May 1, 2010
Warren Buffett’s Advice for Entrepreneurs
I’m not in Omaha this year to attend the Berkshire Hathaway annual meeting. But, I saw Warren Buffett’s advice for entrepreneurs at the meeting and thought it was worth sharing:
There’s nothing like following your passion. Find your passion and don’t let anything stop you. $500 built Nebraska Furniture Mart’s 78 acres of store in Omaha. Rose Blumkin loved what she did. Think about what that produced. It is incredible.
For those of you unfamiliar with Nebraska Furniture Mart:
Nebraska Furniture Mart is the largest home furnishing store in North America selling Furniture, Flooring, Appliances and Electronics. NFM was founded in 1937 by Mrs. B (Rose Blumkin) in Omaha, Nebraska. She worked in the business until age 103. In 1983, Mrs. B sold a majority interest to Berkshire Hathaway with the famous handshake deal with Warren Buffett. NFM now has three stores. The Omaha store is over 420,000 square feet (39,000 m2) of retail space and is on 77 acres (310,000 m2) of land. The Kansas City, Kansas store is also 420,000 square feet (39,000 m2) of retail space and is on 88 acres (360,000 m2) of land and sits across from the Kansas Speedway. The third store is in Des Moines, Iowa and is 24,000 square feet (2,200 m2) and sells appliances, flooring and televisions.
From the 1983 letter, we get a good idea of just how great of an entrepreneur Rose Blumkin really was:
Last year, in discussing how managers with bright, but adrenalin-soaked minds scramble after foolish acquisitions, I quoted Pascal: “It has struck me that all the misfortunes of men spring from the single cause that they are unable to stay quietly in one room.”
Even Pascal would have left the room for Mrs. Blumkin.
About 67 years ago Mrs. Blumkin, then 23, talked her way past a border guard to leave Russia for America. She had no formal education, not even at the grammar school level, and knew no English. After some years in this country, she learned the language when her older daughter taught her, every evening, the words she had learned in school during the day.
In 1937, after many years of selling used clothing, Mrs. Blumkin had saved $500 with which to realize her dream of opening a furniture store. Upon seeing the American Furniture Mart in Chicago – then the center of the nation’s wholesale furniture activity – she decided to christen her dream Nebraska Furniture Mart.
She met every obstacle you would expect (and a few you wouldn’t) when a business endowed with only $500 and no locational or product advantage goes up against rich, long-entrenched competition. At one early point, when her tiny resources ran out, “Mrs. B” (a personal trademark now as well recognized in Greater Omaha as Coca-Cola or Sanka) coped in a way not taught at business schools: she simply sold the furniture and appliances from her home in order to pay creditors precisely as promised.
Omaha retailers began to recognize that Mrs. B would offer customers far better deals than they had been giving, and they pressured furniture and carpet manufacturers not to sell to her. But by various strategies she obtained merchandise and cut prices sharply. Mrs. B was then hauled into court for violation of Fair Trade laws. She not only won all the cases, but received
invaluable publicity. At the end of one case, after demonstrating to the court that she could profitably sell carpet at a huge discount from the prevailing price, she sold the judge $1400 worth of carpet.Today Nebraska Furniture Mart generates over $100 million of sales annually out of one 200,000 square-foot store. No other home furnishings store in the country comes close to that volume. That single store also sells more furniture, carpets, and appliances than do all Omaha competitors combined.
One question I always ask myself in appraising a business is how I would like, assuming I had ample capital and skilled personnel, to compete with it. I’d rather wrestle grizzlies than compete with Mrs. B and her progeny. They buy brilliantly, they operate at expense ratios competitors don’t even dream about, and they then pass on to their customers much of the savings. It’s the ideal business – one built upon exceptional value to the customer that in turn translates into exceptional economics for its owners.
Mrs. B is wise as well as smart and, for far-sighted family reasons, was willing to sell the business last year. I had admired both the family and the business for decades, and a deal was quickly made. But Mrs. B, now 90, is not one to go home and risk, as she puts it, “losing her marbles”. She remains Chairman and is on the sales floor seven days a week. Carpet sales are
her specialty. She personally sells quantities that would be a good departmental total for other carpet retailers.We purchased 90% of the business – leaving 10% with members of the family who are involved in management – and have optioned 10% to certain key young family managers.
Rose Blumkin was an amazing entrepreneur. She continued to be involved with day-to-day operations until shortly before her death at 104 years old.