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Warren Buffett, one of the most successful investors of all time, has a unique approach to understanding what makes businesses fail. He once said, "I do believe in looking at history, and I try to study failure." Buffett's partner, Charlie Munger, has a witty way of summarizing this approach: "All I want to know is where I'll die so I'll never go there."
Photo: Gerald Miller | CNBC
For Buffett, the biggest killer of great businesses is complacency. He emphasizes the importance of maintaining a sense of restlessness and a constant drive to stay ahead. When you have a great business, like Coca-Cola, the real danger is resting on your laurels. Coca-Cola sells an astounding 1.8 billion servings daily, yet the company continues to operate with the same competitive spirit as when it was just starting out.
This idea of avoiding complacency isn't unique to Buffett. Andy Grove, the former CEO of Intel, famously said, "Only the paranoid survive." Grove believed that constant vigilance and the fear of being overtaken by competitors were crucial to Intel's success. This mindset helped Intel stay ahead in the fiercely competitive tech industry.
A real-world example of avoiding complacency can be seen in the story of Netflix. When Netflix first started as a DVD rental service, it disrupted the traditional video rental market dominated by Blockbuster. However, instead of becoming complacent with their success, Netflix anticipated the shift towards digital streaming. They pivoted their business model and invested heavily in streaming technology and original content. Today, Netflix is a leading player in the entertainment industry, while Blockbuster, which failed to adapt, has all but disappeared.
Similarly, Apple's relentless innovation under Steve Jobs is another testament to the importance of staying restless. Despite the success of the iPod, Jobs pushed his team to develop the iPhone, which revolutionized the smartphone industry. This drive to continuously innovate has kept Apple at the forefront of technology and consumer electronics.
Another example is Amazon, led by Jeff Bezos. Amazon started as an online bookstore, but Bezos was never content with just that. He expanded the company into various sectors, from cloud computing with AWS to smart home technology with Alexa. Bezos' philosophy of always thinking long-term and staying ahead of customer needs has made Amazon one of the most valuable companies in the world.
In conclusion, the key to maintaining a successful business, according to Warren Buffett, is to avoid complacency. Always keep a sense of urgency and restlessness, believing that tomorrow holds more promise than today. This mindset not only helps businesses stay competitive but also drives innovation and growth. By learning from the past and staying vigilant, businesses can avoid the pitfalls that lead to failure and continue to thrive in an ever-changing market.
Listen to Buffett: