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Billionaire financier and Berkshire Hathaway chief executive officer Warren Buffett attends the Berkshire Hathaway annual shareholders meeting in Omaha in this file photo taken May 2, 2009. (CARLOS BARRIA/CARLOS BARRIA/REUTERS)
Billionaire financier and Berkshire Hathaway chief executive officer Warren Buffett attends the Berkshire Hathaway annual shareholders meeting in Omaha in this file photo taken May 2, 2009. (CARLOS BARRIA/CARLOS BARRIA/REUTERS)

Value: John Warrillow

Who would replace you after you're gone? Add to ...

Every year, Berkshire Hathaway Inc. chairman and chief executive officer Warren Buffett writes a letter to shareholders, outlining his philosophies for running a successful business. His words have become required reading for business owners around the world, and this year's letter is one of his best.

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Over the last two days, I've highlighted two of my favourite insights from Mr. Buffett's letter: the importance of having a reserve fund, and always being in selling mode.

Here is my third takeaway lesson:

Write your "hit-by-a-bus" letter

In this year's letter to shareholders, Mr. Buffett included a 2010 memo that he sent to his managers. In it, he asked them to send him a letter describing the person they believe could best replace them if they were to become incapacitated overnight.

He made it clear he hoped the people who lead his companies would stay forever - "I'm not looking for any of you to retire and I hope you all live to 100," he said.

Nevertheless, he encouraged them to give thought to succession planning.

Mr. Buffett invited his managers to mail their letters to his home marked "Personal for Warren," promising that he (or Berkshire's next CEO should he no longer hold the title) would be the only person to read them, and emphasizing that the request was not intended to initiate a political game of ladder-climbing.

Instead, he wanted his managers to think about how well they have groomed a second-in-command.

I know from personal experience that this can be an interesting exercise - especially if you are going to sell your business one day. Buyers will want to know who you would have run your company after you are gone. Writing the answer down forces you to pick someone (as opposed to a group of someones) and makes you consider how well you have armed that person for the job.

It also makes you think about the areas you still need to train your successor on.

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John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released in April.

Follow on Twitter: @JohnWarrillow

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