More Praise for The Warren Buffett Way, First Edition

Startime,
a weekly variety program on Knoxville TV and sang
along with people like Dolly Parton. Then, while in college, he started
a used car business with his fraternity brothers but the business went
bankrupt in 1961 when the bank called his loan. “My parents thought
for sure that we were going to jail and I made a pact with myself that I
haven’t violated: I was never going to be vulnerable to a bank again.”
5
The acquisition of Clayton Homes is a typical Buffett story—
meaning that it is atypical compared with the rest of the business world.
The f irst aspect of the story is that Buffett had some hands-on ex-
perience with the industry. In 2002, Berkshire had purchased junk
bonds from Oakwood Homes, another mobile home manufacturer. As
Buffett has freely admitted, at the time he was not fully aware of the
“atrocious consumer f inancing practices” that were common in the
industry. “But I learned,” he added. “Oakwood rather promptly went
bankrupt.”
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Fast forward to February 2003. Al Auxier, a professor of finance at
the University of Tennessee, brought a group of MBA students to
Omaha to meet with Buffett for what Buffett describes as “two hours of
give-and-take.” It was the fifth time Auxier had made the trip, and it had
become traditional for the visiting students to bring a thank-you gift for
Buffett. This time, the gift was the autobiography of James Clayton, who
had located his company in Knoxville, home of his alma mater.
After he f inished reading the book, Buffett phoned James Clayton’s
son Kevin, who is now CEO. “As I talked with Kevin, it became clear
that he was both able and a straight-shooter. Soon thereafter, I made an
offer for the business based solely on Jim’s book, my evaluation of
Kevin, the public f inancials of Clayton and what I had learned from the
Oakwood experience.”
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Two weeks later, Berkshire announced its ac-
quisition of Clayton Homes. “I made the deal over the phone,” Buffett
said, “without ever seeing it.”
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B u y i n g a B u s i n e s s
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In the fall of 2003, Buffett was invited to attend the University of
Tennessee’s MBA Symposium. He recounted the Clayton story, and
then presented all the students who had started the ball rolling with
honorary PhDs (for Phenomenal, hard-working Dealmaker) from the
University of Berkshire Hathaway. Each student was also given one class
B share of Berkshire, and their teacher, Al Auxier, was presented with an
A share.
M
C
L A N E C O M PA N Y
In 1894, Robert McLane, escaping the post-Civil War poverty of South
Carolina, moved to Cameron, Texas, and started a small grocery store.
Over the years, he developed it into a wholesale grocery and distribution
business. His son, Robert D. McLane, known by his middle name of
Drayton, joined the company in 1921. Drayton’s son, Drayton Jr., began
working in the family business at the age of nine, and spent many teenage
Saturdays sweeping f loors in the warehouse. After college, he joined the
company full time.
Eventually Drayton Jr. convinced his father to move the company
close to an interstate highway and then in 1962 to automate the business
with computers. In 1990, he sold the company to his tennis pal Sam Wal-
ton, and McLane became a Wal-Mart subsidiary, supplying Wal-Mart
and Sam’s Club stores, as well as convenience stores and fast-food restau-
rants across the nation with everything from peanuts to pepperoni.
By 2003, McLane had become the largest distributor in the United
States to corner and convenience stores. McLane’s innovative software
systems for pricing, freight, delivery, and point-of-sales processing and
its excellent delivery service had made the company a lean and eff icient
full-service delivery company.
An efficient, well-run company built on strong principles and show-
ing consistent profitability is just what Warren Buffett likes to see. In
May 2003, Berkshire announced it had acquired McLane for $1.45 bil-
lion in cash, and assumed an additional $1.2 billion in liabilities.
The acquisition positioned McLane for even greater growth, as it
freed the company to pursue distribution contracts with supermarket
chains and with Wal-Mart competitors, such as Target and Dollar Gen-
eral. “In the past some retailers had shunned McLane,” wrote Buffett in

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T H E W A R R E N B U F F E T T W AY
his 2003 shareholder letter, “because it was owned by their major com-
petitor. But Grady Rosier, McLane’s superb CEO, has already landed
some of these accounts—he was in full stride the day the deal closed—
and more will come.”
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T H E PA M P E R E D C H E F
In 1980, Doris Christopher, a former teacher of home economics and a
stay-at-home mom, was looking for part-time work with f lexible hours
that would add to the family income but still allow her time with her
two young daughters. She decided to leverage what she knew—cooking
and teaching—and that led her to the idea of selling kitchenware with in-
home demonstrations. So she borrowed $3,000 against her life insurance
policy, went shopping at the wholesale mart and bought $175 worth of
products she admired, then asked a friend to host a demonstration party.
Christopher was a nervous wreck before the f irst party, but it was
a resounding success. Not only did everyone have a great time, several
guests suggested they’d like to host a party themselves. That was the
beginning of the Pampered Chef, a company that markets gourmet
kitchenware through direct sales and in-home parties.
The 34-year-old Christopher, who had no business background,
started the company in the basement of her Chicago home with the
$3,000 loan. The f irst year, working with her husband, she had sales of
$50,000 and never looked back. In 1994, the Pampered Chef was
among