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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

Scenario

  • 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