Only In Fairy Tales Are Emperors Told They Are Naked
And other lessons in Strategy from Charlie Munger
Summary
Lessons in strategy (adapted) from Charlie Munger:
Go for great
Passion > Brainpower
Keep it simple
Find your edge
There is no formula
Build Planck knowledge, not Chauffeur knowledge
Only in fairy tales are emperors told they are naked
A voracious learner, “ferociously” intelligent (even at 99). The folksy billionaire next door. He (most deservedly) received immense admiration, adulation in life and now posthumously.
Stories, a sharp wit were his preferred methods of disseminating his ideas and teachings on identifying “wonderful businesses” / investments.
This essay is my tribute to Charlie Munger.
Rich in insights, I have adapted some of his parables and quotes to strategy. Whatever your domain (business, product, project, marketing, technology, etc.), my hope is this enables you to conceive “wonderful strategies”.
Go for Great
“I didn’t get to where I am by going after mediocre opportunities.”
— Charlie
Great people are rare. Great businesses are rare. Great products are rare.
Great strategy is rare.
Going for great is really hard.
But it makes life easier. Charlie believed problems (in business or life) are inescapable but being great acts as a deterrent because great people and businesses throw fewer problems.
Going for great isn’t necessarily shooting for moonshots or the grandiose.
Going for great starts with intention, and is fueled by passion, devotion.
As a strategist, it is a firm refusal to play at surface level. It is a refusal to accept the status quo or follow the herd (peer companies) as the default option. It is a deep curiosity to know the truth. To truly understand what is really going on — the real problem, the dynamics of a situation (challenge or opportunity) facing the strategist. To have the confidence and clarity to reject mediocre. To not settle. To have the patience to wait (when needed) for the right opportunity, and the ferocity to act/pounce (when needed) as it presents itself.
Passion
“I would argue that passion is more important than brainpower.”
— Charlie
Enough said.
Simplicity
“We have a passion for keeping things simple.”
— Charlie
Great strategy is seldom complex.
If you need complex models or spreadsheets to justify your strategy, you probably don’t really understand the problem you’re solving.
Situations can be complex. A business’s ecosystem, with its intricate (but poorly defined) web of partners, customers, competitors, industry and company dynamics can be very complex.
It is the strategist’s job to figure out what is really going on. To cut through the complexity and propose a simpler model of the world that identifies what is most important, what can be ignored (for now) without sacrificing the truth.
You don’t want to shy away from the chaos and complexity. But you do want to birth simplicity out of it.
This demands a confluence of creativity, problem solving, intelligence, common sense and keen investigative skills + insatiable curiosity.
You don’t shortcut this.
This is how you get passionately simple.
Edge
“I want to think about things where I have an advantage over others. I don’t want to play a game where people have an advantage over me. I don’t play in a game where other people are wise and I am stupid. I look for a game where I am wise, and they are stupid. And believe me, it works better. God bless our stupid competitors. They make us rich.”
— Charlie
I don’t think this is a mystery to most.
However, it is not understood well. I’ve seen (been guilty of it too) so much wasted effort in trying to force or hack an edge, differentiation.
A true edge isn’t just feature differentiation or doing things differently.
A true edge is not a hack.
A true edge is an unfair advantage. A true edge is deep. A true edge is rare.
This is why moats like brand, network effects, economies of scale (when they really exist) are so powerful.
Your business or product may not have a true edge (yet). The strategist needs to recognize this simple truth and not delude themselves. But they also need to be constantly seeking, analyzing spaces (markets) and opportunities to carve one. This can take time. It requires active patience to manifest (in addition to everything else discussed above).
No Formula
“I can’t give you a formulaic approach, because I don’t use one. If you want a formula, you should go back to graduate school. They’ll give you lots of formulas that won’t work.”
— Charlie
The above was Charlie’s response to a question on how to value a business.
Similarly, great strategy is not formulaic. Just like valuing a stock/business, you do need your fundamentals, your ABCs. This is your moats, competitive analyses, Porter, blue oceans, TAMs, SWOTs, analogous patterns/situations, etc. They can help, they have a place but they’re not going to automatically lead to great (and not always applicable to every situation).
Developing great strategy is like writing beautiful poetry. It’s a creative act. It’s dynamic. It combines art, science, beauty and intelligence.
No formula can capture this.
Planck vs. Chauffeur Knowledge
“I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving the same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine. [What if] I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?”
And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, “Well I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply”.
In this world we have two kinds of knowledge. One is Planck knowledge, the people who really know. They’ve paid the dues, they have the aptitude. And then we’ve got chauffeur knowledge. They’ve learned the talk. They may have a big head of hair, they may have fine temper in the voice, they’ll make a hell of an impression.”
— Charlie
There is an overwhelming amount of chauffeur knowledge in strategy. Because it is so grey, hard to pin down, hard to measure, easy to fake.
(Another reason why great businesses and strategies are so rare).
Do the work, be the exception, build Planck knowledge.
Surrender
“Only in fairy tales are emperors told they are naked.”
— Charlie
Strategy is a tough discipline. A constant wrangling with uncertainty.
No one to grade your homework. No one to tell you you’re dead wrong (some may disagree). No one to tell you you’re right on (some may agree).
Because no one really knows.
No formulas, especially if you are going for great. Only your intelligence, creativity to rely on to analyze, discern and forge a higher path ahead.
No way to really know if you’re walking (or running) naked in the wrong direction. At least not until your strategy meets reality and the market.
It is important to recognize this is a game of probabilities with a lot out of your control.
All you can control is your input. Passionately do the work. Go for great. Seek truth and simplicity. Fanatically identify your edge.
And surrender the output to the Strategy Gods.
RIP legend.
Fin.
I manage Artsgy, a strategy consultancy built on ideas like the above.
New to Insanely Great Strategy? Subscribe below, or read more novel and weird ideas in Product/Strategy.