Chapter 117 - What I Learned Before I Sold to Warren Buffett: An Entrepreneur's Guide to Developing a Highly Successful Company
Today’s Chapter is based on the book “What I Learned Before I Sold to Warren Buffett: An Entrepreneur's Guide to Developing a Highly Successful Company” by Barnett C. Helzberg Jr.
Barnett Helzberg Jr. is a renowned entrepreneur and former chairman of Helzberg Diamonds, a jewelry company founded in 1915 by his family. He significantly expanded the business from 15 stores in 1962 to over 143 stores across 23 states before selling it to Warren Buffett's Berkshire Hathaway in 1995.
Here’s what I have learned:
Build Your Niche
“The goal for a brand is not to emulate the competition but to find unaddressed opportunity in between the strengths that your competitors already own.”
— Jim Weber
Helzberg Diamonds’s story offers a compelling lesson in the art of carving out a unique niche in a crowded marketplace. Rather than competing head-on in the saturated diamond industry, Barnett Helzberg Sr pioneered a strategy that redefined the company’s identity. Helzberg Jr. mentions that “His concept was that he refused to sell a diamond solitaire in an engagement ring that was not ‘perfect,’ that is, internally flawless, with good color, good cut, and absolute clarity. As he struggled for a name for this concept, he picked up a box of baking soda on which he read, ‘This baking soda is certified to be perfect.’ Thus, Helzberg ‘Certified Perfect’ Diamonds.”
The story begins with a simple yet revolutionary idea. While most jewelers at the time focused on size as the primary measure of a diamond’s value, appealing to consumers with moderate incomes, Helzberg’s father took a different path. He insisted on selling only diamonds that were internally flawless, with exceptional color, cut, and clarity. As Helzberg Jr. mentioned, “The most understandable measure of value in diamonds is size. Everyone understands that a 1-carat diamond is bigger than a 1/2-carat diamond, so that is the consumer's basic orientation. Amazingly, Dad approached this marketing situation 180° differently then nearly every other jeweler in the United States.”
This strategy was more than a marketing gimmick; it was a deliberate effort to create a new market segment. Rather than vying for dominance in the generic diamond market, Helzberg Diamonds established itself as the leader in the “perfect diamond market.” As Helzberg Jr. once said, "If you are in a crowded, competitive market, create your own market, that is, not the diamond market, the perfect diamond market; not the beef market; the angus beef market; not the beer market; the freshest beer market."
“Rather than being in the diamond market, we created the perfect diamond market. Far larger than the Helzberg Certified Perfect Diamond concept was the kind of tone it set in the organization. I feel this was probably the greatest single strategy decision Dad ever made.”
— Barnett Helzberg Jr.
The lesson here is clear: in a competitive landscape, success often lies in redefining the game rather than playing by someone else’s rules. By focusing on perfection, Helzberg Diamonds attracted customers who valued quality over quantity and built a reputation that became its greatest asset. This approach resonates with modern businesses facing crowded markets where differentiation is key to survival. Entrepreneurs can learn from this by identifying a unique value proposition that aligns with their strengths and meets an unmet need, turning a crowded field into a personal domain of expertise.
This reminds me of how Jim Weber led Brooks while competing with industry giants like Nike and Adidas. As a matter of fact, when Weber took over as CEO in 2001, the company was struggling. The company was spread too thin, trying to cater to too many categories. Weber made a bold decision: Brooks would focus solely on performance running. This pivot became the foundation of its success.
Weber’s philosophy was clear: you don’t have to be everything to everyone. Instead, you can dominate a smaller, more focused market. Brooks narrowed its focus to performance running, developing products that catered specifically to serious runners. This decision was a game-changer. As he explained, "Going forward, I told them, we would pivot to a running-only brand. Real performance for real runners. Our product would perform for the most discerning runners, earning their trust mile after mile, and our brand would embody the spirit and soul of all who run."
“In footwear, many believe the conventional wisdom that says brands must play in all categories, across myriad price points. They believe that a company can't survive by playing a narrow game. Our contrarian philosophy was to focus only on premium running, turning a narrow focus into a strength.”
— Jim Weber
Weber was inspired by Warren Buffett’s investment philosophy, particularly Buffett’s emphasis on building moats around businesses, as a matter of fact, the concept of a “moat” was central to his strategy. A moat, in business terms, refers to a company’s ability to maintain a competitive advantage over its rivals. Weber explains that “In business, a moat leverages the medieval castle metaphor, describing a business’s competitive advantages that allow it to successfully grow and defend its position with customers profitably against any would-be competitor.”
Weber believed that, “If you are entering a new business with serious competition, you need to prioritize solving for your moat.” For Brooks, the moat problem was solved once they focused on delivering premium products for performance running only. Weber’s decision to focus on a niche market also allowed Brooks to create a distinctive brand identity. Rather than trying to compete with larger, more diversified brands, Brooks leaned toward areas where competitors weren’t focusing on in order to create a brand that stood out in the crowded sportswear market.
Focus on Your Winners
“Selling your winners and holding your losers is like cutting the flowers and watering the weeds"
— Peter Lynch
Another reason for Helzberg Diamonds’ success is their strategic decision to invest resources in high-performing assets rather than salvaging under-performers. In the retail world, where store performance varies widely, the temptation is often to pour effort into turning around weak locations. However, Helzberg Jr. believed in the principle of riding the winners after consulting with his friend Steve Lieberman who told him, “You make more money closing bad stores than opening new ones.”
As such, Helzberg Jr. believed that "Management's challenge is to take advantage of the unlimited opportunity to focus the talents of its most talented people on winners. Riding the winners to success was what created the large average sales volume of the Helzberg Diamonds stores."
“We decided we would rather spend time and effort on a $4.5 million store that could ultimately achieve annual sales of $6 million than on a lower-volume store with less potential.”
— Barnett Helzberg Jr.
This strategy reminds us of the importance of understanding the broader concept of opportunity cost. As a matter of fact, Helzberg Jr. recognized that that dedicating top talent to struggling ventures came at the expense of nurturing successes. He was greatly influenced by Peter Drucker who once said, “In every area of effectiveness within an organization, one feeds the opportunities and starves the problem.”
As Helzberg Jr. explains, “Each activities you undertake exacts the price of not being able to pursue alternative activities (sometimes called opportunity cost). You are investing the time and talents of your associates. What is the actual cost of sending a highly talented person to create an average performance out of a dry well rather than sending him or her to a gusher that can be turned into a super-gusher? The cost is far more than the cost of that individual. Thus, the cost of putting out fires where problems exist and putting fingers in dikes where leaks exist is extremely high in the sense of decreased progress or missed opportunities.”
This approach offers a valuable lesson for entrepreneurs: identify and amplify your strengths rather than exhausting resources on weaknesses. Whether it’s a product line, a team member, or a business unit, concentrating on what works best can lead to exponential growth, making the journey more enjoyable and sustainable.
This concept of investing your resources into your winners rather than your losers reminds me of the Pareto Principle, which is also known as the 80/20 rule, which suggests that 80% of your results come from 20% of your efforts. In fact, this philosophy extended to Helzberg Diamonds’ product offerings as well. When the company phased out non-jewelry items like china, crystal, and luggage, and focused exclusively on fine jewelry, it not only simplified their business but also led to unexpected growth in both sales and profits.
“We found the less we sold, the better we sold what was left: fine jewelry. The time to give up on peripheral items had come; we were early in the game of giving them up. The company gained great focus and, doing fewer things, became far more successful.”
— Barnett Helzberg Jr.
This reminds me of how Tom Monaghan used the Pareto Principle during his tenure at Domino’s Pizza. In fact, Monaghan quickly realized that even though he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi. He mentions that “Another concept I was eager to try was selling twelve-inch pizzas only. In Ypsilanti, at least 80 percent of the orders from dorms were for twelve-inch pizzas. So why have any other size?“
As such, he decided to reduce his products’ offering by selling only one size pizzas. This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:
“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder. There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box. Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan
Empower your People
“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp
One of the most enduring lesson we can learn from Helzberg Diamonds is the centrality of people in achieving business success. At Helzberg Diamonds, the belief in the capabilities of associates was not just a management tactic but a core philosophy that propelled the company forward. By hiring talented individuals, trusting them to execute, and fostering a culture of ownership, Helzberg Jr. created an environment where innovation and excellence thrived.
As a matter of fact, while treating customers well is primordial for a business’ success, Helzberg Jr. realized that treating his own employees well was even more important. He once said, “Then one day after about 30 years of experience, another instant flash of the obvious, I suddenly realized that numero uno was not the customer but our own associates; everything literally emanated from them.”
This people first approach begins with the hiring decisions. As Helzberg Jr. mentions, “80-90% of success depends on hiring people with good potential. You cannot create the Hope Diamond out of poor material.”
“Our business really began to perk when I hired people smarter than me. Often, all I had to do was get out of their way. When you find these great people, they make your dreams come true, and then they go beyond your dreams. If you don’t care who gets the credit, you can get anything done.”
— Barnett Helzberg Jr.
But more importantly, once they are hired, it is equally important to empower these individuals to take ownership of their work. In fact, Helzberg Jr. learned early that it was better to let his team execute on their own ideas even if he didn’t agree on it. He explains, “I was taught at a very young age to let individuals do things their own way as much as possible even if I thought my idea was somewhat better. That advice spoke to execution. People believe in their own ideas and will generally execute those ideas far better than someone else’s!”
“Executing an average idea well will far exceed results of a great idea executed poorly! If the person who executes believes in the idea, the likelihood of success is far greater.”
— Barnett Helzberg Jr.
This reminds me of how Isadore Sharp built Four Seasons by relying on the success of his employees, especially those on the frontline. As a matter of fact, Sharp believed in the Golden Rule which states that one should treat others as they would like to be treated. He believed that treating employees well was the key to providing exceptional customer service, and therefore, he made it a priority for senior managers at Four Seasons to ensure that their employees were well-treated.
“Our goal was to add continuously to the value customers put on our service, nothing else. “That means,” I emphasized in talking to our managers, “that your success depends upon the success of your employees. So your number-one priority can’t be what you as managers want. Your priority has to be, as far as possible, an environment and a structure that gives your employees what they want. “Your role, then, will be a leader, not a boss. Your job will be to bring out the best in all individuals and weld them into a winning team.”
— Isadore Sharp
As such, while other companies may see employees as the largest share of expenses, Isadore Sharp believed they were incredible assets to the company. As he explains, “The books may show that employees represent the largest share of expense. They don’t show that they also earn the largest share of revenue. Or that long-term service employees are storehouses of customer knowledge, role models for new hires, and advisers for systems improvement—all in all, our best source of added value. If employees are really doing their job, they’re not a cost, they’re an asset, our primary asset.””
Beyond the Book
Read “ Moats - Competitive Advantage” by Investment Masters Class
Read “ Winner Takes it All: How Markets Favor the Few at the Expense of the Many” by Farnam Street
Read “ Leverage: Gaining Disproportionate Strength” by Farnam Street
Read “ Tradeoffs: The Currency of Decision Making” by Farnam Street
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