Entrepreneur's Journal: Building a business that Buffett would buy

Entrepreneur's Journal: Building a business that Buffett would buy
Posted Jun 14th 2009 12:00PM by Tom Taulli

While in an airport bookstore recently, this title caught me eye: How to Build a Business Warren Buffett Would Buy: The R.C. Willey Story.

How could I resist? I bought a copy and read the whole thing on my flight (OK, the book is only 192 pages).

The author of the book, Jeff Benedict, tracks the entrepreneurial career of Bill Child, who transformed a furniture business -- R.C. Willey -- into a retailing giant (he came on board the company in the mid 1950s when his father-in-law died).

It's certainly an inspirational story. I also think it's instructive in today's times when entrepreneurs need lots of inspiration. Keep in mind that when Child took over R.C. Willey, the company was in shambles. The debt was suffocating, customers weren't paying their bills, and it looked like the only alternative was liquidation.

Well, failure wasn't an option for Child. Rather, he focused on key business fundamentals that would eventually catch the attention of Warren Buffett, who bought the company in 1995 for a cool $175 million.

So, what are some of the lessons? As should be expected, they are old-school approaches (hey, that's made Buffett a billionaire, right?).

Let's take a look:

Debt can be a bad thing: Child spent years finding ways to pay down debt. It meant lowering costs, improving customer service, and thinking hard about making new investments.

Thus, by having a conservative balance sheet, Child was able to deal with recessions and competitive threats. He was also able to capitalize on new opportunities, such as building a large distribution center (which was key to R.C. Willey's growth).

Honesty: According to Child, "Nothing sinks a reputation faster than dishonesty. It takes years to build a reputation, but it can be destroyed in one day over one misdeed."

Especially in today's world -- with the pervasiveness of the Internet -- a bad policy can be deadly. However, by being honest, there will be trust with customers, suppliers, and partners. Such relationships are critical for any sustainable business.

Details: Retail is an incredibly tough business. As Buffett once said, "In retail, you need to be good every day." Actually, I think this applies to any business.

Now, this does not mean you need to hit a home run every day. Instead, it's about having little victories. Over time, they can really add up.

As for Child, he did hire capable people. But he was intensely engaged in the day-to-day activities. There was little he did not know about the business, even as it became a billion-dollar operation.

Value proposition: What do you offer customers that your competition does not? It's a tough question, but it's something you need to think about. If there is no good answer, then you need to make some big changes.

Says Child: "Offer customers true value on quality products. A low price on a cheap piece of furniture is not value."

Tom Taulli is the author of various books, including The Complete M&A Handbook, and the founder of BizEquity, a free online business valuation tool for small businesses. You can reach him at his personal blog.