7 Things That Self-Made Billionaires Do Differently
Photo Credit: Michelle Andonian (Elon Musk), Steve Jurvetson (Jeff Bezos), AP Photo-Nati Harnik (Charlie Munger), , World Economic Forum/Moritz Hager (Ray Dalio), Matthew Yohe (Steve Jobs), Stuart Isett/Fortune Most Powerful Women (Warren Buffett)
Is there some unique way of thinking that gives self-made billionaire entrepreneurs an edge?
Fascinated by this question for my whole career as a serial entrepreneur and writer, Ive read more billionaire entrepreneur biographies than I can count,researched what they have in common, and met and interviewed several.
Without a doubt, luck plays a central role. But luck alone doesnt explain the repeated success of entrepreneurs who create billion dollar company after billion dollar company or who have enduring multibillion dollar companies: entrepreneurs like Warren Buffett, Jeff Bezos, Steve Jobs, and Elon Musk.
By researching these entrepreneurs, Ive found unique ways of thinking that arent commonly known among most entrepreneurs (even successful ones).
The process of uncovering these principles has fundamentally changed how I think about business (and life). Some have served as a reminder that its consistently doing simple things that matter most.
For each entrepreneur I studied, Ive uncovered a:
The overarching principle that has served as a foundation for the billionaires success. I focused on one specific, non-obvious strategy.
How successful entrepreneurs are applying the strategies to grow their business.
1. Charlie Munger (billionaire investor): Analyze what can go wrong instead of what can go right.
Until I read billionaire Charlie MungersPoor Charlies Almanack,I thought the key to success was creating a vision, setting goals, and working hard toward them every day.
If I failed, I thought it was because I did one of these steps wrong.
Charlie Munger, Berkshire Hathaway vice chairman and long-time Warren Buffett business partner, shows another equally important path to success;thinking through what can go wrong.
Things constantly go wrong no matter how smart and hardworking you are.
Realizing this, Munger continuously and methodically considers every way a plan could go wrong and plots out how to avoid each obstacle. He says:
Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where dont we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where Im going to die so I dont go there.
Mungers approach helps him avoid roadblocks and be more prepared when he inevitably runs into one. Furthermore, combining goal setting and obstacle avoidance is backed up by a growing body of over100+ academic studieson the topic. When people only fantasize about the future, they actually end up taking less action than they would if they also thought about what could go wrong and made plans to avoid it.
Bottom line: Being both pessimistic and optimistic is better than just being optimistic. One of the best ways to win is not to lose.
To apply this principle, test your plan with this three-step pre-mortem process developed byMeathead MoversCEO and cofounder,Aaron Steed:
Steed created the process after noticing that certain projects at his 350-person company were getting poor results.
Rather than adding new procedures to help those projects succeed, he developed thepre-mortemprocess to remove the barriers that were causing them to fail.
One of the obstacles that Munger proactively avoids is psychological biases. As an additional resource, we compiled a 27 page report thatsummarizes the 22 psychological biases that Munger has identified throughout his 70-year career.
2. Warren Buffett (billionaire investor): Use checklists to avoid stupid mistakes.
Photo Credit: Stuart Isett/Fortune Most Powerful Women
Generally speaking, there are two types of mistakes: those that are stupid and those that are ignorant.
Ignorant mistakes happen when you dont know better. Stupid mistakes happen when you do know better.
Stupid mistakes are the hardest to stomach because theyre the easiest to solve. Yet people, especially smart people, make them over and over.
Warren Buffett and his 40-year business partner, Charlie Munger, dont attribute their success to raw intelligence or brilliant ideas. Instead, they attribute a large part of it to consistently avoiding stupid mistakes by religiously following basic tenets and ideas they know will work.
Talking about his and Buffetts strategy inhis book, Munger states:
We try more to profit from always remembering the obvious than from grasping the esoteric.
To counteract the often negative influence emotions can have in investment decisions, Buffett and Munger use several checklists, including ones forinvestingproblem solving, andpsychological biases.
They claim that using these checklists has been crucial to theirmiraculous 21.6 percent return on investment for four decades, which is double the market average.
More recently, checklists have been receiving well-deserved attention as a result of theChecklist Manifesto, written by Harvard Medical School professor of surgery, Atul Gawande.
In afascinating study by the World Health Organization, 8 hospitals who adopted a 19-point checklist saw deaths from surgery nearly cut in half!
Blake Goodwinehas used a decision-making checklist to build hisLionize Media Groupinto a network of niche media sites with tens of millions of monthly visitors.
His problem-solving checklist, shown below, lays out the path to a successful business strategy, and counteracts any internal biases that impede him from reaching his desired destination:
. Dream up as many possible solutions as you can. This helps you avoidavailability bias, which often results in us choosing the first solution that comes to mind rather than the best solution.
Test as many potential solutions as you can afford to. This avoids theconfirmation biasof rationalizing the one solution you chose.
Have a minimum success criteria for each experiment. This allows you to avoid doubling down on bad ideas that arent working in an effort to recoupsunk costs.
Dive deeply into the data and learn from EVERY experiment, not just the one that worked best. Avoid taking mistakes personally and feeling shame over something that did not work.
Even if this checklist helps you make big decisions just slightly better, it will change the entire trajectory of your life and business. It has for me, Goodwine says.
As an additional resource, we compiled some of the best expert advice onhow to create actionable checklistsinto a step-by-step guide.
3. Ray Dalio (billionaire investor): Learn how to think independently so you can be smarter than everyone else.
Photo Credit: World Economic Forum/Moritz Hager
You cant make money agreeing with the consensus view, asserts Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world ($169+ billionunder management).
Doing what everyone else does is going to bring you average results. Thats the definition of average.
To Dalio, the key to having enduring, extraordinary performance is to do what others wont or cant AND to be right.
This is easier said than done. For example,86% of professional investors do not beat the market. The numbers are sobering for entrepreneurship too:30.937.6% of new businesses fail in the first three years.
In arecent op-ed, Dalio explains why its so hard:
Whenever youre betting against the consensus theres a significant probability youre going to be wrong, so you have to be humble.
The good news is that with enough practice, you can put the odds in your favor.
Thinking independently is more than one simple hack. Broadly speaking, it requires:
Courage to stand up against the herd when youre right and everyone else is wrong
Access to or understanding of information that other people dont have
Here are ways to hone each of those abilities:
We are wired to want to fit in socially. So, standing up against the herd is extremely hard. Fortunately, courage is a skill that can be practiced.
Emerson Spartz, founder and CEO ofSpartz Inc., a digital media company that owns a network of sites likeDoseandOMG Facts(45+M monthly visitors), practices daily what he calls comfort zone challenges. Spartz says:
These are little things I do that cause me to feel uncomfortable and socially awkward, but have no real negative impact.
These challenges train him to be comfortable with being uncomfortable, so he has courage when he really needs it.
His favorite challenge is the coffee cup challenge, which is simplyasking for a 10 percent discount when you buy coffee.
One of the easiest ways to beat the herd is to have an information advantage. Here are four ways to get that advantage:
Build deep relationships with people who have accomplished the goals you want to accomplish.
By building relationships based on mutual trust and respect, where others want you to succeed, people share information they never would publicly. For more on this strategy, readReid Hoffmans strategy.
Learn from other fields and bring the insights into your own.
Most people focus on learning about their own field, even though other fields have proven insights that are applicable. Being anexpert-generalist(a term coined byOrit Gadiesh, the chairwoman of multibillion dollar consulting company, Bain & Company) and going wide into adjacent fields will quickly give you a unique perspective.
Entrepreneurs who can conduct more experiments will discover more new data and therefore have a big advantage. These entrepreneurs look at their business as a lab where they constantly run experiments. Many entrepreneurs fail here because they look at their business as one big experiment to test just one idea.
Many successful people are not able to articulate how they do what they do. They just do it. Asking the right questions can help bring to the surface this tacit knowledge. One way that famous technology investor, Peter Thiel, uncovers this knowledge is by asking the founders he backswhat they strongly believe that no one else does.
This is where many of the billionaire strategies mentioned in this article can be applied. See the advice ofCharlie MungerandElon Musk
As an additional resource, we summarized Ray Dalios seminal ebook, Principles, and interviews he has done over the years into astep-by-stepguide on how to develop your own independent opinions.
Judging by the media coverage of entrepreneurs, its easy to think that the 1 key to success is hopping on the biggest trends.
Jeff Bezos shows that big trends are only part of the story. Its also about doing the exact opposite and focusing on what does not change.
Since its founding in 1994, Amazon has focused, like a laser, on the simple idea that people will always want to buy products as cheaply, easily and as quickly as possible. Therefore, Amazon can safely make huge technology investments in these areas and know they will pay off in the future.
Bezos explained why this approach makes sense at the2012 Amazon Web Services conference:
Its impossible to imagine a future 10 years from now where a customer comes up and says, Jeff I love Amazon; I just wish the prices were a little higher, or I love Amazon; I just wish youd deliver a little more slowly.
The strategy seems to be working. Amazon just becamethe most valuable retailer in the world this year, and its growth is speeding up, while the growth of its main competitor, Walmart, is slowing down.
Bottom line: Become the best in one core area by continually investing in it over time, rather than jumping from trend to trend and starting over each time.
To apply this principle to your business, identify a core customer need that will likely stay the same (even as technology and culture evolve) to which your company is uniquely positioned to cater.
This is what Ohio-based entrepreneurJason Duffdid.
Realizing that nostalgia doesnt get the attention it deserves, Duff built his whole real estate business around it. Nostalgia is the universal inclination to remember the past sentimentally in order toderive meaning from our lives.
Duff applied this insight in his company by focusing on restoring historic downtown buildings rather than tearing them down and building modern structures.
He used the following formula to create hundreds of jobs in his community and build several multimillion dollar businesses.
Purchase overlooked historic properties at a large discount
Invest heavily in repurposing and restoring them
Tell the story of what they meant (and could mean again) to the communitythrough social media
In doing so, he has increased the value of the property, by tapping into the warm feelings held by the townspeople who remember coming to the building in their youth.His Facebook postsproviding details on renovation projects regularly attract hundreds of likes.
Having a powerful vision is essential for all entrepreneurs, but if you are going to excel, your stakeholders need to buy into your vision.
For many, the vision ends up becoming a few lines of mission-speak on their corporate website.
Yet, there are other leaders like Steve Jobs and Elon Musk who seem to havethe superpower to distort reality. After listening to them, it feels like their vision of the world is inevitable and critical.
It is easy to attribute this ability to charisma, but there is a case to be made that Jobs was just really good at storytelling, which is a learnable skill.
According toacademic studies on storytelling, great stories transport others into a whole other world and, in doing so, alter their beliefs, cause a loss of access to real-world facts, evoke emotions, and significantly reduce their ability to detect inaccuracies.
Throughout history, visionary storytellers have changed the course of societies and industries:
Turn Your Vision Into A Detailed Story And Picture
1800-GOT-JUNK?founder and CEOBrian Scudamorecaptures his companys vision through a document called the Painted Picture.
In vivid detail, the document explains what Scudamore expects the company to be like in 3 to 5 years. This description includes both quantitative details (like the number of people the company will employ and how many locations it will have) and qualitative ones (like how employees will describe the culture to their families).
The Painted Picture was paramount in 1800-GOT-JUNK? growing its revenues to more than $100 million, Scudamore says. Herecommends the following steps retreat, visualize, and ask to create your own:
First, grab a notebook and find a quiet space where you dont have any distractions from your daily life.
Transplant yourself five years into the future. See yourself looking around at your life and your business. Imagine that youre really in that place where the future HAS already happened. For example, if you have a five-year old child, imagine your child is now ten. Then, imagine yourself five years older.
Once youve transported yourself to that place, ask yourself some questions that will help you crystal ball the future. Here are some key questions to ask yourself:
– How would your people describe the culture of your company when talking to a family member?
– What is the press saying about your business? Be as specific as possible: what would your local paper say about your company? What would your favorite magazine say?
– What do your people love about your vision and where the company is headed?
– How would a customer describe their experience with you? What would they say to their best friend?
– What accomplishment are you most proud of? What accomplishment are your people most proud of?
– What do you do better than anyone else on the planet?
– Describe your office environment in detail.
– Describe your service area. Who are your customers and how do they feel?
As an additional resource, readBrian Scudamores articleon the science-backed reasons that creating a vision is so powerful.
If you reverse engineer the relationships of many successful entrepreneurs, as I have, you will realize thatmany people work with the same people over and over in their careers.
In the technology world, this phenomenon has been cataloged extensively (see the mafias ofOracle,Netscape,Fairchild,PayPal, andMyspace). Each of these companies have spawned new multi-billion dollar enterprises as a result of former employees starting new companies together, advising each other, investing in each other, and much more.
These long-term, collaborative networks are often referred to as mafias. Reid Hoffman, founder of LinkedIn and part of the PayPal mafia, has put these types of relationships at the center of his career andmakes a casethat others should too. In the information age, one of the best ways to get information is not from just being better at searching Google, its from learning how to build a network and get the information you need through that network, Hoffman says.
In a fascinating interview onThis Week In Startups,Hoffman goes so far as to say that the biggest mistake in his career was deciding that in order to be a product manager he needed to learn product management skills. In retrospect, he would have focused on placing himself in the right network by working at one of the fastest growing, futuristic companies at that time: Netscape.
Hoffman refers to the information that only exists in peoples heads as the dark net. This includes information that is not searchable online, in any book, or in any classroom and never will be.
Getting access to this dark net information from people who have accomplished what you want to accomplish is extremely valuable and will help youthink independently. The dark net includes peoples lessons learned and hacks, topics that are too sensitive to talk about because they make someone look bad, and tacit knowledge (knowledge that people have but arent able to articulate).
Ten extremely informed individuals who are happy to share what they know with you when you engage them can tell you a lot more than a thousand people you only know in the most superficial way.
Deep long-term relationships dont happen by chance. Just asdivorce rates are high, so too are partnerships that go sour.
Two keys on building long-term relationships that Ive learned from researching and writing on theart and science of building deep and authentic relationshipsfor Forbes include:
Key 1: Be extremely picky about whom you spend a lot of time around.
Our time is limited. Every minute you spend with one person is a minute youre NOT spending with someone else. Below are characteristics that I use for filtering my professional network:
Theyvalue relationships over pure achievementand are willing and able to invest in the relationship
They are open to beingvulnerableand to sharing their true experiences
Theyre also able to invest time in maintaining and growing the relationship.
No matter how successful you are, building deep relationships still takes a lot of time. So, its critical to turnrelationship building into a habit.
Many thought that Elon Musk was crazy when he plowed all of his PayPal earnings into SpaceX and Tesla. However, there was a proven logic behind Musks decisions. Musk, likeWarren Buffett, uses decision trees to make big decisions.
Decision trees are particularly useful for avoiding stupid risks and big bets that arent likely to succeed.
In an interviewwith tech entrepreneur Kevin Rose, Musk admits that he thought the most likely outcome for both SpaceX and Tesla was failure. However, they were both so important to the future of humanity and had so much potential that he felt the risk was worth it.
Probabilistically, it makes sense. Heres why.
Financially, if Musk thought that SpaceX could be a $100 billion company and that the chance of success was 30 percent, the expected return statistically using a decision tree is $30 billion. Not bad!
Musk could have easily focused on a company with a $1 billion potential and a 80 percent chance of success. But, in this case, the expected return would only be $800 million.
If there is even a tiny chance that doing something could destroy you, its averybad idea.
In a talk, Warren Buffett compares these types of situations to Russian roulette:
If you hand me a gun with a million chambers in it, and theres a bullet in one chamber, and you said, Put it up to your temple. How much do you want to be paid to pull it once? Im not going to pull it. You can name any sum you want, but it doesnt do anything for me.
Smart people fall for this mistake all the time. In the same talk, Buffett shares the story of the collapse of the multibillion-dollar hedge fundLong-Term Capital.
The leadership team included the smartest people in the industry along with Nobel laureates. Yet they played Russian roulette. For every dollar of their money they invested,they borrowed $25. This made them extremely susceptible to a downturn in the market, even a small one. This happened in 1998 and the firm went under in just a few months.
Buffetts point was that all of the company leaders were already extremely wealthy and had spent decades building reputations. So, the incremental benefit of growing richer was small compared with the risk of losing everything, which they ultimately did.
Utilizing a decision tree does not require a PhD. All thats needed is a basic understanding of probability. Heres a step-by-step process you can follow to use the principles in your decision making:
Understand the different outcomes that could happen (both positive and negative)
Calculate the expected return or loss of each outcome:
Understanding the magnitude of the return or loss
Multiple the probability by the magnitude (probability of winning * value of win) (probability of losing * cost of the loss)
Add up and subtract all of the expected returns and losses
To get started you dont need to know the exact probabilities. Just following the process will give you unique insights you wouldnt have had otherwise (i.e., the power of unlikely big bets and the risk of Russian roulette decisions).
For a step-by-step guide on how to create decision trees,visit this page. It is an online companion to an economics textbook.
Special thanks toRachel Zohn,Sheena Lindahl,Emily Shapiro,Austin Epperson, andIan Chewwho volunteered their time to edit this article and do research. Also thank you toJessica Newfield,Antonia Donato,Amber Tucker, andEduardo Litonjuafor reviewing the article and providing insightful feedback.
Disclosure: Some of the contributors featured in this article are members ofSeminal, a selective council that distills research-backed, actionable insights from world-class entrepreneurs and leaders.
This article was written with love and care using theblockbuster mental model.
I teach people to learn HOW to learn / Serial entrepreneur / Bestselling author / Contributor: Time, Fortune, and Harvard Business Review
For people who want to find time to learn, learn better, and use their knowledge to boost their income.
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