Sandell (by Hohmann & Barnard) 2011
United Steel Products 2011
Dur-O-Wal (by Hohmann & Barnard) 2010
Gang-Nail, Ltd. (reacquisition) 2010
Heat Pipe Technology 2009
SidePlate Systems Inc. 2009
Hohmann & Barnard 2008
Robbins Engineering 2006
NetJets Marquis Jet Partners 2010
NICO Hartford Life International (by Columbia Insurance) 2013 285
Oriental Trading MindWare Holdings, Inc. 2013
Richline HONORA Inc. 2013
Scott Fetzer Rozinn Electronics (by Scott Care division) 2007
Shaw Stuart Flooring 2010
TTI Ray-Q Interconnect Ltd. 2013
Sager Electronics 2012
*Dollar amounts provided when publicly available.
Source note: The author compiled the information in this table from public sources; in addition, the figures concerning Clayton Homes were supplied by the company.
10
Rudimentary
National Indemnity’s website awkwardly avows that it “might be one of the largest insurance companies you’ve never heard of.” Many Berkshire companies can make a similar claim. Unless you are a Berkshire devotee or have some connection to given companies, before reading this book you were unlikely to be familiar with many Berkshire subsidiaries, including FlightSafety, ISCAR/IMC, Lubrizol, or MiTek. On the other hand, many Berkshire subsidiaries have instant brand name recognition: Dairy Queen, Fruit of the Loom, GEICO, and Justin. But what unites all of these Berkshire subsidiaries is a sense of modesty and simplicity.
Berkshire companies engage in businesses (energy, shelter, transportation, chemicals) or other pursuits that stick to basic principles and aptitudes (insurance, clothing, furniture, jewelry, vacuums, tools, and metalworking). Pilot training and fractional airplane ownership are as glamorous as Berkshire gets. Berkshire businesses favor simplicity to flash.
What are the appeals of such a business? What is there about rudimentary businesses as a class that make such a trait part of Berkshire’s culture?
One popular answer is that Buffett is a technophobe. He jokes publicly and often about coming late to the advent of the cell phone, laptop, and social media. Anyone reading this book or scanning a list of the businesses of Berkshire subsidiaries (a list appears in the appendix to this book) might intuit such an aversion.
Berkshire’s acquisition criteria state a preference for businesses that are easy to understand, noting that those with a high degree of technology are harder to grasp. But there is much more to this “rudimentary” feature of Berkshire culture than mere personal idiosyncrasies. Institutional permanence once again plays a role. Basic industries are defined as those that have been around for hundreds of years and are likely to be around for as many more: agriculture, energy, fishing, forestry, and mining, closely followed by chemicals, metal lurgy, and transport.
In this conception, old economy is good economy, and new economy is riskier. During recent periods of rapid technological advancement, people have obsessed over change and technology. Such an obsession increases the chance of wasting resources when trying to keep up with the fast pace; a focus on the rudimentary reduces the potential for such waste. Rudimentary businesses are also more insulated from technological onslaughts than are technology-driven businesses.
In rudimentary businesses, it is easier to embrace the adage, “if it’s not broke, don’t fix it.” In cutting-edge businesses, it is difficult to be confident about resource allocation to sustain business direction. The payoffs can be big, and the allure is strong, which explains why so many take this route. But at Berkshire, it is more important to avoid losing money than to make it. Berkshire’s acquisition criteria on this point are less about technology per se—many rudimentary businesses invest heavily in technology—and more about the importance of understanding any given business.
Burlington Northern Santa Fe (BNSF)—an amalgamation of nearly four hundred different railroads dating to 1849 and among the four dominant companies today—hauls freight long distances across North America by rail. The business has been necessary and lucrative for a century and a half and will likely be at least as important and probably more profitable in the next century and a half. As independent railroad analyst Anthony B. Hatch put it, the industry has been experiencing a “rail renaissance.”1
BNSF’s culture, hatched in two stages, is almost tailor-made for Berkshire, fostering entrepreneurship and looking ahead as far as fifty years. The first stage, forged in the 1980s after the deregulation of railroads, represented a break with the industry’s ancient traditions; the second, dating to the 1995 merger of two titans, marked the embrace of America’s modern corporate practices.