What does a perfect business look like? For Warren Buffett and his partner Charlie Munger, vice-chairman of Berkshire Hathaway, Inc., it looks a lot like Coca-Cola.
economics
Description
What does a perfect business look like? For Warren Buffett and his partner Charlie
Munger, vice-chairman of Berkshire Hathaway, Inc., it looks a lot like Coca-Cola.
To see why, imagine going back in time to 1885, to Atlanta, Georgia, and trying to
invent from scratch a nonalcoholic beverage that would make you, your family,
and all of your friends’ rich. Your beverage would be nonalcoholic to ensure
widespread appeal among both young and old alike. It would be cold rather than
hot so as to provide relief from climatic effects. It must be ordered by name—a
trademarked name. Nobody gets rich selling easy-to-imitate generic products. It
must generate a lot of repeat business through what psychologists call
conditioned reflexes. To get the desired positive conditioned reflex, you will want
to make it sweet, rather than bitter, with no after-taste. Without any after-taste,
consumers will be able to drink as much of your product as they like. By adding
sugar to make your beverage sweet, it gains food value in addition to a positive
stimulant. To get extra-powerful combinatorial effects, you may want to add
caffeine as an additional stimulant. Both sugar and caffeine work; by combining
them, you get more than a double effect—you get what Munger calls a
“lollapalooza” effect. Additional combinatorial effects could be realized if you
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design the product to appear exotic. Coffee is another popular product, so making
your beverage dark in color seems like a safe bet.
