For investors, there’s a captivating magic to understanding how titans of business build their empires. While Warren Buffett and Elon Musk may appear as polar opposites on the risk-taking scale, they share a key commonality: a mastery of leveraging bottlenecks and toll roads in the business world. Here’s a deep dive into their modus operandi that could change how you invest and build businesses.
The Buffett Philosophy: Building Unregulated Toll Roads
The “Oracle of Omaha,” Warren Buffett, had a business acumen from a young age that most of us could only dream of. As a child, he saw the cars whizzing by and envisioned them as an untapped revenue stream. Essentially, Buffett loved the idea of owning the only bridge in town—where everyone would have to pay a toll.
He went from childhood dreams to reality by acquiring a significant stake in Detroit International Bridge Co., the only public company owning a toll bridge in the U.S. Buffett understands the power of owning resources or assets where you have the freedom to set your own rates, particularly in an inflationary world. The investment legend has often likened this to owning a monopoly—once you lay down the initial capital cost for the building, let’s say, a bridge, you don’t have to invest repeatedly. Inflation will work in your favor.
Buffett’s philosophy extends to investing in companies like Apple, which has a strong brand presence and pricing power. Through its App Store, Apple effectively acts as a toll collector on a global digital highway. It’s not just about the iPhones, iPads, or MacBooks; it’s about a robust ecosystem that requires minimal capital investment but promises recurring revenue.
Musk’s Mantra: Control the Bottlenecks, Control the Game
On the other end of the spectrum, you have the enigmatic Elon Musk, who’s known for taking astronomical risks. Unlike Buffett, Musk is not looking for stable, secure toll roads; he’s seeking out bottlenecks. These are key areas of friction or limitation in existing systems where control can yield disproportionate advantages.
Musk’s approach has made Tesla a case study in strategic planning. By investing heavily in battery technology, Musk aimed to control this key bottleneck in the electric vehicle (EV) market. As he perfected the batteries, the rest of the market had to play catch-up, giving Tesla an almost unfair edge. The same logic applies to his investment in EV charging networks to solve the long-distance travel conundrum.
And let’s not forget Neuralink. When someone highlighted that typing was a significant bottleneck in human progress, Musk’s one-word response was “Neuralink,” implying that his venture could potentially revolutionize how we input information.
Bridging the Gap Between Buffett and Musk
At a glance, Buffett and Musk seem to operate in different universes—one is the epitome of investment safety, and the other is a poster child for high-risk, high-reward ventures. But at their core, both are fascinated by the idea of controlling scarce resources and access routes.
Buffett finds his gold mines in businesses that dominate their markets with minimal capital input. Musk sees his in resolving the bottlenecks that stymie technological progress and competition. In both strategies, the underlying principle is the same: controlling valuable, limited resources can yield substantial profits and influence.
So, whether you’re an investor looking to diversify your portfolio or an entrepreneur planning your next venture, the business strategies of Buffett and Musk offer valuable insights. And remember, in the world of business, controlling the bridge or the bottleneck isn’t just about the tolls or solving problems; it’s about wielding the power that comes with it.