David Gardner: Quote No. 3 this week. This one comes from a much better investor than
the last quote, and that's because it's from Warren Buffett. And Warren Buffett has many
great quotes. In fact, I think maybe my next Great Quotes -- whenever we do Vol. 3 some
months hence -- I think I'm going to go all Buffett all the time for that one because
I have lots of great Buffett quotes. And I have to confess that I'm not even a
big Warren Buffett disciple. As I've mentioned before, for those of you who know me over
the long term, I've actually never read a full book about Buffett. I've seen stuff from
him. I've seen him speak. I've read some of his annual reports. I admire him a lot. But
I've never really taken in the man. So I'm not a big Buffett disciple, even though
I deeply admire him and I'm very much looking forward to my all Buffett all the time Great
Quotes, Vol. 3. Consider this one just a preview. And it's his three I's. I can't call it a
direct quote, because it's more a summary of his thinking and I'm pulling this particular
passage from a Harvard Business Review, which is looking at Buffett. So this is the three
I's of every business cycle. The three I's of every business cycle.
First come the innovators, who see opportunities that others don't. Second come the imitators,
who copy what the innovators have done. And then finally, third, come the idiots whose
avarice undoes the very innovations they are trying to use to get rich. Again, quoting
Buffett not perfectly, but spiritually perfectly, and what a great and powerful thought this
is. On October 14 of 2015 last year, I did What
is the Hype Cycle? for that week's podcast. You can go back and listen to it. And it really
summarizes Gartner's framework of how things get hyped. And it's not always bad, by the
way. Hype doesn't need to be a completely negatively connoted word, but for the most
part what you're seeing from Buffett, here, is the hype cycle in miniature.
That is we lead with the innovators. I call these the rule breakers. These are the visionaries.
They're the ones we've talked about a lot from week to week. These are the companies
that are admired because they're driven by people with a vision, and as Buffett, in the
quote I just read you, says: They see opportunities that others don't.
Second -- and this happens all the time in business -- come the imitators. We were told
throughout our school days not to look at Johnny's or Sally's paper. That's cheating.
You can't do that. You need to do your own work.
And a lot of us, raised on that pure ideal, emerged from college -- at least I did -- and
quickly got grossed out by the simple, sheer amount of copying going on in the business
world. Everyone's looking at Johnny's paper, or everyone's looking at Sally's paper, especially
if Johnny or Sally is a visionary and trying or doing something new.
Some people will pooh-pooh it and say: We're not even going to go in that direction. Johnny
or Sally is crazy, but increasing numbers of people, especially these days, are more
open to innovation and tend to just see whatever's working and try that on their website, too.
The amount of copying and pasting, and the amount of big data driving the same kinds
of decisions across different groups of people has led to a ton of what, in some cases, we
could call collaboration and in other cases we could call sheer copycatting that's happening
all the time in the business world. And by the way, that can either work or not.
There's no guarantee when you copy that it will actually work, but if you found a best
practice and it starts to work for you, too, then maybe, indeed, not just you but others
are being leveled up, in video game terms, by that innovator who came out first and did
it and the rest of us are just copying. So thus much for the cycle. Things feel pretty
good. It's when the -- in Buffett's words-- idiots show up that things get problematic.
Usually at the point you've got DrKoop.com. It's also going to be on the internet back
in the dot-com days providing health advice. There are lots of questionable, rinky-dink
companies that show up coming after -- note, please -- coming after the imitators that,
at this point, a lot of the good venture capital is already gone, but everyone's doing it.
It feels great. And so whether it's the Internet boom of the
late 1990s, or maybe 3D printing stocks in the last few years, or the Internet of Things
… these are all important trends, but at a certain point what could happen -- go back
and listen to the hype cycle podcast again -- is it becomes not the smart-money bet to
keep copying. Valuations are too high. There's not enough capital out.
And, as will usually happen, as Gartner has taught us, these technologies will disappoint
in the near term. The expectations are so inflated around them -- at even early stages
of them -- that it becomes impossible for them to deliver on that and then everything
caves in and we can look back and realize who the true innovator was, who the imitator
was, and, in Buffett's line, who the idiots were.
I think that this is a really fun and good quote, and I really like that Warren put it
out there. I hope that's a good and useful framework for you with maybe a healthy dose
of a little cynicism thrown in.