When Warren Buffett spoke to MBA students at the University of Florida in the early 1990s, he gave some of the greatest advice that budding entrepreneurs could ever hope to receive. He said that his investment strategy advantage is that he stuck close to his best ideas and wouldn’t feel the need to further diversify merely for the sake of diversification. If you have investments in twenty different stocks, and you have some cash available for an additional purchase, the highest compounding rate is likely to come from enlarging the position in one of those twenty stocks that you already own rather than purchasing a 21st stock. In my own files, I call this strategy/mental model “Fidelity to Your Best Idea”.
People often ask variations of the question “How do I start a business?” or “What would be the best business to start?” That question is near impossible to answer in a generic manner with a universal audience in mind because the individual talents, skills, work ethic, and business cultural backdrop affect the answer to that question.
But it is unsatisfying to be left in that “It Depends” territory. There is a way to figure out your entrepreneurial prospects in light of your potential. Every day, when you go through your ruminations of what it is come, carve out a few minutes to think about what type of business you would be most skilled at running.
Then, the next day, repeat that process over again. If you come up with a new idea, compare it against your previous best idea. Once you repeat this over a course of months, you will have a pretty good idea of what your best business idea is in light of your talents.
When searching for a competitive edge, it often helps to combine two unrelated ideas into a single potent force. Ray Kroc realized that feeding people quickly and owning real estate near highways was a potent food combination. That’s how you got McDonalds’ 15% annual compounding for half-a-century while many new restaurant concepts wither during their first year under crippling debt.
You often hear worries about whether entrepreneurism is dead when viewed in the context of the immense power wielded by international mega-corporations. My view is that, if Sam Walton could open up a single overleveraged shop in Bentonville, Arkansas and take down the billion-dollar Sears empire, the relatively modest goal of carving out a niche for yourself that makes a few hundred thousand or even millions remains possible. You get there by figuring out your best idea, which may be achieved by combining two independently excellent ideas into one, and then ruthlessly comparing it against your next day’s brightest idea for a period of time, and then executing upon the brainchild that remains.