • Per-share earnings test: Look for companies with consistent, upward-trending earnings over at least ten years.
  • Debt test: Favor companies with little or no long-term debt relative to their industry.
  • Gross margin test: High and stable gross profit margins indicate a durable competitive advantage.
  • Business model: Prefer companies that sell unique products/services or are low-cost leaders in essential goods.

8. What qualities does Warren Buffett look for in managers and leaders, according to Mary Buffett?

  • Integrity: Absolute honesty is non-negotiable; managers must be trustworthy.
  • Intelligence: Smart, capable individuals who understand their business deeply.
  • Passion/Obsession: Managers should love what they do and be deeply committed to the business.
  • Internal locus of control: Leaders take responsibility for outcomes and learn from mistakes, rather than blaming others.

9. How does "Warren Buffett's Management Secrets" suggest motivating employees and managers?

  • Make a good first impression: Start relationships in a friendly, approachable way.
  • Use praise generously: Recognize achievements, both big and small, to inspire further excellence.
  • Give a fine reputation: Publicly acknowledge employees’ strengths, encouraging them to live up to high standards.
  • Avoid criticism: Criticism breeds resentment; instead, use subtle suggestions and frame feedback positively.
  • Encourage ownership: Let employees set their own goals and come up with solutions, fostering engagement and accountability.

10. What are some common managerial pitfalls and challenges highlighted in "Warren Buffett's Management Secrets"?

  • Dangers of leverage: Excessive debt can destroy even great businesses during downturns.
  • Good ideas gone wrong: Even promising ideas can lead to disaster if not carefully managed (e.g., subprime mortgages).
  • Handling lawbreakers: Immediate action and transparency are required when employees break the law.
  • Sycophants and yes-men: Surrounding yourself with only agreeable people can lead to poor decisions and missed warnings.
  • Learning from mistakes: Both errors of commission and omission should be studied for future improvement.

11. How does "Warren Buffett's Management Secrets" apply Buffett’s principles to personal life and self-management?

  • Invest in yourself: Your own earning power is your best asset, especially during inflation.
  • Manage personal borrowing: Avoid debt you can’t handle; live below your means and invest the difference.
  • Choose your associations wisely: Surround yourself with people who are better than you to elevate your own standards.
  • Admit mistakes: Be quick and open about your errors to build trust and learn.

12. What are the best quotes from "Warren Buffett's Management Secrets" by Mary Buffett, and what do they mean?

  • “We delegate almost to the point of abdication.” – Buffett’s trust in his managers is so strong that he gives them near-total autonomy.
  • “Obsession is the price for perfection.” – True excellence comes from deep passion and commitment to your work.
  • “Praise by name, criticize by category.” – Personal praise motivates, while criticism should be generalized to avoid resentment.
  • “The best asset during inflation is your own earning power.” – Investing in your skills and education is the best hedge against economic uncertainty.
  • “You can get into way more trouble with a good idea than a bad idea.” – Even good ideas can become dangerous if not managed with caution and skepticism.

Review Summary

3.73 out of 5
Average of 1k+ ratings from Goodreads and Amazon.

Warren Buffett's Management Secrets receives mixed reviews, with an average rating of 3.73 out of 5. Positive reviews praise the book's practical advice, simple language, and insights into Buffett's management style. Readers appreciate the focus on integrity, honesty, and effective leadership. Critics argue the book lacks depth, rehashes Dale Carnegie's ideas, and capitalizes on Buffett's name. Some find it a quick, useful read for managers and investors, while others consider it superficial. The book's brevity and straightforward approach are both praised and criticized.

Your rating:
4.37
29 ratings

About the Author

Mary Buffett is a accomplished author, speaker, and entrepreneur. She has written seven best-selling books, including "Buffettology," co-authored with David Clark. Buffett frequently appears on major news networks as a finance expert and speaks at prestigious events worldwide. Her diverse career includes consulting for Fortune 500 companies, executive roles in the music industry, and founding her own businesses. Buffett has also taught Business and Finance at several California State Universities. As a mother of three, she balances her professional achievements with family life. Her expertise in finance and business, combined with her connection to Warren Buffett, has established her as a respected voice in the field.

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