Passion lectures From the Tuck Investment Club Tour of Nebraska
Furniture Mart:
Upon entering the enormous furniture superstore, Bob Batt, along
with employees Jeff and Kristen, greeted us with a sign welcoming the "#1
Business School in America" fresh from the Wall Street Journal article
earlier in the week. During the tour we picked up several pointers from Mr.
Batt:
- On being open on
weekends/holidays: "gotta be there when the customers are there"
- Sam Walton:
"If you don't care about your customers someone else will"
- Furniture
retailing in Omaha is now a global business, events in China and India
will affect the bottom line.
- Continuous
cleaning is very important; nobody buys from a dirty store.
- Target customers
are women, they make the purchasing decisions.
- "How
credible are you when you're selling?"
- Learned crowd
control from Disneyland, keep people in line entertained.
- There is no
consignment, all inventory is owned: "cash is king" - furniture
manufacturers will give discounts to customers paying cash
- In 1975 NFM lost
all stores in a tornado, they made a Red Cross contribution the next day.
- NFM does not
have employment contracts, has never fired an employee in 61 years.
- When asked what
market segment NFM targets, Mr. Batt replied "we want it all".
- Television sales
are highly correlated to Nebraska's football schedule.
- 'Adjacencies'
are very important; having complementary items displayed near each other.
For example, lamps and rugs near where chairs and couches sold.
The story of NFM's founding was referenced multiple times, and was
a recurring theme during our meeting with Mr. Buffett as well. Rose Blumkin,
aka 'Ms. B', started NFM in 1937 with $500 of friends and family money in her
basement. She couldn't read or write and had never attended school at any level
but built the largest furniture retailer in the region. NFM was sold to Mr.
Buffett in 1983. After a difference of opinion with the current management
team, Mrs. B started another furniture store at age 97. She sold this new
furniture store to Berkshire a few years later, at which time Mr. Buffett
wisely required her to sign a 10-year non-compete agreement. Her greatest asset
was her passion, a pre-requisite for business success according to Mr. Buffett.
Some Q&A’s with Mr. Buffet
Q: What is your career advice?
A: If you want to make a lot of money go to Wall Street. More
importantly though, do what you would do for free, having passion for what you
do is the most important thing. I love what I do; I'm not even that busy. I got
a total of five phone calls all day yesterday and one of them was a wrong
number. Ms. B from NFM had passion, that's why she was successful. A few months
ago I was talking to another MBA student, a very talented man, about 30 years
old from a great school with a great resume. I asked him what he wanted to do
for his career, and he replied that he wanted to go into a particular field,
but thought he should work for McKinsey for a few years first to add to his
resume. To me that's like saving s*x for your old age. It makes no sense.
Q: How does one become a successful general manager?
A: The first thing is that you have to know how you are wired. You
have to pick the right environment. I can't imagine being responsible for
hundreds of people and going to meetings all day, so I work with 17 other
individuals. And, you have to have a passion for what you do.
Q: How do you identify extraordinary business ability?
A: Again, passion. When Ms. B's son was fighting in World War II,
they exchanged letters every day…about the furniture business. When Berkshire
acquired a 90% stake in NFM in the 80's, Ms. B and I shook hands and signed a
two-page agreement. There was no audit of the books, no due diligence, I
trusted her integrity. When Wal-Mart sold me one of their operating units,
their CFO came to my office, I gave him a price, he called Bentonville
[Arkansas - Wal-Mart headquarters], and that day the deal was done. I know how
Wal-Mart conducts business [very well], and when we took over the division, it
was exactly how they described it. So integrity is a requirement. One of
Berkshire's businesses is FlightSafety, the founder is dedicated to preventing
deaths, he's not motivated by the next quarter's numbers.
Q: When you consider an acquisition, what are the first things you
look for in a management team?
A: Well, what do you look for in a girl? Seriously, you look for
the logical things - passion, an interest in running the business, honesty.
Such as, do they love the business, or do they love the money? This is the
first filter. I mean real passion; Mrs. Blumkin ran Nebraska Furniture Mart
until she died at the age of 103 - that's passion. If temperament is the most
important personal asset in managing money, in business, it's passion.
Secondarily, if you've been doing it a while, you get to know how to do it. But
obviously no management team is perfect, so you're often stuck making a
judgment call. You don't want to wait forever to find the perfect team.
Incidentally, a friend of mine spent twenty years looking for the perfect
woman; unfortunately, when he found her he discovered that she was looking for
the perfect man.
Complete Notes:
Nebraska Furniture Mart and Borsheim's Visits:
- "Sell cheap
and tell the truth." -Ruth Blumkin, "Mrs. B", NFM Founder
- "Take care
of your customer, and they'll take care of you." -Ruth Blumkin,
"Mrs. B", NFM Founder
- "Successful
business is about managing the moments of truth." -Bob Batt, EVP of
NFM
- "The key
[in furniture retail] is not what you sell for, but what you buy for."
-Bob Batt, EVP of NFM
- "Most
business people forget the importance of being friendly and building a
rapport with customers." -Bob Batt, EVP of NFM
- "Getting
business advice from Warren Buffett is like getting physics lessons from
Albert Einstein." -Bob Batt, EVP of NFM
- "Stay
within your circle of competence." -Warren Buffett
- "Mr. Buffett likes businesses that are low-cost producers in industries where he believes there will be stable or growing demand into perpetuity. Nebraska Furniture Mart and Borsheim's are two prime examples." -Susan Jacques, President and CEO of Borsheim's
Examples of Passion from Berkshire Hathaway's Annual Report 2008 –
GEICO possesses the widest moat of any of our insurers, one
carefully protected and expanded by Tony Nicely, its CEO. Last year – again –
GEICO had the best growth record among major auto insurers, increasing its
market share to 7.2%. When Berkshire acquired control in 1995, that share was
2.5%. Not coincidentally, annual ad expenditures by GEICO have increased from
$31 million to $751 million during the same period.
Tony, now 64, joined GEICO at 18. Every day since, he has been
passionate about the company – proud of how it could both save money for its
customers and provide growth opportunities for its associates. Even now, with
sales at $12 billion, Tony feels GEICO is just getting started. So do I.
Here’s some evidence. In the last three years, GEICO has increased
its share of the motorcycle market from 2.1% to 6%. We’ve also recently begun
writing policies on ATVs and RVs. And in November we wrote our first commercial
auto policy. GEICO and National Indemnity are working together in the
commercial field, and early results are very encouraging.
At Borsheims, sales increased 15.1%, helped by a 27% gain during
Shareholder Weekend. Two years ago, Susan Jacques suggested that we remodel and
expand the store. I was skeptical, but Susan was right.
Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman.
Though she lacked a managerial background, I did not hesitate to make her CEO
in 1994. She’s smart, she loves the business, and she loves her associates.
That beats having an MBA degree any time.
(An aside: Charlie and I are not big fans of resumes. Instead, we
focus on brains, passion and integrity. Another of our great managers is Cathy
Baron Tamraz, who has significantly increased Business Wire’s earnings since we
purchased it early in 2006. She is an owner’s dream. It is positively dangerous
to stand between Cathy and a business prospect. Cathy, it should be noted,
began her career as a cab driver.)
Examples of Passion from other sources –
CNBC Interview (Regarding Iscar Manufacturing)–
Warren: I got a letter in October of 2005 from a man I didn't know
about a company I'd never heard of and it was a page and a quarter long and it
just jumped off the page that these were the kind of people I'd want to be
associated with and the kind of company.
Some Facts about Iscar factory in China - The factory floors here
are all painted yellow. You can see this. It is a signature of Iscar. They make
sure they paint the factory floors yellow so that dirt can't hide. That's one
way they say everything stays clean. It's a very important point and they say
it's one thing that distinguishes Iscar factories from other factories all over
the world.
Another distinguishing factor: everything here is automated...
From the processes you see, to even those you don't, like employee scheduling
and logistics. The plant in China is a feat in itself. It went up in just six
months - something Buffett says could only happen here.
Buffett: What I saw in South Korea and the new plant that is just
developing in China and what I'd earlier seen in Israel I've never seen in 77
years of life, I have never seen a better factory operation than the Iscar
people have put together in each of those places. They know as much about
manufacturing as anybody I've ever seen.
I welcome your views on the above and urge you to share your
experiences, thoughts, information about passionate businesses/people in the
above context.
