Founders - #91 Jim Clayton (Sold to Warren Buffett)

Episode Date: September 29, 2019

What I learned from reading First A Dream by Jim Clayton.----Come see a live show with me and Patrick O'Shaughnessy from Invest Like The Best on October 19th in New York City. Get your tickets here! ----Subscribe to listen to Founders Premium — Subscribers can listen to Ask Me Anything (AMA) episodes and every bonus episode. --- ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

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. So that is a voicemail. That's an excerpt from the book that I read this week, which is First to Dream by Jim Clayton.

And that's actually a voicemail Warren left Jim after somebody gifted the book I have in my hand to Warren. He read it over the weekend, like he just said. And he winds up buying, after reading the book, he winds up buying Jim's business for $1.7 billion in cash. And so Warren told this story while I was going through, a few weeks ago, I released a podcast on, I read every single shareholder letter that Warren Buffett has ever written so far. It's like 54 years. So while I was doing that, Warren talked about reading the book and then buying the company. And I thought, okay, well, that's a no brainer. If Warren Buffett read this book, recommended it, and not only did he recommend it, then he goes and spends $1.7 billion of his own money on the guy's company.

There's obviously a benefit to me reading it and then telling you what I learned by reading it. Before I jump into the rest of the book, I need a favor from you. If you leave a review for this podcast, take a screenshot and email it to me at foundersreviews at gmail. And I'll send you a private feed of seven podcast episodes that I've done that are available nowhere else. And if you're listening to this on Overcast, all you have to do is press that star that's on every episode. So this episode or any other episode that you happen to enjoy that you'd recommend, press the star. It'll change colors. All you have to do is send me a screenshot of that to FoundersReviews at gmail.com and I'll send you the private link as well. Okay. So let me go ahead and jump into this book, and I'm going to spend a lot of time talking about his early life because, well, let me not run over

my own points here. Let me just go ahead and get into it. We start at the very beginning of the book, and this is Jim writing. He says, 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. The region was ailing anyways, even without a depression, and we surely lived in one of the poorest parts. Dad was a sharecropper, farming on the halves, which meant that the landowner furnished the land and half the mules, seed, and equipment. We sharecroppers supplied the sweat and energy to plant, cultivate, and harvest the crops. The landowner received half of the harvest. And this is a very important sentence that Jim realized. Sharecropping was

a tradition dating back to colonial times, and there is no known record of a sharecropper getting rich so just how poor was Jim and his family when he was born well this is how the his dad paid to the doctor to have Jim delivered dad paid the good doctor two chickens three gallons of shelled corn and one home cured country ham to bring me into the world. The year before, he and mother grossed only $100 the whole year, so there wasn't a whole lot of cash to go around. Now I want to tell you a little bit about the environment, like the house that he grew up in. It was 600 square feet, a log cabin,

no electricity, no running water, a tin roof, and no bathroom. There was no insulation to speak of, so the cabin was like an icebox in the winter and an oven in the summer. The main room served as our bedroom, where all four of us slept about eight feet apart on two beds. There was no bathroom.

In fact, we didn't even have an outhouse. During the cold months, we'd bring out the thunder bucket, which was kept under our parents' bed. You can imagine what that was used for. Someone had to empty it out every morning. So I'm going to pause right here and just want to bring up two things to you that I think are very important. One, he goes from these living conditions to the Forbes 400 list. And when the sales completed to Warren Buffett, he personally clears something like 400 or $500 million. Okay. So he goes from his parents making a hundred dollars a year and having to essentially go to the bathroom in a bucket to being one of the wealthiest people on the planet. So he has a very inspiring story. The second thing, right, which I find remarkable and I found out when I got to the end of the book was this book is self-published.

He wasn't planning on it to sell as many copies as it did. He wasn't planning on Warren Buff sell as many copies as it did he wasn't planning warren buffett to read it certainly so um he just wrote it because he printed about 15 000 copies that he handed out to employees and friends and family and then he's done several reprints since then because the book became so popular but i just think him it was a smart idea because uh you know he had to invest a few years writing the book a little bit of money self-publishing it, but the optionality that he induced into his life, he had a cap downside. He only had spent a short amount of time and a limited amount of money. And then the upside was unlimited. I think that's extremely important for not only entrepreneurs, but for anybody in life to cap

your downside and keep your upside uncapped. So I want to jump right back into the book because those two things were just hard for me to wrap my mind around. And then he talks about like, okay, well, you're all living in a 600 square feet, all sleeping in the same room. It's him, his brother, and his two parents. And where's the privacy? And so he talks a little bit about that. He goes, I didn't know exactly what was going on, but we knew something was up because our parents would suddenly insist that we go outside and play. Once we were outside, we'd see our parents cover up the window with a blanket. Naturally, we wondered what the big mystery was.

Those parents, that's the only time, and this only happened usually on Saturdays or Sundays when they had any kind of alone time. More, I'm going to talk about more about his early life and then some of his first jobs. And this is just, it's mind-blowing what he had to do at five years old. So he says, all four of us took turns using the same wash tub and the same water. So as you can imagine, the first person in the bath, you're getting a really good bath. The last one, you're essentially wallowed in filth. Even something as mundane as drinking a glass of milk was preceded by a process that could charitably be described as labor intensive. As a five-year-old, I'd be up at five in the morning to milk the cows and bring the two-gallon pail back to the house. So he gives the pail to his mom.

His mom wipes out all the debris, like filters the milk as best she can, And then she gives it back to him. She says, then she packaged the milk in half gallon jars for me to carry back up the hill, past the barn, down the hill and through the meadow to finally deposit them into a cold spring. Later at supper time, we'd go back for ice cold, refreshing milk. And that just, when I'm reading this section, I'm just like, man, I have nothing to complain about.

Like I can go to the fridge at any time and get something cold to drink as most people that are listening to this podcast can. This guy's five years old, milking cows. This is a multi-hour process just to get a drink of cold milk. It's insane. As you can imagine, school, he says, my brother, Joe and I had to walk four miles to school in the winter. And he talks about this is his first job, although it's unpaid. Cotton was our money crop and was labor intensive. At age five, I was proud to have dad promote me to a position of responsibility. So he went from picking cotton to being able to control the mules that plowed the land that the cotton was yielded on. Dad never paid me for helping the fields.

This is his first job. He gets his first job from his uncle. Now check this out. I would sometimes plow for Uncle R.C. He gave me my first pay-for-work opportunity and my first feeling of self-worth that comes from being paid for work performed. Uncle RC would always acknowledge a job well done, giving me a lasting sense of pride. The pay for one day's cotton row dragging was 25 cents. Now they're going to talk about how like if you have no money, if you're making such a little amount of money,

how are you going to feed and clothe your kids? Well, our clothes were made out of feed sacks. So the sacks that they're using to feed the animals that are on their farm, his mother repurposes with her sewing machine as clothing for her children. So it says, our clothes were made out of feed sacks. Really, we would go to the general store, walk down the roads of feed sacks, and shop for our new clothes. Now, this is what was remarkable about, one of the remarkable things about the book is he's not telling the story for you to be like, oh, like to pity him or to say, you know, woe is me. His overarching lesson in the book is, listen, you don't determine the circumstances you're

born into, but there's a lot of lessons that you don't determine the circumstances you're born into, but there's a lot of lessons that you can learn from those circumstances, apply them, and then you can actually improve your life. And so even when he's noticing how poor his parents are, he learns business lessons from them that he then applies to his several businesses that he starts and operates later on. And this is one of them. He he says dad was an extremely good manager of what little money we had dad was able to minimize the expenses since he was a natural born mechanic and enjoyed performing the maintenance himself so not only would he do this for automobiles but later on when um when jim becomes a pilot uh he does the same thing for his airplanes. Thanks, Dad, for these business lessons, which we apply daily at Clayton Mobile Homes. Aircraft maintenance comes to mind, but in computer manufacturing equipment and all over the company,

these lessons on buying good used equipment and maintaining well is applicable. And I referenced this earlier, but I do think this, what the section I'm about to read to you, is probably the most important point in the book because it can be applied to so many different things. He says, it probably sounds like we lived under harsh, under extraordinarily harsh circumstances. But even in that time and in that place, I learned that certain concepts are ageless, no matter what century we're in. Self-discipline willpower perseverance realizing that disappointment is not defeat Knowing that problems often present opportunities I'm just going to write myself here and go back to one of my favorite quotes from the podcast. I did on henry kaiser

is Problems are just opportunities and work clothes. I think about that that quote all the time Obstacles may get in the way, but the human spirit can triumph over these things. Adversity breeds resilience and can build character. It is possible to survive, even prevail. As a boy, I could never articulate these things. As a man, I was able to look back and apply these hard-won childhood lessons to my business and my life. And I just think that's the most important part, that understanding that you can manipulate life. You can change it. You can poke it. You can have an effect on the outcome

of not only your own life, but all those around you. I think that's extremely important for people not to just wallow. You might not be in a good situation today, but you can make the necessary adjustments and improve your situation in the future. Okay, now I'm skipping ahead. He's still a boy. In this section, I think what I took away from this section is there's a huge value in having examples that inspire you. And when Jim started out his life as a young boy, he wanted to be like an Opry singer like a country music like guitar singer person a musician singer person um and he looked up to this local guy named eddie arnold who winds up being one of the most successful um country music artists or musicians in history um so he says all of us felt a kinship to ed because he was a hometown boy. He grew up near us.

Eddie started out with nothing, no contacts and no hand up. In fact, he started out just like me, a kid on a cotton farm who undoubtedly had a dream as he learned to sing and play the guitar. We appreciated that Eddie never tried to bury his dirt poor heritage. In fact, he glorified it, considering his nickname was the Tennessee Plow Boy. That's what they called the position that Jim had on the farm, Plow Boys. Eventually, Eddie would have 28 number one singles. He'd be the first country entertainer

to host a primetime network TV show. Ultimately, he'd sell 90 million records. He was one of us, still in touch with his roots, confirming that any of us can find a way out of the cotton patch. His growing success was an inspiration to me as I shaped and nurtured my dream. So now in the story, Jim's about 10 years old. He understands that he doesn't have a lot of money. He's doing anything he possibly can. He'll help out his uncle's store. He'll work on other farms. He'll collect bottles.

He could do anything. And as a result of these activities, there's a lot of early valuable lessons in entrepreneurship that he applies later on to his many businesses. So he says, in whatever spare time I could find, I sold flower seeds door to door. So he talks about now some of the incentives. We've talked a lot about incentives the past few weeks. If you to my podcast on warren buffett and charlie munger and how important it is to them and how they're constantly preaching the value of understanding the incentives that uh not only like you give employees in your business but that you see

um in all areas of life that it's it's i think they say like the number one shaper of of human behavior so in this case the flower seed company that he's selling seeds for are also trying to organize and incentivize their sales force, right? It says, to entice us to sell, there were rewards. The seed company gave us a choice between prizes or free products. And he does something extremely smart here and extremely rare for a young child. He says, I weighed my options carefully. Did I want a toy car, which would be instant gratification,

or free seeds, deferred compensation? And essentially they're going to give you the product for free. This decision was more consequential than I ever knew. Without realizing it, I was setting the tone and shaping a philosophy that would characterize the rest of my life. I chose the seeds. It was my first attempt to become an entrepreneur. Plowing the money back into my business was a smart move.

I got to keep all the proceeds from those extra seeds, so it really increased my cash flow. But I learned something far more profitable. Forgo those things that give you momentary satisfaction. Look at the long term. Defer profits for something more substantial. Pass up the plastic toy car and invest your capital. Plant the right seeds. One day you could buy a new luxury car, or better yet yet start your own seed company so when i'm reading these sections

um that paragraph right there was written by jim clayton it could have easily been written by warren buffett could have easily been written by david ogilvy could have easily been written by charlie munger so you don't have i'm in like the middle in case you haven't listened to these other podcasts i'm in the middle of like a series they're, you don't necessarily have to listen to them in order, although I guess I would because I kind of build on them on every podcast. But it starts with Warren Buffett's shareholder letters, right? And then I take entrepreneurs and ideas that he talks about and then influence like the next book I did, which was David Ogilvie because Warren Buffett said David, like he bought,

first of all, bought stock in Ogilvie and Mather, Ogil's a public company and advertising agency, but he also called him a genius. So I'm like, okay, well, if everybody around me is admiring Warren Buffett and learning from him, why am I not learning? Like, why don't I take that one step further and learn from the people Warren learned from? And if you have somebody that Warren Buffett's calling a genius, like, like, why won't I dedicate, you know, 10, 15 hours to read up on that person, which I did. Then the very next week, I did Charlie Munger. Obviously, I've done two podcasts on Charlie before. Somebody, Warren, also extensively talked about how much he's learned from Charlie.

Now this week, I'm doing Jim Clayton. Again, somebody else Warren learned from and enjoyed. The next three weeks, I guess I wasn't even thinking about talking about this, but it kind of makes sense given where I find myself right now. The next three weeks, I'm also doing books on entrepreneurs that I learned about by reading Poor Charlie's Almanac. So the reason I'm bringing this all up is because I think it increases the depth and understanding you have listening to this podcast 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. And now I feel like I have a better understanding. I'm like rambling

here, but I'm trying to get to my point. I feel a better understanding of Jim Clayton and Warren Buffett by reading both Warren Buffett's journal letters and Jim Clayton's book, if that makes sense. 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. So I just can't get over like that exact sentence or that exact few paragraphs is very, you know, is very in line with Buffett and Munger's philosophy on how they run Berkshire. And, you know, they have a company that's worth what 500 billion dollars I think they're sitting on like 120 billion dollars of cash right now like there's a lot of and of of education and useful information just by studying them all right um let me skip ahead a little bit this this is more about um he gets really into um he so he has a Jim Clayton has a rather unique set of skills. And what I admire about him,

what I learned from him is like, he approaches problems very like straightforward. Oh, I want to do this activity. I don't know how to do it. Okay. I'll learn how to do it. So he applied it. He became a musician. He became a pilot. He became an engineer. He became an attorney. He became an entrepreneur. And i'm going to elaborate on more of that but um i feel that that is very like very simple but not easy and charlie munger always talks about like common sense the reason they call it common sense is because it's really uncommon sense that the standard default of human of humanity is like one of great miscognition is the word he uses and laziness and so if you're just

willing to constantly learn and not be lazy that puts you ahead of you know 90 of all humanity because they won't do that now in this and we're right in the story he gets obsessed with um with radio it's like the main technology when he's a young person he starts taking not only does he learn like how radio radio signals are transmitted he's able to take apart and rebuild radios. And so while he's doing this, and he's I think 16 at this time, he just has this throwaway quote that I think applies to so much. It applies to the relentlessly resourceful nature that entrepreneurs and anybody that wants to get good at their craft,

it's not exclusively the domain of entrepreneurs, has to wrestle with. And he says, shoestring operations offer tremendous opportunity. You have no choice but to learn everything. So he's talking about radio right now, which leads him to have jobs later on. But that is applied to everything. I think if you just go through life and says,

I have no choice but to learn everything. And I'm not saying it's impossible to learn everything about our complex world. But everything that you need to learn to do whatever it is that you want to do in life. Again, you have no choice but to learn everything. I think that's a good motto for all of us. Okay, so now I'm jumping ahead. He realized, hey, like his dad even said when he was younger, he's like, oh, I'm going to see that other plot of land for you. I'm going to, saving that for you. Reminded me of

like Henry Ford's early life where his, part of the reason Henry Ford was so obsessed with like all things mechanical is because he didn't want to be a farmer. And same situation for Jim. Jim's like, dad, that's not, like my goal is not in life, not to be a sharecropper. Like I don't want to be a dirt farmer. So he winds up moving away. He graduated high school, but his parents never mentioned college to him. They even thought like most farmers in the area, whatever he was at, thought high school was a waste of time because it took away from hours where you could be working on the farm, right?

So this section where I'm at right now, it's going to talk about the difference a mentor could make in your life, right? And Jim's mentor, when he's a, let's say, teenager, he's probably around 18 years old at the time, was this person named Bill. And Bill was the only person he knew that actually had a college degree. And Jim is actually lucky in a sense, because I think for a lot of people, let me just speak for myself, and I think this applies for a lot of people uh let me just speak for myself and i think this applies for a lot of people like i've never had like an in-person mentor never like i wish i did um i never did for me that's what i use like books and podcasts and and thank thank god for the internet um because that that can serve as like a you know mentorship um like at scale almost so this is

the influence that bill had on Jim's life. So it says, Bill asked me to consider applying for an electrical engineering degree at the University of Tennessee in Knoxville, since they would accept all my credits from Memphis State. So he's going to like a tiny college. Then he's going to wind up doing that. But then it says, Bill also pushed me, they're working, I forgot to tell you, they're working at a radio station, which was like, like I said, the budding technology of their day eventually turns into TV stations too. Bill also pushed me to get my first class radio license required by the FCC to operate and maintain transmitters at commercial television and high powered radio stations.

This in particular was a superb idea as TV was sweeping the country, absorbing engineering talent. So he winds up studying, he's not telling anybody but Bill this, right. So he winds up studying. He's not telling anybody but Bill this, right? So he winds up passing the exam from the FCC. And so he gets his license. He says, this I thought would be my meal ticket. About the same time, the University of Tennessee accepted my application. I packed the Chevy, left Memphis, and moved 400 miles to Knoxville. On my first day there, armed with a fresh first-class license, I got a job as a transmitter operator for WNOX, a 10,000-watt radio station. So then I just look at my notes, the difference a mentor could make. I encouraged him to go to college to study

engineering, advised him to get a license to the FCC 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. Those three things set Jim up to be able to move into business later on, which is going to happen relatively soon. But it's not at all clear, and Jim doesn't know this, if he would have naturally gone into that. He thinks he had some entrepreneurship tendencies at a young age, but he was so interested in radio and television, he thought maybe him and his brother would just work in the industry for the rest of their life. So that, to me, is like a story of the difference a mentor could make. And if you don't have a mentor that you can interact on a personal basis, please do try to find them through podcasts and books because they can function as – and sometimes they could even be like – they could produce like a better outcome for you.

But I do think it is extremely important to have other people push you and shape the way you think. Around this time, Jim becomes fascinated with flying. And it's really funny because you could buy – at this time, you could buy a plane. It was like a 65-horsepower little little two seater for about $895. Well, Jim's in college. He doesn't have $895. So he comes up with this really good idea. He essentially invents fractional plane ownership before like a few decades before it actually becomes invented by another Buffett company that Buffett winds up buying. I think it's NetJet.

It might be called like MarqueeJet or something like that now. But anyways, the lesson I'm about to tell you is he goes in, he convinces a bunch of his other fraternity brothers, hey, let's, I think there's like eight of them or something like that. And they said, hey, let's all chip in 120 bucks and buy this plane. And then we'll all learn how to be pilots and get certified as pilots. Now that's the story. That's not the lesson. The lesson is there's a strategy here that you should do the work others won't do, right? Everybody's like, yes, let's do it. They throw in money. Everybody's excited. Guess what happens? The other guys were revved up at first. Later, they learned just how much work was required to obtain a pilot's license and didn't want to put

in the time. Except for Joe, that's his brother, none of them became pilots and only two of them ever took lessons. So they still paid for the plane, but they were lazy and they were unwilling to do the work. Let me pull up my notes on this talk this guy named Josh Wolf gave who's an investor and an entrepreneur advocate. And there's something he said that I wrote down and put in my collection notes that I think about constantly. And I think I've talked about a few times on the podcast actually. So he talks about what are the opportunities that his company is looking for. And he says, we want really high scientific and technical complexity,

not because we want to tackle things that are really hard. It's because we don't want competition. The problem with funding and doing easy things is you get hundreds of competitors. And I'm psychotic about competitive advantage. What is Josh really saying there? He's indicting all of humanity, that humans, the vast majority of our species will drift to the easy.

And as a result, you get hundreds of competitors, your profit margins scooted away, and you just have a miserable time. He's saying it's not because we want to tackle hard things, right? We just do it because we know others won't. Now, he didn't say that. He said, we don't want competition, but that's what he's saying. It's so hard that these people aren't going to do it. That is a strategy. 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 eighth of it because other people are 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. But that's how humans react to so many things. And you can differentiate yourself and your business just by doing a little extra work. It's not even that much work. It's just that most people would be happy just sitting at home doing nothing or not happy. They're definitely not happy doing that. Most people just do that because they're lazy and they just don't want to do the extra work. So again, I think that's a good strategy for all kinds of things in life. Do the work others won't do. So at 19 years old, he becomes a pilot and he flies for a lot. I think now he's in his 80s, so he might not be flying anymore. But anyways, what I admire about Jim is he takes lessons about life from all kind of

activities. So he has this great section in the book that talks about the parallels of flying and running a business. And I just want to read this section to you. 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. And so Jim is picking up something from his experience that I also, there's this great talk by Paul Graham where he was talking about, and he arrives at the same conclusion. Let me go back to my notes for that. So he talks about building companies is indeterminate. What Y Combinator does is tell founders things that they will ignore.

It's counterintuitive. We tell people don't hire too fast and they go off and hire too fast. And then they come back and say, I wish we listened. Startups are counterintuitive. Y Combinator wouldn't exist if it was obvious what to do. Same thing with flying. So Jim's going to elaborate here.

That's what it means to be counterintuitive. Your sentences can be dead wrong. If your business is in a deadly spiral and in a situation that takes more than just a course correction, it is even more imperative to resist the urge to rely on impulse. Same thing if you're in a deadly spiral or in a plane. Something actually happens to them. That actually happens to them. I think he talks about here with so much negativity swirling around realize that your sullen perception on things may not square with reality take action

yes but knee-jerk bloodletting usually won't work dramatic gestures like massive layoffs or cutting the advertising budget to zero could well add to the problem so that's what he means so that makes intuitive sense but that might be the wrong thing. During that horrific nosedive, now he's talking about he went into a cloud, and he didn't know that the plane was flying upside down because he couldn't see anything. So he's thinking that he's going, like he feels his instincts are to pull back on the handle and have the plane gain altitude,

but it winds up sending him faster towards the ground. He says, during that horrific nosedive, I was desperately trying to recall fragments of information from the instructional manual that I had skimmed. Something, anything that might get us through. I remembered one piece of advice pertinent to my situation. The last thing you should do, the book said, is the first thing you feel you should do. That's a great description of the word counterintuitive, right? The last thing you should do is the first thing you feel you should do.

In other words, during predicaments, when you've lost all sense of direction, don't trust your senses. Don't act on impulse. Same with your business. If you've lost all sense of direction there, don't react on a whim. Instead, take your feelings out of the mix, gather all the data you can, analyze what you've got available, consult with your experts, engage your reliable sources and resources, and identify the root cause of the problem through rational thinking,

not raw passion. I know this advice almost goes against human nature. It's natural to respond instinctively, spontaneously, and emotionally, but natural doesn't always mean desirable. Remember that cyanide, arsenic, and earthquakes are also natural. Planning, organizing, controlling, and delegating are unnatural to most of us, but that's what works in business. Successful organizations, whether a Fortune 500 company or a mom and pop grocery store, use these principles. Either through education, experience, or instinct, these companies tend to make these principles part of their culture. Shoot from the hip at your peril. You may wind up shooting

yourself in the foot. Okay, moving on. So it's really interesting how we can never predict the experiences we have in life, like what role they'll play later in life. And so he's in college, he's married, they don't have a lot of money. This is his first wife. And he, he has, he winds up living in a mobile home, right? That, that becomes his main business. That's the business he sells to, to Warren. But he lived in a mobile home, not because he wanted to, he didn't even know anything about him, but because renting an apartment was so expensive. So through this experience, he learned some of the benefits of mobile homes, of living in mobile homes. So he has to move cities. Now he's going back to university at Tennessee. And he says, it was difficult leaving that great job, the charming city, but the process of moving

itself wasn't difficult at all. We didn't have to move furniture or pack anything in boxes. Canned goods stayed in the cabinets. Clothes stayed in the closet. Socks and shorts stayed in the drawers. Silverware stayed in its compartment. All it took was a little masking tape to make sure doors and drawers stayed shut and we were done. So they come, they hire a company, they lift the mobile home, put it on a truck, and move it to Tennessee. Done. And he says that they moved it in a day, and by that night, we were cooking in the house. Now, this is fascinating because something else that it's not mentioned in, I don't think I mentioned it later in the podcast, I'm going to just tell you here,

is the mobile home company he eventually founds is making $100 million a year after tax by the time, and it was profitable for 28 plus years in a row by the time Warren Buffett buys the business. I just think the idea of having a company where you're making $100 million a year in profit after tax is nothing short of amazing. So now I'm going to get to the point.

Before I read this book, I thought the entire book was going to be about that mobile home business, right? He stumbles on that business by accident later, and I'll get into that. His first business, he stumbles on that too by accident. He's still in college, and he's a hustler. He's working weekends, off hours. He doesn't have a lot of money, so he's got tons of motivation. He's got two jobs and going to college, right? This guy's not sitting around loafing. He says, I spent most of my weekends and off hours for my other two jobs in this manner. Oh, so let me, before I jump ahead. So he winds up just like buying used cars because,

you know, the lesson he learned from his dad was earlier but then he starts reselling them by accident he's like wait a minute i just made more from reselling this one car than i did for my two jobs maybe i'm stumbling onto something so this is how he starts a car dealership uh so he says um in a few weeks i was making more money on a good week selling cars than i was at my other two jobs combined soon i thinking, wouldn't it be great if I could sell more than one car at a time? I partnered with Joe and six other fraternity brothers. They became my first sales team. This cookie-cutter approach to the car business worked better than I could have ever imagined. Some of these guys sold a car every week.

It wasn't long before our gross profit was $6,000 a month. My net was about $2,000, good money for almost anyone then, but especially for a kid in his early 20s. So his business is growing. And now here's the issue, right? So this section really explains us the benefit of the power of thinking outside the box. He's in a commoditized industry. He's selling used cars. So he's got to figure out how can my business stand out? And at the time, TV stations were relatively new and they had not all hours of the day had programming. So you could buy programming if you'd produce your own show.

So you buy it from, you like to buy the time from the network essentially. And so he buys, he starts, he's really into music. He he's a musician he does like this talent show and he puts it on um and this is a lesson he learned from earlier because he would sell advertising for other shows he's like well i don't need to sell advertising like uh my auto dealer show would be the advertiser i just need to build to make the show and so uh he and then he appears on camera and he's uh like he sings country songs and he does like What are they called the jingles for his like just goofy little jingles and it works

He said it caught on people kidding me about being the singing singing car salesman It was fun and more successful than the radio spots at how he previously advertised his business once again I learned the power of thinking outside the box sure It's easy to copy the competition, but doing business like everyone else means you'll get results like everyone else, which is usually average. For me, that's completely unacceptable. After appearing night, and then he picks up something about human nature, that people will buy products from people they like. After appearing night after night in their living rooms, even from inside an electric box, people felt like they knew me. I mean really knew me, like I had a personal relationship with them. They'd walk into the dealership and say, where's Jim? I was like an old friend. Because of TV, they trusted me, and if you're selling something, that's as good as it gets. I can't begin to overstate how much credibility those television commercials gave us.

And this whole idea about the value a business can have is if your customers trust you. And that's, again, something straight out of Buffett and the school of Buffett and Munger. They talk about, I don't care if you lose money. I care if you damage your business reputation because that's way more valuable. And they tell that to all the CEOs that they manage. Jim also picks up on something that again is something that, that could have easily come out of the mouth of, of Charlie Munger among others.

Munger compares economies to ecosystems. So Jim says, seize a niche that's underserved and own the market. Munger would say, Hey, the economies are like ecosystems, just like some, and there's wildlife that have dominated a niche for survival,

companies that find an underserved niche and dominate that can find, he called it like positive economics that they wouldn't find otherwise. So again, seize a niche that's underserved and own that market. So they have a lot of success selling used cars. He winds up getting contracts with a lot of, becomes a dealer for new cars. At this time in history, like the new Volkswagen Beetles are like all the rage. So he starts selling

for Volkswagen, but he does something in like a gray market, which is really weird. I've never heard about it before where Volkswagen would have like um like i guess like normal relationships with dealers like authorized relationships with dealers but they would still sell to gray marketers and that's what his business was at this time eventually becomes like a like a authorized dealer with them and volvo and other other companies but anyways the main Volkswagen dealership is run by this family called the Snyders in in Knoxville and they uh they did some things that were like unfriendly to their employee or to their customers which is really really dumb um so this section is going to tell us to ignore your competition and focus all your attention on your customer so what the

Snyders would do is there's so much demand for Beatles like they would work like a half a day on Saturday they'd be closed on Sunday They would make they try to drum up demand by making their There'd be like a city Let's say you wanted to walk into a Snyder dealership and buy a Volkswagen bug that day You wouldn't be able to get it for like six months So again, this is just I know some businesses do this to like increase prices and stuff But it's it's fundamentally unfriendly to your customer. So I think that's just ridiculous

and But it's it's fundamentally unfriendly to your customer. So I think that's just ridiculous And then what happened is Volkswagen selling these gray market even though they're the same new Volkswagen Beetles, but they're selling them to other dealerships Which is a weird business practice of himself. And so the Snyder's are really really mad at Jim and his brother So says but so so now instead of going to Snyder's you can go to gym and you wouldn't have to wait. He says, but unlike the Snyder's, we didn't make our customers wait. In fact, our customers could buy a Volkswagen and drive it off the lot that very day. For that, they'd gladly pay the extra $300. So he's actually selling them for $300 more than the Snyder's are. And he starts outselling the Snyder's because of that. Humans are impatient. They're going to wind up paying more if they can access whatever product you have that they want in advance

or faster than they otherwise could. Now, what happened is the Snyders make a huge mistake here. They start running and spending all this advertising money warning the public to beware of gray market Volkswagens. But it's the same product so they spent and what happens is is Jim winds up benefiting from his competitors ad spin so the competitor made a mistake the competitor the Snyder should have focused on being better to their customers instead of looking at their competition publicly they retaliated in the new Sentinel that's the newspaper in the area there in with enormous ads and a headline that bellowed beware of gray market volkswagens what followed

was a litany of warnings indicating the mishaps that would befall the buyer foolish enough to purchase a beetle from the evil conniving gray marketer this was free advertising for us readers couldn't help but wonder what the heck a gray market Volkswagen was. They'd check us out just to satisfy their curiosity. Unwittingly, the Snyders became excellent promoters for us. The more they ran those ads, the more Beatles we sold. A top flight New York ad agency with a blank check couldn't have gotten us more publicity. It is never smart to shine a light on your competitor, not even a candlelight. Okay, so I'm fast forwarding the story. Just know that his dealership is a massive success at this point. He's selling for all different kinds of brands. Him and his brother

are making a ton of money and it's all going to blow up. And so he's learning the danger of leverage. And the messed up part was it wasn't even really his mistake he winds up switching his business because a lot obviously you know customers come in they have to they need to finance you know cars are a large purchase for most people and so he switches to a younger banker and that banker is trying to make a lot of money and they do so by essentially like cooking the books and giving people credit that shouldn't have got credit. And this is happening in the 60s. And we know that continues happening today and will always happen.

It's just part of human nature. Now, here's the problem, though. That bank wasn't only doing it for Jim's dealership. They were doing it for all kind of other businesses. So eventually they realized, oh, shit, a lot of our loans are default. We have to cut this business off immediately. And because they loan the money, they can also call in the loans immediately.

And that was in the contract. And so let me read this section to you and then we're gonna talk about Jim's unique response to this. Just remember while I'm reading this that Jim was encouraged by the bank to use leverage to grow faster. One bank was like, no, no, we can't extend anymore, like grow slowly.

The other bank was like, yes, fast, fast, fast. He went with the fast one because he's young. It's like 20, I think 25. And that wind up being his downfall. He becomes bankrupt here in a minute. All right. Tom is his banker. With Tom's liberal financing for our customers and his generous funding of increased inventory our sales increased every month true our overhead with a larger inventory and a staff of 70 was also

growing no that's a member he was taught to watch his costs he did not adhere to that the year 1960 with the larger staff and tom's financing was a was for clayton it's called uh that's the name of his company at the time a great year the coming year would be a blowout for sure We thought but by the spring of 1961 a rumor that Tom's department there There was a rumor that Tom's department had been audited the audit turned up irregularities Something about high delinquency and a poor loan documentation So he comes back from this trip and his brother picks him up from the airport He's over in like Sweden or wherever Volvo's at.

And they give him awards for selling so many Volvos. He feels like he's on top of the world. Comes back that day, Joe is his brother, picks him up and it looks like somebody died. And why? The bank is demanding immediate payment of all principal and interest, all $275,000 of it today. It wasn't possible. It didn't make sense. We weren't behind on any payments to the bank. We never had been. So they wind up going to a meeting. They bring two of their attorneys. They're like, all right, we're going to straighten this out. The bank can't do it to us. They sit in with Tom. And then Tom

is the nephew of the bank president, this guy named Harry Nacy, who's kind of a – well, he's just an asshole. And you're going to see why because this is what he says right here. The meeting was a disaster, a Hindenburg blowing up in our faces. His attorneys had began telling the bank's veteran attorneys and Harry Nacy what they could and could not do. It was not going well. Now he talks about Harry Nacy. He listened for a while, and then he suddenly looked at his watch and announced he had to be at the Cherokee Country Club in 20 minutes. And then Nacy said something that made my blood run cold.

Let's bankrupt these little SOBs. I can't be late for my tennis match. The meeting was over. The bank had made a lot of bad loans. The bank regulators found bookkeeping and accounting records that were badly flawed and loan files that contained inaccurate information. Harry Nacy and his board of directors decided to terminate relationships with all of their indirect dealers, car, boat, furniture, appliance, piano, and more. In hand, they had a court order, bankruptcy papers, and

the authority to take over all of our assets. When we arrived back at the dealership, we saw the bank was hell bent on taking everything, which would wipe out this business that we worked so hard to grow. Now, there's going to be two things that Jim does here is remarkable and very abnormal. One, the next day he gets up, he's like, all right, we just got to start another dealership. They have a bankruptcy attorney. He's like, well, you know, that company's bankrupt, but you guys aren't personally bankrupt, so you could start another company. And that's what they do. So this is the section I'm going to talk to you about.

It's the tax tax used to start another smaller dealership while in bankruptcy, right? And they do something really, really smart here. They're like, okay, and they do it and make sure it's legal first. They check with their attorney. But the bank confiscates all their assets, right? Well, what do the banks do when they do that?

They don't keep them. They auction them off off so Jim and his brother they have to hustle they have to sell like they borrow some money from from friends and family they had some cars that were in their personal names they were able to sell because only their their car dealership was bankrupt not them so they go to these auctions and they buy back their old inventory for more than 50% off. And then that's not only the one unique, interesting thing they do.

So it says, it talks about the bank, the bankers were there. They were there at the first of three bank auctions featuring some very familiar merchandise. Representatives from the, it says we were there, sorry. Representatives from the bank were there too, obviously displeased and speculating as to what sinister scheme might be afoot. As we went bid after bid, you could practically see jaws drop as they watched us. Those poor bankrupted souls buy back our own inventory at bargain prices. By selectively bidding at the three auctions, we brought about 50 cars and were amazed at some of the prices.

The average price paid for the cars was a little over $800. Now, so they borrowed some money, but not enough to buy 50 cars. So he says, now you may be asking after performing some quick arithmetic, just how we could buy 50 cars plus parts, tools, and supplies with a relatively small amount of cash. Here's the second really smart thing to do. Simple. We pre-sold a lot of those cars and paid for them with the buyers own money Think about it. We knew the condition of the cars that the bank had on the block and precisely what they were worth There was nothing wrong with contacting potential buyers to explain how they could buy a good car and save a bundle and we took their Cash to make a purchase for them at a reasonable profit for us

Those re was reasonable profits added up. Now, in addition to that, the third thing he does that I would say is uncommon and also smart, he gets a job while doing this. I went back to radio. This WROL hired me as station's chief engineer and the host of yet another Saturday morning program. The base pay was $125 a week plus commissions on any advertising

I sold. 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. And so I think that story just illustrates Jim's modus operandi in life. He's like, okay, I have a problem. Let me think rationally and non-emotionally how to solve that problem and just go and do that. He also applies it to our references earlier. If there's something I don't know, that's fine. I'll go learn it. And so what is the lesson, the unique lesson he took from being bankrupted because he didn't understand the power that the bank had?

He says, certainly I was getting a lesson in what can happen to a small business if the owner does not have adequate legal experience. And I swore That it would never be in that situation again The bankruptcy fiasco made it clear that there was 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 That's just amazing. All right, so fast forward, he learned his lesson. Now he understands, like he reads and actually drafts a lot of the contracts that he gets into and they wind up controlling the cost and not like over leveraging themselves. So he says, just two years after the

bankruptcy, our cash, this is the new dealership, our cash flow, credit, and credibility were again satisfactory. But now, in fact, we operated with all bills paid, current, no exceptions. Now, they were making enough money, they said, we could have bought big houses and luxury cars or became jet-setters with frequent jaunts to Europe or Hawaii. But we didn't. Our lifestyles were so modest that I wouldn't even drive a clean car off the lot for the drive home from work.

I wanted the clean cars on display and available for our customers. So I'd drive the latest dirty trade-in, even one that was a little beat up. We were not prone to spending sprees, preferring to keep the purse strings tight. To sum it up, if a considered expenditure didn't support the business, we'd be taking a long, hard look before approval. Cash was king as it is now and again you could see you just picture warren reading those words and nodding along and i'm like i'm gonna buy this guy's business now i want to refer you back to his experience living in a

mobile home like oh that's interesting now i going to flash forward about a decade from that time period, right? He's got a, him and his brother are making tons of money with their car dealerships. Everything seems to be fine. And this is how a daily traffic jam caused Jim to stumble into the mobile home business. So there's a mobile home reseller across the highway that their auto dealership is on.

And it's these guys called the Taylors. I think they're brothers too. And he says, they were delivering so many mobile homes that they caused a traffic snarl on Clinton Highway almost every morning with their deliveries. And then this is Jim's inner monologue. He says, this happens every day, darn guys. And I hear they make a couple thousand bucks every time they sell one. 10 times when we make when we sell a car. Every time I see one of those big things pass me on the road, they've made a couple grand. And I see it every day. That mobile home business must be really good.

So how does he get started in mobile? He has this idea. He's like, well, let me just baby steps. Every big company starts out as a small company. Every great company starts out as a small company. And so he does the exact same thing that he did when he was starting to sell cars. He just tries to sell one. Just one. I don't need to scale. I don't need to worry about selling thousands or whatever the case is. I'm going

to see if I can sell one. So he scans the classifieds. He says, well, scanning the classifieds, an ad for a used mobile home caught my eye. It was 10 by 56 like new. The ad went on to state that it had a small kitchen fire. I began to wonder if this little burnt out home could be fixed up. If so, maybe we could sell it for a little profit. And if it worked, who knows? Maybe we could make a few hundred dollars in the mobile home business too. Who would have thought that this little burnt out mobile home would take us to number one in the market share in several years? I bought it for $1,200 and I called on the troops, mom and dad. The three of us started to work on the damaged but repairable home. We spent two days and another $800 to redo the kitchen, repaint the ceiling, and replace the carpet. Remember, this is happening right by his auto dealership. There's tons of

people that drive on this road and he put an ad out saying for sale. Someone driving by saw our first sale sign and stopped. They bought the home for $4,500. Profit after delivery was $2,000. Not bad. I was onto something. All right. So from there, he starts buying more. Then he visits dealers and now he has a full-fledged mobile home business, right? And at this point, he's not vertically integrated. We're going to get there. Right now, he's just reselling other homes that are manufactured by other businesses. But the problem was he's not vertically integrated. We're going to get there. Right now, he's just reselling other homes that are manufactured by other businesses. But the problem was he's spending so much time, he's still got a car dealership. Actually, they have more than one at this time. So this is what allowed Jim to focus solely on homes. And it was a unique reason. And then I'm going to talk more

about some unique reasons for his success. He says, by early 1968, I was spending zero time supporting Joe at the car dealership. Clayton Holmes was eating my clock, and I have to admit I was loving it. In June, Joe and I stopped for a beer after work and held the big meeting to formalize the role that we had both been playing very capably. The conversation lasted almost a full five minutes. Mr. President, it looks like you're running cars, I said to Joe. Sure looks that way, he said to Joe. Sure, it looks that way, he said with a sly half smile. Okay, you run cars and I run homes. So there's actually two important things here. One is the benefit of having a good relationship with your business

partner. At this point, it's his brother. They've never had a fight in their lives. They just handle things very easily and simple. Even the breaking up of the two businesses was handled in one page contract. And two, it's not at all clear that without the success of the car dealerships that Clayton Holmes would have ever been as successful because he was able to dedicate several years to working on the home business while also reaping the benefits of a successful car dealership. In fact, that car dealership, I think it's still family owned. I think they've been in the family for like 50 years. And Jim says that. He says, make no mistake, all 8,000 of us who get our paychecks from Clayton Home should never forget that our

organization wouldn't exist if not for the dealerships run by Joe and later by his children. It was during this period that both, and now I'm getting into some of the unique reasons for the success he was having. It was during this period that both our car and home divisions began a dramatic surge in growth. We're talking late 60s, early 70s now. There were lots of reasons for our success. A highly trained and aggressive staff. A state-of-the-art accounting system. A wonderful way to promote the business.

That's his weekly TV show. A booming and stable economy. Particularly good in our area, customer financing that was convenient and quick and attractive pricing, uh, a strategic decision made possible because our two companies shared much of the overhead costs. No questions. 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 so now jim moves into point he's like i'm gonna there's nobody else that's

completely vertically integrated in the mobile home industry i'm gonna make the first of that move so he's gonna go from retailer to full-fledged manufacturer right and this is again what i mean about okay well um you know other people figure out how to build and manufacture mobile homes like i can learn how to do that too um and it's it's a slow process. Uh, I don't want you to, I don't want to miss, uh, like represent this. Like it took six years for the manufacturing division of Clayton homes to be profitable. But once that happened, then he can move into other areas and we'll get there. So it says, uh, it's just a funny story. I want to share with you. The factory is only big enough to construct three mobile homes at the same time.

Everything starts small. We quickly created a crude assembly line and adopted unintentionally the trial and error approach. One early lesson learned. Always make sure the size of the finished product is smaller than the doorway. The first home we made was 12 feet wide, but the door was 11 feet and 10 inches. We had to knock out the wall, which didn't please our landlord, then spent two days and hundreds of dollars building a larger door. Over the years, we've had a lot of laughs about this, but at the time, it wasn't funny at all. The homes we made

were simple, cheap, and sold even before they were off the assembly line. Our retail price was $3,995, a little lower than the rest of the industry. Our customers saved significantly on freight costs. The hundreds of dollars, oh, this is another benefit of the trial and error process. Their factory, or whatever you want to call this, I guess, yeah, I guess their factory was local. So it says, our customers saved significantly on freight costs. The hundreds of dollars normally paid to move the homes from the factory to the dealership. Instead, this was credited to our customers since we were building the homes locally, just blocks away from the sales center, and there were no freight to dealer costs.

Now, this is where Jim goes vertical, and this is extremely important because there's no way in hell that Warren Buffett would have bought just a company that manufactures Mobile homes it's because they become in well, let me just it's remarkable how much money They start making over half their income comes from the financial financial aspect of the mobile home industry So he says we began at the retail level selling homes by other companies. We served our customers and shareholders very well on that one level. Okay. So that's one lesson there. You can't just like, it's smart. He did this incremental approach. One, can we sell? We did that good. Okay. Then with a huge step back,

we began to design and manufacture from scratch the homes we wanted to sell. Then they did that well. Now they moved to the third part of integration. Owning and operating mobile home communities took us to a third level. Now we're providing our customers with quality sites for their homes and an attractive lifestyle for their families. Then they start their own insurance company. And if you listen to my podcast on Warren Buffett Shareholder Letters, you realize that insurance is their main business.

It's something that they love to do because of the float, which is money that they do not own, but the money that they can invest. It's all the money paid up front from insurance premiums. So he says, now they start this company, Vanderbilt Life, that's part of Clayton Homes. He says, we started Vanderbilt Life and our customers were offered home, lifestyle, and extended warranty programs with their home purchase. With this toe in the water, we were slowly entering into the fourth level. Little did we know that soon, the tail would wag the dog.

At the time, financing was a byproduct of selling homes. Our emphasis in income was primarily sales. Over the next three decades, financial services, mortgages, and insurance would become the larger source of income, dwarfing even that of manufacturing and retail. Owning the insurance company provides significant income for us. Shifting our mortgage company into high gear would take us to our fifth level of service.

Or to look at it another way, our company would realize five levels of income with just one product. Okay, now I want to skip to the end because the rest of the book is about him running the company, selling it to Warren Buffett. He winds up starting another, he has like a, he starts having another career where he buys a bunch of banks. If you want the full story, obviously read the book. If you go to amazon.com forward slash shop forward slash founders podcast, you can buy this book. And if you're treating this podcast as like a book club and you want to see the book I'm working on next week and read it along with me, you can go to amazon.com forward slash shop forward slash

founders podcast and you'll see it there. But I think he has another, before I close, I want to, there's another lesson that we can take away. It's a universal human lesson. And he says, for me, starting is the hard part of writing, and I always procrastinate. However, when I finally get started, it flows fast and I enjoy the process. After all, it's good therapy to pause and reflect back on your life. It seems I do more of that nowadays. Where did the time go? How did I get to the age 65 so fast? It seems only yesterday that I sold an old car through a classified ad from that fraternity house. That was in 1953. That endeavor led to a tiny car lot on Clinton Highway where, with the help of my brother Joe, our company began in 1956. Wow, that doesn't seem like 46 years ago. I still have dreams. I dream that I'm 90 years old, still playing tennis with my wife,

and enjoying my grandchildren and great-grandchildren. The real journey never ends. You never get there. Perhaps that's the way it should be should be you see it's not where you wind up that's so important it's what you did along the way the lies you touched the work you did the people you loved and the dreams you lived and almost every time i read an autobiography of an entrepreneur the same thing happens they don't write it till they're older near the end of the life of an entrepreneur, the same thing happens. They don't write it till they're older, near the end of their life, and they all say the same thing, that it goes by fast. Don't waste your time is the last lesson I learned from Jim. All right, before I let you go, I just want to tell you an added benefit that I just added to the Misfit, which is like the member

program for this podcast. First of all, in case you don't know, the Misfit feed, I give half of my podcasts, the ones that I create away for free. The other half are exclusively for my paid podcast feed, which I call the Misfit Feed. But a few years ago, I started taking detailed notes from every podcast or lecture on entrepreneurship that I listened to. And I've collected notes on over 250 talks since then. So I constantly refer back to these notes as a way to remember what I learned and apply those lessons to my daily life. You've heard me when I was quoting people like Josh Wolfe and Mark Andreessen in this podcast, that was happening in my browser on my computer by

just typing the name and looking for the note real quick. 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. And you have it. What it is is a read-only access to an Evernote notebook. So if you use Evernote, you can use the notebook inside Evernote. But you don't have to have Evernote because I send you the link. And in your browser, then you have access to every single one of my notes that you can search and look through

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all you have to do is when you sign up for the Misfit feed, it's gonna be in the show notes starting with last week's Misfit episode. To do that, now you're asking, well, how do I do that, David? To do that, all you have to do is tap the link that I left in your show notes. You can access the link directly in your podcast player. But if you don't want to do that, you can always go to founderspodcast.com and you'll see something in the header that says something like support foundersers Podcast and get all the premium episodes. It takes less than 30 seconds to sign up and you'll be listening to all of the exclusive, wonderful, amazing Misfit episodes available nowhere else.

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