Shawn Chauhan

In 1972, they made a purchase that changed everything: See's Candies. Berkshire bought See's for $25M. Over the subsequent couple of decades, See's paid BRK over $2 billion in dividends. It gave Berkshire enough cash to re-deploy and the snowball to begin rolling.

The acquisition of See's Candies helped shape Buffett's business philosophy. 1. Buy simple businesses. 2. Extreme delegation. Warren never even pretended to influence operations, besides pricing. Chuck Huggins was fully in charge.

Wooden was one of the best basketball coaches ever. His strategy was perfect. Find the best players out there and concentrate the playing time on only them. Skill and intelligence compound. After successfully partnering with Chuck, they doubled-down on The Wooden System.

Buffett and Munger only look to partner with incredibly high-quality managers. These high-class businesspeople don't need any instructions. They permit a system of Level 5 delegation.

After recognizing the power of this idea, and how scalable it is, they continued acquiring businesses like See's - Great economics and wonderful managers in place. But Berkshire imposes one requirement: "Basically we tell them to mail all the money to Omaha."

Warren is perfectly fine with delegating operations, but excess capital is sent to Omaha for him to allocate. This is the greatest example of The Wooden System. Berkshire gives playing time to all of these extraordinary individuals in what they do best, including Buffett.

Berkshire owns dozens of businesses that do over $40 billion in cash flow. On aggregate, they have 396,414 employees. The curious thing, only 26 people are at headquarters. How do they get away with managing all that? "We delegate almost to the point of abdication."

There are three key characteristics of Berkshire's model that were instrumental in their success: 1. Extreme Simplicity 2. Well placed incentives. 3. They built a "seamless web of deserved trust" Let's briefly go over each.

A common mistake is thinking that, with increased scale should come increased complexity. There's no extra reward for doing complicated things. Go for simple, though with caution. "Make things as simple as possible, but not simpler."

Their absolute emphasis on this point impregnates the whole of Berkshire. This is their website. (Extreme Simplicity)

2. Managers' incentives and compensation schemes follow this guideline as well. -Tailored to specific businesses' economics and situation. -Easy to measure if goals are being hit. -'Directly related to the daily activities of the plan participants.'

3. No amount of compliance can fully impede misbehavior. There's no replacement for trust. The problem is finding trustworthy people. When Buffett and Munger found any, they welcomed them to the family.

To tie it all back together, the way they make deals with people illustrate all three keystones of their approach to business. They've built an empire by scaling what's simple and looking for trustworthy people.

IThanks for reading! A bit about me: I’m Shawn, a Generative AI Consultant passionate about building AI-driven solutions. I write about AI, startups, and the future of work.

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