Warren Buffett. Robert G. Hagstrom
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suggestions for new businesses, it offers clear, straightforward lessons on good salesmanship, advertising, merchandising, customer relations, and much more. It is filled with stories of people who turned a good idea into a good business, sometimes with stunning success.
Some of the names are familiar today.
There is the stirring story of James C. Penney, whose first job paid him a measly $2.27 a month. Penney combined his small grubstake with two other partners and opened the first J.C. Penney on April 14, 1902. That first year, store sales amounted to $28,891. James' share of the profits was a tad over $1,000.
Warren flipped another page and read the story of 23‐year‐old John Wanamaker, who persuaded his brother‐in‐law, Nathan Brown, to combine their piddling savings and open a gentleman's clothing store in their home town, Philadelphia. Before them lay the prospects of a national civil war. Behind them were the remnants of the 1857 banking depression that caused massive unemployment and the almost complete ruination of manufacturers and wholesalers. Undeterred, they opened the doors on April 27, 1861; eight years later Wanamaker & Brown was the largest men's retailer in the United States.
With daydreams mounting, Warren read on.
When he came to page 153, Warren must have broken out with a huge grin. Chapter 6 is all about starting a roadside business—something the young entrepreneur had already been doing for more than five years. Chapter 10 is filled with scores of ideas for service businesses, one of which involved placing coin‐operated pool tables in local stores and taverns. From our present‐day perspective, we can see a straight line from that story to Warren's pinball business six years later.
In that same Chapter 10, “Selling Your Services,” we find another story, one that had an even greater influence on Warren's thinking. Here's what happened.
In 1933, a man named Harry Larson was shopping in his local drugstore when someone (we don't know who exactly) asked him how much he weighed. Harry turned around and spied a coin‐operated scale; he put in his penny and got his answer and then moved over to the cigar counter. During the few minutes he waited in line, seven other customers decided to try the penny scale. That caught Harry's attention, and he set out to learn more. The store owner explained that the machines were leased and that his 25 percent share of the profits was about $20 a month (approximately $384 in today's dollars)—leaving 75 percent for the company that owned the scale.
That, Harry told Minaker, was the start of everything. He took $175 from savings, bought three machines, and was soon earning a monthly profit of $98. “Pretty good return on the investment,” he wryly noted. But it was what Harry did next that intrigued Warren. “I bought 70 machines altogether… . The other 67 were paid out of the pennies taken from the first three… . I've earned enough to pay for the scales, and made a good living besides.”1
That—one penny at a time—is the essence of compounding. We often think of compounding only as it applies to interest. You probably know Albert Einstein's famous quote: “Compound interest is the eighth wonder of the world, He who understands it, earns it; he who doesn't, pays it.” But at its the core the concept is broader and more powerful: use profits to make further profits. Harry Larson instinctively understood it; so did a young Warren Buffett.
Many years later, Warren used the penny‐weight machines to describe his thinking. “The weighing machine was easy to understand,” he said. “I'd buy a weighing machine and use the profits to buy more weighing machines. Pretty soon I'd have twenty weighing machines, and everybody would weigh themselves fifty times a day. I thought—that's where the money is. The compounding of it—what could be better than that?”2 It was that exact mental model that formed the outline, the architecture, of what would become Berkshire Hathaway.
And so we come back full circle to Minaker's book and its profound influence on Warren Buffett. One Thousand Ways to Make $1000 lives up to the spirit, if not the letter, of its title: I count 476 new‐business suggestions. Many would qualify as buggy‐whip ideas in our high‐tech world, but many others are remarkably prescient. But for us today, the real value of the book lies in the fundamental principles it offers. Minaker, in her no‐nonsense, listen‐to‐your‐teacher style, lays down important basic concepts about money. In particular, she wants readers to understand the mindset, the essential temperament they would need in order to reach their dollar goals. Taken together, those passages about the essence of making money are some of the key building blocks that helped form Warren's Money Mind.
“The first step in starting a business of your own,” Minaker writes, “is to know something about it… . So read everything published about the business you intend to start, to get the combined experience of others, and begin your plans where they left off.” That means, she insists, learning all you can from both sides of the question: how to succeed and how not to fail. Reading about a business, she says, is like sitting down with a businessman in his parlor and talking about your problems. “Only those who think they know all there is to be known—and more besides—consider such an exchange of ideas foolish,” she writes. What's really foolish, she points out, is spending hundreds of dollars (in today's dollars, probably hundreds of thousands, even millions) to discover that your idea won't work, when someone else who has already tried it and wrote about it can tell you “exactly why it is not a good idea.”3
To give her readers a boost with their research, Minaker includes a 35‐page appendix that lists books, magazines, periodicals, pamphlets, and government publications related to how to start and operate a business. In all, there are 859 different citations on how to succeed at your chosen business.
The lesson was not lost on Warren. At Berkshire Hathaway's headquarters in Omaha, the largest room on the executive floor is not Warren's office but the reference library down the hall. It is lined with row upon row of filing cabinets, all filled with the stories of businesses. These cabinets contain every annual report, past and present, of all the major publicly traded companies. Warren has read them all. From these he has learned not only what worked and was profitable but, more important, what business strategies failed and lost money.
The second step in developing a Money Mind is simple enough to articulate but hard for most people to do. It can be encapsulated in two words: Take action. Or, as Minaker so compellingly puts it, “The way to begin making money, is to begin.”4 Hundreds of thousands of people have dreamed about starting their own business, she notes, but never did because they were stuck. Waiting for business forecasts to improve, or perhaps waiting for their own prospects to get better, or just simply waiting for the right moment. They often delay getting started, Minaker writes, “because they cannot see clearly ahead.” The caution here is to be aware that the perfect moment is never known beforehand, and waiting for it is simply a way to hide in the safety of doing nothing.
Another manifestation of this phenomenon, Minaker points out, is people who become frozen because they spend too much time seeking counsel from others. “If you ask the advice of enough people,” she warns, “you are sure to almost end up doing nothing.”5 On the surface that might seem to contradict the first dictum (learn everything you can) but it is really a question of common sense and balance. Finding the right balance between educating yourself and then knowing when to take action is, in fact, a key element of a Money Mind.
Those who have studied Warren Buffett easily recognize Minaker's counsel. Yes, Warren discusses big ideas with his long‐time business partner, Charlie Munger. But it is also true that if Warren believes Berkshire is in line to make a good purchase he won't spend all day talking on the phone. He never pauses to make a final decision because the stock market is up or down, or the economy is growing or contracting,