#91 Jim Clayton Sold to Warren Buffett

Warren Buffett's acquisition of Jim Clayton's business for $1.7 billion stemmed from his admiration for Clayton's autobiography, "First a Dream." The host of the podcast reflects on Clayton's journey from poverty to prosperity, highlighting his early life of hardship as a sharecropper's son, his innovative approach to business, and his eventual success in the mobile home industry. Clayton's story is not just one of financial triumph but also of the importance of learning from one's circumstances and the power of perseverance and resilience. The host also emphasizes the strategic value of vertical integration and customer focus, as demonstrated by Clayton's expansion into manufacturing and financial services, which were key to his company's growth and Buffett's interest.

• Warren Buffett read Jim Clayton's book, "First a Dream," over a weekend and appreciated it.
• Buffett acknowledged Clayton's success in leading his company to the top of the industry.
• Buffett expressed interest in Clayton's views on the industry, indicating a deeper engagement with Clayton's work.
• The voicemail led to Buffett buying Clayton's business for $1.7 billion in cash.

"Jim, this is Warren Buffett. I read your book over the weekend, and I enjoyed it very much. You did a good job on it. I followed your company for several years and congratulate you on taking it to the top of the industry. Give me a call. I'd like to get your views on the industry."

The quote demonstrates Warren Buffett's direct communication style and his proactive approach to engaging with individuals whose work he values. It also highlights Buffett's interest in industry insights from successful leaders like Jim Clayton.

• Jim Clayton was born during the Great Depression on a poor dirt farm in Tennessee.
• His father was a sharecropper, which involved hard labor without significant financial reward.
• Clayton's family lived in a 600 square-foot log cabin with no modern amenities, illustrating the extreme poverty of his early life.
• Despite the harsh conditions, Clayton's upbringing instilled in him values of self-discipline, perseverance, and resilience.

"The country was in the depths of the Great Depression, four years running with no signs of letting up, when I was born on a dirt farm in Tennessee." "Sharecropping was a tradition dating back to colonial times, and there is no known record of a sharecropper getting rich."

These quotes paint a vivid picture of Jim Clayton's humble beginnings and the challenging economic environment of his childhood. They provide context for the adversity he overcame on his path to success.

• Jim Clayton's story is one of transformation from extreme poverty to becoming one of the wealthiest individuals on the Forbes 400 list.
• The book "First a Dream" is a self-published work that unexpectedly gained popularity, including among influential readers like Warren Buffett.
• Clayton's life demonstrates the principle of capping downside risk while leaving upside potential unlimited, a lesson applicable to entrepreneurs and individuals alike.

"He goes from his parents making $100 a year and having to essentially go to the bathroom in a bucket to being one of the wealthiest people on the planet." "He just wrote it because he printed about 15,000 copies that he handed out to employees and friends and family."

These quotes emphasize the dramatic change in Clayton's financial status from his childhood to adulthood. They also illustrate the unexpected success of his self-published book and the strategic thinking behind such a venture.

• Jim Clayton's childhood experiences taught him the value of hard work and resourcefulness.
• From a young age, he engaged in entrepreneurial activities, such as selling flower seeds door-to-door.
• Clayton learned to prioritize long-term gains over instant gratification, a mindset that contributed to his later business successes.
• His philosophy of reinvesting in his ventures and focusing on substantial, deferred rewards shaped his approach to entrepreneurship.

"I chose the seeds. It was my first attempt to become an entrepreneur. Plowing the money back into my business was a smart move." "Forego those things that give you momentary satisfaction. Look at the long term. Defer profits for something more substantial."

These quotes reveal the foundational business principles that Clayton adopted early in life, which later guided his entrepreneurial decisions. They underscore the importance of long-term thinking and the reinvestment of profits for sustainable growth.

• Jim Clayton was inspired by local success stories, such as country music artist Eddie Arnold, who also came from a humble background.
• Clayton's early life was marked by overcoming adversity and finding inspiration in those who had achieved great success despite similar challenges.
• He recognized that adversity can lead to resilience and character building, which are essential for personal and professional development.

"His growing success was an inspiration to me as I shaped and nurtured my dream." "Adversity breeds resilience and can build character. It is possible to survive, even prevail."

These quotes highlight the impact of role models and the power of overcoming difficult circumstances. They convey the message that one's origins do not have to dictate their future and that resilience is a valuable trait cultivated through adversity.

• The host discusses the benefits of sequential listening for building a deeper understanding.
• They emphasize how each podcast builds upon the previous, enhancing overall knowledge and comprehension.
• The host suggests that listening to podcasts in order can provide a more profound grasp of the subjects discussed.

"If you listen to all of them in order, I mean, you don't have to, like I said, it's up to you. Do whatever you want. But I do think they're going to build on each other."

This quote highlights the optional, yet beneficial nature of sequential listening for a more layered understanding of the content.

• Warren Buffett and Jim Clayton share similar values which become evident when studying their work.
• The host has gained a better understanding of these figures by reading Buffett's shareholder letters and Clayton's book.
• The shared values between Buffett and Clayton are seen as admirable and applicable to one's life.

"You see how they kind of play on each other and they share a lot of the same values, and then you start to absorb those values and admire them in your own life and hopefully apply them."

The quote conveys the idea that understanding the shared values of successful individuals can lead to personal growth and the application of those values in one's own life.

• Jim Clayton is praised for his direct and straightforward approach to learning and problem-solving.
• He is known for acquiring a diverse set of skills, including becoming a musician, pilot, engineer, attorney, and entrepreneur.
• This approach is aligned with Charlie Munger's philosophy on common sense and continuous learning.

"Jim Clayton has a rather unique set of skills. And what I admire about him, what I learned from him, is he approaches problems very straightforward."

The quote summarizes Clayton's direct approach to tackling challenges and acquiring new skills.

• The host reflects on Clayton's early interest in radio technology and his hands-on learning experience.
• Clayton's quote about shoestring operations highlights the necessity of learning in resource-constrained environments.
• The idea of relentless learning is presented as a valuable model for success in various endeavors.

"Shoestring operations offer tremendous opportunity. You have no choice but to learn everything."

This quote encapsulates the concept that limited resources can drive comprehensive learning and innovation.

• The host draws parallels between Jim Clayton's life and the importance of mentorship.
• Bill, Jim's mentor, played a significant role in guiding his educational and career decisions.
• The host advocates for seeking mentorship through books, podcasts, and other resources when in-person mentors are not available.

"The difference a mentor could make encouraged him to go to college to study engineering, advised him to get a license to the STT to operate radio, tv stations, go to UT so credits would transfer, and you could work at the same time so you wouldn't have any debt."

This quote demonstrates the profound impact a mentor can have on an individual's educational and career trajectory.

• Jim Clayton's story of fractional plane ownership exemplifies his entrepreneurial spirit and ingenuity.
• The host discusses the importance of doing the work others are unwilling to do, as a strategy for success.
• The lesson from Clayton's experience is that dedication and effort can set one apart in business and life.

"Do the work that others won't do, and this can be applied to business. But in this case, Jim's applying it to, hey, he's essentially got free access to a plane, and he had to pay one 8th of it because other people like, oh, yeah, I want to be a pilot. Oh, I got to study. I got to learn. I got to practice. Okay, I'm not going to do it."

The quote highlights a strategy of success through commitment and hard work, distinguishing oneself from those who choose the path of least resistance.

• Jim Clayton draws lessons from his flying experiences that are applicable to business management.
• He emphasizes the importance of not relying on senses or impulses during critical situations in flying and business.
• The host elaborates on the concept of being counterintuitive and the need for rational thinking and analysis in decision-making.

"The most difficult adjustment that you must make as you acquire flying skills is a willingness to believe that under certain conditions your senses can be dead wrong."

This quote reflects the necessity of critical thinking and the danger of relying solely on instincts in high-stakes situations.

• Jim Clayton's experience living in a mobile home led to his understanding of the industry and subsequent business success.
• The host notes the unpredictability of how life experiences can shape future opportunities.
• Clayton's ease of moving his mobile home is cited as a practical benefit that informed his business perspective.

"So through this experience, he learned some of the benefits of mobile homes, of living in mobile homes."

The quote illustrates how personal experiences can provide insight and lead to business ventures in related fields.

• Jim Clayton, while still in college, worked weekends and off hours from his other two jobs.
• He learned the value of reselling from an early experience with his father and accidentally stumbled upon the used car business.
• Jim partnered with Joe and fraternity brothers to form a sales team, quickly growing profits in the car dealership.
• He learned the power of thinking outside the box by leveraging TV to advertise his dealership, becoming known as the singing car salesman.
• Jim's TV presence built trust with customers, leading to increased sales and credibility.

"So before I jump ahead. So he winds up just like, buying used cars because the lesson he learned from his dad was earlier. But then he starts reselling them by accident."

This quote highlights Jim's accidental discovery of the profitability in reselling used cars, which laid the foundation for his future business ventures.

"Soon I was thinking, wouldn't it be great if I could sell more than one car at a time?"

Jim's ambition to scale his car sales led to the creation of a sales team and the expansion of his business.

"Once again, I learned the power of thinking outside the box."

Jim's innovative approach to advertising through TV distinguished his business from the competition and contributed to his success.

• Jim Clayton recognized the importance of customer satisfaction over competition.
• He capitalized on the Snyder family's mistakes by providing immediate availability of Volkswagen beetles, rather than making customers wait.
• Jim's dealership sold cars at a higher price but offered immediate gratification, which appealed to customers' impatience.
• The Snyders' advertising campaign against gray market Volkswagens inadvertently provided free publicity for Jim's dealership.
• Jim's focus on customer needs and seizing an underserved niche led to the success of his used car business.

"But unlike the Snyder's, we didn't make our customers wait."

Jim's strategy to offer immediate availability of cars directly contrasted with the Snyder's approach, enhancing customer satisfaction and sales.

"Unwittingly, the Snyders became excellent promoters for us."

The Snyders' attempt to discredit gray market dealers backfired, instead driving curious customers to Jim's dealership.

• Jim's dealership experienced rapid growth due to liberal financing from a banker named Tom, but it also led to increased overhead.
• An audit revealed irregularities in Tom's department, which resulted in the bank demanding immediate repayment of loans.
• Jim and his brother were encouraged by the bank to use leverage, which ultimately led to bankruptcy when the bank called in the loans.
• Despite the setback, Jim immediately began planning to start another dealership and took innovative steps to reacquire inventory.

"The bank is demanding immediate payment of all principal and interest, all 275,000 of it today."

The bank's sudden demand for repayment highlights the risks associated with leverage and rapid expansion.

"Let's bankrupt these little sobs. I can't be late for my tennis match."

This quote by the bank president, Harry Nacy, underscores the harsh reality of business and the impersonal nature of financial institutions during a crisis.

• Jim and his brother used auctions to buy back their inventory at reduced prices.
• They pre-sold cars to buyers, using the buyers' money to fund purchases at auction, allowing them to make a profit without significant capital.
• Jim returned to radio, using his position to promote the new business and sustain himself without drawing a salary from the dealership.

"By selectively bidding at the three auctions, we brought about 50 cars and were amazed at some of the prices."

Jim's strategic approach to reacquiring inventory at auctions highlights his resourcefulness and business acumen post-bankruptcy.

"We presold a lot of those cars and paid for them with the buyer's own money."

This innovative financing strategy allowed Jim to restart his business with limited funds by leveraging the value he knew existed in the cars.

"The Saturday show gave me a chance to promote the business, good publicity for a change, and the salary was enough to allow me to forego taking any salary out of the new business."

Jim's return to radio served multiple purposes: it provided a platform for business promotion, generated positive publicity, and offered financial stability without burdening the nascent dealership.

• Jim Clayton faced bankruptcy due to inadequate legal experience.
• He resolved to never be in such a situation again by learning the law.
• Jim enrolled in law school at the University of Tennessee in 1961.

"The bankruptcy fiasco made it clear that there were some huge gaps in my knowledge. I wanted to learn the law. In the fall of 1961, I went back to the University of Tennessee, this time to law school."

This quote highlights Jim's proactive approach to addressing his weaknesses by pursuing formal education in law after his bankruptcy ordeal.

• After learning from his bankruptcy, Jim Clayton was cautious with business finances.
• He and his team controlled costs, avoided over-leveraging, and maintained modest lifestyles.
• They prioritized reinvesting in the business over personal luxury.

"Our cash flow, credit, and credibility were again satisfactory. But now, in fact, we operated with all bills paid current, no exceptions."

This quote reflects the disciplined financial management that Jim Clayton implemented in his new dealership, ensuring all bills were paid and credit was maintained.

• A traffic jam caused by mobile home deliveries sparked Jim's interest in the industry.
• Jim started small in the mobile home business by fixing and selling a single used mobile home.
• His initial success led to the expansion of his mobile home business.

"Who would have thought that this little burnt out Mobile home would take us to number one in the market share in several years?"

Jim's reflection on his humble beginnings in the mobile home industry underscores the potential for growth from small-scale ventures.

• Jim and his brother Joe divided their business responsibilities amicably.
• The success of their car dealerships provided the foundation for Clayton Homes.
• Jim credits the car dealership for enabling the growth of Clayton Homes.

"By early 1968, I was spending zero time supporting Joe at the car dealership. Clayton Homes was eating my clock, and I have to admit I was loving it."

This quote indicates the division of labor between Jim and Joe, allowing Jim to focus on the burgeoning mobile home business.

• Clayton Homes experienced dramatic growth due to a combination of factors.
• These included a skilled staff, modern accounting, customer financing, and shared overhead costs.
• Jim's weekly TV show was a unique promotional tool.

"Those wildly successful five years gave us momentum to build a lasting foundation and launched a unique concept that has produced results unequaled in the industry."

Jim attributes the success of Clayton Homes to a strong foundation built during a period of significant growth and innovation.

• Jim Clayton transitioned from retailer to manufacturer in the mobile home industry.
• The manufacturing division of Clayton Homes took six years to become profitable.
• A local factory reduced freight costs and increased customer savings.

"Our customers saved significantly on freight costs, the hundreds of dollars normally paid to move the homes from the factory to the dealership."

The quote explains how local manufacturing provided a competitive advantage by saving on freight costs and passing those savings onto customers.

• Clayton Homes expanded into financial services, mortgages, and insurance.
• Financial services became the largest source of income for the company.
• Jim's incremental approach led to multiple levels of service and income.

"Over the next three decades, financial services, mortgages, and insurance would become the larger source of income, dwarfing even that of manufacturing and retail."

This quote demonstrates the significant role that financial services played in the revenue of Clayton Homes, surpassing manufacturing and retail.

• Jim reflects on his life's work and the passage of time.
• He emphasizes the importance of the journey, the people impacted, and the dreams pursued.
• Clayton's story is a testament to entrepreneurship and the value of seizing opportunities.

"It's not where you wind up that's so important. It's what you did along the way, the lives you touched, the work you did, the people you loved, and the dreams you lived."

Jim's quote encapsulates the essence of his entrepreneurial philosophy, focusing on the process and impact rather than just the end result.

• The Founders Podcast provides detailed notes and insights from various entrepreneurial talks.
• Misfit feed subscribers gain access to a comprehensive collection of notes.
• The podcast serves as a learning resource for entrepreneurs and business enthusiasts.

"So now what I'm going to do is misfits will have access to all of the notes I've ever taken in the past and the ones that I take in the future."

The quote introduces the added benefit for Misfit feed subscribers, offering them access to an extensive repository of entrepreneurial knowledge.