When 22 year old Bill Child intended to graduate and become a teacher. Things turned out differently. He instead built a business that was sold to Warren Buffett's Berkshire Hathaway for $175m. It had a very unpromising start. However the early days imbedded the values - and hence reputation, and then to competitive advantage - which led to later success.
Bill Child, in 1951, married RC and Helen’s youngest daughter, Helen Darline (they were sweethearts from childhood). Greatly helping him in his ambition to be a teacher, Bill had recently gained a scholarship to study at the University of Utah. A few months later, when Darline was expecting a child, RC and Helen gave a small piece of land 50 yards from the 600 sq ft store for Bill and Darline to place a modular house.
Bill worked the summer at the store. Not only was he strong and worked hard, but he had a natural caring way with people, putting them at their ease, and going out of his way to serve their needs. During term time Child would work in the store evenings and on Saturday.
Here’s an indicator of the nature of the community: on many Saturday’s RC and Child would go off to the local baseball game, leaving a message on the open door “Gone to the ballgame…Come in and look around” (Benedict, Jeff (2009) How to build a business Warren Buffett would buy: the R.C. Willey story).
In spring 1954 RC felt discomfort in his stomach. Thinking he had ulcers brought on by the stress of coping with annual revenue of $250,000 with only him and Lamar Sessions as full-timers, after first trying to soldier on, he announced that he really needed a vacation to get rid of the ulcer. He booked two weeks in California and asked Sessions to keep the business going while he was away. At first Session protested there would be too much for him to do, but something RC said stunned him, “You know, Lamar, when you think you’re going to die, you’ll do most anything to prolong your life.”
Around that time Child was offered a secure job as a teacher in Syracuse junior high. All he had to do was sign the school contract and his work life was set. On Child’s graduation day (June 1, 1954) RC went to Bill and Darline’s house to explain his need for a vacation, and handed the keys to the store to Bill, asking him to oversee it while he was away.
Ominously, RC and Helen returned a week early because he was feeling too ill to continue. Then the bad news: he was diagnosed with pancreatic cancer and was unlikely to leave the hospital.
Bill Child faced a dilemma. On the one hand he could take up the teaching contract he had always wanted. On the other, there was a business that really needed him, a business that supported the family. The store had obligations to customers, suppliers and to Sessions. Perhaps the head teacher would allow him time to get the business on the right path and then he could come to the classroom?
But there was more bad news to come. First the tax man arrived at the store to conduct an audit. The 22-year old Bill hadn’t a clue as to what was happening at first. It turned out the outside accountant had not been making any tax payments, for years. Over $10,000 was due.
Then the bank called and told him to stop writing checks at once; there weren’t funds to cover them.
Then RC died on 3rd September.
After the funeral, the bank manager called a meeting with Bill and Helen to explain just how bad the finances of the business were. RC had borrowed $9,000 and the unpaid interest was mounting up. In addition, the bank had been financing credit given to customers. That finance was guaranteed by the business. It turned out that two-thirds were behind on their payments. Of those, one-half had failed to pay anything in nine months. For a business with a turnover of $250,000 and $150,000 on credit that is a lot of money to have outstanding. The bank manager wanted the store to immediately repurchase $50,000 of delinquent accounts.
The bank clearly had little faith in a 22-year old business ingénue with teaching ambitions. “Helen” the banker said, “you need to sell the business and let Bill go teach school.”
They agreed the family needed a little time to discuss what to do. Bill had only taken on the task of running the business for what he had assumed would be a short period and he had the school job lined up. Why not just sell up? But, because of all the debt, it was unlikely it would fetch a good price. Furthermore, RC had not saved any money for Helen. As profits came in he would spend it freely on his family and would give it away to needy people he met. If the business were to close his widow would have little on which to live, and no one in the family could support her. He had to turn the business around. Given the enormous goodwill it had built up over the years it still had potential.
The accidental businessman
Bill Child spoke with the school princi………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
I'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk
investing is about making the right decisions, not many decisions.