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Charlie Munger: how to approach business

/ 2 min read

Table of contents

Broad Cola Product checklist

  1. simplify problems by deciding big “no-brainer” questions first

  2. have numerical fluency

  3. think through the problem in backwards fashion too (inversion)

  4. tipping point occurs by stacking up elementary ideas from multiple disciplines

Cola problem


  • Investor offers 2 million 1884.
  • Stick with beverege 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 prouct that generates a vaule 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 by 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 persaving
      • we can earn 117 billion, if our business grows steadily
        • factors why business will surely go 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)

Inventing universal appeal

  • Two challenges of large scale

    • In about 150 years, we need to create a market to drink $\frac{1}{4}\th$ of world’s water ingestion.
    • Dominate the new market by monopoly effects.
  • 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