In late 2000, Justin Jr. developed serious health problems and sought prompt action to secure his company’s legacy. An investor group asked Buffett if Berkshire might join them in acquiring the company.50 Buffett explained that Berkshire rarely invests with others but said he would be happy to meet Justin Jr. and flew to Forth Worth to do so. Shortly after making a deal, in February 2001, Justin Jr. passed away. Upon acquisition, Berkshire split Acme and Justin into separate operations, each a standalone subsidiary. Justin Jr.’s legacy includes an entrepreneurial culture within both companies, though it manifests differently in each.
Watson heads the boot company, called Justin Brands, and observers say Watson’s entrepreneurial and managerial likeness to John Justin Jr. is eerie. Perhaps this is because, in running the company, Watson remembers the kinds of questions Justin Jr. would ask him, such as, “Are all of the salesmen working as hard as they can?”51 When facing difficult decisions, Watson still asks, “What would Justin Jr. do?”52 A diligent salesman and merchandiser with a big personality, Watson maintains the close ties with the rodeo set that his mentor had established; in 2013, Ernst & Young named Watson one of its regional Entrepreneurs of the Year.53 Results are strong: sales growth exceeded 10 percent in every year from 2008 to 2012.54
Acme Brick is run by Dennis Knautz, an accountant by training and temperament who joined the company in 1982.55 Given the physical weight of brick, Acme is decentralized, regional in both manufacturing and distribution. Accordingly, Knautz treats each sales location as an independent business operation. Operators become entrepreneurial, producing a culture akin to franchises such as Dairy Queen, whose story of branding products and spawning thousands of entrepreneurs rounds out this chapter.
International Dairy Queen, Inc.’s roots date to the 1927 founding of Homemade Ice Cream Company in Davenport, Iowa, by John F. (“Grandpa”) McCullough and his son Alex. They were innovative ice cream makers, experimenting in Grandpa’s basement with temperature and texture, and soon moved operations across the state line to Green River, Illinois.56 The McCulloughs eventually pioneered semi-frozen and soft ice creams, which Dairy Queen would famously mint into an iconic brand.
In 1938, Grandpa McCullough persuaded one of his customers, Sherb Noble, to host an all-you-can-eat sale of soft ice cream to test consumer interest. The sale was a hit, and repeat events at other stores confirmed Grandpa’s hunch that people would have a taste for soft ice cream. He had discovered a secret of the trade: ice cream was frozen solid for the convenience of ice cream makers and sellers, not for the enjoyment of consumers.57
At first, the McCulloughs could not interest any manufacturer in designing or building the necessary freezers and dispensers to serve soft ice cream. Luckily, however, Grandpa happened to see a newspaper ad in the Chicago Tribune describing a newly patented continuous freezer that could dispense the product. Grandpa contacted the inventor, Harry M. Oltz, and the two made a deal in the summer of 1939 to share rights to the equipment and royalties from ice cream sales.
In 1940, the McCulloughs invested with Noble to launch the first Dairy Queen store. It prospered, inspiring the group to open seven regional stores within a few years. After World War II, the chain hit its stride. Crowds at one store in Moline, Illinois, caught the attention of Harry Axene. An entrepreneurial farm equipment salesman, Axene wanted to invest in the business. He contacted the McCulloughs and acquired rights to sell the ice cream in designated states. Within those, Axene resold ice cream sales territories for an initial fixed fee plus ongoing royalties on ice cream sales. He opened many stores that way in the Midwest and by 1947 had established one hundred Dairy Queen outlets nationwide.
While the stores succeeded, the business arrangements resembled a one-time sale of intellectual property rights rather than ongoing franchise relationships. Neither Axene nor the McCulloughs provided centralized coordination. Since store operators were entrepreneurs who invested their life savings in their businesses, they ran them as they pleased. Little uniformity existed as the stores spread rapidly across the United States and Canada—1,400 by the early 1950s and 3,000 by 1960. As one Dairy Queen veteran joked: “Dairy Queen started by growing arms and legs all over the place, but it was a body without a head.”58
The organizational slack became apparent in 1954 when Oltz’s patent for the continuous freezer expired, prompting some store operators to stop paying royalties.59 The McCulloughs sued, arguing that royalties were not limited to the patent but encompassed payments for the Dairy Queen trade name. The stakes rose when some operators claimed they had acquired their rights not from the McCulloughs but from Axene. The litigation became protracted, costly, and diverting. Anxieties caught up with the parties in 1962, and the McCulloughs settled.