Wonderful is a specification, not a compliment

Buffett's line about buying a wonderful company at a fair price is read almost entirely by buyers. He wrote it in his 1989 letter to Berkshire Hathaway shareholders, under a heading about his own mistakes.

Read it from the other chair and it stops being a buying rule and becomes a build specification. It tells you what someone will one day pay a premium for, and it is not your negotiating skill.

The variable is the asset, not the price

Notice what he does not say. He does not say pay less. He says the quality of the asset outranks the discount on it. A fair company bought at a wonderful price is still a fair company on Monday morning, and now it belongs to you. He then notes that Charlie Munger understood this early and that he was a slow learner.

For anyone who might sell, that has an uncomfortable consequence. Price is negotiated in weeks. Quality is accumulated over years. By the time a buyer is in your data room, the variable still moving is the smaller one.

The line is not the whole story from this chair. Quality sets the ceiling; process and buyer selection decide whether you reach it. A rushed sale with one bidder at the table gets less than the business is worth, and some buyers pay for fit rather than quality. The weeks are not nothing. They are just not where the value was made.

What a buyer is actually paying for

Strip away the language of multiples and a buyer is asking one question: how much of this survives the day you leave? Most of what they scrutinise is a proxy for it.

• Earnings that repeat. Not last year's number, but the reason it happens again without a heroic quarter.
• Customers who can name why they stay. If the answer is your relationship, you have a book, not a business.
• Decisions made below you. A management layer that settles things you never hear about is worth more than an org chart that lists one.
• Numbers that reconcile. An unexplained variance in diligence tends to get repriced as risk, and risk comes out of your side of the table.
• Ownership that is clean. Leases, contracts, trademarks and domains in the company's name, not in yours or a friend's.

Little of that can be assembled in the months before a sale, and a tidy-up tends to show in the file dates.

What running the assets taught me

I have owned and operated serviced apartments and a venue, with full profit and loss responsibility. In accommodation you cannot tell yourself a story for long. Occupancy and rate report back every week, with no interest in what you believe about the brand.

I have also chaired the board of an ASX-listed company, run the search for a chief executive and taken it through to a relisting. The work that consumed the time was unglamorous: getting the right operator in the chair, and reporting the market could actually follow.

I made my first million at 28 and lost all of it at 40. Over eighteen years I have built and sold five businesses. What I would tell that version of me: he was optimising the price of things, not the quality.

Long-term thinking is deferred pricing

Every decision that makes a company wonderful looks expensive in the year you make it. Hiring ahead of the need. Letting go of a customer who consumes the team. Handing over the part of the business you personally enjoy most. Each one takes something off this year's profit and puts it into what the whole thing is worth.

That is the trade. The decisions that make a company easier to own are the ones a buyer looks for. Nothing is guaranteed either way, but the two are not in conflict, which is rare.

Start with one page this week

Print last month's profit and loss. Against every revenue line write one word: mine or theirs. Mine means the revenue is there because of you personally — your relationship, your name on the quote, your judgement in the room. Theirs means it holds without you.

The size of the mine column is the argument a buyer is most likely to reach for, and it is the number that takes years rather than weeks to move. Take the largest line in it and give it away this month. Name the person, tell the customer, and stay out of the next conversation.