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that his company would quadruple its $214 million in sales in
ten years; he did it in eight years.
Clearly, Bob Shaw managed his company well, and in a
way that f its neatly with Buffett’s approach. “You have to
grow from earnings,” Shaw said. “If you use that as your phi-
losophy—that you grow out of earnings rather than by borrow-
ing—and you manage your balance sheet, then you never get
into serious trouble.”^4
This type of thinking is right up Buffett Alley. He believes
that management’s most important act is the allocation of capi-
tal and that this allocation, over time, will determine share-
holder value. In Buffett’s mind, the issue is simple: If extra cash
can be reinvested internally and produce a return higher than
the cost of capital, then the company should retain its earnings
and reinvest them, which is exactly what Shaw did.
It was not just that Bob Shaw made good f inancial deci-
sions, he also made strong product and business decisions by
adapting to changing market conditions. For example, Shaw
retrof itted all of its machines in 1986 when DuPont came out
with new stain-resistant f ibers. “Selling is just meeting people,
f iguring out what they need, and supplying their needs,” Shaw
said. “But those needs are ever changing. So if you’re doing
business the same way you did it f ive years ago, or even two
years ago—you’re doing it wrong.”^5
Shaw’s strong management is ref lected in the company’s
consistent operating history. It has grown to the number one
carpet seller in the world, overcoming changing marketplace
conditions, changes in technology, and even the loss of major
outlets. In 2002, Sears, one of Shaw’s largest vendors at the time,
closed its carpet business. But the management appeared to see
those diff iculties more as challenges to overcome rather than
barriers to success.
In 2002, Berkshire bought the remaining portion of Shaw
that it did not already own. By 2003, Shaw was bringing in
$4.6 billion in sales. Except for the insurance segment, it is
Berkshire’s largest company.