The following is from Chuck McKay. You should subscribe to his blog. Really. Do it now. Click here and I'll send you there.
Warren Buffet Digs a Well
Warren Buffet is the world's most successful investor because of two personal characteristics that come close to defining his investing philosophy. He doesn't diversify, and he refuses to “hedge his bets.” You'll note Berkshire Hathaway's holdings are in fewer than three dozen companies, spread over a very few industries.
Although I've never spoken to Mr. Buffet, I have read several analyses of his investment strategies. I'm told he doesn't worry about diversification, because he's heavily researched each investing decision. Hedging his bets by spreading the risk between additional companies would actually increase his risk, by forcing him to invest in additional companies that are less likely to succeed.
Isn't there an advertising investment parallel here?
Spreading the budget between as many opportunities as you can afford insures that the best you'll ever get is average. The likelihood is that your advertising investments won't do even that well.
I found a story to illustrate the concept in a book by Anthony Putman called Marketing Your Services. He tells of a farmer whose crops were drying out from lack of rain.
The farmer started digging a well, dug to 50 feet, gave up and covered up the hole. The next day he chose another location and dug again. By the end of the day he'd again hit the 50 foot mark, gave up, and filled in the hole.
This continued for 17 days before he admitted defeat and sold the farm.
The new buyer dug a well to 50 feet, and stopped for the day. The next day he dug to 80 feet, and stopped. On the third day, at 85 feet, he struck water, which filled the well, and provided all of the water the crops needed.
Buying a small schedule in the newspaper, on four radio stations, two television stations, and spending a few bucks on web development is rather similar to digging new wells, isn't it? If any of the media you're dabbling in could have actually delivered, you've already cut off the funding at 50 feet in order to finance a different media schedule.
You can't afford to keep digging dry wells.
You only need one good source of water, or customers, so long as it's tapped into an unlimited supply.
So, back to Warren Buffet, who consistently digs deep enough to find water each time he digs. But then, he does the required homework. Its his full-time job. He hires managers to run the companies.
You probably don't have the resources to hire managers.
Could you find someone to research and allocate your advertising investments?
Wednesday, July 04, 2007
Are you impatient?
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