Transcript
Introduction
"As I walk past the Plaza Hotel on a glorious May morning in 1994, I heard someone call out, 'Warren Buffett.' Turning in the direction of the voice, I saw a woman stop Buffett on the sidewalk and start a friendly conversation with him. Buffett listened patiently to the woman, who as it turned out, was a shareholder of Berkshire Hathaway. At the time, the legendary investor was the second richest man in the United States. As it happened, I was in New York that day to meet with our financial advisers at Morgan Stanley to talk about our company, which at the time operated 143 jewelry stores nationwide. Personally, I felt uncomfortable expanding the company beyond my ability to know every single manager on a first-name basis.
We had grown well beyond that point, and we were still growing. We had no interest in going public, and we certainly didn't want some financial butcher carving up this jewel and selling it piecemeal. As the woman said her goodbyes and turned to go and as Buffett prepared to cross the street, I saw my own opportunity. Stepping forward, I thrust out my hand. 'Hello, Mr. Buffett,' I said, 'I'm Barnett Helzberg of Helzberg Diamonds in Kansas City.' I didn't sense any recognition in his face, but he politely shook my hand and said, ‘Hello,’ willing to hear me out. Then right there on the sidewalk, I told one of the most astute businessman in America, why he ought to consider buying our family's 79-year-old jewelry business.
'I believe that our company matches your criteria for investment,' I said. To which he replied simply, 'Send me the information. It will be confidential.' My conversation with Buffett lasted no more than half a minute. My idea, of course, was to grab his attention. How often do you encounter Warren Buffett on a sidewalk and pique his curiosity in your family company? As I walked away, I wonder whether my approach might have seem abrupt, if not downright presumptuous. Yet I felt certain that our successful three-generation family business made a perfect fit with Buffett's Berkshire Hathaway, which Fortune Magazine had repeatedly named as one of the 10 most respected companies in America.
In 1994, Berkshire's $11.9 billion net worth was greater than Coca-Cola and PepsiCo combined. It was at the time a collection of 30 businesses, including such signature names as See's Candies, World Book and Nebraska Furniture Mart. It was the largest shareholder in Gillette, Coca-Cola and American Express. Imagine our gut-busting pride when as the third-generation owners of Helzberg, Buffett later explained why he decided to buy our business. 'We associate ourselves with some real jewels of the American business world,' he said. 'And I think it's quite fitting that Helzberg joins his collection of jewels. It's just exactly the kind of company that we like to invest in. It's got outstanding management. I would hate to compete with you, fellows. I'd rather be on your side of the fence, and that's the side we're going to be on.'
My dream buyer for the family business all along was Warren Buffett. I knew we could trust him to keep the headquarters in Kansas City, resist changing the company's character and retain the jobs of all of our associates. It might have been simpler to sell to the highest bidder, but that notion seemed as sensible as choosing a brain surgeon based on the lowest price rather than on talent and reputation." That sounds like something Buffett would say himself. "But that notion seemed as sensible as choosing a brain surgeon based on the lowest price rather than on talent and reputation. I had purchased four shares of Berkshire Hathaway stock in 1989 just so I could attend Berkshire's annual meetings and pick up some of Buffett's wisdom." So that is five years before he randomly runs into him on the sidewalk in New York City. So he said, I purchased the shares so I can attend Berkshire's annual meeting and pick up some of Buffett's wisdom.
"His presentations are warm and unpretentious. He genuinely enjoys people. He's often quoted saying, 'Great people do great things.' He also likes to say, 'We only buy companies that we trust.' My first visit to a Berkshire Hathaway Annual Meeting was quite a revelation and taught me a great deal about Warren Buffett and his philosophies. My notes included hire seven footers, that is hire people with incredible abilities. Another very, very strong impression was obtained through an answer he gave a Kellogg Business School student who asked him, 'How do I determine which job to take?' Warren's answer was simply get a job you love at a company you respect. His people orientation was obvious. And since I had been taught from day one by my dad that business is people, this was most impressive.
Buffett recounted the story of how he acquired our company to shareholders this way. 'Barnett said he had a business that we might be interested in. When people say that, it usually turns out that they have a lemonade stand with potential. Of course, to quickly grow into the next Microsoft. So I simply asked Barnett to send me the particulars. That, I thought to myself, will be the end of that.’ In fact, it almost did end there. I promptly went home and sent Buffett nothing, afflicted with hang-ups about confidentiality. But one night, I reread the Chairman's letter in the Berkshire annual report."
And I'm just going to interrupt this real quick. This is another example of why I've repeated over and over again. I've said this many times to you that I think Berkshire's -- Warren Buffett shareholder letters may be the greatest example or the most successful example of content marketing in the history of business. The amount of opportunity -- unique opportunity that flows to Buffett or that has flowed to Buffett as a result of this is just remarkable. This is another example of that. "But one night, I reread the Chairman's letter in the Berkshire annual report. There was Buffett again inviting companies that meet his acquisition criteria to send him information, and he would promise complete confidentiality. While shaving the next morning, I looked at the slow learner in the mirror and began to scold myself for procrastinating.
'He told you in person it would be confidential. He told you in writing, do you want it set to music? Send him the information.’ So I finally did. Not long after we sent Buffett our financial information," so Buffett also talks about the fact that you'll get a response from him really rapidly. “Not long after we sent” -- this is another example of that. "Not long after we sent Buffet our financial information, he called us and told us he wanted to talk. Soon, we were in his office in Omaha negotiating a sale." And this is more on the speed of the process. 'This can be the fastest deal in history,' Buffett said. 'But what about due diligence?' I asked. Surprised at how fast the negotiations were moving. Most suitors demand to see every scrap of paper you've ever generated and to interview every top manager.
This wasn't Buffett's way. 'I can smell these things,' he said, 'and this one smells good.' That would not be my last surprise. I asked about a noncompete clause. 'You'll certainly want that, won't you?' I said. Buffet shrugged, 'You wouldn't do anything to hurt this company,' he said. When a guy says that to you, he has you on your honor for the rest of your life. When Buffett buys a company, he's not looking for a quick resale to make a buck. He told us, someone asked one time what my favorite holding period for securities is, and I said forever. And that's exactly the way we feel about our businesses. When we were ready to leave his office and asked if a cab could be called, he insisted on walking us to the elevator, riding it down with us and standing on the street to wait with us for the cab, typical Buffett treatment.
Warren Buffett's approach to purchasing companies is very straightforward. He will give you an answer immediately if he has any interest, and he will immediately give you a nonnegotiable price." Let me interrupt this real quick. I read another -- I read an entire book called Jim Clayton, First a Dream and it's Episode #91 of Founders about this nonnegotiable price. Buffett bought that guy's company as well. And in that book, it was hilarious. I think I talked about it in Episode #91. But they start out, Buffett's like, okay, I'll give you $12.50 bid, if I remember correctly. And they're like, okay, what about $16? Buffett is like, $12.50 bid. Okay. What about $15? $12.50 bid. What about $13? $12.50 bid. And they're like, okay, fine, $12.50 bid. So apparently, I'm curious if you have any other examples of Buffett actually willing to negotiate a price. But this is something I've seen a few times, the fact that he will immediately give you a nonnegotiable price.
So back to this. "After buying Helzberg, Buffett explained to his shareholders that our ownership structure enables sellers to know that when I say we are buying to keep, the promise means something. Buffett continued, 'We like dealing with owners who care what happens to their companies and people. A buyer is likely to find fewer unpleasant surprises dealing with that type of seller than with one simply auctioning off his business.' Explaining how he makes this hands-off approach work, Buffett said that it was because the managers operate with total autonomy.
And they do such a terrific job, we don't really need anyone to supervise them. Managers of Berkshire subsidiaries run their own shows. When we get somebody who is a .400 hitter, we don't start telling them how to swing. Now back to Barnett. I think if my dad, Barnett Sr. and my grandfather, Morris, had still been alive, they too would feel proud and comfortable that our family business, which started in 1915 from a single store in Kansas City, Kansas, had grown by 1994 into a group of 143 stores in 23 states with total sales of $282 million. Our business was in capable hands. As Buffett himself finally described the deal that began on a New York sidewalk, 'We weren't talking lemonade stands."
That is an excerpt from the book I'm going to talk to you about today, which is What I Learned Before I Sold to Warren Buffett, an Entrepreneur's Guide to Developing a Highly Successful Company, and it was written by Barnett C. Helzberg Jr. Okay. So I want to jump to the very first page, even before the instructions I just read to you. And he has a very unique, I guess, you can almost consider this like a preface. It says, "A Confession of Plagiarism." And he says, "I was always taught that many, many people were out there developing ideas that I could use. I have found that to be true throughout my life. These thoughts and ideas have all been borrowed or stolen from many wise people.