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Mark Cuban About Business and Investing

“Most people think it’s all about the idea. It’s not. Everyone has ideas. The hard part is doing the homework to know if the idea could work in an industry, then doing the preparation to be able to execute on the idea.”

I doubt there many people above the age of 12 who have not said at least once when they see a successful business: “Hey, I thought of that idea first.” There is a vast gap between thinking about a business and actually doing what is needed to create the business and make it a success. If you are not willing to do the work and take risk nothing will ever be more than an idea. The ability to execute on an idea much rarer than people imagine. Cuban is saying that people who do the preparatory work first and avoid “fire, ready, aim” are much more likely to be successful in life. This point made by Cuban reminds me of Benjamin Franklin who famously once said: “By failing to prepare, you are preparing to fail.”

“Focus on finding big problems.” A business that serves a big attractive market is much more likely to be a success.  Many businesses fighting over a niche market is not a pretty sight. The venture capitalist Eugene Kleiner said once that a few businesses fighting over a niche market is similar to a few bald men fighting over a comb. Cuban’s point reminds of of one of my favorite Gary Larson Far Side cartoons which involves two spiders sitting next to a playground slide with a spider web stretched across the bottom. One spider is saying to the other spider in the caption: “If we pull this off we’ll eat like kings!” Thinking big pays big dividends when operating a business.

“[Diversification] is for idiots.” “You can’t diversify enough to know what you’re doing.” Warren Buffett is agreeing with Cuban when he says: “Risk come from not knowing what you are doing.” Buffett believes: “concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as “the possibility of loss or injury. …You only have to do a very few things right in your life so long as you don’t do too many things wrong.” Of course, if you don’t want to do the work to “know what you are doing,” then diversity. Dumb or lazy money becomes smart money when people realize that they are dumb or lazy.  A person’s got to know his or her limitations, as Dirty Harry famously said. Some people are hard working and thoughtful in the rest of their life but lazy and not thoughtful when it comes to investing. They spend more time picking out a shirt in a store than on selecting their investments and their investing results reflect that emphasis.

“When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?” “What I do know, at least what I think I have learned from my experiences in business, is that when there is a rush for everyone to do the same thing, it becomes more difficult to do. Not easier. Harder.” Competition drives down prices to levels where financial return is equal to the opportunity cost of capital. That is the essential truth of capitalism and its engine. The goal in any business is to create some non-replicable advantage that is a moat against competition. Barriers to entry should be the goal of any business.  The deeper and stronger the moat the happier the business owner will be with their financial results. Finding a source of differentiation is a beautiful thing. Harvard Professor Michael Porter puts it this way: “It’s incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long.”  If you deliver the same product or service as your competitor you by definition don’t have a moat.  Competition will in that case be based on price and price-based competition inevitably degrades to a point where profit disappears.   Porter teaches:  “If customers have all the power, and if rivalry is based on price… you won’t be very profitable.” He adds: “Producing the highest-quality products at the lowest cost or consolidating their industry is trying to improve on best practices. That’s not a strategy.” Cuban is making an additional point here about how a crowded market for X, makes achieving X harder and not easier.  Resources become more scarce when there is a so-called crowded trade going on.

 

“It doesn’t matter how many times you have failed, you only have
to be right once.”

“I placed too much importance on comparing how much I had to others early on. Then I started realizing time was a far more valuable asset.” “The cheaper you can live, the greater your options.” 

 

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