Can Warren Buffett Help You Pick Better Strategic Accounts?

How do you choose your best strategic accounts? My clients invest significant time and resources trying to discover who the best companies are for their strategic account development programs. Almost every CEO and CMO I’ve interviewed over the years shares a story on a strategic accounts that did not meet their expectations for growth and expanding opportunities.

For my midmarket clients, it becomes even more critical to choose the right strategic account. They cannot afford to make a critical mistake in the strategic account selection process. Do you have a process to choose your new strategic accounts?

Strategic accounts programs should be designed to help both parties grow from their mutual partnership. It should be designed to be win-win for both organizations. I’ve been brought in to work with strategic accounts that failed to provide the benefits promised to either partner.

Many years ago, Warren Buffett bought a mentor’s business. He and Charlie made their decision in less than several hours of meetings. Not that unusual for them, but it made me wonder how they could make their decision so quickly.

This year at the annual meeting in Omaha I found out how Warren Buffett and Charlie Munger can make their purchasing decisions so quickly.  A question from a stockholder prompted a discussion on how Warren and Charlie evaluate the organizations they buy.

Warren shared that he uses the scuttlebutt method he learned from Philip Fisher. He credited Philip for teaching him how to make his business purchasing decisions faster and more easily.

This selection process includes talking with between 8-10 organizations in a target market to identify the top organizations in their markets. Warren then asks all of them who is the clear leader in the field. He then follows up with an even more powerful question, if you could only invest in one business to ensure your family’s future, who would it be? Besides their own company, that is. He said that with a smile. But if you’re not careful you might alienate the person you’re talking with.

Charlie Munger added, then hold on to it for a very longtime, ideally forever. But it’s critical to learn from each decision and get better at avoiding mistakes. He shared that some industries may not provide the value your need to invest your money. It’s true when selecting strategic accounts, as well.

Have you ever considered the investment you make in your strategic accounts? How many would you consider holding on to forever? I bet 20% of your accounts generate 80% of your sales, revenue, and profits. Then why do entrepreneurs invest more time in planning their vacation than they put in evaluating their strategic account partners? These accounts can be worth tens of millions of dollars to their business bottom line.

Wouldn’t you love to better understand Buffett and Munger’s selection criteria? I believe that these same questions and mindset can be used to help you pick your best strategic accounts in your customer portfolio.

Today, I’ll share Philip Fisher’s 15 questions. You can find these questions and several ideas that helped shape Warren and Charlie’s thinking in Philip A. Fisher’s book “Common Stocks and Uncommon Profits and Other Writings.”

1. Does the company have the products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will further increase sales when the growth potential of current product lines has largely been exploited?
3. How effective are the company’s R&D efforts in relation to its size?
4. Does the company have an above average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short range or long range outlook regarding profits?
13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

How does your strategic accounts program stack up?  I’ll be sharing more information on how to apply these questions to your strategic accounts program next week.

My newest consulting program is being piloted at Developing High Performing Teams.  The program focuses on attracting, developing and leading critical teams across your organization. The first blog was called What qualities does it take to be stronger team members?.

See you next week.