First A Dream by Jim Clayton
“I read your book over the weekend and enjoyed it very much… Give me a Call.” — Warren Buffett’s voicemail to Jim Clayton. In Berkshire’s 2003 annual letter, Buffett credited the book for triggering his acquisition of Clayton Homes.
First A Dream is an autobiography written by Jim Clayton. The book is a multi-faceted portrait of Jim’s life, which revolved primarily around family and business. Jim is most famous for building Clayton Homes — from nothing — into the biggest and most profitable manufactured home company in the industry, and finally selling the company to Warren Buffett for a cool $1.7 billion.
I believe this is a must read book for business people and investors, especially those who are fans of Warren Buffett (the book contains a few chapters that gives you insight into what it is like to deal with Warren Buffett.) At almost 500 pages, this isn’t a short book, but I enjoyed it so much that I finished it in two sittings. As an investor, I naturally focused more on the business side of the autobiography.
Below are some of my favorite lessons and quotes from the book.
Chapter 2: Dreams
Lesson: Think long term, reinvest profits.
Forgot those things that give you momentary satisfaction. Look at the long-term. Defer profits for something more substantial. (P.27)
When Jim was a school boy, he would sell flower seeds door to door. The seed company offered to pay in one of two ways: toys or seeds, which could be sold for cash. Jim wrote that he always exceeded his quota and chose the seeds, taking his first step to becoming an entrepreneur.
Lesson: Don’t discriminate, diversity is important.
I’m really impressed that Jim devoted so much space to the importance of diversity and equal treatment of people of different races. Jim writes that his father would treat his black and white workers equally (no small feat in the deep south where they lived during segregation times) and fondly remembers his black childhood friend, Rory. Jim writes that nondiscrimination fit his company’s values and makes business sense. I find this to be a sincere passage that speaks to Jim’s character.
Chapter 3: Memphis Blues
Lesson: Treat people well.
Jim describes an experience in which he was cheated out of his commission, so he makes sure to pay his sales people transparently — no surprises. I can attest from personal experience, as someone who felt cheated, that negative surprises will ruin relationships, damage the firm’s reputation, and drive good people away. Its a great lesson for managers and business owners.
Jim also insists that his sales people treat his customers the same way:
They are required to go to great effort to avoid the appearance of the slightest impropriety. If it means disappointing the customer in any way, I’d rather not make the sale. In fact, the sales academy teaches that a sale in which the customer will be disappointed must be aborted. Refusing a sale is far less of a problem than making the sale to a customer who will regret their purchase. (P.52)
Chapter 4: Flying High
Lesson: Money isn’t the most important motivator for many entrepreneur.
Some people think an entrepreneur is motivated solely by money. It ain’t necessarily so. Recognition is at least as significant to many entrepreneurs. (P.64)
Lesson: Control your emotions and stick to your plans.
Chapter 5: Married… And Mobile
Lesson: Introverts can sell more than extroverts.
Sometimes, especially in the car business, there are salespeople who are fast-talking, manipulative, forceful, and downright intimidating, who care only about making the sale. They’re not really concerned about the customer, and will sell them anything to make another commission. Exhibiting this sort of glad-handed disdain guarantees an unhappy customer. For the record, unhappy customers, among other things, are far more likely to cause problems after the sale, and far less likely to make loan payments. It’s for this reason I believe that introverts, those with a quieter, more thoughtful approach, sell more than extroverts do. Introverts listen better. (P.91)
Lesson: Naive optimism has its benefits. Jim echos what a lot of entrepreneur says, which is if they knew how hard starting a business is, they would’ve never started.
I did not know what I did not know. No fledgling entrepreneur does. If I had even the slightest idea just how difficult it would be, from the gut-wrenching heartaches, to the hard work and the long hours — a grueling combination that every successful entrepreneur can identify with — I probably would’ve remained a guitar picker. (P.95)
Lesson: Partners and mentors are invaluable.
Having a partner or a mentor can be invaluable. Someone you can bounce ideas off, even on an informal basis, is priceless. (P.99)
Chapter 6: Volvos & Volkswagens
Lesson: Want to be average? Do business like everyone else.
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. (P.104)
Chapter 7: Bankruptcy Blues
Lesson: This is a fascinating chapter on how quickly a thriving business could go bankrupt — if it grows too fast using debt, from a bank with loose credit policies.
Chapter 9: Law School
Lesson: Great businesses take care of their customers. It is clear from this chapter that Jim went out of his way to make his customers happy.
[On settling lawsuits with customers] The manager who opened the file, or caused the file to be opened, gathered the data, met with the customer, and ultimately experienced the entire legal process. (P.151)
Chapter 10: Manufactured Homes
Lesson: When you see a great business, get involved. This is a nice chapter on how Jim got into the manufactured homes business: he saw how great a near-by manufactured homes business was doing, and thought he could do it better.
Chapter 11: Too Big To Get Out The Door.
Lesson: Co-management doesn’t work.
All the books will tell you that co-management doesn’t work. The books were right. (P.188)
Lesson: Attention to details leads to opportunity.
Spending time with all the seemingly boring details of a business often pays off— and sometimes leads to opportunity. (P.190)
In other words, but equity investors, read that 10-K.
Chapter 12: Expansion Through A Recession
Lesson: Business is about relationships.
Business is all about relations and trust. (P.206)
Lesson: Recessions are inevitable, but it is also an opportunity.
No question about it, the recession hurt. But it didn’t kill us. In fact, it distinguished us from the rest of the competition. We learned and grew from the downturn, and came out of it tougher and stronger. The recession forced us to restructure and positioned us for a bright future. What also kept us going during that difficult time was our constant innovation and our diversified source of income. Other companies like ours ignored potential profit centers like financing and insurance. (P.206)
Lesson: Beware of smooth talkers who make promises. ￼Jim got swindled again by a smooth talking, charming con man. This time, it is a banker who persuaded him to buy stock in his bank. Earlier in the book, Jim lost a car to a con man. (P.220)
Chapter 15: Coaches, Circles & Bone-Crushing Handshakes
This chapter began with a bang as it is packed full of business wisdom. Below are just some takeaways.
Lesson: Know what you do not know.
Lesson: Hire people with good values, don’t waste time on those who do not.
High performance characteristics are necessary, but we may compromise on this factor when hiring and during promotion review, since we can teach the technical skills required for high-level performance. But values are a difference story. My experience tells me that high moral and ethical values can’t be taught. Team members or candidates either have them or don’t. (P.243)
Jim further writes that he would rather terminate a high performing, low value person than a low performing, high value person, and that investing in the latter often results in high ROI.
Lesson: Question convention.
When I see our people relying on “industry practice”, or “the way I’ve always done it,” I am concerned. If my raising questions about the procedure or process are not received positively, then I know we have an ego, self-esteem, or other issue. (P.244)
Chapter 17: Board Members: Caring and Feeding
Lesson: Board members may not have the company’s best interest in mind.
This is an insightful chapter on Clayton Home’s conflict with its board members and the massive financial and reputation damages it caused. The issue related to what Jim perceives as an over zealous independent investigation into its accounting, which caused major disruptions to operations and raised questions from Wall Street. In my experience short selling companies, Wall Street tend to assume the worst when accounting questions are raised. Surely, short sellers tend to pile in with “end of the world” short thesis. I find it helpful to see the other side of the story. In this case, management turned out to be right. It is important to consider the entire history of management: if their track record has been strong, I tend to give the benefit of the doubt.
Chapter 21: Happenings
Warren Buffett knocks:
“Jim, this is Warren Buffett.
“I read your book over the weekend and enjoyed it very much — you did a good job on it. I’ve 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.” (P.355)
￼Commentary on Warren Buffett:
Buffett is unconventional. Some say I am too. He buys companies without “kicking the tires.” Heck, he doesn’t even look under the hood. In buying banks — I’m up to three and one-fourth now — we did not visit a single location before consummating the acquisitions. (P.362)
Chapter 22: The Deal is ON
There are some nice insights in this chapter (and also the next chapter) on how Warren Buffett negotiates acquisition — this chapter is a must read for any student of Buffett.
”What’s it like to do business with Buffett?” I’m often asked. Or, “I hear you and Buffett are really good friends.” They expect me to have spent time with Warren Buffett. The truth is, I never spoke to him one time through all the negotiations. He never came. We never went. No one from either side even met. Kevin and Warren talked every day. John Kalec and Marc Hamburg, the CFOs, talked frequently. Tom Hodges and Berkshire attorneys communicated constantly. Charlie Munger, vice chairman of Berkshire Hathaway, also an attorney, was coaching from the sidelines. Isn’t it amazing that the universally admired chairman, Warren Buffett, and vice chairman, Charlie Munger, remain hands-on to the extent that they personally devote the time and attention to all the details of a
fast-moving, complex merger? What a duo!” (P. 366-367)
Yes, Warren Buffett uses earning multiples:
Buffett acknowledge that he understood and stated that a price in the range of even $12 would be above the eight to nine multiple of earnings paid for the last several Berkshire transactions. P.370
Following your curiosity: One really impressive thing about Jim Clayton is his curiosity and constant drive to learn from all sources. While some elitists may scoff at the idea of attending a Dale Carnegie management course, learning from Think and Grow Rich, or attending random “self awareness” work shops, Jim did them all and more, and walked away with invaluable knowledge.
Rant against private investor meetings: Jim spend a lot of time in private meetings with Wall Street analysts during his company’s IPO roadshow and there after. Unfortunately, to this day, most public companies still carry on with this ancient practice. I urge management of public companies to, whenever possible, replace these private meetings with open and transparent Q&As.
Revisit when extremely rich: Some of the insights in this book are not applicable to the vast majority of us. These include giving massive amount of money away, how to implement succession planning and retire from one’s own massive public company. Maybe one day, we will have to go back to Jim’s words for guidance… One day.