I understand why everyone cloaked in the Berkshire Hathaway story is dwarfed by Warren Buffett. After all, the man managed to compound wealth at a rate of 20% for half a century by investing (rather than, say, inventing) and he developed an aww-shucks persona (albeit a politically motivated one) that enabled him to relate to the public at a large in a way that many of the socially reclusive and inept money managers of the 20th and 21st century never could.
There are some managers of Berkshire subsidiaries that deserve far more attention than they actually receive, and Rose Blumkin is one of them. Charlie Munger was absolutely correct when he said the average businessmen could learn far more from the Nebraska Furniture Mart founder than by attending MBA classes that preach “twaddle” formulas.
To be fair, Warren Buffett tried to bring Rose Blumkin out of his shadow during his lifetime, saying: “If I had to start a business, and I could participate in an NFL style draft where I could pick any of the top 25 MBA graduates in America, or any of the top 25 Fortune 500 CEOs, I would take Rose Blumkin, because there is no one else like Mrs. B. She’d run rings around them.”
Blumkin was a Belarus-born Russian immigrant who came to the United States during the Great Depression. She landed in Seattle, couldn’t learn English, and moved to Omaha, Nebraska to live with fellow Russian Jewish immigrants. In her entire lifetime, she never learned how to read or write.
She had a natural intuition that immense rewards await the low-cost producer in an industry, and she would buy all sorts of items, work a hundred hours per week, selling household furnishings in parking lots throughout Nebraska. In interviews, she stated that her manic work ethic was “put inside her by God” and that she was initially driven to raise the funds to send her 7 siblings to America, one by one, and then she desired to make money so she could keep her household possessions (at various times in her life, she sold her couch, her television, and her fridge to acquire capital to buy more inventory to sell).
Because her margins were so extraordinarily low, the Omaha banking community shunned her and refused to lend any money to her (because the banker’s established clients were the entranched furniture and household furnishing firms). Blumkin responded by borrowing $2,500 from a friend, buying $2,450 in furniture from the American Furniture Mart, and then paying a $50 fee to hold a gigantic weekend sale in an Omaha parking in which she only collected 5% profit margins, compared to the industry norm of 200%. The sale was so successful that she repaid her friend, bought the property that became the Nebraska Furniture Mart, got initial inventory, and finally had the appropriate capital base to launch a solvent enterprise. In 1937, the official motto of the Nebraska Furniture Mart was: “Sell cheap and tell the truth.”
Blumkin said she never forgot how the Omaha business community shunned her when she was poor and offering steep discounts to attract business, saying: “I want to do all the business I can and get every customer I can. Business is like raising a child–you want a good one. A child needs a mother and a business needs a boss…My hobby is figuring out how to advertise, how to undersell, how much hell to give my competitors. I’ll never forget how Omaha [businessmen and competitors] treated us when we were poor.”
Rose Blumkin had a habit of giving extra discounts to young married couples if she liked their look, saying she wished she would have encountered helping hands when she first started out and that she suspected they would remember that deal and stick around and become life-long customers anytime they had a carpet need.
This policy if collecting razor-thin margins caused Rose Blumkin to get sued four times for anti-competitive practices because her competitors argued that she couldn’t possibly be earning any profit at the prices which she sold at. During her fourth court appearance, she testified: “Okay, Judge, you tell me, how much am I supposed to rob my customers and I’ll charge that amount.” Blumkin won her case, prompting Buffett to joke “Even the Judge was in line to buy carpet from her.”
In the 1980s, Blumkin sold 90% of her business to Berkshire Hathaway for $55 million. By the time she died in 1998, the business itself was worth over $100 million (Buffett’s returns were substantially higher, as she shipped all of the undisclosed profits to Omaha’s headquarters for deployment each year).
I think about Rose Blumkin anytime I am making a petty complaint or falling short of the goals I set for myself. The perceived hardships that lay ahead are quickly cut down to size when I think about Rose Blumkin immigrating to the United States in the 1930s, recalling her mother putting cup after cup of water into the bread that they would because they couldn’t afford anything more, never learning to read or write, and yet still build a $100 million business. At the end of her life, Blumkin reflected: “The people who were born in this country don’t appreciate all these wonderful things, like those who came from out of the darkness. I love the United States since the day I came here.”
Originally posted 2018-11-23 01:20:35.