We have all heard of Warren Buffett. His name is synonymous with wealth and prosperity. He's the quintessential stock investor and at the time of writing this article the 4th wealthiest man on the planet.
Studying Warren Buffett's investing techniques you'll quickly realize that he's achieved success not by luck but by dogged dedication to the practical evaluation of companies. It sounds kind of boring, I know, but these evaluation techniques are unbelievably simple and can be applied to selecting online marketing service providers and channels for your business.
How does he do it?
Warren Buffett is an expert in financial evaluation. He uses "Four Pillars of Investing" to determine which companies he should or should not buy. All of the four pillars must be met, if they aren't Buffett doesn't invest.
The four pillars:
- A stock must be managed by vigilant leaders
- A stock must have long term prospects
- A stock must be stable and understandable
- A stock must be undervalued
Sounds pretty easy, right? That's because on the face of it, stock evaluation is simply about assessing a company's current value and forecasting what that stock may be worth in the future.
The same is true in online marketing. As a business owner or marketer your role is to understand the risk involved in one form of online marketing compared with another; evaluate the long term prospect of a marketing channel/service; evaluate the potential stability of a channel/service and understand the price to value you're receiving for a particular channel/service.
Let's look at each pillar individually.
A stock must be managed by vigilant leaders
Online marketing services must be provided by experienced professionals
When Warren Buffett acquires a business he does so with the intention of leaving existing management in place or at least filling the management roles with vigilant leaders. In the business world vigilant leaders are ones who manage debt and reinvest capital efficiently.
When selecting an online marketing service provider you must go through the same process. Here are a few things to consider:
- Does the firm you've hired specialize in your industry/niche?
- Do they have positive reviews from companies similar to your own?
- Are they recognized as as industry leader by their peers?
- Do they use the services they sell to market their business?
- Are your marketing dollars being invested things that make you money?
A stock must have long-term prospects
An online marketing channel must have long-term prospects
Remember Myspace? The social media darling sold in 2005 to News Corp. for $580 million. only 7 years later, in 2012, it was sold to a group of investors for a piddly (relatively speaking, of course) $35 million. Ouch!
Like a stock investor, a business owner must evaluate the long term prospects of one form of marketing over another. Will Facebook be around in 5-10 years? What about Search Engines? Or email newsletters? These are important questions to ask and attempt to answer.
To gain clarity, my advice is to follow another tenant of Warren Buffett's investment playbook.Identify companies with a high margin of safety. Basically, Buffett believes in finding companies that are unlikely to default on their debt. I suggest finding online marketing techniques that are unlikely to decrease in value over time.
Your website for example is one form of online marketing that you can increase in value over time. Creating useful resources, articles, videos and infographics make your website more useful and valuable. It increases the amount of people who visit your website and their perception of your company.
In my opinion websites will still be around 10 years in the future, however, the landscape for search engines and social media will likely be much different. What do you believe the world will look like in ten years?
A stock must be stable and understandable
An online marketing channel must be stable and understandable
This pillar is easy to understand but difficult to apply. Warren Buffett does not invest in companies he doesn't understand. For example he has historically avoided technology stocks like the plague, preferring to invest in businesses like Coca Cola, Geico, and General Electric. These organizations he could understand and better yet their earnings are predictable.
This creates a paradox because no person would describe online marketing as stable or understandable. You'd be hard pressed to find another industry that changes as frequently or is as volatile as the online marketing industry. In fact one of the adages of online marketing is...
"The only thing that stays the same, is that nothing stays the same."
So, what can a business owner take away from this pillar of investing?
I think it's best to start with the cold hard facts; the web has revolutionized the way people communicate and share information. It is unlikely that the stability of the web is in any real danger. It is likely to continue to see an increase in mobile usage and applications - a trend that has been growing at an astonishing rate. However, in my opinion the web for the foreseeable future will be alive and well.
The risk, therefore, is in the type of services you choose to invest in. A few things I'd recommend you keep in mind:
- Invest in platforms that you own such as your website, forum, newsletter list and blog.
- Create communities that aren't dependent on one specific platform.
- If you don't understand a service don't invest in it. No excuses!
- If something sounds too good to be true it likely is.
- Never put all of your eggs in one basket, diversify your online marketing.
A stock must be undervalued
An online marketing service/channel must provide value for price
This concept is likely the most important of all four investment pillars - a stock must be undervalued. A business may be outstanding, have long term prospects and be managed by diligent leaders but if it's overpriced an investor is unlikely to make any money.
The same is true for business owners. You MUST know the value of the services you are purchasing! Some agencies charge $50,000 for a website, others charge $500. As a business owner it is your job to understand what you are purchasing, and the value of your purchase. As Warren Buffett said, "risk comes from not knowing what you’re doing."
My advice is to do your homework, research companies online, ask questions in forums and shop around.
Today, business owners can receive online marketing services at a fraction of the cost. Take template websites for example, these websites are skillfully designed, professionally programmed and can be purchased for $25 - $50. Fully customized with your business's branding, imagery and content you should have to pay more than a couple grand. This reduces the price of a website by a significant amount.
In stark contrast, purchasing Search Engine Optimization services for $100 a month is unlikely to generate any results for your business and in some cases can actually leave you in worse shape then when you started. Yikes!
Remember this final lesson from Warren Buffett: Price is what you pay, value is what you get.
Calin Yablonski
President - Inbound Interactive