Lectures in Entrepreneurship: Bill Child

>> Before I forget, for our satellite campuses, if I could get you guys to make sure your mics are off during the presentation We had a little feedback problem in the last presentation, last week But if you could turn those off, I’ll surely appreciate So all our students welcome, all our invited guests, faculty Thank you very much for coming A couple of brief announcements, I’m going to turn the time over to Natalie for a minute She’s got announcement about E-Week activities >> All right. Well, it’s good to see all of you Hopefully everybody here has their passport for E-Week Tonight’s event, you do get a sticker for So if you haven’t gotten a sticker already, make sure that when you leave on either doors, there’s going to be someone that’s handing out those stickers What the sticker does is enter you into a raffle which is on Friday So that’s another event you’ll want to look for So that’s how all I’ve got. Thanks >> Thank you. One other quick announcement as we mentioned last week, because of some of the recording issues we’ve had at least getting the recordings, the video recordings posted online, all the deadlines if you’re in the class for your papers are you got till the end of the semester, I think it’s April 27th when the cut-off is So if you have rather than the week after, they’re due, they’re all open until the end of the semester If you’ve previously sent those directly to me, please go back and put them in the Blackboard Dropbox That would be great Okay. Very excited about today’s speaker I got to hear him about five years ago I was talking to Dean Anderson before him But I’m going to allow our good Dean, Doug Anderson, to do the introduction Actually, I don’t know if I’d have a choice in that So that was probably not the right word Dean Anderson’s going to give the introduction to our speaker, and I’m going to turn the time over to him >> Thank you very much Well, it really is my privilege and pleasure So thank you Professor Herman for that privilege to introduce my good friend Bill Child Bill is joined here with us this evening by his wife Pat We’re grateful Pat that you would come on up with this I think maybe with one or two of your former missionaries, is that possible tonight as well? In the DC mission with you as well Well, you probably all have mothers who’ve said to you at some time in your life, “Be careful who your friends are Be sure to choose wisely who your friends are Make sure you choose friends who can help you rise to a higher level of behavior and performance, and who can inspire you.” I want you to know that if my mother were here tonight, she would say that I’ve chosen wisely in my friend Bill Child Bill and I and Pat first got to know each other when they moved into the neighborhood that I was living in in Salt Lake City, back about 15 years ago So I knew them first as neighbors, and they were great neighbors What you will see in Bill Child tonight is what everybody sees in Bill Child no matter who they are No matter what their station in life is Because he’s the same kind, generous, honest, courteous gentleman with everybody that he meets This book that you have received this evening is one of the best business case studies I know on how to succeed in business As soon as I became Dean, I knew that I wanted to start a Dean’s convocation series in which I would be able to invite some of my friends and associates and acquaintances who I’ve been inspired by, to meet with our students, and to have them be exposed, you to be exposed to these great individuals, these great men and women One of the very first that I reached out to and invited to come, was Bill Child At that time, this book was only an idea in his mind How to Build a Business Warren Buffett Would Buy We put that sign up, and invited people to come if they were interested Just like tonight, the place was full Then, Bill and Pat went off to serve a mission for the LDS church as

the directors of the Washington DC Visitors Center at the Washington DC Temple Bill continued to think about this book and teamed up with Jeff Benedict, to actually get it out in writing Then we invited Bill and Jeff to come back a second time to talk about it We’re so privileged to have him back again One of the wonderful things about being at a university is that you all make us constantly new and constantly fresh because you’re renewing yourselves every year We get new students all the time, and the opportunity to share this story is one that we really appreciate having You’re going to hear tonight about how Bill built this business, and you’re going to learn a little bit about his relationship with Warren Buffett, which is an extraordinary story I hope you’ll tell the story about Idaho and Boise and the new store up there, and what that led to I’m inspired every time I think about it Every time I have an opportunity to talk about Bill Child with professional audiences that I see and speak to, I do I use the occasion to tell them this extraordinary story Our Director of entrepreneurial programs Dr Michael Glauser has said that entrepreneurship is really the new leadership model When you think about what the elements of that leadership model are, every single one of them match up in the personal characteristics of Bill Child There is no one who I can think of, who is a better exemplar of the kind of leadership that we’re trying to establish and foster here at Utah State University, than my friend Bill Child, and I hope you’ll welcome him tonight to the Utah State University >> Thank you >> Welcome >> Thank you. Thank you >> Boy, do I have to speak now? My word. After that wonderful introduction If Warren were here, I think they wanted Warren and he would usually say, “I’m just going to test this mic Testing. One million, two million, three million.” Then later on he would say, “Testing, one billion, two billion, three billion, can you hear me okay in the back?” So is it working? I guess it is, isn’t it? Well, I am honored to be here I’ve had a wonderful ride I don’t deserve all the accolades, but I do have a lot of respect for Dean Anderson Doug Great neighbor, great visionary Mike Glauser and I have become acquainted and did some things at Westminster College I have a lot of respect for Mike So you’re in good hands You have some wonderful leaders, visionary, great characters, individuals, good models. Good role models Sixty years ago, I was a student, like some of you But a lot of you are really a lot more advanced than I was You’re already into the entrepreneur spirit, doing things in businesses and so forth But I think one of the things that was interesting to me is that, I always had this question, “What do I want to do with my life?” I was raised on a farm and I hate to say this but I didn’t like farming It’s a tough business Had to get up early in the morning and milk cows, and irrigate at night, and thin beets and pick tomatoes, and it wasn’t a big learning curve with that type of situation It would take you longer to learn how to do it, and really wasn’t testing your intellect at all I thought, “Oh, that’s something.” So some of the things that I wanted to do, I wanted to do something that I thought I could do well Warren Buffett says, “We’re all wired a little differently Some people have different aptitudes, and can do things.” In other words he says, “I can’t high jump seven feet, ” but he can certainly allocate money properly and do it better than probably anybody else has ever been able to do it in the world so far Something that I would be adequately compensated for I mean, I didn’t want to make a lot of money but I wanted to make enough money. I grew I wanted to nice car that would start When I grew up, we had an old Plymouth It was the 1941 Plymouth, and that darn thing at times would just, wouldn’t turn over I mean it would run, about half the time it would start,

half the time it wouldn’t start You just have to sit around say a few words and pretty soon you go back and it wouldn’t start That’s tough to go on a date, and not know whether your car’s going to start when you get out of there So anyway, I thought, “Boy a car that would run would be just wonderful.” Like I said, raised on a farm, hard work, tough, small town too In our town of Syracuse, a town of less than 500, we only had one, if you’re familiar with a ward, was only one ward in that Our stake was originally in Layton Utah, and then we went Clearfield Utah Now I think they have five stakes in that little community That’s what inexpensive land does for you But anyway, we had no lawyers, no physicians, no accountants, only farmers or government workers They’d had a couple of government institute or installations that have moved in We had Hill Air Force Base which was wonderful We had the naval supply depot, can imagine having a naval supply depot in Utah You know no one was going to bother us in the Great Salt Lake of course But anyway, they closed it sooner or later decided that wasn’t exactly appropriate We had the arsenal and so forth, and teachers So it was a process of elimination I didn’t want to be a farmer, not that I didn’t respect farmers and we have to eat I shouldn’t say that in an Ag college but that was not it I had some skills in athletics grade, got into boxing as a football player or football coach and wanted to box instead of boxing or wrestling There was a kid in my class that could beat me in wrestling, so I said well, I’ll go into boxing but I really have to learn how because I got a nose right on the front of my face, it needs to fight my cousins and always punch me in the nose I could lick them all but the nose got so sore Anyway, so I developed some pretty good skills and fought a number of times But anyway, I went down and fought an AAU tournament down at the Salt Lake City, and knocked a marine out the first fight and then nobody else would fight me until the last guy But I’ve never been beat except that I saw some of these guys were amateurs and they have these cauliflower ears I kept thinking, if that’s what they got on the outside, what’s on the inside? That must be even worse so it didn’t take me long to figure out I don’t want to do that So anyway, teaching looked like it was great But I want to just say one thing, I want to compliment you on your education Warren Buffett said, when asked what’s the one thing I can do to get onto my successful life that I’m going to have, he said “Well, invest in yourselves It’s the most important thing you can do.” Meaning, get your education A lot of you’ll change positions, you probably might not stay in that particular field, you might change fields but still get the education That’s actually the most important thing you can do Be prepared. The opportunities will come in good times and bad times They’re still going to come and the possibilities are all going to be greater if you’re prepared and ready You know it is a challenging world and a changing world that we live in It’s just amazing I have a hard time stopping You get a little older and you stop and reminisce a little bit, you think about the pioneers, you think about 60 years ago when I was a student, and think about the kings, we live better than kings did, 400 years ago our lives are much better, and the poor pioneers that came across without shampoo and toilet tissue and good toothbrushes and feet and shoes, and sometimes lotion and I keep thinking of it Then my kids gave me this little iPhone, and you know all about this but for me this is a miracle I’ve got a flashlight, I’ve got a video, I can take video pictures, I can take still pictures, I can transfer to somebody else, I can tell what my stock prices are every day, I can get all my emails on the thing, I can listen to music I could go on and on I mean who would have believed this My father passed away about 15 years ago, and this thing he would have thought was something else I mean it would have been just mind boggling to him have something of this nature

So it’s just a changing changing world I can remember one time I had a fellow come down from Oregon, we went to visit some furniture retailers, and I went down to Provost and visited one of the furniture companies there That was the biggest furniture company there So there’s an old guy sitting there behind his desk and he said, “You know, times aren’t the way they used to be.” He said, “Look out this window There used to be apple orchards, there used to be some cherry orchards over here, and now look, it’s all houses It’s all houses.” He said, “That’s just terrible!” I thought, “He’s in the furniture business, he’s selling all those houses, what’s the deal about?” So adapting to change is one of the things we’re going to talk about a little bit It is very very important One of the reasons I think that we have been, if you might say successful, success can be very canative That means it isn’t permanent But we have been there, this is our 80th year and I can remember that because I just had my 80th birthday too, so I remember that, it isn’t hard for me to remember But I think we’re probably as good as anyone at adapting to change because the world changes, people change, the styles, customers their likes and dislikes change, and so you have to adapt When I started in 1954, we had about 40 competitors that were probably as large or larger than we were, and I’m sure all of them were better finances because we were in the hole We were in a negative position but there’s only two left and they have not changed, and certainly have not grown One of them is a little appliance dealer in Ogden diesel sales and service, and the other one is the biggest called Standard Furniture in Salt Lake City, and they haven’t grown at all, it’s just been a place to come So part of our growth is adapting to change, and so change is really important. You need to do it Another one is a principle that I want to talk a little about, and that’s living within your means A thrift and frugality, very important I had a fellow the other day that was carrying with me and a good brand He’s done well, they had a company and they sold, they did very well with the company Then he invested in a lot of real estate and it’s been tough for him, real tough Needed some money, was trying to figure out how we could get some money, I said, “You’ve got a partner Why don’t you go to him and get him? You shouldn’t have to carry the whole burden.” I think about how the guy lives in a 23,000 square foot home, drives an Audi eight He said, “No, My partner doesn’t have any money He can’t even pay his bills now.” I thought that’s too bad You’ve got to learn to be frugal and live within your means It’s very crucial and very important That’s the one thing that we preach in this particular book By the way, I’m going to skip around a little bit because my biggest goal today is to get you to read the book I had a fellow one time He married one of our missionaries and he was down at the Y and he was given a head of a talk on RC Willey and business He asked me a lot of questions In the meantime I had given him the book He asked me questions that I knew were in the book and I said, “John, Read the book.” That was I think a Saturday and next Sunday evening he called me, and he says, “Hey, I read the book I did read the book.” About a month later he said, “Hey, by the way I got an A out of the class, they loved that article.” So anyway I want you to read the book It’s very important. Oh, by the way there’s a picture on the front here Here’s the good looking guy and then there’s me, Warren and myself By the way Warren wrote the forward in the book and he said that was one of the reasons he wanted me to write this book He said, “You’ll write the book, I’ll write the forward through it.” So that’s worth reading But anyway, Warren, a wonderful guy, we’ll talk a little bit about He’s Just a wonderful individual One thing that he does is every year, he invites people to bid for lunch, four people along with him, five people to come to lunch with an individual gets the bid It started out at about two million, and I think the last time it was 2,600,000 Now after we had this picture taken I took him to lunch, it cost me $28 So I’m going to always try to get a good deal Last thing I’m going to tell you is always get the best deal you can You want to get as good a deal as you possibly can because if you can buy cheap,

it’s easier to make a profit So $28 to go to lunch with Warren Let me just tell you one little story quickly and then I’ll get into the RC Willey story My recollections of Utah State University go back a number of years I was a junior or a senior in high school, and I was in the Ag Club They’d roped me into being one of those Future Farmers of America thing, and, “I’m not going to be future farmer.” But well, it was an easy A, and the guy liked me, the instructor, and so forth We took a trip. We came up to Logan Me and two of my buddies were running track at the time We were on the track team and running track, and they were having a track meet here at Utah State That’s when the guy by the name of [inaudible] I think or something, people that I really respect, and I wanted to see that track meet so bad I finally got the idea I said to the instructor, I said, “Why don’t you let us out? Me and Charlie and Harvey will get out and we’ll go watch the track meet, but then we’ll get down We’ll get home some way.” He said, “Oh, I couldn’t do that.” He said, “Oh, I couldn’t do that, Bill.” I said, “What if we just get out the back door of this bus?” He said, “Don’t let me see you, but okay.” So we jumped out the back of the bus We went up to this track meet We only had enough money for two of us to get in The girl that was there selling the ticket, she said, “Well, you look like nice boys I’ll tell you what. If one of you will go around the back, there’s a gate back there, and you can go in We’ve a lot of the athletes coming in You just come on in through there I don’t think anyone will follow.” So anyway, [inaudible] gives me a little bit of maybe the naiveness of me or maybe the risk-taker that I am Here we are, penniless, three of us We need to get back to Syracuse, which is, from Logan, is a long way, so you have to walk, and we didn’t have a dime in our pockets In fact, they asked me, the suit guys asked me I said, “We’ll just thumb back. We’ll find a ride.” Of course, at that time, we did a little bit of thumbing, and that’s one of our mode of transportation Well, we saw the track meet, had a wonderful time, and lo and behold, we catch a ride with a guy, and he said, “I’m going to Kaysville.” I said, “Oh, that’s wonderful That’s close enough,” because one of the guys lived in Kaysville We had to go to Syracuse, then I said, “Well, in the meantime, we can stop at the high school, and we’ll go in and do our work out We’ll run our laps on the track We’ll get down and get our track gear on and run the track.” So we did. We got down there, and the school was closed It was about six o’clock or so in the evening or 5:30 Six o’clock, I guess So we knew there was a window open always into the locker room, so we went through that window, went down, got our clothes on, went out, did our work out, came out Harvey went to Kaysville, and Charlie and I thumbed till we got into Syracuse Got home just in time to finish my chores Why did I just bring that up? You couldn’t do that today, would you? We know what they would say, “Well, how am I going to get down? No one will pick you up in the first place Thumbing is not in style, in vogue, but I just figured some way, we’ll get home We wanted to see that track meet worse than we wanted to think about, “Well, maybe we couldn’t get home Maybe we don’t. What’s going to happen if we don’t get home? If it’s gets dark, they’re not going to pick us up as easy in the dark They’ll pick us up maybe in the light.” Anyway, I just told you a little bit about that Well, one of the questions you’re probably going to want, why did Warren Buffett buy RC Willey? What did he see in us that he didn’t have in other companies? What is his criteria for buying a company? It’s all listed in his annual report, really does But the first thing, he has to like management Second thing is he has to understand the business The third thing, it has to have a good history He doesn’t want a company that’s had a horrible past, but a bright future because usually, the future is a lot like the past It doesn’t change an awful lot Management has to agree to stay He likes companies that have moats around them, meaning that’s a tough barrier to entry You can’t get into that business real easy At the time, we had about 50 percent of the home furnishings business, a little over 50 percent, and about 35 percent of the electronic business in the state

So we were a pretty sizable merchant and pretty much the dominant player in this field That’s good management, we thought So anyway, let me just tell you a couple of things Let me see if I want to stay on because my time is going to really get much faster than what I can possibly Let me just tell you real quick. We’ve talked about the debt I’ll talk about Warren a little bit later, and any questions you might want to ask, you can certainly do that But let me tell you why I figure it’s the American dream I took the business over in 1954 Here we were, 600-square-foot building, one employee, deeply in debt My father-in-law turned the keys over to me, June 1st, the day I graduated from school He was a wonderful guy His cash register was in the back of his pocket He was very generous. He had more overhead than he had income That’s what we always say, you need to live within your means The revenue has got to exceed the expenses If it doesn’t, as a family or as a business or as a country, which we haven’t been doing, pretty soon, you’re on the road to trouble He had a bookkeeper who was not a very good bookkeeper A little dishonest to say the least So he really didn’t know, in my opinion, exactly, financially, where he was He was working on a float, which meant that he would buy $10,000 worth of appliances, get 120 days to pay for them, have them sold in 30 Then he’d buy another $9,000 worth of appliances and do the same thing He’d get 90 days to pay for those and have them sold But then when he got sick, and that’s when he was sick, when he turned the business over to me, gave me the keys Now, here’s what I had. I had a 600-square-foot building. I had one employee I had a red bank account The best year we had was 153,000 before Now, I listed in the book 250,000, and that was the best year we had when I took it over in June and ran it from June through the end of the year But prior to that, that year before that was 153,000, which was a lot These margins are very thin He liked to take trips He never worked on percentages It was strictly a matter of, “If I make $15 or $20, that’s great,” and so forth I said that we had a lot of competitors in the market at that time We had no bathroom facilities in that little 600-square-foot building Power was run from the house to the store, the party telephone line But there I was. I’ve got one employee We’d never run a TV ad. Of course, we have TV We just barely had started selling TVs, but we’d never run a TV ad or a newspaper ad or anything of that nature Well, 40 years later, we sell the company to the second richest man in the world So that is kind of the American dream That’s sort of a miracle, you might say, going from 153,000 in sales up to 259 million in sales, and having 1,300 employees later Well, I stayed on for seven years and grew the business to where we had 3,000 associates and 800 million in sales So that is kind of the American dream That has been a wonderful ride It wasn’t instant success It took 27 years to get to that first million in sales My father-in-law ran the business for 18 years door to door Then from six years later on, added the store Actually, I can take maybe five minutes and just go through them quickly and tell you just a little bit about RC Willey, but you’re going to get all of this out of the book We hope to read that RC Willey had probably an eighth grade education He was the same class as my mother and she claims that she graduated from the eighth grade and Rufus didn’t His name is Rufus Call Willey But anyway, they were just electrifying Utah Power and Light,

electrifying the Davis County and Weber County They just had no electricity at that time and they were just putting poles in, and stringing wires and he got a job doing that Then he finally advanced up to where he was a Station Manager in Farmington Canyon where some of the power came from Then he would go down to a distributor called Gregoire Electric that distributed the Hotpoint appliances So he finally decided that he’d get his wife one, and he did He’d go and arrange to get his wife a refrigerator and it was the hit of the town, hit of the city to have a refrigerator and not he’d be able to keep things cold and not have to hang the meat on the side of the house, north side of the house and hope that it was okay or not the leftovers or have cold meal was something else So he thought, well maybe I could sell off a few of these One of the neighbors says, “Willey can you get me one Get me one?” So he decided that that’s what he did He did it for a while and then finally it got so busy that he quit his job and he did it full time But he still was a one man operation for 18 years About the time the Korean War was beginning, our people couldn’t get appliances during the First or the Second World War So there was a flood of people saying, “Hey, maybe we’d better upgrade our appliances because if we don’t, the Korean War has come along and it might be the same situation in the Second World War So business picked up, and here he was out in the country with no overheads, selling cheaper, and all the competitors But the power companies wanted that because they had power in these houses and they didn’t want to just sell them electricity for the lights They wanted to sell electricity during the mornings, in the daytime, and so forth, and the refrigerator did that So refrigerators, they were pushing selling refrigerators and electric ranges and so forth, where they could use more power So anyway, his competitors started complaining that he wasn’t a legitimate dealer here Here he was out and that they’d never had as sell room, and working out of his garage, and a one man operation, but he was selling so cheap that the competitors with overhead couldn’t compete with him at all So they put pressure on the distributor and the distributor said, “Okay, we don’t want to lose the guy, but he’s got to have a store either uptown, around town, someplace, he’s got to at least build or rent a store Well he decided, they decided, they’d build one right next to their house and this was the 600 square foot store Right in the corner of a corn patch It had all the features I told you have had, a place for four parking places in front, gravel of course and nine party telephone line, no bathroom, six 20 by 30 is pretty small, but he was a legitimate dealer then and he didn’t only to comply He did this for about six years and then he hired a person to help him deliver and repair So when he gave me the keys in 1954, the year I graduated, I’d help him a little bit That was the situation that I ran into I started writing some checks because we had a lot of bills that need to be paid I looked at some of the old bank statements and they were all in the red and I thought well he must have a deal with a bank there Well, shortly after that, I got a very abrupt call from the soon to be president of the Barnes Banking Company and he said, “Will, what are you doing?” He says, “You don’t have any money in the account, you’re writing and all these checks,” and I said, “Well, yes. I have bills to pay.” He said to me, “Don’t you know if you don’t have money you don’t write a check, you don’t draw on that account You don’t have any money on it,” and I said, “Well, I thought the bank accumulated it and had a loan there because in the past they were all in the red.” He said that was between Mr. Willey and Mr. Gailey who was the old president of the bank that RC had dealt with, but he was on a trip to Europe, and didn’t go to Europe very quick in those days it was by boat and so forth So anyway that was my introduction Well, that was 1954 Then in addition to that, right after that, I guess a call from the IRS They said, “We’d like to just ask Burn Burton and I represent the IRS It’s the Internal Revenue Service.” I didn’t exactly understand the acronyms, but I do definitely now than I did then afterwards

He said, “We need to come and audit your books.” I’d never seen the books, so I have no idea, so I call this accountant and he said, “Oh, okay I’ll bring them up.” I said, “Well, I’d like to meet with you.” Well, he comes up one night and dumps them in one of my mother-in-law’s front porch and could never reach him again Consequently, RC Willey who was honest since the day he was born, has been paying this guy He was supposed to pay taxes, never paid any income taxes, in addition to a few other things So there we were, here I am 22-year-old kid All these pressures, I thought, “Wow, what do we do?” We had a good reputation of saving money, but anyway So that’s one of the things you want to look into the thing 1957, right shortly after that, had a lot of plans with a lot of troubled plant services I decided to maybe expand into the production and that was a great idea, because the same customers when we expanded, I had made a good connection with a local banker who trusted me I had enough money to build a little addition, so I added furniture, and our business doubled almost that next year Because we had the same customers selling him more products and more product at a little more profit margin, is a little more profitable So that too is there, then of course 1969, I decided that, now this was 15 years later by the way, in the time that we expanded into the future We expanded our Cherokees operation, probably eight or nine times just adding more hours, we could afford to do it I decided that, Air Force, was one of our biggest customers that people that worked there, there was almost 20,000 civilian employees, maybe 3,000 military We sold 99 percent of all military and it was a wonderful source, but they kept saying, “We’re going to cut it back We’ve got to cut it back and so forth.” I kept thinking well, we need to diversify Half the business in the State of Utah is done in Salt Lake County area, 25 percent less than what it used to be It may have changed a little bit. Twenty-five percent was done in the Davis, Weber box, Weber County and 25 percent in the Orem, Provo in that area So I felt like we needed expanding to Sal Lake We get 1969, built a store, started on some TV advertising Someone asked a little bit about that That’s kind of an interesting, I’m going to let you read that, how I got a lot of free ads, not free ads, but almost free, for nothing just by taking a look and getting out of the box a little bit Also decided that we wanted to get into carrying our own accounts receivable People buy home furnishings, at that time they didn’t have the cash to pay for it So you had to be able to finance it We had gone through an awful lot of finances processes and so forth So finally, decided to do it ourselves because there was a law on the books called the Installment Basins Reporting Income, meaning that you didn’t have to pay your income tax, if you had built up a portfolio, a loan portfolio that you’re financing these various accounts, and that worked out very well It’s in the book. It was a great concept because at the time that they closed the law I had over $7 million that I owed the IRS but was not delinquent or not really due They gave me four more years to pay for it, but I had that money free Yeah. Warren, would have loved that, because he always talks about float, getting float free, and I was getting income tax free I was paying no income tax there and using it to expand Harbor So that worked out well The next 26 years we expanded We built stores in West Valley, Orem, South Salt Lake, Riverdale Then in 1995, we were doing 259 million, we had hardly no debt and quite profitable We were carrying our own accounts receivable One of the reasons that we were like this, was the fact that we’re carrying our own accounts The interest income was doing, was banking is not a bad business at that particular time So we were doing quite well and we can maintain the margin of profit that he saw and wanted and was willing to accept So he looked at us and said, “Hey, that’s a great model It’s a great company and I’d like to buy it.” Which and we were shortly very willing to sell it to him I talked a little about the story, and how we met, and how we went along with it It’s a great experience, really

There’s a telephone call oops, time flies, doesn’t it? So awful, so I’m going to have to skip that But then you want to read that in the book, because it’s quite interesting and we had a wonderful relationship We’ve had him in our own home, spent a lot of time with him I was telling this group we were with my business IQ went up 10 points by associating with Warren Buffett Another three or four points associating with Doug, and with Mike another two points So business with pleasure So anyway, thank you. Let me do this I know there’s a lot of questions out there, and normally, I usually take about an hour and a half, it’s hard to tell 50 years and put it into 161 pages too That’s very difficult to do but it’s a lot easier to do that than it is to put it in a 30-minute talk Anyway it was a wonderful experience to sell it to Warren A man of integrity and his word is his bond >> Tell us why you chose to sell it to Warren, for less money than you were offered by >> Well, it fit Number one, it was like you say, it was a perfect fit We were offered at the time there was companies wanting to acquire businesses, especially businesses were profitable, and we’re very profitable for that We had control our overhead very low and we’re buying right We were the first guys that had gone overseas to buy product, buying at the same price, some of our manufacturers were buying it at We’re running a very lean ship, and our margins were excellent He was very pleased with our model, and it’s a good model So we had about five offers for our company Not that we were soliciting it, not that we really want to sell it, except that, I think I was 62 or three, and my brother, I thought was going to run the business, and then the church got a hold of him, and he spent the rest of his life He just got released as Temple pastor in Salt Lake City But he spent 33 years in the business with 25 years working in church assignments, which he loved, and it was great But anyway, so I wanted the company to go on beyond my tenure, and I wanted to stick around it I felt I got a lot of great ideas and so forth So I was willing to entertain sales, but I had actually five, I think five offers, three or more from investment banking companies, excuse me Two of them were from other retailer One of them was a company called Montgomery Ward, another one is a company called Climate Meyers, and there was something about all of them Number one, we want to stay closed on Sunday We’d always been closed on Sunday We just didn’t want the company be open on Sunday I couldn’t trust at any of those companies would have let us do that. Number one All of them had flaws Some of them were going to already offered us 200 million, well over 200 million. That’s a lot of money It came out of Syracuse that made less than a dollar an hour holding beats and the fitting beats and so forth I mean, it was huge money, but there was always a little caveat there that I didn’t like Some of them, mostly investment banking companies are going to say “Okay, we’ll pay you 100 million cash, then we’ll borrow another 100 million on the assets of the company, and so you get your 200 million.” That’s me, and family, and brothers I said, “Yeah, but the company would be encumbered for 100 million.” Well, yeah, that’s why I said you ever had a mortgage on a building, and in the book I tell you, why? It was so tough to start with that, and I couldn’t get one to begin with I did after saying everything personally, which I was certainly willing to do because if I make a commitment, I wanted to honor it Well, anyway, so I was talking to a friend of mine, and I said, you think Warren Buffett might have an interest in our company? I had to turn down those five offers because we really didn’t need to sell But I was working six days a week and 12 hours a day, and I kept thinking there’s got to be something outside of this, a little bit I love it. I was enjoying it We were growing and moving forward Things were doing great So anyway, I mentioned to this friend Warren might have an interest in that Because I knew a lot about Warren Buffett I mean, he let you continue to manage your company,

and you continue to run it, it’s like having your cake and eating it too He said, “Well, I don’t know why you wouldn’t sell this.” He said, “I’ll talk to you and we’re going to have lunch with you in about a week or so.” About a week, I get a phone call from a friend of mine [inaudible] , and then he said, “Bill, that Warren was talking He’s very interested in your company He said you got a great company.” So about five minutes later, I get to hang up the phone He said he’s going to call you, hang up the phone, and it rings, and here’s Warren Buffett He said, “Bill, I understand you’re having an interest in selling your company.” I said, “Why not I’d like to talk about it Here’s my dilemma.” I said, “You got a few minutes? ” “I got all the time in the world.” It was so easy to talk with him I mean, he just straight for this guy But I finally insisted on him, all he said, “Send me a couple of years’ financials, and I’ll get back.” So I got back with him He sends me an email a few days later He said he got a jeweler company, it fits our mold perfectly I’ll have your price in three days So yeah, I’ll let you figure out what the price was significantly By the way, it did up by five million dollars I’ve got this thing, and I got to show you some pictures Now, this is in the book You can tell how organized I am, maybe it’s age Doug, you think that’s it? Okay. I want you to read, this is easier in the book Here’s our first store. That’s the way it look There’s three pages across the front, and that was it Flat roof, it did leak a little, but other than that was a nice little building We just build onto it and got little better roof, now Here’s our RC Willey, great guy. That’s he He was proud of that store It was a real move up from him Now, if it had been you, for 18 years, you’d had 10 other guys doing the same thing, because he put refrigerators into a customer’s home and say, “if you don’t like, I’ll come and get it and take it back.” Well, there’s no way that wife was going to let that refrigerator go out So he had the contract there, and it was a formed plan So it was just like shooting fish in a barrel, really So opportunities were really terrific He did it for 18 years all by himself, and then had to build the store He was forced to build the store So in the book, there’s a lot of what ifs that had to happen What if we hadn’t done this, which I think we’re good This is our Murray Store now This is the first expansion outside Now, it didn’t look like that. First to go around This has been remodeled a little bit, but I remember standing on there with a guy from a capital investment company, he said, “The store would go any place in America We could do so well with this store.” I said, “Yeah, but we have to restore closed ones.” We’ll talk about that later I said, “So I do miss him.” There’s our central distribution center that’s in South Salt Lake It’s 200,000 square feet, a little over 200,000 square foot We have a corporate office, but let’s see It’s 280,000 square feet We have 200,000 square feet of warehouse, and the rest is showroom, and display, and offices There’s Warren Buffett, of course [inaudible] with Bill Child here, my brother Sheldon, my son, Dave, and oh, my gosh, dear, Richard Turnbull, who’s our Chief Financial Officer, great guy “If you want, you could come to work for me,” he said I said, “Well, tell me a little about you, Richard.” He says, “Well, I won [inaudible] on Utah.” Then his third in my class He said, “I was student body president.” I said, “Well, how many in your class?” “We’re six.” I said, “Tell me how you got student body president?” That was an interesting story He said, “Well, there’s this guy that was going to run for president, he was dating a Turnbull girl, and he dated another girl, and so all the Turnbulls wouldn’t vote for him, they put me up and they elected me.” So I think he was a terrible choice Murray Store. That was our first expansion Do you want me to tell about that? Have I got time? That’s what it was That there was a horse pasture, cow pasture, and when I spoke it, then I said, this is a lot better used to have this as a furniture store than what it was, is to run down all the horse pasture But that’s the Boise store >> There’s a Boise store >> As for the location of it. Yeah >> You can tell that it’s in Boise >> Oh, should I put in? >> Yeah, you got to tell the story >> Okay >> Let me ask you this quick. I’ll ask quick >> So Warren said to you that, though as long as you can keep producing the numbers that you’re doing,

we won’t have any problem maintaining the policy of no opening on Sunday He was willing to do that and give you his assurance, that you are never quite sure about the others and this was important to you, and that you wanted to expand outside of the state of Utah and in particular, you wanted to go to Las Vegas >> Yes. Definitely >> So tell us how you ended up in Las Vegas How was that possible? There is a happy ending of this story but you’re not going to believe this story >> Why I went down to Las Vegas? I had to see if our model would work and Las Vegas was growing, Henderson, Las Vegas was the fastest growing city in America for 10 years and it was just, I mean that a desert was here one week and next it’d be houses and then desert and then houses It was just houses were encroching on the desert like only fancy So I went down and hired a helicopter, he was going to be there So I went down, picked him up We hired a helicopter and flew over I said “Look at this.” I said, “Look at all of these rooftops Isn’t this a perfect market?” I said, “There’s one problem, we should have been here five years ago but we weren’t ready then but we’re ready now, our infrastructure is ready, our management team is ready, our systems are ready, we need to be there.” He said, “Okay, yeah When we got through, he said, go on I was just, I said it’s a closing Sunday He hears and he says, “Yeah, we’re not going to go into a market that we can’t be successful at and be closed on Sunday. We’re not going to open on Sunday But I don’t think we can go to Vegas and be successful being closed on Sunday This won’t work.” I said, “Well, I think it will Warren.” But when Warren makes up his mind, you’re all familiar with the high texts when they started flying and he didn’t buy them and everybody thought that was not and when the bubble burst, you become the hero again because, he just doesn’t It’s very hard to convince, he’ll listen to you But anyway, so then I talked about Boise, Idaho I’d looked at the Boise, Idaho, it was 285 miles from Salt lake, we had a huge warehouse there that we had just built and we could service it Hopefully, I was going to serve Las Vegas So I suggested, he said, “No, we’re not going to go Boise, Idaho.” Finally, I come back with a little more information Finally one morning I was in the shower and I got thinking about us and I’ve gotta do something out of the box completely So I called him and I said, “Warren,” that morning I got together, I said, “I’d like to talk about Boise, Idaho.” He said, first time he was ever cross with me I mean we’d been such good friends and he said, “Bill we already talked about Boise, Idaho.” I said, “Warren, I’m going to make the deal you can’t turn down I said, number one I will buy the land, number two, I’ll rebuild the building, and number three, if we’re not successful in six months we’ll walk, we’ll close the store I’ll guarantee the company doesn’t lose a dime.” He said, “Okay.” He said, “If we can’t do 30 million, we’ll close it I said, “Okay.” Well the biggest store down there had only done about 21 million, biggest store in Boise I said, “Okay, that’s fair enough.” He said, “Then if we can do that, I’ll pay you four percent of sales. I’ll lease it from you.” I said, “Well, I’m going to make you a better deal than that, if it’s really successful, I’ll sell it back to you exactly what I paid for.” He said, “Okay.” So hung up. Now, you never know what’s happening on the other line He might have been looking at $100 million deal or $200 million deal, here I’m talking about a little store in Boise, Idaho So anyway, he called me back in about three or four weeks I went to my staff meeting I said, “We’re going to Boise, Idaho.” The first thing I got to do is buy the land and that’s an interesting story But so anyway, he called me back about three weeks He said, “Bill I’ve been thinking about that.” He said, “I’ve never had anybody do that, making that kind of an offer.” He said, “It’s all downside for you There’s no upside at all and it’s all downside.” I said, “No, listen.” I said, “If we’re successful in Boise, you’ll let me go to Las Vegas.” He says, “Okay.” So that’s the way it started We got 50 million the first year Then he said, he called it the Buffers Store, instead of the Boise Store but it was a wonderful experience. Let me just do it at all Then since then he let me go to Las Vegas, Henderson, Samelo, Reno, Sacramento we were doing more business outside of the state Let me just how you a couple of other things I’m going to- that’s Warren, when we opened the store, this little boy sang The Star-Spangled Banner He was the cuteness kid you’ve ever seen and Warren just fell in love with him

Warren is one terrific guy This is one of the displays I’m going to get through these real quick this is the grand opening there That is Henderson, look at that, isn’t that nice? My favorite picture of all, this was Las Vegas of course, you know how the glamour and glitz and so forth On the grand opening, we had all these stars, we resurrected them So this is in the book, $28 lunch before Look, I’m not going to go far I should have taken little more Here’s another deal, I’m just going to tell you, I mentioned this to a couple of people, since then I got into a few other things we did at the Utah Orthopedic Center We built the RiverPark Complex, which turned out well, I’ve had some successes This is the Orthopedic Complex, we built that University of Utah and they were thrilled to death with excitement because I got them a deal they couldn’t probably turn down, the Docs ended up buying it and they’d come into work with us and government deal and so partners said, “We’re leaving so much money on the table I can’t afford to do this.” I said, “Sure we can. I mean it’s a charity.” Here’s RiverPark, this is an office park I got involved in and that’s been a home run We’ve done very well there Timing was good, 22 percent vacancy in home office when I started and it dropped down to nine, and so we did well with the nine Anyway, here’s one that the jury is still out on, this one Hawaiian Koloa Landing By the way, this picture we have some taking torques there now so it’s better view Anyway, this was the way it started Here’s our property. Let’s see This next to it, it’s right over here That’s our coffee there There’s the trainer, so that was what it was and I didn’t want to get into this in the first place but I finally ended up getting into it Timing wasn’t very good Here’s our construction. Here’s a volcanic island, so you have to blast this stuff, it’s soil doesn’t go down too deep but everything grows like crazy About this point of time, I came back from a mission, here was our problem We owed 36 million to Chase Bank, we were spending two million a month, partners have no money, banks didn’t want to loan us any money, tough deal. What do you do? Well, the stock market had collapsed down to 1,000 points in two days So anyway, we hung in there, realized that had to do something out of the box, which I did There it is now, and it’s doing quite well as a hotel, it’s a Windham Grand Resort. People love it It’s amazing, a year ago plants were up like there, here now they’re up to here It’s, Koloa Landing if you want to look it up on the Internet, it’s a very nice. Occupancy has been just out of sight So anyway, maybe if we’ve got a little time for, this is some more of it It is really the nicest thing on the island by quite a ways So that’s the American dream A lot of luck and a lot of good timing But you need to make good decisions If you make good decisions and hang in there, things turn out well, if your intentions are right We’re right on time but do you have one or two questions or do you think we got to quit? >> Let’s take one or two questions before we have go I see one right over here, Bill >> Okay >> I was just wondering, how do you remained profitable in Las Vegas because growing so much [inaudible] is like one of worst in the west? >> You’re absolutely right. That’s a good question You know I have to tell you, Las Vegas is one of our best markets right now It dropped a little, but it did so well The first store within two years went up to over $85 million That’s way profitable and it dropped a little bit but not much But in the last two years, it’s grown immensely One reason, I think a lot of our competitors have evaporated and gone away We’re about the only game in town There’s one other one that’s hanging along I think the fact that we were financially stable and

financed adequately and we were able to go out and drive the business But you’re right, it’s been tough Unemployment 12,13, 14 percent I’m amazed, I don’t understand it either why, but we’re doing quite well in Las Vegas Sacramento has been terrific, it’s been our number one store I bet there’s a lot of people there. Another one? >> Any other questions? >> By the way, if you ever have anything do with Warren Buffett, do it You can join me. He’s a great guy, he’s a wonderful guy, he’s honest, he’s fun to be with Like I say, it’s just a freq I keep getting invited even though I’m not running the store now, I keep getting invited back to the annual brunch He calls me every now and again, we have a good relationship, that was great >> Bill, I’m trying to find this spot in the book, where Warren thought about the shareholding, yeah, I got it I’m going to read this. Why don’t you? >> Here’s a copy right here >> I got it right here >> Have yet got it? >> I’ve got one right here if you want one that’s- >> Here’s what it is. Do you have it right there? >> Yeah, I do. I do, some worse. Oh my gosh I had a bunch of endorsements, I was going bring it and I forgot, I put them down and I couldn’t remember I remember what happened years ago It happens to me on a piece of paper here Yeah, he did give us some very nice compliments I may not have, it’s probably in my car I got it. Have you? Yeah >> Okay. Bill, I’ll tell you where I’ve got it I’ve got it in a speech that I’m going to give down at the Claremont Graduate University- >> Well, wonderful >> -and I’m going to talk about you >> My nose will be itching [inaudible] >> This is why I know about it Okay, there it is, right here So this is what I say This is in the speech I’m going to give down at Claremont, California Two of the prominent Utah Mormon to have shaped the Mormon brand are Bill Child and John M Huntsman I’m honored to call both of them friends and neighbors Bill is the entrepreneur behind RC Willey, the highly successful furniture and electronic chain in Utah, Idaho, Nevada and now in California You’re going to tell me if you don’t want me to say this, but I guess I’m saying this stuff because I want to make sure you’re okay with it Bill took over the company when it had sales of 250,000 in 1954 and sold it to Warren Buffett 41 years later when it had sales of 257 million As Buffet later was to write “He didn’t do this by inventing something new, he just applied the oldest founders principle ever set forth; treat the other fellow is you’d like to be treated yourself” By consistently following this principle, Bill transformed a hole in a wall operation is the tiny town of Syracuse, Utah into a business that enjoys the trust of millions of resources and this is Warren Buffett speaking The story of how Bill accomplish this remarkable feat is best told by Warren himself and here’s what he said He wrote this speaking about the Boise and Las Vegas story Buffet wrote this in his shareholder’s letter of 2000 under the heading, “A managerial story you will never read elsewhere” and here’s the quote from Warren Buffett, “Here’s a remarkable story from last year It’s about [inaudible] virtue of purchased for Bill Child and his family in 1995 Bill and most of his managers are Mormon and for this reason RC Willey store have never operated on Sunday This is a difficult way to do business Sunday is a favorite shopping day of many customers Bill nonetheless stuck to his principles and while doing so, build his business from 250,000 in annual sales, when he took over to 342 million in 1999 Bill felt that RC Willey could operate successfully in markets outside of

Utah and in 1997 suggested that we open a store in Boise I was highly skeptical about taking a ‘no Sunday’ policy into a new territory where we would be up against the entrenched rivals open seven days a week Nevertheless, this was Bill’s business to run So despite my reservations, I told him to follow both his business judgment and his religious convictions Bill then insisted on a really extraordinary proposition He would personally buy the land and build the store, for about $9 million as it turned out and then he would sell it to us at hot if it proved to be successful On the other hand if sales fell short of expectations, we could exit the business without paying Bill a cent This outcome of course would leave him with a huge investment in an empty building I told him that I appreciated his offer but felt that if Berkshire was going to get the upside, it should also take the downside Bill said nothing doing If there was to be a failure because of his religious beliefs, he wanted to take the blow personally The store opened last August and immediately became a huge success Bill thereupon turned the property over to us including some extra land that had depreciated significantly and we wrote him a check for his cost and get this, Bill refused to accept a dime of interest on the capital that he had tied up for over the two year If a manager has behaved- this Warren Buffett speaking If a manager has to behaved similarly at some other public corporation, I haven’t heard about it You can understand why the opportunity to partner with people like Bill Child causes me to tap dance to work every morning.” That’s Bill Child >> Thank you. I appreciate it. I found it. Here it is