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Warren Wednesday 4/5

In the 1983 Berkshire Hathaway shareholder letter, Warren Buffett wrote:

“One question I always ask myself in appraising a business is how I would like, assuming I had ample capital and skilled personnel, to compete with it.”

Buffett embedded this concept into every opportunity Berkshire Hathaway considered. Doing this the right way excluded 9 out of 10 investments because many businesses simply don’t have compelling competitive advantages.

This helps explains why we hear the dreaded phrase from many investors on Shark Tank:

pick investment winners like kevin from shark tank

The simple notion of considering how one would compete with a potential investment is a basic concept, but have you applied it in the web3 space?

Analyzing a potential competitor’s strategy before investing helps scan for threats and identifies the potential for the commoditization of products or services.

  • How do your investments compete?

  • Are the products/services priced better than competitors?

  • Do they have proprietary capabilities or patents?

  • Is their brand an unmatched paragon in the industry? (e.g., Just Do It)

It might seem counter intuitive, but savvy investors try to think themselves OUT of opportunities more than finding ways to say YES.

Another way to think about these questions is to ponder what circumstances would cause your investments to decline in value.

The harder it is to identify competing approaches, the more valuable that business or project is likely to be.

Learning how to build a competitive analysis is a key tool for your investment toolbox. One way that you can identify projects with strong value propositions in industries with growing trends is through the use of SWOT analysis.

Pick Investment Winners in Web3 with SWOT Analysis Deep Dive

pick investment winners using a swot analysis

A SWOT analysis asks you take a critical look inward to determine what’s working for your business (strengths) and what’s NOT working (weaknesses). Then it requires the analyzer to take a look at external factors to determine where there are untapped chances for success (opportunities) and challenges on the horizon (threats).

@semrush has a killer SWOT template for you to follow:

here the details of a swot analysis

SWOT Details

To add more detail, here’s a 6-step framework to help you analyze investment opportunities with a SWOT analysis:

  1. Assess Strengths: determine what the company/project does REALLY well; better than anyone. How are they staying ahead of the competition?

  2. Confront Weaknesses: Think about what can be improved regarding the project. Are the founders making efforts to address weak links in their business model?

  3. Brainstorm Opportunities: In a previous post, we discussed headwinds and tailwinds that businesses face during operations. Is the project facing industry tailwinds that will present profitable opportunities in the future?

  4. Identify Threats: Take an honest look at what external negative factors will make it challenging for the project to thrive. Is regulatory scrutiny bearing down on the industry?

  5. Narrow Your List: If you start with a list of 10 investment opportunities for consideration, an honest look through the SWOT lens should leave only 1 or 2 as strong candidates for capital deployment.

    NOTE: Remember…this is an exercise about QUALITY of potential investments, not QUANTITY.

  6. Pick Your Winners: Once you feel comfortable about your research and weeding out poor investment choices. Pull the trigger and hold on for the long-term. Let value compound over time and reap the benefits when the time is right.

If you found this post interesting give us a follow and stay tuned for more Warren Wednesdays featuring excerpts from our book, Warren Buffett in a Web3 World.

We took over 1,000 pages of wisdom from the Oracle of Omaha and condensed it into a snackable, easy-to-read investment guide to help you on your journey to grow wealth in the web3 space!