Charlie Munger: How to Approach Business
May 2020
Table of contents
Broad Cola Product Checklist
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Simplify problems by deciding big “no-brainer” questions first
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Have numerical fluency
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Think through the problem in backwards fashion too (inversion)
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Tipping point occurs by stacking up elementary ideas from multiple disciplines
Cola problem
Scenario
- Investor offers 2 million in 1884.
- Stick with beverage business only
- Use the name Coca-Cola
- Half equity to the person who increases the business value to 2 trillion in the next 150 years
Pitch decoded
No Brainer
- We are never going to create a product that generates a value of 2 trillion alone by itself
- Therefore we need to make the name of “Coca-Cola” into a strong legally protected trademark.
- We need to scale gradually from Atlanta, to US and then to the rest of the world.
Numerical Fluency
- We need to ascertain our target by 2050.
- There will be 20 billion beverage customers
- Each consumer drinks 1.9 litres of water
- Of that if 300 ml is consumed per customer in all flavoured drinks
- Of that 150 ml goes into drinking our beverage
- We can then occupy half the market and reach the 2 trillion ounce servings
- If we net 4 cents per serving
- We can earn 117 billion, if our business grows steadily
- Factors why business will surely grow steadily
- 150 years is a long time
- Each customer has more money buying power than the ones present
- Technology improvements will reduce production costs
- Thinking what happens in 2050 (inversion)
- Factors why business will surely grow steadily
Inventing Universal Appeal
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Two challenges of large scale
- In about 150 years, we need to create a market to drink of world’s water ingestion.
- Dominate the new market by monopoly effects.
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Strong trademark
- Going into the business of creating conditioned reflexes
- Coca-Cola trade name will act as a stimuli
- The purchase and ingestion of beverage will be the desired response.
- How do we achieve the above response?
- By operant conditioning
- By classical conditioning
- How do we achieve the above response?
