Is there some unique way of thinking that gives self-made billionaire entrepreneurs an edge?

Fascinated by this question for my whole career as a serial entrepreneur and writer, I’ve read more billionaire entrepreneur biographies than I can count, researched what they have in common, and met and interviewed several.

Without a doubt, luck plays a central role. But luck alone doesn’t explain the repeated success of entrepreneurs who create billion dollar company after billion dollar company or who have enduring multibillion dollar companies: entrepreneurs like Warren Buffett, Jeff Bezos, Steve Jobs, and Elon Musk.

By researching these entrepreneurs, I’ve found unique ways of thinking that aren’t commonly known among most entrepreneurs (even successful ones).

The process of uncovering these principles has fundamentally changed how I think about business (and life). Some have served as a reminder that it’s consistently doing simple things that matter most.

For each entrepreneur I studied, I’ve uncovered a:

• Billionaire entrepreneur strategy. The overarching principle that has served as a foundation for the billionaire’s success. I focused on one specific, non-obvious strategy.
• Billionaire entrepreneur hack. How successful entrepreneurs are applying the strategies to grow their business.

1. Charlie Munger (billionaire investor): Analyze what can go wrong instead of what can go right.

Billionaire Entrepreneur Strategy:

Until I read billionaire Charlie Munger’s Poor Charlie’s Almanack, I thought the key to success was creating a vision, setting goals, and working hard toward them every day.

If I failed, I thought it was because I did one of these steps wrong.

Charlie Munger, Berkshire Hathaway vice chairman and long-time Warren Buffett business partner, shows another equally important path to success; thinking through what can go wrong.

Things constantly go wrong no matter how smart and hardworking you are.

Realizing this, Munger continuously and methodically considers every way a plan could go wrong and plots out how to avoid each obstacle. He says:

“Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead — through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die so I don’t go there.”

Munger’s approach helps him avoid roadblocks and be more prepared when he inevitably runs into one. Furthermore, combining goal setting and obstacle avoidance is backed up by a growing body of over 100+ academic studies on the topic. When people only ‘fantasize’ about the future, they actually end up taking less action than they would if they also thought about what could go wrong and made plans to avoid it.

Bottom line: Being both pessimistic and optimistic is better than just being optimistic. One of the best ways to win is not to lose.

Billionaire Entrepreneur Hack:

To apply this principle, test your plan with this three-step pre-mortem process developed by Meathead Movers CEO and cofounder, Aaron Steed:

1. List the ways the project could fail
2. Assign a probability to each possibility
3. Prioritize actions that can be taken to avoid failure

Steed created the process after noticing that certain projects at his 350-person company were getting poor results.

Rather than adding new procedures to help those projects succeed, he developed the pre-mortem process to remove the barriers that were causing them to fail.

One of the obstacles that Munger proactively avoids is psychological biases. As an additional resource, we compiled a 27 page report that summarizes the 22 psychological biases that Munger has identified throughout his 70-year career.

2. Warren Buffett (billionaire investor): Use checklists to avoid stupid mistakes.

Billionaire Entrepreneur Strategy:

Generally speaking, there are two types of mistakes: those that are stupid and those that are ignorant.

Ignorant mistakes happen when you don’t know better. Stupid mistakes happen when you do know better.

Stupid mistakes are the hardest to stomach because they’re the easiest to solve. Yet people, especially smart people, make them over and over.

Warren Buffett and his 40-year business partner, Charlie Munger, don’t attribute their success to raw intelligence or brilliant ideas. Instead, they attribute a large part of it to consistently avoiding stupid mistakes by religiously following basic tenets and ideas they know will work.

Talking about his and Buffett’s strategy in his book, Munger states:

“We try more to profit from always remembering the obvious than from grasping the esoteric.”

To counteract the often negative influence emotions can have in investment decisions, Buffett and Munger use several checklists, including ones for investingproblem solving, and psychological biases.

They claim that using these checklists has been crucial to their miraculous 21.6 percent return on investment for four decades, which is double the market average.

More recently, checklists have been receiving well-deserved attention as a result of the Checklist Manifesto, written by Harvard Medical School professor of surgery, Atul Gawande.

In a fascinating study by the World Health Organization, 8 hospitals who adopted a 19-point checklist saw deaths from surgery nearly cut in half!

Billionaire Entrepreneur Hack:

Blake Goodwine has used a decision-making checklist to build his Lionize Media Group into a network of niche media sites with tens of millions of monthly visitors.

His problem-solving checklist, shown below, lays out the path to a successful business strategy, and counteracts any internal biases that impede him from reaching his desired destination:

1. Brainstorm. Dream up as many possible solutions as you can. This helps you avoid availability bias, which often results in us choosing the first solution that comes to mind rather than the best solution.
2. Test. Test as many potential solutions as you can afford to. This avoids theconfirmation bias of rationalizing the one solution you chose.
3. Evaluate. Have a minimum success criteria for each experiment. This allows you to avoid doubling down on bad ideas that aren’t working in an effort to recoup sunk costs.
4. Learn. Dive deeply into the data and learn from EVERY experiment, not just the one that worked best. Avoid taking mistakes personally and feeling shame over something that did not work.

“Even if this checklist helps you make big decisions just slightly better, it will change the entire trajectory of your life and business. It has for me,” Goodwine says.

As an additional resource, we compiled some of the best expert advice on how to create actionable checklists into a step-by-step guide.

3. Ray Dalio (billionaire investor): Learn how to think independently so you can be smarter than everyone else.

Billionaire Entrepreneur Strategy:

“You can’t make money agreeing with the consensus view,” asserts Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world ($169+ billion under management).

Doing what everyone else does is going to bring you average results. That’s the definition of average.

To Dalio, the key to having enduring, extraordinary performance is to do what others won’t or can’t AND to be right.

This is easier said than done. For example, 86% of professional investors do not beat the market. The numbers are sobering for entrepreneurship too: 30.9–37.6% of new businesses fail in the first three years.

In a recent op-ed, Dalio explains why it’s so hard:

“Whenever you’re betting against the consensus there’s a significant probability you’re going to be wrong, so you have to be humble.”

The good news is that with enough practice, you can put the odds in your favor.

Billionaire Entrepreneur Hack:

Thinking independently is more than one simple hack. Broadly speaking, it requires:

• Courage to stand up against the herd when you’re right and everyone else is wrong
• Access to or understanding of information that other people don’t have
• Unique ways of analyzing that information

Here are ways to hone each of those abilities:

Ability #1: Stand Up Against The Herd

We are wired to want to fit in socially. So, standing up against the herd is extremely hard. Fortunately, courage is a skill that can be practiced.

Emerson Spartz, founder and CEO of Spartz Inc., a digital media company that owns a network of sites like Dose and OMG Facts (45+M monthly visitors), practices daily what he calls comfort zone challenges. Spartz says:

“These are little things I do that cause me to feel uncomfortable and socially awkward, but have no real negative impact.”

These challenges train him to be comfortable with being uncomfortable, so he has courage when he really needs it.

His favorite challenge is the coffee cup challenge, which is simply asking for a 10 percent discount when you buy coffee.

Ability #2: Develop An Information Advantage

One of the easiest ways to beat the herd is to have an information advantage. Here are four ways to get that advantage:

• Build deep relationships with people who have accomplished the goals you want to accomplish. By building relationships based on mutual trust and respect, where others want you to succeed, people share information they never would publicly. For more on this strategy, read Reid Hoffman’s strategy.
• Learn from other fields and bring the insights into your own. Most people focus on learning about their own field, even though other fields have proven insights that are applicable. Being an expert-generalist (a term coined by Orit Gadiesh, the chairwoman of multibillion dollar consulting company, Bain & Company) and going wide into adjacent fields will quickly give you a unique perspective.
• Build a lab, not an experiment. Entrepreneurs who can conduct more experiments will discover more new data and therefore have a big advantage. These entrepreneurs look at their business as a lab where they constantly run experiments. Many entrepreneurs fail here because they look at their business as one big experiment to test just one idea.
• Be good at pulling out the wisdom of others. Many successful people are not able to articulate how they do what they do. They just do it. Asking the right questions can help bring to the surface this tacit knowledge. One way that famous technology investor, Peter Thiel, uncovers this knowledge is by asking the founders he backs what they strongly believe that no one else does.

Ability #3: Develop An Analytical Advantage

This is where many of the billionaire strategies mentioned in this article can be applied. See the advice of Charlie Munger and Elon Musk.

As an additional resource, we summarized Ray Dalio’s seminal ebook, Principles, and interviews he has done over the years into a step-by-step guide on how to develop your own independent opinions.

4. Jeff Bezos (Amazon founder): Invest in what will NOT change instead of only what will change

Billionaire Entrepreneur Strategy:

Judging by the media coverage of entrepreneurs, it’s easy to think that the #1 key to success is hopping on the biggest trends.

Jeff Bezos shows that big trends are only part of the story. It’s also about doing the exact opposite and focusing on what does not change.

Since its founding in 1994, Amazon has focused, like a laser, on the simple idea that people will always want to buy products as cheaply, easily and as quickly as possible. Therefore, Amazon can safely make huge technology investments in these areas and know they will pay off in the future.

Bezos explained why this approach makes sense at the 2012 Amazon Web Services conference:

“It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ or ‘I love Amazon; I just wish you’d deliver a little more slowly.’”

The strategy seems to be working. Amazon just became the most valuable retailer in the world this year, and its growth is speeding up, while the growth of its main competitor, Walmart, is slowing down.

Bottom line: Become the best in one core area by continually investing in it over time, rather than jumping from trend to trend and starting over each time.

Billionaire Entrepreneur Hack:

To apply this principle to your business, identify a core customer need that will likely stay the same (even as technology and culture evolve) to which your company is uniquely positioned to cater.

Then build your company around it.

This is what Ohio-based entrepreneur Jason Duff did.

Realizing that nostalgia doesn’t get the attention it deserves, Duff built his whole real estate business around it. Nostalgia is the universal inclination to remember the past sentimentally in order to derive meaning from our lives.

Duff applied this insight in his company by focusing on restoring historic downtown buildings rather than tearing them down and building modern structures.

He used the following formula to create hundreds of jobs in his community and build several multimillion dollar businesses.

1. Purchase overlooked historic properties at a large discount
2. Invest heavily in repurposing and restoring them
3. Tell the story of what they meant (and could mean again) to the community through social media

In doing so, he has increased the value of the property, by tapping into the warm feelings held by the townspeople who remember coming to the building in their youth. His Facebook posts providing details on renovation projects regularly attract hundreds of likes.

5. Steve Jobs (Apple co-founder): Use storytelling to make your vision more compelling; not mission-speak.

Billionaire Entrepreneur Strategy:

Having a powerful vision is essential for all entrepreneurs, but if you are going to excel, your stakeholders need to buy into your vision.

That’s where most people fail.

For many, the vision ends up becoming a few lines of mission-speak on their corporate website.

Yet, there are other leaders like Steve Jobs and Elon Musk who seem to have the superpower to distort reality. After listening to them, it feels like their vision of the world is inevitable and critical.

It is easy to attribute this ability to charisma, but there is a case to be made that Jobs was just really good at storytelling, which is a learnable skill.

According to academic studies on storytelling, great stories transport others into a whole other world and, in doing so, alter their beliefs, cause a loss of access to real-world facts, evoke emotions, and significantly reduce their ability to detect inaccuracies.

Throughout history, visionary storytellers have changed the course of societies and industries:

Billionaire Entrepreneur Hacks:

Turn Your Vision Into A Detailed Story And Picture

1–800-GOT-JUNK? founder and CEO Brian Scudamore captures his company’s vision through a document called the Painted Picture.

In vivid detail, the document explains what Scudamore expects the company to be like in 3 to 5 years. This description includes both quantitative details (like the number of people the company will employ and how many locations it will have) and qualitative ones (like how employees will describe the culture to their families).

The Painted Picture was paramount in 1–800-GOT-JUNK? growing its revenues to more than $100 million, Scudamore says. He recommends the following steps” retreat, visualize, and ask” to create your own:

• Retreat: First, grab a notebook and find a quiet space where you don’t have any distractions from your daily life.
• Visualize: Transplant yourself five years into the future. See yourself looking around at your life and your business. Imagine that you’re really in that place where the future HAS already happened. For example, if you have a five-year old child, imagine your child is now ten. Then, imagine yourself five years older.
• Ask: Once you’ve transported yourself to that place, ask yourself some questions that will help you “crystal ball” the future. Here are some key questions to ask yourself:
• What is your top-line revenue?
• How many people are on your team?
• How would your people describe the culture of your company when talking to a family member?
• What is the press saying about your business? Be as specific as possible: what would your local paper say about your company? What would your favorite magazine say?
• What do your people love about your vision and where the company is headed?
• How would a customer describe their experience with you? What would they say to their best friend?
• What accomplishment are you most proud of? What accomplishment are your people most proud of?
• What do you do better than anyone else on the planet?
• Describe your office environment in detail.
• Describe your service area. Who are your customers and how do they feel?

As an additional resource, read Brian Scudamore’s article on the science-backed reasons that creating a vision is so powerful.

6. Reid Hoffman (LinkedIn founder): Build deep, long-term relationships that give you insider knowledge.

Billionaire Entrepreneur Strategy:

If you reverse engineer the relationships of many successful entrepreneurs, as I have, you will realize that many people work with the same people over and over in their careers.

In the technology world, this phenomenon has been cataloged extensively (see the mafias of Oracle, Netscape, Fairchild, PayPal, and Myspace). Each of these companies have spawned new multi-billion dollar enterprises as a result of former employees starting new companies together, advising each other, investing in each other, and much more.

These long-term, collaborative networks are often referred to as mafias. Reid Hoffman, founder of LinkedIn and part of the PayPal mafia, has put these types of relationships at the center of his career and makes a case that others should too. In the information age, one of the best ways to get information is not from just being better at searching Google, it’s from learning how to build a network and get the information you need through that network, Hoffman says.

In a fascinating interview on This Week In Startups, Hoffman goes so far as to say that the biggest mistake in his career was deciding that in order to be a product manager he needed to learn product management skills. In retrospect, he would have focused on placing himself in the right network by working at one of the fastest growing, futuristic companies at that time: Netscape.

Hoffman refers to the information that only exists in people’s heads as the ‘dark net.’ This includes information that is not searchable online, in any book, or in any classroom and never will be.

Getting access to this ‘dark net’ information from people who have accomplished what you want to accomplish is extremely valuable and will help you think independently. The ‘dark net’ includes people’s lessons learned and hacks, topics that are too sensitive to talk about because they make someone look bad, and tacit knowledge (knowledge that people have but aren’t able to articulate).

Hoffman explains the power of the ‘dark net’:

“Ten extremely informed individuals who are happy to share what they know with you when you engage them can tell you a lot more than a thousand people you only know in the most superficial way.”

Billionaire Entrepreneur Hack:

Deep long-term relationships don’t happen by chance. Just as divorce rates are high, so too are partnerships that go sour.

Two keys on building long-term relationships that I’ve learned from researching and writing on the art and science of building deep and authentic relationships for Forbes include:

Key #1: Be extremely picky about whom you spend a lot of time around.

Our time is limited. Every minute you spend with one person is a minute you’re NOT spending with someone else. Below are characteristics that I use for filtering my professional network:

• They value relationships over pure achievement and are willing and able to invest in the relationship
• They are givers
• They are open to being vulnerable and to sharing their true experiences
• I genuinely enjoy spending time with them
• They are constantly growing and learning
• They share similar values
• They’re also able to invest time in maintaining and growing the relationship.

Key #2: Invest the time.

No matter how successful you are, building deep relationships still takes a lot of time. So, it’s critical to turn relationship building into a habit.

7. Elon Musk (SpaceX and Tesla co-founder): Use decision trees to make better decisions.

Billionaire Entrepreneur Strategy:

Many thought that Elon Musk was crazy when he plowed all of his PayPal earnings into SpaceX and Tesla. However, there was a proven logic behind Musk’s decisions. Musk, like Warren Buffett, uses decision trees to make big decisions.

Decision trees are particularly useful for avoiding stupid risks and big bets that aren’t likely to succeed.

Making unlikely big bets.

In an interview with tech entrepreneur Kevin Rose, Musk admits that he thought the most likely outcome for both SpaceX and Tesla was failure. However, they were both so important to the future of humanity and had so much potential that he felt the risk was worth it.

Probabilistically, it makes sense. Here’s why.

Financially, if Musk thought that SpaceX could be a $100 billion company and that the chance of success was 30 percent, the expected return statistically using a decision tree is $30 billion. Not bad!

Musk could have easily focused on a company with a $1 billion potential and a 80 percent chance of success. But, in this case, the expected return would only be $800 million.

Avoiding “Russian roulette” risks.

If there is even a tiny chance that doing something could destroy you, it’s a very bad idea.

In a talk, Warren Buffett compares these types of situations to Russian roulette:

“If you hand me a gun with a million chambers in it, and there’s a bullet in one chamber, and you said, ‘Put it up to your temple. How much do you want to be paid to pull it once?’ I’m not going to pull it. You can name any sum you want, but it doesn’t do anything for me.”

Smart people fall for this mistake all the time. In the same talk, Buffett shares the story of the collapse of the multibillion-dollar hedge fund Long-Term Capital.

The leadership team included the smartest people in the industry along with Nobel laureates. Yet they played Russian roulette. For every dollar of their money they invested, they borrowed $25. This made them extremely susceptible to a downturn in the market, even a small one. This happened in 1998 and the firm went under in just a few months.

Buffett’s point was that all of the company leaders were already extremely wealthy and had spent decades building reputations. So, the incremental benefit of growing richer was small compared with the risk of losing everything, which they ultimately did.

Billionaire Entrepreneur Hack:

Utilizing a decision tree does not require a PhD. All that’s needed is a basic understanding of probability. Here’s a step-by-step process you can follow to use the principles in your decision making:

• Understand the different outcomes that could happen (both positive and negative)
• Calculate the expected return or loss of each outcome:
• Attach a probability to each outcome
• Understanding the magnitude of the return or loss
• Multiple the probability by the magnitude (probability of winning * value of win) — (probability of losing * cost of the loss)
• Add up and subtract all of the expected returns and losses

To get started you don’t need to know the exact probabilities. Just following the process will give you unique insights you wouldn’t have had otherwise (i.e., the power of unlikely big bets and the risk of Russian roulette decisions).

For a step-by-step guide on how to create decision trees, visit this page. It is an online companion to an economics textbook.

8. Sara Blakely (Spanx founder): Train yourself to love failure rather than to fear it

Billionaire Entrepreneur Strategy:

Most people think that if you want to be super accomplished, you have to chase success. Sarah Blakely understands that actually, you have to chase failure. Her dad taught her this lesson when she was little.

“Growing up, my father used to ask my brother and myself at the dinner table what we had failed at that week,” she’s explained. “He’d celebrate it. And he’d actually be disappointed if I didn’t have something I failed at that week. I can remember coming home from school and saying, ‘Dad, I tried out for this and I was horrible!’ and he would high-five me and say, ‘Way to go!’”

That isn’t just a nice way to comfort your kid when she doesn’t make the basketball team. It’s a fundamental reframing of what failure is, a way to flip your thinking which every aspiring entrepreneur should embrace.

“What it did was reframe my definition of failure,” Blakely says of her dad’s high-fives. “Failure for me became not trying, versus the outcome.”

Blakely, like other billionaire entrepreneurs, understands that the only way to protect yourself from failure is to not try, or to not try anything hard at least, both of which are sure and direct routes to mediocrity. The only way you can achieve anything big is by daring to try big things, and if you do that failure is inevitable.

So why not start racking up failures now? Not only will you get used to it so that every subsequent setback stings less, but with each attempt you increase your odds of landing on a world-changing idea.

Or as Elon Musk puts it, “If things are not failing, you are not innovating enough.”

Billionaire Entrepreneur Hack:

Changing your thinking this way is admittedly much easier said than done. Failing does not feel nice for any of us. So how do you rewire your brain to seek out failure and accept it as not just normal, but admirable?

Blakely offers specific advice, again courtesy of her clearly wise father: “My dad would encourage me anytime something didn’t go the way I expected it to, or maybe I got embarrassed by a situation, to write down where the hidden gifts were, and what I got out of it. And I started realizing that in everything was some amazing nugget that I wouldn’t have wanted to pass up.”

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This article was written with love and care using the blockbuster mental model.

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