The Most Undervalued Business Insight

Cramer is very close to the following insight: the reason why more companies don’t imitate Berkshire Hathaway is that they would have to destroy too much of their existing corporations to make it worth their while.  As such, the “secrets” of Berkshire Hathaway can be hidden in plain view of all, because the only way to create something like it would be to start from scratch.  Yes, you can imitate pieces of it, but it’s not the same thing.

Creating a very profitable diversified industrial conglomerate financed by insurance liabilities is a very unique strategy, and one that few would have the capability of replicating.  It required intelligent investing, conservative underwriting, shrewd analysis of management teams so that they would act independently and ethically, and more.

That’s David Merkel. I first started thinking about this reading and listening to Horace Dediu, for example here commenting on Microsoft’s firing of Steve Ballmer:

To succeed with a new business model, Microsoft would have had to destroy (by competition) its core business. Doing that would, of course, have gotten Ballmer fired even faster.

Say there is a clearly superior strategy presenting itself to a business and changing over is not an incremental change, it’s a revolutionary change. Lots of existing processes go out the window. Certain stakeholders ‘lose’ in this trade. So they block it.

There’s an entire branch of economics dedicated to this kind of thinking, called Public Choice. It mostly focuses on how government employees typically act in their own narrow interests. Zooming out even more, this is a refinement of agency theory and agency costs. The lazy, uncharitable interpretation is that all these people are evil or stupid. Easy to say. Probably false. Instead I like to say obstructionists emphasize knowledge problems (‘how do you know it’s a better strategy?’ or ‘do you really understand that strategy?’) or the real risks of change (what if it doesn’t work and we can’t go back?) . All reasonable objections to any high stakes decision.

Ideas, as they say, are cheap. And they’re cheap because there isn’t any demand for them, in the deep sense of people actually using new ideas. We all like to say we care about ideas, because we want to think we’re smart folks.

But in the end, our interests are typically much less high minded.

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