A Profile in Failure

The greatest people in history have been failures. Certainly, we remember these individuals as successes, success stories, and we treat those stories as legends and those individuals as gods. But each of them failed apically and repeatedly, more so than the combined successes of all of humanity.

Failure should not be overlooked in anyone, especially not those we admire. It is through failure that these individuals were able to learn, grow and ultimately succeed. We know this about ourselves but even as we learn to accept our own failures, sometimes we don’t recognize that the most successful people in the world have had an abundance of failure.

Our heroes need to be held to the same standard as the ancient Greek gods: awesome but not infallible. Failure is a humbling exercise, both for the observer and the observed. But learning is a humbling process. Once we realize that our heroes are just like us, we can examine how failure drives success. So I’ve started collecting stories about the failures of successful people, as a reminder that if you’re making mistakes and learning from them, you’re actually on the path to success.

When you think of Warren Buffett, chances are the words “successful” and “rich” come to mind. Look no further than Wikipedia, which highlights Buffett as being “widely considered the most successful investor of the 20 century.” (Wikipedia may not always be the beacon of truth, but it is nonetheless accurate in this case.) Buffett is also known for his wisdom and patience, earning him saint-like nicknames such as “Oracle” and “Sage.” People make annual pilgrimages to Omaha just to hear him speak. But what many people don’t know is that his purchase of Berkshire Hathaway—his crowning achievement now worth over $300 billion—was an epic failure, driven by hubris and immaturity. Buffett once declared “I would have been better off if I’d never heard of Berkshire Hathaway.”

Buffett’s involvement in Berkshire Hathaway started in 1962 as an investment similar to his other purchases. Analysts calculated the stock was worth $19.46 a share, but it could be bought for a mere $7.50, so Buffett bought some “cheap” stock, planning to sell it back to the company when the price rose. After a time, Berkshire’s President—Seabury Stanton—got wind of Buffett’s stock accumulation and called him to his Massachusetts office for a meeting. He asked at what price Buffett would be willing to sell, and Buffett said he’d sell for $11.50 a share if there was a tender offer.

Shortly thereafter, Stanton issued a tender offer of $11.37 and a half cents per share. The young Buffett was livid; he felt that Stanton was trying to pull one over on him. Instead of renegotiating or holding his stock until a better offer came around, he started looking for more stock to buy. He vowed to buy a controlling interest in the company just so he could fire Seabury Stanton.

Berkshire Hathaway in the 1960s was nothing like the powerful conglomerate it is today. It was a lowly textile company that imported raw cotton from the South and turned it into cloth. Before air conditioning was invented, Berkshire addressed an important need as mills had to be located far away from southern heat and humidity. But by the 1960s air conditioning was commonplace, labor was cheap in the South, and both labor and raw materials were even cheaper overseas. So by the time Buffett started buying stocks, New England textile mills were in dire straits, including Berkshire Hathaway.

Yet Buffett was determined to own the company, driven by his disdain of Seabury Stanton. He convinced others to sell him their stock until he had collected enough to control the Board. Seabury, seeing the writing on the wall, resigned, and Buffett was elected Chairman of the Board and hired Seabury’s replacement. Despite new management, the textile mill continued to disintegrate. Buffett first poured money into it and ultimately tried to sell it, but no one would buy it. It ultimately shut down.

Of course, by then Buffett had diversified its holdings, acquiring companies in different industries to keep Berkshire Hathaway afloat. But the original Berkshire Hathaway textile company was a huge mistake. In his biography, The Snowball, he put it this way:

“You walk down the street and you see a cigar butt, and it’s kind of soggy and disgusting and repels you, but it’s free…and there may be one puff left in it. Berkshire didn’t have any more puffs. So all you had was a soggy cigar butt in your mouth. That was Berkshire Hathaway in 1965. I had a lot of money tied up in the cigar butt….I would have been better off if I’d never heard of Berkshire Hathaway.”

Buffett made a series of poor decisions which forced him to fight his way through a hard lesson learned. He was stubbornly persistent, and rather than giving up and allowing Berkshire Hathaway to fail, he diversified the business into one of the greatest success stories in investor lore. What’s more, Buffett didn’t hide from this huge failure. To the contrary, he wore it as a badge of honor. He kept what is arguably a horrible brand name and it’s a reminder of his failure each and every day for the rest of his life. Buffett owned that failure, internalized it, and let it become a defining characteristic of the now supremely successful Berkshire Hathaway.