Founders
Episode 279 #279 What I Learned Before I Sold to Warren Buffett
Founders

Episode 279: #279 What I Learned Before I Sold to Warren Buffett

Founders

Episode 279

#279 What I Learned Before I Sold to Warren Buffett

David Senra is the host of Founders, where he studies history's greatest entrepreneurs. This is what he learned from reading What I Learned Before I Sold to Warren Buffett: An Entrepreneur's Guide to Developing a Highly Successful Company by Barnett Helzberg Jr.

What I learned from reading What I Learned Before I Sold to Warren Buffett: An Entrepreneur's Guide to Developing a Highly Successful Company by Barnett Helzberg Jr.

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[5:00]  Then, right there on the sidewalk I told one of the most astute businessmen 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.

[8:00] My dream buyer for the family business all along was Warren Buffet.

[11:00] "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.

That wasn't Buffett's way. "I can smell these things, Buffett said. "This one smells good.”

[12:00] First A Dream by Jim Clayton. (Founders #91)

[13:00] Buffett on his management technique: “Managers run their own shows.

They don't have to report to central management. When we get somebody who is a .400 hitter we don't start telling them how to swing.”

[14:00] I was always taught that many, many people were out there developing ideas 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.

Think of the world as your garden of marvelous people and ideas with unlimited picking rights for you.

[17:00] Cable Cowboy: John Malone and the Rise of the Modern Cable Business by Mark Robichaux. (Founders #268)

[23:00] Despite missteps, entrepreneurs are a special breed who do not give up on the larger goals.

[24:00] It's not hard to express the quality we're looking for in metaphors. The best is probably a running back. A good running back is not merely determined, but flexible as well. They want to get downfield, but they adapt their plans on the fly. — Relentlessly Resourceful by Paul Graham

[25:00] Entrepreneurs are driven to succeed. They possess an almost naive belief that nothing can stand in their way, they are mentally deaf to those who belittle their chances, they love to compete, and they have the skills of broken field runners who take the bumps and bruises along the way, change course when necessary, and stay focused on the goal.

If this is not you, don't try to fool yourself. It's not worth it.

Thinking you can start your own business or wanting to be your own boss, just because you hate your job, when you really have no desire or stamina to go it on your own, is courting disaster. Where there is no real will, there is no way.

Some people are more  enamored by the concept than the reality. They would rather contemplate the beauty of the mountain from the base.

The entrepreneur wants to climb the mountain first, briefly appreciate the gorgeous vistas from the summit, and then find the next mountain. If you possess this obsession of seeing your own creative notions succeed and are willing to pay the price, then you have no choice but to pursue the life of an entrepreneur.

[29:00] He taught us to concern ourselves only with those things over which we have control.

I thought he was unique in this until I realized this is one of the key common traits of highly successful people.

Those folks are never victims; they take what comes and handle the situation. The rest is a waste of time.

[30:00] Upgrade the herd annually: "You make more money closing bad stores than opening new ones.”

His philosophy made sense. We decided we would rather spend time and effort on a $4.5 million store that could ultimately achieve annual sales of $6 million than on a lower-volume store with less potential.

[32:00] Focus is your lever to success.

Do not underestimate the incredible amount of mental discipline it takes to focus yourself and your teammates. Wonderful alternatives and seductive opportunities abound and temptations to go in multiple directions are unlimited.

Commit yourself to be the best, define what that means, and focus on the head of that pin like no one in your industry.

[32:00] Estee Lauder was a master at doing things don’t scale. — Estée Lauder: A Success Storyby Estée Lauder. (Founders #217)

[33:00] To be successful, have your heart in your business, and your business in your heart. —Thomas Watson The Maverick and His Machine: Thomas Watson Sr. and The Making of IBM by Kevin Maney (Founders #87)

[38:00] Only a fool tests the depth of the water with both feet. —African Proverb

[40:00] Some of our partners created an inhospitable climate for customers. Some posted negative signs.

At one store a manager hung a sign in red warning customers that they would be charged a steep fee if they bounced a  check. It said, "The bank doesn't make copies and we don't cash checks." That really got me boiling.

I jumped up on the counter and ripped it down as customers and coworkers looked on, amazed. That may sound extreme, but I needed to make the point in a memorable way. I didn't want signs like that staring our customers in the face.

I told our coworkers that the occasional hit we took for a bounced check cost far less than what we lost-and couldn't quantify-by creating a subtly hostile atmosphere. —

Copy This!: How I turned Dyslexia, ADHD, and 100 square feet into a company called Kinkos by Paul Orfalea.

[42:00] Nearly any action or communication means far more when done urgently.

Trust only movement.

[42:00] One person with a belief is equal to a force of ninety-nine who have only interests. —John Stuart Mill

[43:00] None of this works if you can’t trust your own judgement.

[46:00] This reservoir of knowledge and human experience creates tremendous opportunities and advantages for you as an entrepreneur. You are heir to the discoveries of many entrepreneurs who skinned their shins trying something new. It is likely other  entrepreneurs before you have experienced the same challenges and problems, and found ways to surmount them.

[47:00] You have the experiences of thousands of experts and mentors at your fingertips.

[47:00] The incredible, wonderful, and unavoidable truth is that seeking the help of others can put you light years ahead of other people who beat their heads against the wall trying to reinvent the wheel

[48:00] I’ve never found anybody that didn’t want to help me if I asked them for help. I called up Bill Hewlett when I was 12 years old. He answered the phone himself. I told him I wanted to build a frequency counter. I asked if he had any spare parts I could have. He laughed. He gave me the parts. And he gave me a summer job at HP working on the assembly line putting together frequency counters. I have never found anyone who said no, or hung up the phone. I just ask. Most people never pick up the phone and call. And that is what separates the people who do things, versus the people who just dream about them. You have to act. —Steve Jobs

[53:00] "Max kept repeating, 'As hire As. Bs hire Cs. So the first B you hire takes the whole company down." — The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley by Jimmy Soni.

[54:00] “The greatest thing you can do for your competition—hiring poorly.” —Bill Gates

[59:00] I wish that I had known sooner that if you miss a child's play or performance or sporting event, you will have forgotten a year later the work emergency that caused you to miss it. But the child won't have forgotten that you weren't there.

I use Readwise to organize and remember everything I read. You can try Readwise for 60 days for free https://readwise.io/founders/

I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth

Be like Gareth. Buy a book: All the books featured on Founders Podcast

#279 What I Learned Before I Sold to Warren Buffett

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.

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