How do you build a $2 trillion company? In a 1996 speech, late billionaire Charlie Munger provided a 150-year plan to turn $2 million into a $2 trillion business. Munger said he “attempted to demonstrate large, correctable, and important cognitive failures in US academia and business.” He also provided a roadmap to build valuable brands.
Lesson 1: Decide the No-Brainer Questions First
Elon Musk uses “first principles thinking” to solve problems. Munger calls this process “deciding big no-brainer questions first”.
You can’t build a large-scale successful company with a generic product. You require a differentiated product under a unique brand, legally protected by a strong trademark.
You can’t settle for a small market; your product needs mass appeal. Many brands achieve early success with unique, niche products only to stagnate as they face their markets’ limits.
Lesson 2: Provide Immediate Reward
Two and a half years ago, we picked up Rex, a Bernedoodle puppy. While sleep-deprived, between thoughts of “What have we done?!”, we taught Rex tricks. We’d ask for his paw to shake, then reward him with a treat. Over and over again, we reinforced behaviors.
Like Rex, we repeat what gets rewarded. We help strangers, drink coffee, eat donuts, consume alcohol, have sex, smoke, and gamble because those actions make us feel good, at least temporarily. This is operant conditioning.
In Munger’s fictional business–modeled after The Coca-Cola Company–he designs the product to include as many operant conditioning rewards as feasible, including food value (in calories); flavor, texture, and aroma; stimulation via caffeine and sugar; and a cooling effect from serving it cold, all to “maximize human pleasure”.
Apple designs its packaging to provide a pleasurable experience for buyers. The iPhone box glides when opened. Such small details reward behavior–buying iPhones–leading to more sales.
Lesson 3: Associate the Brand With What People Love
Munger also advises applying classical conditioning, also called Pavlovian conditioning, to grow a business. Russian scientist, Ivan Pavlov, conditioned dogs to associate a neutral stimulus, a bell, with that which they desire, food.
Great brands condition people to associate the brand with that which people love and admire. Nike, the world’s largest athletic apparel company, spends $4 billion per year on advertising, athlete endorsements, and brand events to associate its brand and products–made from the same cotton and leather as its competitors–with athletic prowess. Nike becomes the vehicle through which millions of people express admiration for and fulfill their desire to be more like their favorite athletes.
Coca-Cola spends $5 billion per year on advertising to associate its brand with sports, baby animals (polar bears), family, altruism, and Christmas. In 2014, Coke released a commercial featuring groups of young soccer fans from poor towns across the world. In the video, a uniformed man approaches a group of soccer players on a run down field. He lets them know they’re going to the World Cup, courtesy of The Coca-Cola Company. You then see one of the kids on a soccer field in a huge stadium, smiling and pointing to the sky. Through such advertising, Coke associates itself with positive feelings for millions of people.
Lesson 4: Be Everywhere
Your product must also be available where people want to buy. “Make it a permanent obsession in our company that our beverage, as fast as practicable, will at all times be available everywhere throughout the world,” advises Munger.
In the first 18 months of growing our company, Lifeboost Coffee, we sold only on our own website. But, we saw that people searched for our brand on Amazon. Many of those customers, unable to buy our product where they wanted to buy, bought products from competitors. We launched on Amazon in 2020; today that channel produces one-third of our sales.
To be everywhere, offer your product in every form customers desire. For coffee, desired forms include whole beans, pre-ground, Keurig pods, Nespresso pods, instant, and ready-to-drink. For your business, customers may want large packs, small packs, and travel packs. For an apparel business, various colors, sizes, and seasonal versions.
Brands more often fail because they create too many different products for different groups of customers than because they create too many variations of their top-selling products. A friend, Aaron Cordovez, has the top-selling milk frother on Amazon. He stays ahead, in part, because he offers over 50 variations of his product.
Lesson 5: Harness Lollapalooza Effects
Munger often used a term I’ve heard nowhere else in business: lollapalooza. Webster Dictionary’s definition of lollapalooza is “one that is extraordinarily impressive”. However, Munger used it to describe the combinative effects of multiple factors acting together. He advised using as many of the effects as possible to create an extraordinary result–a $2 trillion company.
Use the following as a checklist of strategies to combine, simultaneously if possible, to build an empire:
- Make your product available in every location customers shop
- Make your product available in every form customers desire
- Associate your brand with that which people love and admire
- Spend heavily on advertising to reinforce positive associations
- Make your product enjoyable and rewarding to use in as many ways as possible
- Elevate the look of your product–Coke is artificially colored
- Differentiate your product
- Be fanatic about product quality
- Legally protect–and defend–your brand’s trademark
Combine all these effects over a period of many years; build a widely recognized, admired, and highly valuable brand, even if you sell sugar and carbonated water.
Leave a Reply