Mrs. B— Warren Buffett’s Favorite CEO

Read time: 3 minutes

Good morning! It's Thursday, September 14th. Today we’re looking at Mrs. B, an entrepreneur that Warren Buffett trumpeted as one of America’s greatest business minds.

THE FEATURE

Mrs. B— Warren Buffett’s Favorite CEO

Warren Buffett performs a simple thought experiment whenever he considers buying a business: he imagines what it would be like to compete against them.

When he assessed Nebraska Furniture Mart (NFM), Buffett pitied its competitors and categorized its 89-year-old founder, Mrs. Blumkin, as an 800-pound gorilla that could run rings around America’s top CEOs.

Let’s break down what Buffett saw in Mrs. B’s company that led him to purchase it in 1983 for $61M (~$160M today adjusted for inflation).

Mrs. B’s Regional Monopoly

Mrs. B’s story begins all the way back in 1914 when she and her husband fled Russia to avoid World War I. Upon arriving in America, the two didn’t speak English. So, they moved to Omaha, Nebraska where there was a settlement of Russian immigrants.

With $2,000 of her own savings and $500 from her brother, Mrs. B opened NFM in the basement of a clothing store with a single guiding principle: “Sell cheap, tell the truth, don’t cheat nobody.”

This guiding principle quickly won over consumers and made NFM a regional monopoly with just a single store. Customers would even travel from out of state to access Mrs. B’s unparalleled bargain deals.

It was this single store that caught the eye of Warren Buffett. Before purchasing the company, Buffett’s research showed that NFM’s 200,000-square-foot store generated over $100M in annual sales– more than all of Omaha’s competitors combined.

While this is certainly impressive, Buffett keyed in on the fact that the store was highly efficient and generated $500 per square foot. With funding from Berkshire Hathaway and Mrs. B’s leadership, Buffett planned to expand NFM into America’s largest and most profitable furniture retail business (which he accomplished).

Buffett’s purchase of NFM was unlike any acquisition he had made before. On the day of the deal, Buffett didn’t audit accounts or check the store’s inventory. Instead, Buffett had a one-page contract and a check for Mrs. B, which she folded into her pocket before saying, “We are going to put our competitors through a meat grinder.”

Today, NFM has five store locations around the country. NFM’s Dallas location is currently the biggest money maker and surpassed $2B in yearly revenue in 2021.

How She Won: The Virtuous Flywheel

Mrs. B took her motto “Sell cheap, tell the truth, don’t cheat nobody” extremely seriously and it turned customers into evangelists.

This business principle almost got her in legal trouble when competitors sued NFM for violating fair-trade laws by selling everything at just a 10% profit margin. When the judge asked Mrs. B why her prices were so low, she responded “How much should I rob my customers?” Not only was she acquitted, but the judge purchased $1,400 worth of carpet from her the next day.

Mrs. B’s loyalty to her customer base was unparalleled and created a positive feedback loop or what’s called a “virtuous flywheel”:

1. Low prices attracted more customers

2. More customers meant higher sales per square foot

3. Increased sales allowed NFM to scale and purchase low-price bulk orders

4. These cost advantages were passed onto customers in the form of low prices

5. Repeat

The Playbook

Warren Buffett was a fan of Nebraska Furniture Market for 12 years before he finally convinced Mrs. B to sell him her company.

In Berkshire Hathaway’s 1989 investor letter, Buffett described the formula behind NFM’s success that inspired his purchase:

• Unparalleled depth and breadth of merchandise at one location

• The lowest operating costs in the business

• The shrewdest of buying, made possible in part by the huge volumes purchased

• Gross margins, and therefore prices, far below competitors’

• Friendly personalized service with family members on hand at all times