Chapter 116 - How to Build a Business Warren Buffett Would Buy: The R. C. Willey Story by Jeff Benedict
Today’s Chapter’s based on the book “How to Build a Business Warren Buffett Would Buy: The R.C. Willey Story” by Jeff Benedict.
RC Willey is an American home furnishing company that sells furniture, electronics, home appliances, mattresses, and flooring. It was founded in 1932 by Rufus Call Willey, who began selling appliances door-to-door in Syracuse, Utah. Today, RC Willey has 13 locations across the Western United States and is owned by Berkshire Hathaway.
Here’s what I have learned:
Customer Satisfaction
“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
— Sam Walton
R.C. Willey’s success was deeply rooted in its unwavering focus on customer satisfaction. From the very beginning, R.C. Willey prioritized treating customers with respect and care, which helped build a loyal customer base. This principle was a cornerstone of the business, and it resonated throughout its history.
As a matter of fact, R.C. Willey’s founder, R.C. Willey, understood that gaining customers’ trust was primordial and was ready to do everything in order to exceed customers’ expectations. For example, when he started selling refrigerators door-to-door in the 1930s when fridges were yet to become a stable electronic in every household, R.C. Willey offered customers a no-risk trial period in order to try them out. This approach worked wonders. Once customers experienced the benefits of home refrigeration, they didn’t want to give it up, and many became lifelong customers.
Furthermore, R.C. Willey was ready to take a loss on transactions as long as it kept his customers satisfied. Jeff Benedict mentions that RC Willey “judged success on satisfied customers and sales volume, not profit margins. That's what kept people coming back to him for purchases, time and time again.”
This philosophy was maintained within the company even under Bill Child’s leadership. An example of this is when the company covered the cost to repair every washing machine that it sold that came back with a defective spin mechanism. Child’s decision to cover the cost of repairs endeared him to his customers. As such, with service like that, it was difficult for people to want to shop anywhere else.
"Every company has to have rules. Our rule was pretty broad: Take care of the customer. Treat them as you'd like to be treated."
— Bill Child
Similarly, while many businesses refused to refund customers or make a price adjustment when they make mistakes, Bill Child believed “it was necessary to go to any extend to satisfy the customer.” As Bill Child once said, "You might convince the customer you are right. But then he never buys from you again. Worse still, he tells his family and friends, and you end up losing a lot more than one customer. So in the end you win the individual battle with the customer but lose the war.”
This reminds me of what we have learned from Bernie Marcus and Arthur Blank, the founders of The Home Depot. Marcus and Blank coined the term “cultivating the customer” believing that it was in the company’s best interest to make sure that their customers remember The Home Depot and come back for their next home DIY project.
“At The Home Depot, cultivating the customer is much more important than creating a bottom line. We teach our associates that if you can save a customer money, do it. We're not looking to fleece the customer. If I can save them $100, why not do it? That reflects one of our values: caring for the customer. Care for them today and they'll be back tomorrow.”
— Bernie Marcus & Arthur Blank
This is also the reason why the company’s main customer services’ philosophy is “Whatever it takes”. Bernie Marcus and Arthur Blank explains that they would need to do whatever it takes to satisfy their customers’ needs even if it meant they needed to go far out of their way to do so. This is especially true when they were first staring The Home Depot and were struggling to survive.
For example, in the early days, when a customer walked out of the store because the company was not carrying an item, they would ask the client for their name and address and would promise to deliver them the product as soon as possible. They would then purchase it at another store and personally deliver it to the customer’s home. That’s how they often expanded their merchandise section.
“First I would run back inside and order it so we'd have it in the future. Then I would personally go buy whatever it was at West Building Supplies, Handy City, or a wholesale house and personally deliver it to the customer's home, carefully removing the other store's price sticker and charging the customer a lower price than I paid out of pocket.”
— Bernie Marcus & Arthur Blank
Adapt Or Die
Innovate or die. There can be no innovation if you operate out of fear of the new.“
— Robert Iger
Change is inevitable in any industry, but this is especially true in the furniture and appliance industry. While many companies never adapted successfully, both R.C. Willey and Bill Child embraced change as an opportunity to grow and to innovate, which was key to the company’s long-term success. As Jeff Benedict explained, "Despite seeing scores of furniture stores come and go in Utah, Bill managed to keep R.C. Willey profitable year after year by paying attention to a statement that an old banker told him shortly after Bill had taken over the store: There are three things you can count on—death, taxes, and change."
While other retail companies stagnated, R.C. Willey thrived by embracing change, from diversifying product lines to innovating financing options. In an ever-changing retail landscape, adaptability is not just an advantage; it’s a necessity. In fact, Bill Child’s decision to diversify into furniture was a direct response to market opportunities and customer demand, marking a significant adaptation from RC’s appliance focus. Jeff Benedict mentions that “it occurred to him [Child] that the store should diversify beyond just electrical appliances. Personally, he was drawn to furniture. He liked the look and feel of new sofas and beds. They also seemed to make good business sense. With no motors or moving furniture required little maintenance and service once parts, it left the store.”
“The first year we added furniture, our overall sales volume in the store doubled. that’s because we were selling more product to the same customers.”
— Bill Child
Furthermore, another proof of R.C. Willey’s adaptability as a company was Bill Child’s bold move to introduce in-house financing. As a matter of fact, in 1975, R.C. Willey became one of the first retailers in the furniture industry to issue its own personal credit cards which increased the company’s popularity among customers. As Bill Child once said that “A lot of companies didn’t have the financial strength to venture into the business of financing. It took capital and it could be risky. But we saw it as another opportunity to build our brand.“
Finally, Bill Child shown extreme adaptability and innovation in terms of marketing. He came up with creative campaigns and was able to leverage unsold television advertising slots to secure inexpensive but effective exposure for R.C. Willey. Jeff Benedict explains that “R.C. Willey would pay $50 for every unsold spot that normally went for anywhere from $250 to more than $1,000. The prices were predicated on the audience levels. The proposal guaranteed that the station would collect at least some revenue for every advertisement slot that would otherwise generate no revenue for the station."
However, it is important to note that despite R.C. Willey’s focus on innovation and adaptability in order to increase sales, Bill Child knew that it was also important to maintain a warehousing infrastructure to support this sudden increase in sales. Child mentions that “It takes time to assimilate growth. If you grow too fast, the infrastructure and systems of a company aren’t able to handle it. Those must grow at the same level that sales grow. Otherwise, a company becomes inefficient in the delivery of its product. The result is higher costs and decreased customer satisfaction.”
When talking about innovation in the retail industry, it is difficult not to be reminded of Sol Price who is considered a legend in retailing due to his various innovations such as the Price Club’s wholesale concept that various entrepreneurs or existing retailers tried to copy. When asked about how he felt being the father of an industry, Price famously replied with “I should have worn a condom.”
Firstly, Price is known for the concept of “intelligent loss of sales”. As a matter of fact, he demonstrated that it was possible to do more sales with fewer merchandise items. While, at the time, it was conventional wisdom in retailing to stock as many items as possible, the “intelligent loss of sales” theory was based on the idea that customer demand is more sensitive to price and not selection.
Secondly, Price is well known for creating the Price Club concept which was conceived as a wholesale business selling merchandise to small, independent businesses. The idea was for business owners to “come to a large warehouse, select the products from steel rack displays, pay either by check or cash, and take the products back to their stores, restaurants, or offices.“
The major advantage to purchase at Price Club was obviously because the prices would be much more lower than traditional wholesalers who often offered extra services such as order taking and delivery. In Price’s mind, these extra convenient services would be offset by the fact that Price Club’s warehouse “would also serve as a storage facility for the various business owners so they would not have to buy and store large quantities of merchandise at their stores or offices.” This would be extremely helpful for small businesses to compete with the larger discount stores.
“By reducing merchandise acquisition costs for retailers and other businesses, everyone would win. Small businesses would pay less for their wholesale goods and supplies, retailers could charge lower prices—in turn improving their ability to compete against chain stores, especially the growing number of discount stores that were under-pricing small businesses.”
— Robert Price
Delegation
“A business dominated by one man, who makes all the decisions, who is reluctant to deputize responsibility lest his assistants make mistakes, lacks the elements of a permanent organization because it denies men the chance to grow and be ready for the larger responsibilities, which eventually someone must assume.”
— Peter Kiewit
Although R.C. Willey founded his business as the sole full-time employee, it couldn’t work in the long run since by choosing to do every other aspect of the business himself, it took time away from what he did best: selling. When Bill Child took over his father-in-law’s business, he understood that he couldn't do everything himself if he wanted the business to grow. He recognized the importance of delegation and empowering employees to take ownership of their roles.
As a matter of fact, Bill Child saw various competitors’ collapse for similar reasons which taught him two invaluable lessons: “First, delegation is vital to growing a small business. Second, true delegation only exists when the leader trusts his people enough to allow them to perform their responsibilities without constant interference.”
As such, Jeff Benedict explains that “Rather than micromanaging every aspect of the store, he hired competent people to sell, deliver, keep the books and handle credit collection, and to manage accounts receivable, accounts payable, and customer service. This approach allowed him to focus on his strengths: managing the business, buying products, hiring employees, and planning for future development.”
However, in order for this to work, Bill Child also understood that he had to treat his employees as associates and to foster a sense of ownership and pride in the company’s mission. As such, he ensured that "The company also instituted a generous profit-sharing plan. R.C. Willey offered to contribute the maximum allowable percentage of an individual's salary into an account each year. This enabled employees to obtain annual, tax-free contributions from the company. It took six years for an employee's rights to fully vest. For those who remained with the company for twenty to thirty years, the profit-sharing plan produced a substantial nest egg that had accumulated tax-free."
“That’s one of the secrets to our success. Our employees buy into the mission of our company. If they feel as though they own a part of the company, they will do a great job. They will be cautious. They will look at expenses. And they will try to maximize profits.”
— Bill Child
This reminds me of Paul Orfalea’s story at Kinko’s. As we have previously learned from Paul Orfalea, “doing life alone is not second best, it’s impossible.” Since he had dyslexia, Orfalea had to compensate for his reading difficulties by learning from the world itself directly. To do so, he had to rely on his sense of observation and to rely on other people. This “disorder” of his turned out to be a gift.
In fact, when he founded Kinko, not only did he had to rely on his copy machines to operate his venture, he also had to rely on other people to manage the stores, to run the company’s real estate ventures and investment opportunities. Orfalea’s motto in life is "Anybody else can do it better."
Orfalea elaborates that many people, often those that succeed in school, make the mistake of thinking they need to do everything by themselves. This is especially false in business. He once said, “Every major success I've had in my life has come about because I knew that somebody, often anybody, whether it was my wife, friend, or business partner, could do something better than I could.”
Secondly, by relying on others, Orfalea had more time to focus on the big picture at Kinko’s which allowed him to be “on” his business rather than “in” it. He explains that “Being “on” your business and your life means having enough detachment every day that you are constantly reassessing your direction, thinking creatively about your overall strategy, and scrutinizing your competitors' tactics. It means relying on others to attend to most of the details of the day-to-day operations and employing a system of checks to verify that you are on the right track.”
“Drive thy business or it will drive thee.”
— Benjamin Franklin
Beyond the Book
Read "The Ingredients For Innovation" by Farnam Street
Read "Your organization sucks at innovating" by Farnam Street
Read "The Decision Matrix: How to Prioritize What Matters" by Farnam Street
If you enjoy reading my newsletter, please consider becoming a paid subscriber. You’ll be able to keep this newsletter going! Here’s what you get when you upgrade:
Voting on polls: you’ll get to vote on who I should write about next.
Requesting biographies: you can request a biography for me to read and write about next.
Supporting my next book purchase: all payments received will be used to purchase a new biography.