Warren Edward Buffett is one of the most successful entrepreneurs in the world today. He is the second richest person in the USA and among the top 400 global billionaires listed by Forbes Magazine in 2014. But even with an investment valued at approximately Ksh6384 Billion ($67.2 Billion), Buffett was once a small business owner and all of his wealth was accumulated the hard way.
He made his first major investment when he was still in high school. He and his friend bought a used pinball machine for Ksh2,000 ($25) and opened a small Kinyozi (barbershop) on the side. The pinball game business proved quite popular with the Kinyozi clientele, so the entrepreneur decided to re-invest his profit to buy even more gaming machines. In time, they had eight machines and several barbershops.
Eventually, Buffett sold all of his shops and used his portion of money to invest in stocks before he launched another business. By the time he was turning 26 years old, he had grown his company to a tune of Ksh16Million ($174,000). Undoubtedly, Warren Buffett recognized the value of reinvesting early on.
What lessons can we draw from his growth curve?
Lesson 1: Start Young You Still Have Lots of Time to Make Mistakes and Correct
Buffett started selling Juicy Fruit chewing gum at the age of 6 years and he used to make 2 cents profit per pack sold. Then he went on to purchase Coca-Cola soda’s and sell for a profit of 5 cents for each soda.
By age 17 he joined his friend Donald Danly in a partnership to start a company called Wilson Coin operated machines investing Ksh2,000 ($25) as initial capital. Eventually he sold this company and started investing in stocks by age 19.
One thing that stands out clearly about Mr. Buffet is that you’re neither too young or too old to make it big in business. All you need to do is start small and keep re-investing to allow for growth.
Lesson 2: Take Risks for They Come with Rewards
Obviously, Mr. Buffett did not get to where he is today because of a few lucky investments – rather his ability to choose wisely and direct finances to the most strategic ventures contributed significantly to his financial success.
All business ventures entail risks. Can you imagine the kind of risk Buffett had to take by selling his business at the age of 19 and venturing into stock trading? Those of you who are familiar with stock trading know exactly how risky stock trading can get. You can lose all your money if you don’t get your research right.
But at age 19, Buffet risked losing everything he had created from his young days. He mastered the art of stock trading and this paid him handsomely.
Lesson 3: Keep Diversifying Till You Find the Real Money Maker
The world of business changes frequently. For instance, some time back the coolest business to do was that of “Simu Ya Jamii”. Many people invested in it as there were decent profits to be earned. However, today the business is no longer doing well because most customers eventually bought their own mobile phones and the needs of the market changed.
The guru himself teaches us that if you want to survive in business you have to keep evolving. In 1936 Buffet started off selling chewing gum, a few years later he was selling coca cola drinks…by age 17 he noticed that there were bigger opportunities in opening a Kinyozi and pin-ball gaming business. By the time he was 19 he saw opportunities in stock trading and knew it was time to move on.
Likewise for you, you should always be prepared to change your tact to suit changing times. Don’t just start a Kinyozi and switch off your brain…keep advancing your Kinyozi idea and combine it with your newly learned experiences. This way you’ll keep evolving and no amount of change will push you out of business!
Further Reading: 6 Habits That Will Keep You Poor For The Rest Of Your Life
Lesson 4: Re-Invest At Least 50% Of Your Profit
Most small business owners start out by pocketing whatever the business earns, considering any company profit to be their salary. However, as Warren Buffett teaches us, some form of re-investment is necessary. Re-invest based on a strategy and apply funds in line with your specific development plan.
One common re-investment is for making business improvements. Here is an example of how one businessman re-invested in his blogging business between 2011 and 2015.
2011 – Launched the blog and earned Ksh500,000 through Google Adsense, sponsored posts and affiliated ads. Recognizing the potential of the business, he re-invested Ksh160,000 in re-designing the blog.
2012 – The business brought him Ksh900,000 and again he re-invested Ksh450,000 on traffic generating tactics e.g Facebook ads, sponsoring contests and another re-design.
2013 – By this time his business had started taking off, and he earned Ksh1,500,000. Once again, he re-invested heavily this time hiring freelance writers to beef up his blog content and developers to enhance the blog’s design. He also purchased adverts to drive in more traffic and spent more money on web-hosting to accommodate a growing number of readers who came to his blog.
2014 – Last year, all of those investments began to pay dividends and so he was in a position to higher one full-time employee. The company made Ksh3.5 million and again he spent Ksh1.7 on recommendation sites such as Outbrain, Taboola and Facebook Ads.
2015 – This year he has projected to bring at least Ksh5 Million and he says he will now re-invest in developing the design of the blog, more Facebook adverts and even create a new mobile app. He will also hire a full-time content editor. This way he will have enough time to specialize on growing his company rather than creating content.
Re-investment is the most important lesson we can learn from Buffett. When he invested in chewing gums he did not stop there, he went ahead and brought in some Coke products. In addition, when he opened his Kinyozi business he decided to add a unique flavor to it by bringing in a few pinball tables. And then not long after that he re-invested in stocks.
Now that is the way to do business. You keep re-investing, keep expanding, keep exploring…to adapt to changing times.
Final Word
Warren Buffet may be the richest person in the globe today but clearly, he started from very humble beginnings while still young. Today, you have an opportunity to follow his example. By starting and growing your business gradually, you have a prime opportunity to diversity your portfolio and reach for the stars.
Image Credits
Daniel Acker/Bloomberg
Associated Press
Javier/Flickr
