Some months ago I picked up Tap Dancing to Work which is a compilation of all the stuff Fortune has done on Buffett over the years. One of the things that occurred to me in reading it was how lucky the folks are that run the companies that he acquires. That isn’t meant to take anything away from those folks. Buffett says explicitly in several places (not necessarily in this book) that one of the things they want during acquisitions is management that is already top notch. He doesn’t want to be in the business of having to install management. So if you are/were acquired by Berkshire, you already were good at running your business and would have continued to be.
The luck I am referring to has more to do with the gift you get of total focus on your business. What do I mean by that? One of the folks in the book talks about how basically he doesn’t have to worry at all about the cash that the business throws off and what to do with it; he can hand it off to Buffett. That’s just incredible. On the flip side, if you need to invest, you make your case and you either get the money or you don’t. Lastly, if your business is humming along making money, it doesn’t seem like there is much pressure to leave your knitting and chase growth. From my reading, being able to carve these pieces out and have the benefit of Buffett looking at them from an investor perspective is a huge advantage for these folks. This division of labor makes so much sense to me and I’ve been trying to wrap my head around whether there is a structure that would allow for this generally even if you don’t have Buffett available to play that role. Easy critiques of this could either go to not being able to replicate Buffett or could go to this all being old hat. There are boards, and finance/investment teams, and private equity and so on. When I noodle those things I always come back to ‘sort of’. I think there is something here and my question is still what does that structure look like?