Marketing, Decision Making and Learning – the Munger/Buffett Way

Anand
Current: Advising 3 companies in Valley, 1 in India
A love for Ben Franklin: The original ‘renaissance man’. Inventor, Philosopher, Businessman, Diplomat, Politician, Librarian, Scientist, Engineer
Special Meetings: Mohnish Pabrai, MD of Pabrai Funds leading to a new way of thinking driven by values and sound principles, not buzzwords
Ideas are big, but DON’T BE OVERWHELMED. You have a lifetime to learn and apply these principles!!

Munger/Buffett Track Record
Buffett
Berkshire Hathaway: Coca-Cola, Gillette, ABC, Wells Fargo, See’s Candies, Saloman Smith Barney, GEICO, NetJets, Costco, AmEx, Washington Post. WITHOUT scandals, greeds or creative accountings
Early students of Ben Graham,
‘Moat’ Philosophy – Moat for sustainable competitive advantage
‘Cigarette Butt’ Investing and approach to evaluating ideas/business – Just do it and make a bit of $???
Munger
Modern day Ben Frankin
Fair business at a great price vs. great business at a fair price
Buy own, work for and invest in a great business with a fair price than the other way round!!!!
Notion of worldly wisdom to build latticework of mental models and lollapalooza results

Key Themes
- Meet the eminent dead
- Meet the one-legged guy in an ass-kicking contest
- Worldly Wisdom: “man with the hammer” tendency
- Invert, always invert
- Lattice
- Multi-disciplinary approach
- Web of derserved trust
- 6 themes of influence
- Self-serving bias
- Ability to kill your best ideas
- Inventing vs. method of invention
- Bad bridge vs. bad business
- How do you build a 2 trillion $ brand from scratch?

Meet the eminent dead
Instead of explaining concepts in the abstract, it’s a lot more fun to make friends with the eminent dead!!
- Ben Franklin
- Carl Jacobi
- Charles Darwin
- Adam Smith
- Linus Pauling

Worldly Wisdom
The man with the hammer… would want to make everything look like a nail so that he could use the hammer. So go back and add other tools to the hammer so that not all problems look like a nail. If I can’t solve the problem with these skill sets, add more skill sets!
The one-legged guy in an ass-kicking contest. You can never win. Build other tools so that the problem is varied and not with that one tool that you have.
Evolutionary Biologist would come out with hypothesis then change. Darwin proposed it.
Don’t make the decision then justify. Go and observe and come out of comfort zone.
How to acquire Worldly Wisdom??
- Making friends with eminent dead across fields
- 6 themes of influence (tbi)
- Self-serving bias: Appealing to bias, not to rationality
- Causality vs consequence

How do acquire and retain WW?
Always invert. Ask the opposite question. “If I know where I’m gonna die, I will never go there.” If you know one thing you’re not going to do, that eliminates a lot of possibilities.
Pavlovian Models (See ‘Building a $1 trillion brand’)
Borrow from one subject to improve another like Linus Pauling
Look at reading list from SFI http://www.santafe.edu/

Multi-Disciplinary Approach
Arrive at a checklist of tools that you have. Ways to think of a problem. What not to do. Etc.
Tools to evaluate marketing and business problems
Avoid man with hammer tendency
Costco: Optimize on a single variable (to the extreme) à What is really interest is that they are doing everything Walmart is doing, but they can negotiate with all suppliers, hence get HUGE discounts, and provide for a fee (membership). Paying for value
Gillette: commitment and consistency
Nebraska Furniture Mart: Customer service, low prices
Knowing when to apply the “extraordinary routine” like when you need to fly a plane

Case Study: The 6 themes of INFLUENCE
From “Psychology of human misjudgement”, Charlie Munger speech at Harvard Law School, 1995
Look for reinforcing effects in marketing situations (for Lollapalooza results)
RECIPROCITY
- LinkedIn recommendations: Help people to help yourself
- Chain Letters: cascading effect of reciprocity to reach a million people
COMMITMENT AND CONSISTENCY
- Only one sperm can get in then it shuts off. One idea is in, your head shuts off.
- Physics: people resist change when they like the old idea and they won’t look like an idiot
- Phil Zimbardo: Stanford prison experiment
o People who play prison guard played the role as humans will commit and be consistent
o The power of thought, commitment and being consistent with it
SOCIAL ACCEPTANCE
- Tupperware Parties. If everyone has it, I have to have it too. And when your friend is at your place, you’re more likely to make the purchase
LIKING, AUTHORITY AND SCARCITY
- Work for somebody because you like him
- Nobody cares who created it. I like the iPod I’ll buy it
- #1 brand always has the highest market share
- Brand loyalty
- Scarcity by Steve Jobs. Show it once, and everyone wants it. Then make people give Apple discounts to sell it.
Real Estate and Car Dealers: Scarcity and Authority to sell you something
Coke & New Coke: Commitment and Consistency. Something you are familiar with.
Darwin vs. the rest: That’s why people don’t like his theory
“Limited Edition” items: Scarcity

Case Study: Incentive caused bias
Apple employees can’t be convinced that Apple sucks
TRUE MEANING OF AGENCY COSTS – never try to work against what people are paid to believe
Fedex shift/hour compensation example: Each employee was paid by shift. So instead of that, they would be paid by the hour and track performance each hour. Incentive caused bias
Commission driven with CRM updating system to drive Salespeople to work

A return to values…
Are you comfortable with this appearing in the front pay of the NY Times tomorrow morning? Use this as a guide to make decisions.
WWJD?
If you build a bad bridge it will collapse. There is no consequence of building bad business. Everyone has to put in their part.
Web of deserved trust: best way to succeed is to deserve what you get
The ability to kill your best ideas – do it before others can do it so that anything that you allow to get out of your lab is going to cater to the highest standard
Makes financial sense to gain others trust

Can you build a $2 trillion brand from first principles?
“Practical thought about practical thought” – Charlie Munger

Lessons:
1. Trademark your name, protect it strongly to build scarcity
2. Have a product with UNIVERSAL appeal
3. Leverage on classical conditioning and operant conditioning (conditioned reflexes)
4. Liking, Scarcity, Social proof
5. Always invert and turn it around – what should we NOT do?
6. Exclusive product that people can’t get ANYWHERE
7. Don’t get bad effect of successes (like Microsoft, etc.) Use principles to build company up
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ETL - Sue Decker

Sue Decker, President, Yahoo Inc.

Yahoo Strategies
Integrated Search and Display strategies
Yahoo as a Open Platform?
Acquisition of Right Media and Blue Lithium
Display (Page View advertising)
SearchMonkey… mmm…
Yahoo! Buzz: Ecosystem of Users, Publishers, and Advertisers à Digg style voting
Yahoo Monetizing that?? Finally making profits??

Of everything that could be asked, first question is about customer care… and interface of the yahoo email… haha =)

Discussions and Stories about Yahoo the past 2 weeks
Weren’t planning to sell
Board felt that Yahoo! Is in the midst of transformation since December due to development costs, so Microsoft came at the exact right time
Sue was at Berkshire Hathaway on Board meeting, shook Bill Gates’s hand

Pace of Acquisition of Yahoo!
Yahoo! Will continue to acquire things that can integrate into their systems
Not integrating Overture faster causing Google to move faster in Search

Open Social
Yahoo! Will support open social, with a broader approach, with $$ for developers to develop on Yahoo! Instead of on Google

Macroeconomic Environment on Yahoo!’s movements
Ad is 500billion size
Ad is cyclical with economy, especially in traditional
Online ads can figure cost of customer acquisition, so less reduced compared to traditional ads

Alienating User Groups with Voting
Homepage is not automatic, so Buzz doesn’t change the main site immediately. The main editors will make sure quality is there.
Dynamic content serving

Google outsourcing question
Panama and Google only about 20% difference in earnings
Is it worth it to use Google to close it, and use Google, or continue to build

Video Ad Monetization
Video Ads on static content page

Yahoo’s acquisition of Zimbra à EmailInsights from content will provide relevance and allow others to want the experience
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ETL – Peter Diamandis peter@xprize.org

What were you excited about as a kid?
That’s what you’re passionate about, VCs will fund you, etc. Life’s do short to do something for somebody else

Government can’t take risk for space frontier as there’re too many issues involved that would cause them to lose out politically
Have to go with the private industry

Long Term Mission – Asteroid Miner, lots of $$ in there

How X Prize Foundation is financed

Spirit of St Louis – Flight across the Atlantic for a prize

If he can do it, everyone can do it – the flying fool, Lindberg

Hence X Prize is the prize to simulate the prize for Lindbergh

Line of Super Credibility - Things you do that no matter what you do it will succeed. Line of credibility only brings you to being acknowledged

Insurance Company took the bet with X Prize that for each trench of advancement, the company will pay out

Founded Zero G airplanes to have fun

Space Adventures – Rocket Racing League

True breakthroughs require taking risk. The day before something takes off, it is a crazy idea. Got to be willing to take these risks.

How can we incentivize really crazy stuff? Originally was by government.

Average age of Apollo program engineers was 26 as nobody was there to tell them what they could or could not do. Same as dot com revolution.

Go do the crazy idea. Have to take risk.

X Prize is to change behavior

http://www.xprize.org/, http://www.gozerog.com/, http://www.rocketracingleague.com/

Leverage on people’s capabilities for sponsorship instead of $$ all the time
When you ask for great advice you get great money
It’s a people process, not a $ process

Make other people heroes

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ETL - David Rothkopf

Market Marketism
Banks - Great 14 people
Global financial non-regulation as sovereignty can't control the situation
Risks were "unknow-able", Board doesn't understand the risk, incapable of doing it, opaque systems of modern securities structures - we need to enforce old regulations of board controlling risks
Vilfredo Pareto - the 80/20 rule, a billion people affected by 200m people
More than half of people live on $2 a day - poverty struggles
Cross ownership causes concentration of power
Military power concentrated - less war = good or bad?
Religion concentration
"As scale play a bigger role, and technology allowing for democratizing (though not always - Google, Microsoft, Facebook, MySpace)"
Consequence:
1. Astonishing rapid growth in inequality - absolute poverty going down, real improvements at the base, BUT middle class shrunk especially in India and China
Top 11000 people (billionaires) assets are almost double of the bottom 2.5billion people put together - same as with other examples
3billion salary for the Hedge Fund managers
Growth no longer to be tracked by economic growth? causing political tension?
Backlash - globalization causing backlash

Therefore look at Superclass:
People who have influence over millions, international, on-going
60% from atlantic, 60% from business
Under-represented demographic - Women 94% of super is male, 6% is female
20% of these superclass went to top 20 universities - networking for multipliers
Ethics of leadership not trained in this class of people
More Transcient, but not necessarily more of a meritocracy - instead Geography, Luck is a huge part of of this
People less worthy might be more successful - other factors play a part
Etc parabos but all things are not equal, hence the reason for leadership and government to put rules into place

Other things:
Geographic location of these people (superclass) - fastest growing is Asians (Russia, India and China): 100 billionaires in China over the past few years (but bubble?)
Interest of these superclass align will drive how things are done
DAVOS - Have business leaders come together and talk things through so that through influence, things will be run the way people want it to
Power is skewed, disproportionate, and tools like government don't exist on the global stage anymore - much harder problem than cancer or global warming
Community - now global as we can communicate and do business
however difference in cultures still cause problems
Inequality is unsustainable - hence all the whacky ideas like terrorism, etc.

1 philosophy and won't have another until crazy people come out with new ones that may tip the balance and cause world to change in revolution style

DAVOS problem is that the fastest growing component is not represented (China and rest of Asia)
Scandinavian better wealth distribution than US

Europe is a museum, not much
Sweden wants to get off fossil fuels and be green
Traditional markets are not really market if supply and demand are done by the same people
European model maybe blended with the Singaporean or Chinese model with more government control to resurgent

Green tech
Government policies play a big role in Germany being better in green, US likely to follow once the next President takes over
Last energy bill are ridiculous as its done by random, causes wind and solar subsidies to reduce
Interest tug of war, so not really best policy comes through

Power dynamics
Constantly changing and different in each situation and influence level
Manifests in different ways
Roman Abromavich is a governer of a province in Siberia while he lives mostly in Chelsea
Agenda setting will change with the introduction of Asians
Disagreements with americans mainly due to fact that most countries do not agree with how things are run in US after Guantanomo
Lots of countries in asia have different values of states, how they interact, and what kind of things these states do (e.g. Sudan)

Structural Change within the year - incremental change
Global Financial Markets
Climate change going to motivate the change of the world in green tech emphasis
People rising to the challenge - big challenge is big opportunity

Burden sharing with US and China whether it can be resolved
Survival over climate change issues

Political division tension and not so much social unrest may be a result of how US is run now
CEO salaries and regulatory legislation

Compounded Advantages
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Kinda Easy... Dodge Ridge

I'm busy rushing a business case for submission tonight... but the thought of not posting this up was lingering in my head for too long... so I did this up real quick and am posting this... Btw all these were done in 1 day. I think I managed to cover so much ground this time coz:
1) It's kinda easier
2) More courage to take on the black diamonds (sometimes misplaced though... they listed too many as black diamonds when their difficulty levels are totally different... e.g. hole shot and straight shot.... or maybe I just don't know how to navigate through too powdery surfaces)
3) of course I'm getting better... haha....

ok... now back to work....

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Mt Hood... Since I'm at it

Since I'm at it, here's the trip that started it all (the snowboarding bug).. While at Portland, Oregon, we went to snowboard at Skibowl resort on Mt Hood. Similarly, the routes in purple are the ones that I completed while on Mt Hood. Will write more about this when I do an entry on snowboarding... =)

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Heavenly... Simply Heavenly

Sincere apologies to everyone and anyone that has been checking out on my blog. Been really caught up with stuff... Anyway, I will start re-documenting everything that I've missed out over the past 3 mths (in summary of course)... but as a start... and sharing this made me wanna blog all over again, this is a map of Heavenly Ski Resort in Lake Tahoe, and on it, the routes marked purple are the ones that I've managed to clear over the Saturday and Sunday that just passed by.

I honestly think that I've been severely bitten by the snowboarding bug, and I will most definitely be going a couple of times more before the end of winter... Its lucky that I've shifted to staying in the living room and saving almost $200 a month on rent, which leaves me with a little excess cash to spend on this new hobby of mine...

Until I put up the photos later... I'm gonna stretch my millions of broken bones and aching muscles before I turn into stone... =)

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Partying...

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Cheesecake Factory

Ok I haven't written in ages, and its 1:17a.m. in the morning, but this one I must write. Once again, the Cheesecake Factory food has managed to astound me, tingling all the tastebuds and sense.. amazing stuff.. will write more about this again soon... =)
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Birthday Party at Langkawi Restaurant, San Mateo

Having a really busy week... So I'm just gonna leave the photos here first and perhaps come back to write some more about it over the weekend...

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