Tag: Warren Buffett

Three Underrated Reasons for Berkshire Hathaway’s Enormous Success

Berkshire Hathaway success

Berkshire Hathaway is widely regarded as one of the most successful companies in the world. If you look at Warren Buffett’s 49 year track record with Berkshire, it almost looks easy in hindsight. Make no mistake, however, it wasn’t easy and he certainly didn’t do it alone.

At this year’s annual meeting Buffett and his longtime business partner, Charlie Munger, revealed “the secret” to their success. But it’s not really a secret and, of course, extraordinary success is typically a combination of many things.

Here are three underrated factors that carried the bulk of the weight to creating Berkshire’s success. Oddly, I don’t think you’ll find them on any business school curriculum.

1. Trust

Charlie Munger on Trust

Buffett is famous for his hands-off management style. He lets the CEOs of the companies run their show; he only asks that they send him the money they can’t use.

Good people want to work with him and this is important because most of the people running Berkshire subsidiaries are already wealthy. They don’t have to come to work; they want to come to work. And that is a huge difference. The only time you can get away with a crappy bureaucracy and a culture of distrust is when people have to come to work.

Every now and then something happens at a Berkshire company that calls into question his near abdication of responsibility to a subsidiary. “If only he had been paying attention,” the critics chirp, “this wouldn’t have happened.” Those finger-waving critics are idiots. The alternative approaches are worse, not better.

There are many positives to the approach Buffett takes.

If Buffett closely managed each of his subsidiary CEOs to the point where most bosses manage their subordinates, they’d probably quit. If he sent out memos telling them all to use a new corporate HR system, they’d stop wanting to come to work. In fact Berkshire, a company with over 300,000 employees, has no HR department. If he peppered them with relentless emails from “headquarters” on some new policy, they’d … well how do you feel about all of this stuff?

With Berkshire, Buffett wanted to do things his way. He wanted to paint his own canvas. He didn’t want other people telling him to add a little more blue here and take away a little red there. Most people want to run their own show. And the best part? This system gets more out of people than micromanaging them.

Sure sometimes things go wrong, but for the most part the outcome is positively skewed. Things go wrong in other corporate cultures, they are not immune. When things go wrong in bureaucratic cultures, however, it’s nearly impossible to hold anyone accountable because no one is really responsible for anything. And it’s hard to hold people accountable when they are not responsible. It’s a seductive illusion to think that we can create a system where people can’t mess up. Buffett’s hands off approach makes it clear who is responsible for what. And this approach, not stock options,  creates a real ownership culture.

This system also frees up Buffett’s time. He doesn’t have to chase management details, read power-points, etc. He can sit and read and think — that means he does what he does best. And judging by the results, this has worked out well.

Hiring the right people and trusting them is incredibly underrated and yet nearly impossible to find in large established bureaucratic organizations. Yet as Buffett shows, it’s a much better approach. Trust is incredibly powerful.

2. (Quickly) Scramble Out of Your Mistakes

Warren Buffett on Mistakes

You know the old adage, when you find yourself in a hole the first thing to do is stop digging. That applies to business as well as life.

In the late 1960s Buffett acquired a department store, Hochschild-Kohn, through a company called Diversified Retailing, which later merged with Berkshire.

The people running the company were, in Buffett’s words, “first class.” Retailing, however, is a difficult industry, even with a first class management team. They were, in Buffett’s words, “running in quicksand.” Realizing this quickly after the ink dried on the contract, Berkshire “scrambled” out of it, selling Hochschild-Kohn as quickly as they could — 3 years.

Business schools don’t generally teach this either. What they teach and reinforce, in so many ways, is that you can be the hero. You can be the exception to the base rate.

But in life and business, you don’t need to be the hero. There are no points for difficulty, so as Munger alluded to, smart people will play where competition is weak.

You can have the best management team that money can buy and still fail big in retailing — a recent example being JC Penney.

Buffett learned quickly that, in his words, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

3. Remove Ignorance

Warren Buffett on See's Candies

Diversified Retailing also owned shares in a better business: Blue Chip Stamps, which provided supermarkets and other retailing outlets trading stamps to give their customers that could be exchanged for merchandise.

The contrast between running a good business and a poor one stuck with Munger and Buffett and they decided to pay up for a real quality business. On January 3, 1972 Blue Chip Stamps bought See’s Candies, a West Coast Manufacturer and retailer of boxed-chocolates. See’s is an extraordinary business.

As a great business, most people think that See’s main contribution to Berkshire was its overwhelming financial success. It wasn’t. According to Munger, See’s main contribution was “ignorance removal.”

“We were barely smart enough to buy it,“ he said. See’s taught them a powerful lesson, the value of strong brand names.

Without See’s they never would have purchased Coke shares in the 80s. And without Coke, Berkshire would be a lot less prosperous today as that investment has been one of their best.

“If there’s any secret we have, it’s ignorance removal. And the nice thing is we still have a lot of ignorance left to remove,” Munger said at the 2014 Shareholders meeting.

Removing ignorance is about continuously getting smarter. Avoiding stupidity is easier than seeking brilliance.

***

I don’t know why more people don’t copy these three underrated factors to Berkshire’s success.

To sum up:

1. Hire good people and trust them.
2. Quickly admit mistakes and scramble out of them.
3. Remove your ignorance by always learning.

This formula is simple but not easy.

Working Together: Why Great Partnerships Succeed

Why do partnerships work well? That’s the question Michael Eisner explores in Working Together: Why Great Partnerships Succeed.

Some of the most successful and accomplished people are really teams: Warren Buffett and Charlie Munger, Bill and Melinda Gates, Brian Grazer and Ron Howard (who’ve won multiple Academy Awards), Bernie Marcus and Arthur Blank (who started Home Depot), Joe Torre and Don Zimmer… the list could go on forever.

Partnerships (at least the successful ones) … encourage a series of characteristics—trust, teamwork, a regard for someone else, and continuing checks and balances.

Why is it that sometimes you can take two people, add them together and get a more successful result than either would have achieved working alone?

As I thought about (that question), I found myself wishing I was an artist rather than a weekend writer. Inspired perhaps by Marc Chagall, I would paint three canvases to make my point, all of a man riding a horse. The first would be a tiny man atop a giant horse, the second would be a giant man atop a tiny horse, and the third would be a man and a horse of equal sizes. In the first scenario, the horse would be too strong, and too uncontrollable for the man. The second would be equally unsuccessful, for a tiny horse can’t move with a giant man weighing him down. But the third match would be perfect, with the man and horse able to move successfully in concert. The man represents intellect, the horse represents emotion. Both need to be equally balanced for any leader to succeed.

You can’t do this stuff on your own. “Even Einstein,” says Charlie Munger, “wouldn’t have been successful if there weren’t other people he didn’t talk to all the time. Total isolation does not work. You need interaction, putting your own thoughts into expression; you learn things just from doing it.”

The best combination, (Eisner) learned, comes from partnership, when two people balance each other, constantly reminding the other of the need to keep the conscious and unconscious in harmony, to make each other smarter, make each other better.

One of the reasons that partnerships fail is that the spotlight accommodates one person a lot better than two. “But,” Eisner writes, “it takes real trust and understanding for both partners to be satisfied with that arrangement.”

Everyone was telling Michael Eisner that partnering with Michael Ovitz, the head of Creative Artists Agency “and the media-anointed most powerful man in the entertainment business” was a great idea. Buffett advised Eisner to pass on the partnership.

“Both of you want the spotlight,” I remember him saying bluntly. “Take Charlie and me: I want the spotlight, but he doesn’t. So it works. And Charlie has integrity, which further ensures that it works. You will be in conflict with Ovitz from day one, and you will never trust him. Don’t do it.”

(Eisner) did (the partnership). And Warren was right—the partnership lasted barely a year.

The key to good partnerships, says Warren Buffett, is trust.

They have complete trust, complete faith, and complete belief in each other. And that reverberates through every phone call they have, every deal they discuss, and every decision they make.

“You cannot keep score,” says Warren. “It just doesn’t work with the best of human relationships. It shouldn’t be even suppressed—it should be something that doesn’t even exist.”

And this bit was key for me. You can play the alpha-role in some parts of your life but you need to know your role in the partnership. Consider the Buffett-Munger partnership:

Munger is not the standard model for the kind of partner who prefers to lie low and fade into the background. Everywhere else in his life, Charlie Munger plays the alpha role—with his family, in board meetings for the variety of companies and charities with which he’s involved, with me when I visited him at his office. I usually don’t have trouble getting a word into a conversation. Talking to Charlie Munger is different—I did a lot more listening than talking.

“That’s one of the beauties of the partnership,” says Charlie. “I am in so many activities where I am the dominant personality. Most people do not ‘fit into’ that mode—they can only operate in that mode. Yet I am particularly willing to play the secondary role. Warren’s a more able man in doing what we’re doing, so it’s the appropriate response. There are some times you should be first, some times you should be second, and some times you should be third.

Partnerships also encourage humility. “It’s not letting ego or jealousy or your own personality take over,” Munger says. “Intelligence takes over.”

Working Together: Why Great Partnerships Succeed argues that the values of effective partnerships run counter to the factors “that contributed to the sequence of economic messes of the past ten years.” Now, then, is the perfect time to encourage partnerships “devoid of envy, jealousy, and rivalry as a way to escape from the toxic culture that has given the business world a bad name, and to instead help people chart a new, often overlooked path toward a better way of working.”

How Your Work Environment is Sapping You Dry (and How to Fix It)

When it comes to making decisions, your ability to think through problems is important. Consider this your raw mental horsepower. Most of us never tap into our available horsepower because we are hampered by one important and overlooked aspect: our environment.

The Modern Office is Terrible for Thinking

I first clued into this by studying Warren Buffett and Charlie Munger. Sure, they consistently make good decisions but they also share a few traits that enable them to get the most out of their mental horsepower. A big chunk of their ability to think through problems comes from how they structure their environment.

Most of us make decisions in an environment where it is very hard for us to behave rationally.

In fact, I’m hard-pressed to imagine an environment worse for rational decision making than that of the modern office worker.

You arrive at work and immediately start to answer the critical emails from your swelling inbox, telling yourself you’ll get to the low priority stuff later. The phone rings, it’s your boss wanting to know if you have time to chat on the 15-page proposal he was supposed to read for the meeting in 30 minutes. Having not read the proposal yourself, and not wanting to say “I haven’t read that,” you glance at the executive summary and, like anyone who’s learned to survive in an office, confidently act like you know what’s going on. Your opinion is superficial at best. You know this but rationalize that everyone else put the same 5-minute effort into it that you did, so you carry on. Getting back to your desk, you find 5 missed calls. You call the first person back and immediately realize that you’re late for your meeting and haven’t read any of the preparation material.

This isn’t an abnormal day. This is a reality for a lot of people in large organizations. From the moment we arrive until the moment we leave we’re pulled in all directions. The unwritten arrangement is that you have to do these things in order to justify your job. If you’re not pushing paper, firing up hundreds of emails, calling and attending meetings, and chasing something down … just what the heck are you doing to justify your salary. The environment is about politics and signaling, not about putting people in a position to succeed.

Now picture Warren Buffett sitting at his desk with his feet up reading. He has no computer in his office. He’s not distracted every few minutes by that little annoying ding that signals a new email has arrived. His day isn’t full of meetings. He doesn’t have an annoying boss that comes around and asks him for something tangible that’s he’s working on. He just reads and thinks. No wonder he’s so good at it.

He knows that it’s hard to say no to ideas by smart people. That’s part of the problem: It’s hard to think clearly for yourself when there is always someone in your ear. So he moved to Omaha from New York.

“In some places it’s easy to lose perspective. But I think it’s very easy to keep perspective in a place like Omaha,” Buffett says.

It’s very easy to think clearly here. You’re undisturbed by irrelevant factors and the noise generally of business investments. If you can’t think clearly in Omaha, you’re not going to think clearly anyplace.

Putting Buffett is a modern office is like giving Superman kryptonite. His superpowers would disappear. He wouldn’t be able to think and concentrate. Luckily, he intentionally set up his environment in a way that makes it easier to behave rationally.

The (Super) Power of Environment

We influence our environments but we forget they influence us too.

We like to believe that we are in charge, that our brains are only influenced by our conscious thoughts. That sounds amazing but it’s wrong.

Our conscious brain is much smaller than our subconscious brain. And yet when it comes to getting better at thinking and making decisions we place all the emphasis on the conscious brain, learning mental models and methods of thinking that improve outcomes.  In so doing we improve the raw horsepower of our brain. Yet, there is no point having a 400 horsepower engine if you can only get 25 horsepower out of it.

Designing an Effective Environment

There is no one environment that works for everyone. We all respond differently to different stimuli. A corner office on the 100th floor in New York might provide inspiration to some and distraction to others. What works for me might not work for you.

Here are three things I’ve found work for a lot of different people in a lot of different situations.

First, structure your day to maximize your energy. Most people do the tasks requiring the least amount of thought (answering emails, checking voicemails, catching up with people) in the morning when they are most productive. Meetings and decisions get pushed to the afternoon when our brains are not working as well. Switch your day around. Do the most important thing first.

Second, use chunks of time and be conscious when interrupting other people. Block chunks of time in your calendar for your own projects. I don’t mean like 20 minutes, I mean like hours. I have every morning blocked off from 9-12. It’s not easy to get into a state of flow but once you’re there, you’re focused on one thing. It could be thinking about a problem in a three dimensional way or refining a report that you’re writing for work. If you interrupt this time it’s expensive to get back to where you were, often taking 25 minutes or more to recover. Keep that in mind when you interrupt others.

Third, make effective behaviors easy. If there is chocolate in my office you can be sure I’ll eat it. That’s why I lock the good stuff in a safe. Literally. This makes it harder to get to and I eat less of it. OK, you probably want a better example than chocolate. Here’s one I used to use at work. On the first page of my notebook at the intelligence agency, I listed some general thinking tools that I could fall back on for tough decisions. This prompted me to think through problems in a structured way and saved me from more than one mess.

Your Environment Matters More Than You Think

We intuitively know that environment matters.

During my first-year calculus finals, there was construction next door. I couldn’t concentrate. I walked out of the exam wondering how much better I would have done if only I could have focused. When I got my grade back, I wasn’t surprised. I could have done better.

You don’t control everything in your environment but you control enough to make a huge difference. Think about what you control and how you can change it to get more horsepower out of your brain.

Understanding your Circle of Competence: How Warren Buffett Avoids Problems

(c)2018 Farnam Street Media Inc. May not be used  without permission.

Understanding your circle of competence helps you avoid problems, identify opportunities for improvement, and learn from others.

The concept of the Circle of Competence has been used over the years by Warren Buffett as a way to focus investors on only operating in areas they knew best. The bones of the concept appear in his 1996 Shareholder Letter:

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

Circle Of Competence

Circle of Competence is simple: Each of us, through experience or study, has built up useful knowledge on certain areas of the world. Some areas are understood by most of us, while some areas require a lot more specialty to evaluate.

For example, most of us have a basic understanding of the economics of a restaurant: You rent or buy space, spend money to outfit the place and then hire employees to seat, serve, cook, and clean. (And, if you don’t want to do it yourself, manage.)

From there it’s a matter of generating enough traffic and setting the appropriate prices to generate a profit on the food and drinks you serve—after all of your operating expenses have been paid. Though the cuisine, atmosphere, and price points will vary by restaurant, they all have to follow the same economic formula.

That basic knowledge, along with some understanding of accounting and a little bit of study, would enable one to evaluate and invest in any number of restaurants and restaurant chains; public or private. It’s not all that complicated.

However, can most of us say we understand the workings of a microchip company or a biotech drug company at the same level? Perhaps not.

“I’m no genius. I’m smart in spots—but I stay around those spots.”

— Tom Watson Sr., Founder of IBM

But as Buffett so eloquently put it, we do not necessarily need to understand these more esoteric areas to invest capital. Far more important is to honestly define what we do know and stick to those areas. Our circle of competence can be widened, but only slowly and over time. Mistakes are most often made when straying from this discipline.

Circle of Competence applies outside of investing.

Buffett describes the circle of competence of one of his business managers, a Russian immigrant with poor English who built the largest furniture store in Nebraska:

I couldn’t have given her $200 million worth of Berkshire Hathaway stock when I bought the business because she doesn’t understand stock. She understands cash. She understands furniture. She understands real estate. She doesn’t understand stocks, so she doesn’t have anything to do with them. If you deal with Mrs. B in what I would call her circle of competence… She is going to buy 5,000 end tables this afternoon (if the price is right). She is going to buy 20 different carpets in odd lots, and everything else like that [snaps fingers] because she understands carpet. She wouldn’t buy 100 shares of General Motors if it was at 50 cents a share.

It did not hurt Mrs. B to have such a narrow area of competence. In fact, one could argue the opposite. Her rigid devotion to that area allowed her to focus. Only with that focus could she have overcome her handicaps to achieve such extreme success.

In fact, Charlie Munger takes this concept outside of business altogether and into the realm of life in general. The essential question he sought to answer: Where should we devote our limited time in life, in order to achieve the most success? Charlie’s simple prescription:

You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.

If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.

So, the simple takeaway here is clear. If you want to improve your odds of success in life and business then define the perimeter of your circle of competence, and operate inside. Over time, work to expand that circle but never fool yourself about where it stands today, and never be afraid to say “I don’t know.”

Circle of Competence is part of the Farnam Street latticework of mental models.

Temperament is more important than IQ

Charlie Munger

During a recent interview Warren Buffett and Charlie Munger had some interesting comments on how to outsmart people who are smarter than you.

Munger: We’ve learned how to outsmart people who are clearly smarter [than we are.]

Buffett: Temperament is more important than IQ. You need reasonable intelligence, but you absolutely have to have the right temperament. Otherwise, something will snap you.

Munger: The other big secret is that we’re good at lifelong learning. Warren is better in his 70s and 80s, in many ways, than he was when he was younger. If you keep learning all the time, you have a wonderful advantage.

Buffett: And we have a wonderful group of friends, from whom we can learn a lot.

The Secrets of Happy Families

Bruce Feiler’s book — The Secrets of Happy Families: Improve Your Mornings, Rethink Family Dinner, Fight Smarter, Go Out and Play, and Much More — explores the hidden secrets of improving your family life.

Despite all of the recent research about individual happiness, a lot of life happiness comes from spending time with people you care about. In fact, it is the number one predictor of life satisfaction.

Simply put, happiness is other people, and the other people we hang around with most are our family. So how do we make sure we’re doing that effectively?

Adapt All the Time

Almost everyone feels completely overwhelmed by the pace and pressures of daily life, and that exhaustion is exacting an enormous toll on family well-being. Survey after survey shows that parents and children both list stress as their number one concern. This includes stress inside as well as outside the home. And if parents feel harried, it trickles down to their children. Studies have shown that parental stress weakens children’s brains, depletes their immune systems, and increases their risk of obesity, mental illness, diabetes, allergies, even tooth decay.

Kids wish their parents were less tired and stressed.

Jeff Sutherland implemented an agile approach at home.

“People think it’s natural to live in a world where everyone is dysfunctional. It’s not. It’s normal for people to be satisfied. All you have to do is remove the barriers that are making you unhappy and you’ll be a lot happier.”

That sounds like inversion and it turns out that acknowledging that things can go wrong and introduce a system to address those things works the same in business and at home. Hello, family meetings.

The centerpiece of the program is a weekly review session built on the principle of “inspect and adapt.”

Three questions get asked:

1. What things went well in our family this week?
2. What things could we improve in our family?
3. What things will you commit to working on this week?

This is a mechanism for communication.

“What works about the family meeting,” he said, “is that it’s a regularly scheduled time to draw attention to specific behaviors. If you don’t have a safe environment to discuss problems, any plan to improve your family will go nowhere.”

“The purpose of the meeting is not to talk about each of you as individuals. It’s to focus on how you’re functioning as a family.”

As well as talking about the things you want to focus on you need to talk about rewards and consequences too. Within limits, you need to let the kids decide.

Secrets-of-happy-families

Empowering children works.

A significant amount of recent brain research backs this up. Scientists at the University of California and elsewhere found that kids who plan their own time, set weekly goals, and evaluate their own work build up their prefrontal cortex and other parts of the brain that help them exert greater cognitive control over their lives. These so-called executive skills aid children with self-discipline, avoiding distractions, and weighing the pros and cons of their choices.

By picking their own punishments, children become more internally driven to avoid them. By choosing their own rewards, children become more intrinsically motivated to achieve them. Let your kids take a greater role in raising themselves.

One takeaway I got from agile is that whenever I see friends with checklists— chores, schedules, allowance— I ask whether the adults or the kids are doing the checking off. Invariably it’s the adults. The science suggests there’s a better way. To achieve maximum benefits, have the children do the scoring. They’ll develop a much finer sense of self-awareness. Even if this approach doesn’t work on every occasion, it’s about teaching your kids an approach to problem solving they can carry with them the rest of their lives.

Dinner Matters.
There is a right way to have family dinner: what you talk about matters as much as what you put in your mouth.

“When you start to look at the research, which is staggering,” Laurie David, the Oscar-winning producer of An Inconvenient Truth and the author of The Family Dinner, says “you realize all the things you worry about as a parent can be improved just by sitting down to regular dinners.”

A recent wave of research shows that children who eat dinner with their families are less likely to drink, smoke, do drugs, get pregnant, commit suicide, and develop eating disorders. Additional research found that children who enjoy family meals have larger vocabularies, better manners, healthier diets, and higher self-esteem. The most comprehensive survey done on this topic, a University of Michigan report that examined how American children spent their time between 1981 and 1997, discovered that the amount of time children spent eating meals at home was the single biggest predictor of better academic achievement and fewer behavioral problems. Mealtime was more influential than time spent in school, studying, attending religious services, or playing sports.

It’s not about the dinner, it’s about the people. Use meals to share family history.

The more children knew about their family’s history, the stronger their sense of control over their lives, the higher their self-esteem, and the more successfully they believed their families functioned. … (Marshall Duke) says that children who have the most balance and self-confidence in their lives do so because of what he and Robyn call a strong “intergenerational self.” They know they belong to something bigger than themselves.

More ideas? Try the 10-50-1 formula.

10. Aim for ten minutes of quality talk per meal. .. 50. Let your kids speak at least half the time. … 1. Teach your kids one new word every meal.

The Warren Buffett Guide to Setting an Allowance

1. Show them the money. (Byron) Trott (Buffett called him “the only banker I trust”) said most parents have an instinctive reluctance to be honest with their kids about money— how it’s made, lost, invested, and spent. He said that 80 percent of college students have never had a conversation with their parents about managing money. Trott advises his clients to fling open the doors to the vault.

“I tell my clients that forcing their kids to have financial literacy is one of the most important things they can do,” he said. He quoted statistics that say the more parents talk to their kids about debt, the less debt they rack up; the more they hear about savings, the more they sock away.

“What happens to a lot of families is they depend too much on osmosis,” he continued. “I sat down with one of the richest women in America recently and told her she had to talk openly with her children. She said she didn’t want to burden them with the truth, but burdening them with ignorance is really much worse.”

2. Take off the training wheels. “One of the biggest problems I see in families,” Trott said, “is a reluctance to let your kids make decisions for themselves.” As an example, he cited the story of Jack Taylor, the founder of Enterprise Rent-A-Car, who with a net worth in excess of $ 9 billion has been ranked as high as the eighteenth richest American. When his son turned thirty-two, Taylor handed him the company and never looked back. “Most parents meddle,” Trott said.

3. Accept their passions, any passions. Buffett is famous for not wanting to spoil his kids. Instead, after his wife gave each of their three kids $ 100 million, and the money didn’t ruin them, Buffett gave each one a $ 1 billion foundation. Trott was privy to that decision, and I asked what he thought of it. Does money inherently spoil children?

“I don’t think so,” he said. “I’ve seen too many really rich kids who are great people. In my experience, great people are great because they find their passion. For some that’s in business, but for others it’s in philanthropy. One of Warren’s sons is a farmer; another is a musician. Most families really don’t let their kids follow their passions. They assume the parents’ passion is the children’s passion, and usually it’s not. You should allow them to be outliers in their dreams.”

4. Put them to work. There’s a lot of vagueness in academic circles about children and money, but the research is clear that part-time jobs are great for kids. The Youth Development Survey in St. Paul, Minnesota, followed a number of children from ninth grade through their midthirties to determine whether childhood should be the sanctuary of play and learning or if work can be a productive part of it. The study found that those who work don’t lose interest in school and don’t cut back on family, extracurricular activities, or volunteering. They even become better at time management.

As the survey’s lead researcher, Jeylan Mortimer, observed: The more “planful” adolescents are about their future, the more successful and satisfied they are likely to be as adults. Trott agreed. “The most successful adults I know were all involved in business at a young age,” he said. “All of them. Warren believes it’s the secret to success. Your kid has to be involved in business. Warren thinks I’m successful because I had a lawn mowing business, a clothing store, all these different businesses as a kid, so I understood money, even though I never studied economics. What he thinks is necessary for someone to be successful in business is early exposure to business. So if you really want your daughters to understand money, have them open a lemonade stand.

Grandmothers Rock

Well, at least mine does.

Countless studies have shown the extraordinary benefits grandmothers have on contemporary families. A meta-analysis of sixty-six studies completed in 1992 found that mothers who have more support from grandmothers have less stress and more well-adjusted children. The more involved the grandmothers are, the more involved dads are, too.

Now you see why Hardly called grandmothers humanity’s “secret benefactors.”

So what are these grandmothers actually doing? They’re teaching children core social skills like how to cooperate, how to be compassionate, how to be considerate. Researchers at Brigham Young University in Utah interviewed 408 adolescents about their relationship with their grandparents. When grandparents are involved, the study found, the children are more social, more involved in school, and more likely to show concern for others. Also, as lead scientist Jeremey Yorgason said, parents take the lead in disciplining negative behavior, leaving grandparents free to encourage positive behaviors.

Use Checklists

family vacation checklist

“Peter Pronovost’s miracle invention was not a drug, a device, or a procedure. It wasn’t revolutionary at all. It’s one of the oldest, most mundane things on earth. It’s a checklist.”

By adding checklists with preposterously basic items such as “wash hands with soap” and empowering anyone in the room to speak up when something was wrong, hospitals saves lives, money, and time.

I was interested in applying his technique to the problems families face when leaving home for a trip. He gave me a number of recommendations.

1. Create different lists for different times in the process. “Checklists have to be linked in time and space,” Pronovost said. “So I have a checklist for ICU admissions, and another for blood transfusions. You should have a checklist for one week before the trip. Then two days before you’ll likely need another. Then one more for when you’re walking out the door. But you always need time to recover, so if you have one for when you’re at the airport, it’s too late.”

2. Make it specific. “A checklist should take less than a minute to complete,” he said. “Each item should be a very specific behavior. Avoid vague language.”

3. Killer items only. “Target your checklist on things that commonly go wrong,” he told me. “If you put down things you don’t fail at, you’ll drive people crazy. This has been borne out in aviation, where accidents have been caused by checklist fatigue.”

4. The rule of seven. “I have a rule that checklists can be only seven items,” Pronovost said. “It’s the same reason our telephone numbers are seven digits. Otherwise, people will take shortcuts and items will get missed.”

5. Include the kids. “I would sit down with them and say, ‘Hey, girls, I’m trying to improve how we travel, so I made a checklist. Does this make sense to you? What else can you add?’”

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