Value Investing

Warren Buffett on How And Why Small Business Can Beat Large Business

Warren Buffett on how can a small business compete with large business.

Small Business Compete

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Transcript

Mr. Buffett thanks for taking my question. My question pertains to small business and my family's been in the truckload sector of transportation for about 50 years. And as you talked about the airline industry you know the mergers next acquisitions and things going on in a lot of smaller players being tossed out of the market. What do you see for people that like in this room for students that want to start a small business and maybe they want to start in a business that is somewhat of a commodity type business but as businesses the large corporations get larger efficiencies increase. How can a small business compete with these people.

Yeah the in many areas small businesses have an advantage in other businesses scale has a huge advantage. And I mean you don't want to be a tiny carbon steel producer on the other hand what many emails came along that are not to scrap more effectively than the older methods of making steel. They actually had to Manning so scale. Is a huge advantage in some businesses. It's the largest airlines haven't won. Southwest Airlines is one starting with you know just a few planes flying between Houston and Dallas. And. They have become bigger. But their ambition hasn't been that be the biggest and. You know they they probably buy their fuel is just as cheap as united and they probably bought it you know when they're a lot smarter Wal-Mart is a classic example I mean who would have thought 25 years ago 30 years ago.

Here was Sears with a hundred story plus building in Chicago had access to money far cheaper than Samwell and Zamboni's credit was not as good as Sears. Every supplier wanted to do business with Sears. Nobody ever heard of Sam. Every real estate developer was developing a new shopping center went first to Sears now and Sam got. The short end. So here's a guy starting in Bentonville Arkansas. And he kills them over time just plain kills and disadvantage in buying disadvantage and borrowing disadvantage and real estate advantage. Samwell and his ability to inspire. In the end hundreds of thousands of people to be enthusiastic about going to work and doing all those doing the right things over time. So I would be just as optimistic about small business generally.

Now there's certain areas where scale just as is just plain important. But but I see no disadvantage. We intentionally at Berkshire. We have a hundred and twelve thousand employees more in Georgia than in any other state in the union incidentally we employ a lot up there Dalton and boy a lot of people are making it Geico ad. We intentionally with our hundred twelve thousand what they probably have. Around how many business units but lots and we don't have thirteen point eight people at headquarters. I'm not the point agency that I resent when people think that I'm a fool. But we have one woman that works four days a week and that's all we have at headquarters. Hundred twelve thousand people hundred five billion in market cap but we intentionally keep our units small.

We think we want them to have the nimbleness. The responsiveness to the customer particularly that will turn them you know that. Essentially will more than offset anything that the scale of having. Maybe a little more purchasing power something will develop. We all a home furnishing furniture home furnishings business and Utah run by and Bill child. He was featured in Fortune about one issue ago. The cover story was God in business as it was and it was Bill was the number one illustration. Bill took that business from his father in law. It was doing 250000 dollars a year. And the night was over half the business in Utah and his field but for close to 400 million he built it by thinking about the customer and the truth. He was competing with Sears he was competing with Levitz was a huge furniture retailer. In the past he was competing with everybody.