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charlie munger inversion

Charlie Munger once said:

“All I want to know is where I’m going to die, so I’ll never go there.”

In the end, it was in Santa Barbara that Charlie died (in November 2023), so I guess there's a reason other than staying far away from anyone who shares their genetics with Prince Andrew to never go there.


Charlie Munger was arguably most famous for being the Vice Chairman of Berkshire Hathaway. He held some strong opinions (including one I share on the fact that crypto-bros aren't actually participating in a bold investment strategy so much as visiting a virtual and unrestrained casino with no intrinsic value that tears at the very threads of society).


He had a net worth of multiple billions of dollars, gave chunks of it away, and his investment strategies forever changed the face of business.


To me, he'll always be the guy who gave me a way to justify always worrying about the future.


charlie munger inversion

On a day-to-day basis, I'm essentially just a ball of anxiety masquerading as a human. According to good old Charlie, that's actually 'inversion' and excellent business sense. Don't question it, I need this.


Inspired by the work of 19th century mathematician Carl Gustav Jacob Jacobi (a man with as many names as inches of forehead), Charlie Munger's principle of inversion asks that no actions be taken in a Strategy until you've spent enough time looking at your plans backwards.


It's only by doing this, by inverting the proposed flow from Objective to Task and thinking about everything that could go wrong along the way, that you can uncover hidden beliefs and biases and avoid potential pitfalls.


What does Charlie Munger's Inversion look like in an early-stage company?


Instead of just focusing on what actions to take to get from your starting A to the B of innovation and success, you need to look at what could go wrong.


I often encourage startup Founders to use a simple SWOT analysis during their market-positioning phase. I'm never surprised by how much work goes into the Strengths and Opportunities versus the Weaknesses and Threats.


swot analysis


It makes sense, you need motivation and passion and excitement to build a business from scratch because that process is very, very hard. If you spend too much time thinking about the negatives, you might never start.


Maybe you shouldn't.


Countless hours of effort and pounds of investment are wasted every year in startups on stuff that should never have been started in the first place because it was never going to end the way it was planned to.


Charlie (and I) would have you avoid that from the off. Look at everything backwards and show yourself where each action leads and how it could all go wrong.


Here's an example:


I want to enter a new market. If I enter this new market, I can grow existing revenues whilst maintaining operational efficiency through economies inherent to considered scaling. Yay for me and my wise, wise idea.


In Inversion, instead of getting excited about my newly chubby profit margins, I should think about what could happen to stop me achieving my goals:


  1. Incumbents in the market double-down on their own positioning and leverage their existing local brand equity in a way that I'll never catch up to.

  2. Other companies in my geography are also planning their own market expansions and potential customers will be forced into analysis paralysis via too much choice.

  3. New regulations pop up (or some idiots vote to leave a lucrative single market because their egos are bigger than their brains) making it harder for international companies to operate.

  4. My current team have the audacity to not be working every single hour of every single day and we're forced to hire new teams.


All issues that would scupper your chances of merrily marching into a new market and emerging to the cheers of your cap table.


If you knew those pitfalls in advance, would you still make it your Strategy?


Inversion is a valuable tool for challenging assumptions, avoiding stupidity, and improving your understanding of complex problems. It's a crucial skill for entrepreneurs and business leaders.


In short, by considering what the opposite of what you desire looks like, you learn to see around corners and you mitigate a whole heap of potential risks and obstacles.


Oh, and don't buy crypto.


--


If you'd like to harness all my anxiety (and, to be fair to myself, my considerable expertise in Strategy design and implementation), why not give me a shout via the link below?





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