June 21, 2024 • 1hr 6min

TIP639: Buffett's Favorite Business Book w/ David Fagan

We Study Billionaires - The Investor’s Podcast Network

In this episode, host Clay Finck is joined by David Fagan to discuss Don Keough's book "The Ten Commandments of Business Failure." Don Keough was the former President and COO of Coca-Cola, where he helped grow the company's market value from $4 billion in 1981 to $145 billion in 1997. David Fagan is the managing partner at MBF Chartered Professional Accountants and an active member of the TIP Mastermind Community. Given his experience as an entrepreneur and business owner, David provides valuable insights on the lessons from Keough's book and how they apply to running a successful company.

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Key Takeaways

Never stop taking risks - Complacency and avoiding risks leads to failure. Successful businesses continually innovate and take calculated risks.
Be flexible and adaptable - Rigid thinking and inflexibility can cause companies to miss opportunities and fall behind competitors. Leaders need to be open to new ideas.
Don't assume infallibility - Recognize when you've made mistakes and be willing to change course. Listening to those closest to problems is crucial.
Trust and ethics are foundational - Building trust with customers, employees and stakeholders is essential for long-term business success.
Balance outside expertise with intuition - While outside consultants can provide value, leaders shouldn't ignore their own judgment and knowledge of the business.
Approach the future with optimism - Pessimism is paralyzing. An optimistic outlook enables businesses to innovate and grow despite challenges.

Introduction

In this episode, host Clay Finck is joined by David Fagan to discuss Don Keough's book "The Ten Commandments of Business Failure." Don Keough was the former President and COO of Coca-Cola, where he helped grow the company's market value from $4 billion in 1981 to $145 billion in 1997.

David Fagan is the managing partner at MBF Chartered Professional Accountants and an active member of the TIP Mastermind Community. Given his experience as an entrepreneur and business owner, David provides valuable insights on the lessons from Keough's book and how they apply to running a successful company.

Topics Discussed

Never Stop Taking Risks (5:17)

The first "commandment" discussed is the importance of continually taking calculated risks in business. Key points include:

Complacency leads to failure - Resting on past successes allows competitors to overtake you
Change requires energy - Pushing for innovation and improvement takes constant effort
Example of Xerox - They had a 5-year head start in personal computers but ignored it due to complacency
Quote from Don Keough: "How many tombstones would have read, 'Here lies a company that died risk-free?'"

David shares how his accounting firm has had to continually adapt and take risks with new technologies to avoid becoming obsolete. Clay discusses how The Investor's Podcast Network approaches risk-taking and innovation to stay competitive in the rapidly changing podcast industry.

Be Flexible and Adaptable (18:37)

The next topic covers the dangers of inflexibility and rigid thinking in business. Key points:

Inflexibility is a "crippling disease" that prevents companies from adapting
Example of Henry Ford - His inflexibility on only offering black cars allowed competitors to gain market share
Balance is key - Some consistency is good, but leaders must remain open to change
Surround yourself with diverse perspectives, not just "yes men"

David emphasizes the importance of building flexibility into company culture and systems. He notes that in the accounting industry, they often have to adapt quickly to new tax laws and regulations.

Don't Assume Infallibility (20:53)

This section discusses the dangers of leaders assuming they are always right and ignoring mistakes. Key points:

Example of Coca-Cola in Belgium - Management initially dismissed concerns about product safety, damaging their reputation
Listen to those closest to problems - They often have valuable insights
Quote from Don Keough: "A desk is a dangerous place from which to view the world."
Recognize and learn from mistakes - The best investors are only right 60-70% of the time

Clay notes how Warren Buffett exemplifies this principle by openly discussing his mistakes in shareholder letters. David shares how his firm has had to let go of difficult clients at times, recognizing when values don't align.

Trust is the Foundation of Business (24:24)

This section covers the critical importance of trust and ethics in business. Key points:

Quote from Don Keough: "Trust was then and is now the essential foundation of any business."
Warren Buffett's "newspaper test" for ethical decision-making
Short-term vs. long-term thinking - Unethical choices may provide short-term gains but damage long-term trust
Authenticity builds trust - Being genuine attracts the right customers/audience

Clay discusses how The Investor's Podcast Network focuses on building trust with listeners by maintaining high standards for guest selection, even if it means lower short-term downloads. David emphasizes how honesty simplifies business dealings in the long run.

Balancing Outside Expertise with Intuition (35:19)

This section explores the pros and cons of relying on outside consultants and experts. Key points:

Don't over-rely on external advice at the expense of your own judgment
Example of "New Coke" failure - Coca-Cola ignored internal doubts and relied too heavily on taste test data
Quote from Don Keough: "Management is a craft, not a science."
Balance quantitative data with qualitative insights

David shares his perspective as a consultant, noting that while outside advice can be valuable, no one knows a business better than its leaders. Clay discusses how The Investor's Podcast Network balances data-driven decisions with intuition.

Approach the Future with Optimism (39:38)

The final section covers the importance of maintaining an optimistic outlook. Key points:

Quote from Don Keough: "If you want to fail, be afraid of the future. If you want to succeed, approach the future with optimism and passion."
Pessimism can be paralyzing, preventing action and innovation
Media often focuses on fear-mongering - Be aware of this bias
Long-term progress of society - Despite challenges, quality of life has dramatically improved over time

David shares how taking an optimistic leap into entrepreneurship allowed him to build his successful firm. Clay discusses how maintaining optimism is crucial for long-term investing success, citing examples like John Templeton.

Conclusion

Don Keough's "Ten Commandments of Business Failure" provides timeless wisdom for business leaders and investors. By avoiding complacency, remaining flexible, recognizing mistakes, building trust, balancing expertise with intuition, and maintaining optimism, companies can position themselves for long-term success in a rapidly changing world.

The discussion between Clay and David highlights how these principles apply across industries and company sizes. Whether running a global corporation like Coca-Cola or a small accounting firm, the fundamentals of good business remain consistent.

The episode concludes with David sharing his positive experience as a member of the TIP Mastermind Community, emphasizing the value of continuous learning and connecting with like-minded investors. Clay provides an overview of upcoming community events and the benefits of joining for those interested in deepening their investing knowledge and network.