Jack Eisenhauer

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When the Oracle of Omaha released his 2014 letter to shareholders two weeks ago, investors parsed each word for some spiritual insight that would bring them wisdom and riches. But buried in his brilliant investment advice are important lessons on how to run a successful small business. I’ve extracted five lessons from Buffett that I believe can help small businesses out-perform big businesses.

1. Avoid the ABCs of business decay

Arrogance, Bureaucracy, and Complacency are the drivers of business decay: “When these corporate cancers metastasize, even the strongest of companies can falter,” Buffett said. For us at Nexight Group, this means three things:

  • Every one of our customers is important, from large federal agencies to small companies, and from executive directors to interns. I met some of my best clients during their first week of work in entry-level positions. I took time to get to know them. Now, as senior managers, they’ve told me they never forgot that.
  • We’re designing logical and flexible policies, processes, and practices as Nexight Group grows and matures. Formal processes are essential for business, but we challenge ourselves at each step to make sure we are not creating bureaucratic practices that put a drag on our business and produce the very conditions that caused us angst in our previous companies. (As proof this is possible, Berkshire Hathaway runs a $360 billion enterprise with a headquarters staff of only 25.)
  • Innovation and change is one of the only constants at Nexight Group. It is easy, profitable, and lazy to repackage and sell a product that uses a cookie-cutter approach to a client’s problem. We constantly ask ourselves, “How can we make this better? What is the next great thing that can help our clients?”

2. Recognize your mistakes

Buffett admits he makes mistakes and learns from them. Looking back, Buffett acknowledges: “That was a monumentally stupid decision” and “Undeterred by my first mistake of committing . . . resources to a dying business, I quickly compounded the error . . . eventually becoming the most costly in my career.” In building a small business you will make mistakes—I have certainly made my share. But you will never move forward if you over-analyze each decision or fret over your stupid decisions. Learn and move on.

3. Praise your managers and staff

Buffett’s 42-page letter oozes with praise for his managers. Let me take his lead. Ross Brindle, my business partner and our Executive Vice President, is the smartest, most effective manager and consultant I have ever had the pleasure to work with throughout my 35-year career. Unlike me, he has the ability to approach difficult problems with a Zen-like sense of calm, ask the right questions, and come up with reasonable solutions. Clients love him. He also knows how to lead people and teach them how to get the most out of themselves. With his help, we have assembled a team of super-smart people who continue to amaze me.

4. Pay attention to accounting

Buffett’s letter is filled with accounting information and with good reason: accounting is the language that communicates a business’s financial health. Small businesses must have accurate and reliable accounting; without it they are doomed to mask problems that could cripple the business. Ross and I believe sound accounting was one of the keys to Nexight Group’s early success.

5. Know when to say no

Buffett identified four disciplines needed for a sound insurance operation, including “be willing to walk away if the appropriate premium can’t be obtained.” Nexight Group is not in the insurance business, but it is good advice for us. Like other consulting firms, we are often seduced by an interesting piece of work, a lucrative solicitation, or the opportunity to get a foot in the door. But we restrict ourselves to work that we are passionate about, that we can excel at, and that allows us to make a buck.  As Buffett writes, “never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is—zip up your wallet, take a vacation and come back in a few years . . .”

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