Everyone knows investment icon Warren Buffett. Fewer people, however, are familiar with the equally impressive Charlie Munger, Buffet’s business partner of almost 60 years.
A spry 94, Munger has spent much of his life working with Buffett on building up the $500 billion Berkshire-Hathaway conglomerate. Much of their success is owed to what he dubs “mental models”—the business philosophies that guided the two to unequalled heights in the investment world.
One of these philosophies is “inverse thinking.” Instead of asking how new projects, ideas, or investments can grow a company, Munger advocates asking the opposite: How can you destroy parts of your business and rebuild with fresh ideas, approaches, and methods?
This “creative destruction” can be seen both within companies and in industries as a whole. Consider the following examples:
Once upon a time, a horse and buggy was the predominant form of public transportation. That was squashed with the advent of taxis. And, in similar fashion, taxis were made practically obsolete when Uber launched.
Another example: 8-track tapes were bumped by audio cassettes, which were ultimately pushed out by CDs and, eventually, MP3s.
You get the idea.
This is capitalism’s evolution—and it often occurs when independent companies outperform or out-create others currently dominating the market.
Back to Munger. His advice to entrepreneurs who find success with their “big ideas” is to leverage inverse thinking and creative destruction internally to keep outside brands from shutting them down.
In other words, beat your competitors to the punch.
Author of the famous business advice book, “Good to Great,” Jim Collins, piggybacks off Munger’s philosophy by suggesting business owners ask three “creative destruction” questions that can keep them at the top of their game:
Sometimes the most important question for a business owner to ask is not about how to hone their existing product but whether or not their product is even in demand.
For example, are you in the physical publishing space where newspapers are dying out and print books are an endangered species? If so, how can you adapt so that digital publishers don’t push you out of your industry? Do you need to destroy your existing product(s) and build new ones?
It’s easy to ignore the big commercial threats, in part because there’s so much to focus on inside your business. But if you don’t regularly ask yourself what threats you’re facing, how can you effectively respond?
So start with questions like these:
Is a monolith like Amazon going to enter your industry?
Is it possible that an indispensable team member could go rogue and open up a competing store down the street?
Is the government likely to pass regulation that could shut you down overnight (as it did to broadcast fax back in 2005, making it illegal to send “junk fax” and essentially putting many companies out of business when they lost their main source of marketing)?
For that matter, are you entirely dependent on one marketing method, one employee, one big customer? What would happen if you lost them?
Once you’ve identified your Achilles heel, Collins urges you to put a plan in place to protect yourself.
As businesses become successful and cash flow increases, many owners and executive teams begin to chase passion projects—or just plain bad ideas.
Yep, it’s no secret that the business landscape is littered with failures—from the “New Coke” (which I loved as a 9-year old kid), to Microsoft’s Zune (Gates’s answer to the iPod), Target’s failed expansion into Canada, Coors “spring water,” and R.J. Reynold’s smokeless cigarette.
Each one of these seemed like a good idea to corporate bigwigs flush with cash, but in hindsight were obvious missteps. They were diversions from the core products that brought the companies early success.
Learn from their mistakes. Ask yourself what current projects, services, or products serve your mission and which don’t. Are they profitable, or likely to be in the next 6 months? Do they offer value to your customers? Are they really in your wheelhouse, or just vanity/passion projects?
If you’re coming up with a series of “no’s” then take a step back and refocus on your original mission.
To sum up the illustrious Munger:
If anyone is going to destroy your business, it needs to be you. You need to initiate the cycle of controlled destruction and inverse thinking that keeps you at the top of your game—and beyond the reach of your competitors.
So ask the bad questions. Destroy creatively. Then, grow with renewed passion and perspective into the next chapter of ever-more-successful business.
Consider signing up for one of my upcoming Perfect Life Workshops, where I work one-on-one with you to help identify your biggest challenges and develop a plan to overcome them—all on the way to making you more money and giving you time to spend on the things that matter. Learn more about this unique opportunity here!