Community Value: Thinking Like Warren Buffett as a High-Performance Metric

TL;DR:

High-performing growth leaders recognize that ‘Relationships are the Brand’ and ‘Community is the Asset’. #Marketing #CMO #CEO #Growth #Leadership #Investing by @AnandThaker

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This begins a series on leveraging a blend of a finance mindset and marketing strategy for long-term success. Applicable to the leading public companies to high-growth startups, The intersection is an incredible long-term value for the brand, customers, and investors.

So you are wondering, what does Warren Buffett have to do with Marketing and Growth Leaders?

Well, let’s start with Mr. Buffett and why he’s been successful.

Warren Buffett is considered one of the most successful investors in the world. He is also known for his humility, modest lifestyle and philanthropy.  As an active investor and advisor in the public and private markets, I’m not only a fan of Mr. Buffett philosophy but also a shareholder on both Berkshire Hathaway classes. His successes are driven primarily by two themes.

1) Invest in what you know

2) Understand your strengths and assets.

In part, his sage advice comes with a caveat.  Good things take time and care to build.

The Changing Marketplace

Modern marketers understand that the changing landscape favors a more customer-centric view. Brands once provided services and products to fulfill what they thought the marketplace needed. Today, high-performing brands provide products and services to align with customers are asking and expecting. As consumers, we are more dynamic, complex and interconnected. To keep pace, growth leaders need to create a more agile or adaptable go-to-market strategy.

Growth Leaders Translation

For growth leaders in today consumer-driven marketplace creates a different perspective on those wise word by Mr. Buffett. How should marketing executives and other growth leaders internalize these themes?

Invest in what you know → Focus

While Buffett refers to stocks and acquisitions, promoting your mission and identity is as critical as gaining knowledge. The ‘everything to everyone (e/e)’ brands experience hubris.  We operate in a noisy and more immediate market. The E/E strategy not only water down the brand but hampers developing community momentum.

Strengths → Collective Team

Your team is critical to your customer experience. Putting it in a different light from my recent keynote. Customers value a brand through experiences. Experiences are delivered by people. People are managed by leaders. Leaders set the tone. Describing why technology magnifies people, there is a reason culture is not hype. It serves high-performing teams and brands well.

Assets → Community

People once thought about Marketing assets like logos, colors, brochures, swag, etc…  No longer. Marketing assets now include customer data, market intelligence, and the brand’s community. This community can be categorized into four parts: Team, Customers, Partners, Advocates.

These communities take time to build and nurture. The return is longer and larger customer value which translates into organizational resilience.

Community Value: A New Finance, Growth, and Marketing Metric

Mr. Buffett once said that he never invested in technology companies because he didn’t understand it.  True to his own humility and for the longest time taking his own advice, he didn’t. When he did [sparing the company] it became a poor performer. He followed fundamentals and diligence which has been Berkshire’s proven model from other industries. The company achieved each of these expectations. Where company fell short is the lack of a strong cohesive community.

Here’s my proposed mapping the changing marketplace landscape to investment market metrics:

Book Value

A company’s book value is its total assets minus intangible assets and liabilities. However, in practice, depending on the source of the calculation, book value may variably include goodwill, intangible assets, or both. Valued generally based on the potential to produce given assets.

This metric was the primary investment value metric during an era where the stock value was driven by financial fundamentals and physical assets. It was Buffett’s original primary metric. The challenge with book value is today’s marketplace has evolved and so have a fundamental value of a company.

Intrinsic Value

While subjective, intrinsic value leverages qualitative and quantitive factors to determine a companies underlying value. Used primarily by value-driven investors to determine if a company “overvalued” or “undervalued” versus the market value.

Intrinsic value, still based on fundamentals, is a current and common investment metric. Buffett is known for his ability to calculate this metric of a business then buy that business when its price is at a discount to that intrinsic value. However, with a dynamic, interconnected, consumer-driven marketplace, the accuracy between intrinsic and market value is fast becoming less relevant. Why?

Traditionally companies find a moat and settle in (banks, manufacturing, telcos, airlines, etc…) paying back shareholders with dividends.  Their continued velocity of growth is severely limited or would come at a high cost. With the new generation companies particularly in digital, cloud-based, asset-less products/services all profits are immediately invested into fueling high-growth.

This ‘not making money’ startup-like mindset creates havoc on traditional analysis. A solid reason why Buffett steered clear of technology and treads more carefully with emerging fortune 500s firms like Google, Facebook, etc…

Community Value

Looking to the future, a company value for investment needs to include its brand and community strength.  In the digital era (and ‘assetless’ economy), the value driven by the strength and resiliency of the team, customers, partners, and advocates.

Ideas without execution are worthless. Equipment ownership is becoming a burden. Social engagement is evermore transparent and noisy. HR is transforming.

This is a great time for marketing leaders and practitioners. As next-gen CMOs are taking responsibility beyond the department, the ability for a company to remain agile in its go-to-market and ability to navigate the customer-driven marketplace is a competitive advantage.

For marketers, entrepreneurs, and enterprise executives, community development is one that immediately translates investment in initiatives and projects into real monetary value. Forrester researched that successful companies with customer experiences outperform laggards by 80%!

It is incredibly important to remember, Community Value is merely part of the stack of other quantitative and qualitative considerations when investing, innovating and scaling growth.

Examples, Final Thoughts

Takeaway… Relationships are the Brand, Community is the Asset.

My advice to Mr. Buffett.  Mr. Buffett, if there is any way I can give back to you for all of your wisdom I’ve benefited from, it is this. Formulate and include a community value and resiliency as criteria metric moving forward.

When you are buying a company especially one that relies on some form of digital, it’s the community which sustains and adds value. A few examples of community-driven brands which have delivered strong realized investor value. (Nadella’s) Microsoft, Salesforce, Hubspot, Atlassian, Apple, Adobe, and even his own Berkshire Hathaway (yes, I have invested and navigated investment into them all) to name a few.  Their investor performance speaks for themselves.

This notion comes from my investment experiences in the public financial markets as well as the private investment startup worlds. We see that more enterprises are looking startup mindsets to disrupt themselves to stay ahead. On the surface, the best performing startups are ones with the strongest communities especially in noisy markets such as marketing technology, sales enablement, and customer retention solutions.

For the upcoming series, I’ll dive into how well community-driven organizations outperform their peers. Also, describe details traits and examples of their greatest asset, the community. Then, we’ll go into steps you can take to build a strong community brand and parts of my formula you can leverage to quantify a new community value metric!

My advice to marketing executives. It’s time to think like a CEO. For ALL growth leaders, your people who are your greatest asset live in AND outside of the walls of your organization.

UPDATE: at the Berkshire-Hathaway Shareholder Meeting in ’18, Mr. Buffett and team lean into my analysis here and advises the world on an ‘asset-lite’ world: Buffett and the “Asset-Light Economy” Revisited – (thetycoonist.com)

UPDATE #2: Found out that a member of BH read this article and I’ll be out in Omaha for the ’19 shareholder meeting at and following to discuss exactly my developing approach. Here’s to hoping to meet Mr. Jain, Mr. Munger, or, once again, even Mr. Buffett!