He doesn’t diversify.
And he refuses to “hedge his bets.”
You’ll note Berkshire Hathaway’s holdings are in fewer than three dozen companies, spread over a very few industries.
Although I’ve never spoken to Mr. Buffet, I have read several analyses of his investment strategies. I’m told he doesn’t worry about diversification, because he heavily researches each investment. Hedging his bets by spreading the risk between additional companies would actually increase his risk, by forcing him to select companies less likely to succeed.
Isn’t there an advertising investment parallel here?
Why, yes. Yes, there is.
Spreading the budget between as many opportunities as you can afford insures that the best you’ll ever get is average.
The likelihood is you won’t even make it to average.
I found a story to illustrate the concept in a book by Anthony Putman called Marketing Your Services. He tells of a farmer whose crops were drying out from lack of rain.
The farmer started digging a well. He dug to 50 feet, gave up and covered up the hole. The next day he chose another location and dug again. By the end of the day he’d again hit the 50 foot mark, gave up, and filled in the hole.
This continued for 17 days before he admitted defeat and sold the farm.
The new buyer dug a well to 50 feet, and stopped for the day. The following day he returned to the same hole, and dug to 80 feet before stopping. On the third day, at 85 feet, he struck water. The water filled the well. That well provided all of the water the crops needed.
Spending dollars on Google’s AdWords, a few banner ads, on search engine optimization, a small schedule in the newspaper, and a few bucks on a couple of radio stations, and the six o’clock TV news is rather similar to digging new wells, isn’t it?
If any of the media you’re dabbling in might have actually delivered, you’ve already cut off the funding at 50 feet in order to finance a different attempt to reach people.
You can’t afford to keep digging dry wells.
You only need one good source of water, or customers, so long as it’s tapped into an unlimited supply.
So, back to Warren Buffet, who consistently digs deep enough to find water each time he digs. But then, he does the required homework. Its his full-time job. He hires managers to run the companies he buys.
You probably don’t have the resources to hire managers to run your company.
Could you find someone to research and allocate your advertising investments, while you’re fishing for customers?
Got questions about allocating marketing budgets? Interestingly, Chuck is well informed on that topic. Drop him a note at ChuckMcKay@ChuckMcKayOnLine.com. Or call him at 317-2073-0028.