What I Learned Before I Sold to Warren Buffett

Published on January 19, 2011

What do you like that we are doing?
What do you not like that we are doing?
What are we not doing that you would like?

— Barnett Helzberg’s three “magic questions”

With the large number of books related to Warren Buffett and Berkshire Hathaway, it is necessary to be selective when it comes to choosing books that are worthy of attention.  Readers interested in Warren Buffett’s background and life experiences can select one or both of the comprehensive biographies that  have appeared in recent years while those who are looking for insight into Mr. Buffett’s investment techniques can select from a constantly growing catalog of books (for a recent selection, we recommend Prem Jain’s Buffett Beyond Value).

Perhaps a more interesting choice for those who are primarily interested in building a business are the books written by individuals who have sold their companies to Berkshire Hathaway in recent years.  Bill Child’s book, The R.C. Willey Story:  How to Build a Business Warren Buffett Would Buy, is an inspiring story for any entrepreneur.  Along the same lines, we recently reviewed Barnett C. Helzberg Jr.’s book What I Learned Before I Sold to Warren Buffett, and found the contents to be useful, although with a somewhat different focus from The R.C. Willey Story. Mr. Helzberg’s book was published in 2003.

When Barnett C. Helzberg Jr. became CEO of Helzberg Diamonds in 1963, the Helzberg name was already firmly established with over fifteen retail shops operating in six markets.  The company was founded in 1915 by Mr. Helzberg’s grandfather and run by his father for several decades through the Great Depression and post-war years.  Mr. Helzberg was 29 years old when he took over management of the company and quickly took advantage of the growth of suburban shopping malls to expand Helzberg’s operations.

While the book contains some valuable insights into the development of  Helzberg Diamonds over the subsequent decades, the book is not a chronological history or narrative of the company’s development.  Instead, Mr. Helzberg wrote eighty brief chapters each covering a different management challenge that he faced over the years.

Helzberg Hints on Entrepreneurship

The eighty “Helzberg Hints” are divided into six themes:  Managing, Decision Making, Hiring, Inspiring, Communicating, and Focusing.  Most of the chapters focus on a common management problem and then proposes common-sense approaches to grappling with the decision making process.  For example, there are hints related to managing your ego, dealing with difficult customers, making good hiring decisions, adjusting prices, encouraging and motivating high achievers, collecting feedback, and doing business with friends and family.

Mr. Helzberg’s  “three magic questions”, quoted at the beginning of this review, are designed to encourage open feedback from all constituencies — employees, customers, suppliers, and (presumably) shareholders. The questions seem simple but it is not that common to do business with individuals who ask for feedback in that manner.  Throughout the text, there are other similar suggestions that could prove useful for entrepreneurs and managers.

Not a Complete History of Helzberg Diamonds

What this book does not provide is a comprehensive narrative of Helzberg Diamond’s corporate history, but that does not appear to have been the author’s goal.  The subtitle of the book is “An Entrepreneur’s Guide To Developing a Highly Successful Company”, and based on this goal, the book certainly delivers.  However, some readers may be left with a desire to know more about the company’s development over time.

In Warren Buffett’s 1995 Letter to Shareholders, he describes how Mr. Helzberg first approached him regarding selling the company to Berkshire.  Mr. Helzberg also goes into some detail regarding these circumstances, and it seems to demonstrate that he is a man who believes in seizing opportunities when they arise:

In May 1994, a week or so after the Annual Meeting, I was crossing the street at 58th and Fifth Avenue in New York, when a woman called out my name. I listened as she told me she’d been to, and had enjoyed, the Annual Meeting. A few seconds later, a man who’d heard the woman stop me did so as well. He turned out to be Barnett Helzberg, Jr., who owned four shares of Berkshire and had also been at our meeting.

In our few minutes of conversation, Barnett said he had a business we might be interested in. When people say that, it usually turns out they have a lemonade stand – with potential, of course, to quickly grow into the next Microsoft. So I simply asked Barnett to send me particulars. That, I thought to myself. will be the end of that.

Not long after, Barnett sent me the financial statements of Helzberg’s Diamond Shops. The company had been started by his grandfather in 1915 from a single store in Kansas City and had developed by the time we met into a group with 134 stores in 23 states. Sales had grown from $10 million in 1974 to $53 million in 1984 and $282 million in 1994. We weren’t talking lemonade stands.

Over the past fifteen years under Berkshire’s ownership, Helzberg Diamond’s store count has increased to 234 stores operating in 37 states.

Recent Development at Helzberg Diamonds

In his 1995 letter to shareholders, Mr. Buffett described how Helzberg Diamonds had capable management in place with Jeff Comment in charge as CEO, and that  Berkshire would not have made the acquisition without Mr. Comment staying on board.  Unfortunately, Mr. Comment passed away at the age of 60 in 2004.  Mr. Buffett named H. Marvin Beasley, who had  served previously as Helzberg’s President, as the new Chairman and CEO of Helzberg Diamonds.

Mr. Beasley resigned abruptly in April 2009 in midst of the recession.  The abrupt resignation and lack of detail in Berkshire’s press release led to some speculation at the time.  In a rare move, Mr. Buffett looked outside the company for a new CEO and named Beryl Raff to the position.  Ms. Raff previously held a number of  executive roles at J. C. Penny.

Readers who wish to gain insight into entrepreneurship from a proven manager would do well to read Mr. Helzberg’s book.  For those who are more interested in the story behind a business that Berkshire eventually purchased, Bill Child’s book may be a better choice.

The author of this article owns shares of Berkshire Hathaway.

What I Learned Before I Sold to Warren Buffett