O'Reilly logo

Building a Small Business That Warren Buffett Would Love by Adam Brownlee

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 7

Keeping Up with the Joneses

In building a business that Warren Buffett would love it is imperative to build one that has the ability to increase prices with inflation and pay off fixed debt with cheaper dollars. Why? A business that can keep up with inflation while maintaining or buying back shares will increase its earnings per share; a business with 1 million shares outstanding and $1 million in earnings will increase its earnings per share from $1 to $1.40 if earnings increase to $1.4 million due to an increase in prices as a result of keeping up with inflation.

This is the opposite of businesses that are price competitive and must maintain a competitive edge through flat and/or gutted out, discounted pricing (think automotive, steel, aluminum).

Hamburgers, Cokes, and Animated Mice … Oh My!

Let us examine the pricing inflation of three token consumer monopolies, businesses that at one time or another Warren Buffet has been in love with: McDonald’s, Coke, and Disney. See Table 7.1.

Table 7.1 Price Inflation

c07t1482lzi

In 1955 a McDonald’s hamburger cost 15 cents. In 2011 the same flapjack of greasy goodness cost 95 cents. A Coke in 1950 cost a nickel and in 2011 the same bottle of liquid sweetness (sans the cocaine) cost approximately $1.00, depending on location. Believe it or not, a ticket to Disney World cost $3.50 in 1971 and $80 in 2010.1 At one point in history you could have ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required