Passion, The Greatest Asset - Warren Buffet

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.