” Our favorite holding period is forever”
Warren Buffett (1998 Letter to Berkshire Hathaway Shareholders)
Warren was referring to holding credits for Berkshire Hathaway’s shareholders withstanding volatility effects from Asian markets through strong management and smart investing.
Warren also had a hard and fast rule when it came to investing and that was to only invest in a company that could withstand the market closing down for 5 years.
So, how do you convince potential investors that your company can withstand market conditions and have a forever holding period?
It’s not just showing the financials to prove the point but also convincing the Buffett’s of the world that you yourself have staying power and have the right team in place to maintain and grow it.
It can take years to build up a good reputation in business and only a handful of dissatisfied clients to bring it undone. Ensuring internal and external validity of your business is essential for long-term prospects. Larger corporates have a slightly easier task because essentially they have the right key players, internal and external stakeholders and sound management to keep investors satisfied.
SME’s and entrepreneurs have a slightly harder task in that their teams are smaller and often one key player plays a multitude of tasks.
There are a couple of ways to solve that problem, one is to bring in a co-founder, take over a competitor, merge or bring in a lateral hire and the other is do more with less.
Doing more with less does not involve you burning out, having no life and potentially entering an early grave. Why Buffett was considered a genius has nothing to do with him being one of the richest men in America. It has everything to do with his life philosophy.
Warren took care of himself first, throughout his career he sought out people one step smarter than himself, even his circle of friends are diversified, so he maintains constant learning and growth.
Joining forces with the right people at the right time for your business is essential, running lean means that it’s wisest to outsource tasks not central to your core business offering.
No one will know your business better than you, however aligning yourself with the right financial team will ensure that when you need help you have a trusted outsourced partner to call on. If you aren’t sure what a Virtual CFO can do for your business you can read more about it at this link.
Often when a business accelerates owners look to grab on to the resources around them. Just like when a house is built, if the foundations are not sound then no matter how tall you build the tower, it will always be on shaky ground and investors will notice.
Strategic planning and identifying people you want to work with early on is key for long-term validity and to keep your business in a holding forever period.
SMEs and entrepreneurs should outsource finance, marketing and other non-core tasks to not just a good set of hands but also to individuals who have the skill set to take them through an acceleration and beyond.
Entrepreneurs and technology disruption has meant that smaller players can compete with larger market holders but this does not remove the essential key financial indicators which investors look for. They want a return on their investment.
When you meet with investors you want someone in the room who can help sell your business success and add to your credibility. Someone who talks the talk and walks the walk and can not only pinpoint your current position but also have a strong ability to present financial models and also the ability, just like Buffett, to turn complex financials into simple finance.
If you are starting out or growing rapidly then it’s advisable to be strategic in your outsourcing partner and seek out virtual chief financial officer services because whilst you will be the CEO in the room your 2IC needs to come across as strong as you do and needs to understand your key financial data as well as you do.
If you get that right then you are half way there to your favorite holding period being forever.