Biography Edition: Sam Walton's Blueprint for Dominance

Great ideas come from everywhere if you just listen and look for them. You never know who's going to have a great idea. That was an excerpt from Made in America by Sam Walton. This is Sam Walton's autobiography, and this book was very dense with great ideas, so I really enjoyed reading this book. So I highly recommend it, and I'm going to go through kind of the timeline of his life Sam Walton. He was the founder of Walmart and kind of pick out some ideas that I think would be applicable to painting businesses here. So first of all, in 1918, Sam Walton was born in Oklahoma, and this is an excerpt from the beginning of the book here. No question about it, a lot of my attitude towards money stems from growing up during a pretty hardscrabble time in our country's history, the Great Depression. And it goes on. I drive a truck and I get my haircut at a barber shop. I, I don't believe in wasting money. So this is a common thing throughout this book. Sam Walton is very frugal even when he's, you know, a multi-millionaire. He is always watching his money and being thrifty. And this is a common thing we see throughout other biographies I've read recently. With Rockefeller and Jeff Bezos, they're all very focused in on the dollars and cents, making sure they're not spending money where they, they don't need to be. So during the 1930s, during the Great Depression, Sam Walton begins his entrepreneurial journey by selling magazine subscriptions and later working various jobs including waiting tables in exchange for meals. So here's an excerpt from the book. I also started selling magazine subscriptions probably as young as 7 or 8 years old, and I had paper routes from the 7th grade all the way through college. I raised and sold rabbits and pigeons too, nothing really unusual for country boys of that era. I learned from a very early age that is important for us kids to help provide for the home, to be contributors rather than just takers. In the process, of course, we learned how much hard work it took to get your hands on a dollar, and that when you did it, it was worth something. One thing my mother and dad shared completely was their approach to money. They just didn't spend it. And so, like I said, this was drilled into him in his childhood, and it continues to be a thing throughout his life. In 1940, Sam Walton graduated from the University of Missouri with a degree in economics and starts working at JCPenney as a management trainee. And Sam Walton says, you know, that he wasn't really a gifted student, but he worked really hard. And that was something else that Rockefeller basically said the same thing in his biography. And Ray Kroc also said something similar as well. So it's a common thing we keep seeing over and over again, the value of hard work. It's not about how intelligent you are, it's about how hard you work. And so this is an excerpt up from the book about his time at JCPenney. The deal was pretty straightforward: report to the JCPenney store in Des Moines, Iowa, 3 days after graduation, June 3rd, 1940, and begin work as a management trainee. Salary: $75 a month. That's the day I went into retail. And except for a little time out as an Army officer, that's where I stayed for the last 52 years. So Sam Walton is writing this book, uh, actually towards, towards the end of his life. He's— he has cancer, so he's— he knows that he only has a little bit left to live. And so this is when he's writing this book and looking back at his life. And the, the intent of the book really was to pass on to his his kids. He wanted to communicate the things that he learned in his life to his kids so that they, they could keep the wealth that he built for them. And he goes on, on in the book here. Walton: Blake would say to me when he came to me in Des Moines, I'd fire you if you weren't such a good salesman. Maybe you're just not cut out for retail. Fortunately, I found a champion in my store. Duncan Majors, a great motivator. He was the proudest of having trained more than— more penny managers than anybody else in the country. He had his own techniques and he was a very successful manager. His secret was that he worked us from 6:30 in the morning until 7 or 8 o'clock at night. All of us wanted to become managers like him. On Sundays when we weren't working, we would go out to his house. There were about 8 of us, all, all men, and we would talk about retailing, of course, but we'd also play ping-pong or cards. It was a 7-day job. I remember one Sunday, Duncan Majors had just gotten his annual bonus check from JCPenney's and was waving around all over the place. It was for $65,000, which impressed the heck out of us boys. Watching this guy is what got me excited about retail. He was really good. So, this is kind of hilarious that some management in JCPenney's were thinking that Sam Walton was not cut out for retail when he ends up owning the whole space. But this is, you know, when he starts cutting his teeth at JCPenney, this is kind of where he gets the motivation to continue with this line of business. And even though he starts Walmart a lot later in life, you know, he's, he's focused on retailing from an early age. So 1942, Sam Walton serves in the U.S. Army during World War II, and this is an excerpt from the book on this period: I went to the library there and checked out every book on retailing. I also spent a lot of time off duty studying the ZCMI. The Mormon Church's department store out there, just figuring out that when I got back to civilian life, I would somehow get into the department store business. So again, even though he's in the war and the army during this period, he's still focused on retailing, and he's absorbing everything he can on that subject, going to the library, getting the books. And so this is a common thing we've seen from Rockefeller, Napoleon, Alexander the Great, Jeff Bezos, is that they're always consuming knowledge to improve themselves and the domain that they want to focus on. 1945, after the war, Sam Walton purchases a Ben Franklin variety store in Newport, Arkansas with a $20,000 loan from his father-in-law and $5,000 from his own savings. And so he— there's an excerpt here Sam Walton was, you know, got married somewhere around this time, and his, uh, his father-in-law he kind of looked up to. And so this is an excerpt on from the book on this topic: The, the Robsons were very smart about the way they handled their finances. Helen's father organized his ranch and family businesses as a partnership, and Helen and her brothers were all partners. They all took turns doing the ranch books and things like that. Helen has a BS degree in finance, which back then was really unusual for a woman. Anyway, Miss Robson advised us to do the same thing with our family, and we did way back in 1953. What little we had at the time, we put into a partnership with our kids, which was later incorporated into Walton Enterprises. So this is a really interesting strategy. Sam Walton basically set his family up as a business, right? So he put all the assets of the business into an entity, and then he gave that parts of that entity to his, his family early on so that he didn't have to pay taxes on it later. So when they ended up going public, his family still owned 38% of the company's stock, which is kind of— which is very rare for a founder of a publicly owned company to own that much of the stock. Usually it's like 10%. And they owned 38%. So they were— they were— he was able to transfer a lot of the wealth to his family without paying much tax. Here's another except for excerpt from the book. It's something that any family who has faith in its strength as a unit and in the growth potential of the— of its business could do. The transfer of ownership was made so long ago that we didn't have to pay substantial gift or inheritance taxes on it. The principle behind this is simple: The best way to reduce paying estate taxes is to give your assets away before they appreciate. So this is a key takeaway. If you have a painting business and maybe you're just getting started, or maybe you've, you're still, you've been in business for a little while, but you're not, you haven't hit your goal of revenue and profitability and all that stuff, you can go ahead and gift a portion of your business to your kids now and still instead of waiting until the end of your life to do it where your business has, you know, grown a lot more. And then, because then you'll have to, because if you wait and it's really appreciated, you're going to have to pay a lot of taxes on that transfer. So do it early and then your kids will have that asset. So Helen was Sam Walton's wife, and here's an excerpt from the autobiography. Something that Helen had said. Sam, we've been married 2 years and we moved 16 times. Now I'll go with you any place you want, so as long as you don't ask me to live in a big city. 10,000 people is enough for me. So any town with a population of 10,000 was off-limits to the Waltons. If you know anything about the initial small-town strategy that got Walmart going almost 2 decades later, You can see that this pretty much set the course for what was to come. She also said no partnerships, they were too risky. Her family had seen some partnerships go sour. She was dead set in the notion that the only way to go was to work for yourself. So basically here what we see is, you know, Sam Walton had that initial constraint of having to start in small towns, not because of a strategy, but actually because his wife didn't want to be anywhere else. But, you know, he, he built the business to suit his life, so that's kind of a takeaway there. Also, his wife was really against partnerships from what she had seen previously with her family, which they end up doing for a while, but they end up setting up an incentive program that would actually bring other people in. So they eventually did get partners, but they were cautious about it and did it in a way where it was a win-win, so, which I think is a good takeaway. Partnerships, you know, they are very dangerous. A lot of partnerships go bad, but if you set it up right and you have a way out, they can be beneficial. So it's just something you have to really think through. So during this time, Sam Walton has a store that he's opened, but he kind of runs into an issue. So here's a quote from the book. In all my excitement at becoming Sam Walton, merchant, I neglected to include a clause in my lease which gave me the option to renew it after the first 5 years. And our success, it turned out, had attracted a lot of attention. My landlord, the department store owner, was so impressed by our Ben Franklin success— which Ben Franklin is the store franchise that he had— they were so impressed by Ben Franklin's success that he decided to not renew our lease at any price. Knowing full well that we had nowhere else in town to move the store. So basically, he didn't— he was getting a lease from a store owner, and he— the store owner didn't let him renew the lease, so he basically had to close his business, and he lost, you know, his business because of that. So this was a big lesson learned by Sam in this moment, and basically, you need to control the land that your business is built on. Now, obviously we have painting businesses, you don't necessarily, you might not have this as an issue specifically, but I think of it as like maybe not controlling land, but maybe think of it like a franchisee. If you're buying into a franchisee, you know, you don't really own the name, you're kind of buying into the name. So I've seen several times where folks have buy into the franchise, but then they don't feel like they get the support they need, or they feel like they could have just— they've done a lot themselves and they didn't really need it, but now they have to get out of that franchise agreement and that can be a really big pain. So, you know, if you want to build your own business, you need to make sure that you have full control over that business from the start, otherwise you can run into some issues. And here's another quote from the book: It was a low point of my life. I felt sick to my stomach. I couldn't believe it was happening to me. It really was like a nightmare. I had built the best variety store in the whole region and worked hard in that community, done everything right, and now I was being kicked out of town. It didn't seem fair. I blamed myself for ever getting suckered into such an awful lease, and I was furious at the landlord. And at this point, he has 4 kids to support, but it goes on to say he didn't dwell on his disappointment and he just had another challenge that he had to figure out. And this time he had to basically do it all over again, but this time he was going to do it even better. So that in 1962, Walton opens up the first Walmart in Rogers, Arkansas. And here's an excerpt from the book. Now, when it comes to Walmart, there are no two ways about it. I'm cheap. I think it's a real statement that Walmart never bought a jet until after we were approaching $40 billion in sales and expanded as far away as California. In Maine, and even then they had to practically tie me up and hold me down to do it. On the road, we slept 2 to a room, although as I've gotten older, I have finally started staying in my own room. We stay in Holiday Inns and Ramada Inns and Days Inns, and we eat a lot at family restaurants when we have time to eat. A lot of what goes on these days with high-flying companies and these overpaid CEOs who are really just looting from the top and aren't watching out for anybody but themselves really upsets me. It's one of the things, one of the main things wrong with American business today. As you can see, Sam Walton's really frugal. He was always pinching pennies even when he was multimillionaire, billionaire, you know, staying in cheap hotels, not flying coach, and all that stuff. So He really valued the value of a dollar and watched out for not only for himself but for his shareholders because at a certain point there were other owners in the business that he brought in and the business ended up going public later on. It goes on in the book, here's another excerpt, I read an article about these two Ben Franklin stores up in Minnesota that had gone to self-service, a brand new concept at the time. I rode the bus all night to two little towns up there, Pipestone and Worthington. They had shelves on the side and two island counters all the way back. No clerks with cash registers around the store, just checkout registers up front. I liked it. And so that's what I used. That's what I did too. So this happens again and again where he's visiting all these different stores. He's seeing what the best practices are and he's taking those ideas and applying it in his store. And the self-service thing is— not the auto checkout that you see now at Walmart, but this is like just the fact that they're putting the registers at the front of the store instead of sprinkling them out like you see in like JCPenney's. They don't do that. He liked the idea of just keeping all the cash registers at one point towards the exits. So this is basically Sam. He's always searching for useful information. When he goes on trips with his family, he's stopping by every store that he sees and checking out what they're doing. What kind of sales they're offering, what— how they had set up the store. He's always looking for useful information and copying it, uh, the things that are good ideas. Here's an excerpt from the book: We were innovating, experimenting, and expanding. Somehow over the years, folks have gotten the impression that Walmart was something I dreamed up out of the blue as a middle-aged man, and that it was just a great idea that turned into an overnight success. It's true that I was 44 when we opened our first Walmart in 1962, but the store was totally an outgrowth of everything we'd been doing since Newport. Another case of me being unable to, to leave well enough alone, another experiment. And like most other overnight successes, it was about 20 years in the making. So again, he was, he was into retail as a young man focused on it. He didn't start Walmart till '44, but he had been focusing and learning about it as much as possible up until that point. So all his previous experiences informed his philosophy on building Walmart. And here's another quote from the book about Sam Walton coming from one of the folks that worked with him. Two things about Sam Walton distinguish him from almost anyone else I know. First, he gets up every day bound and determined to improve something. Second, he is less afraid of being wrong than anyone I've ever known. And once he sees he's wrong, he just shakes it off and heads in another direction. Which I think this is a great thing to emulate. Get up every day bound to improve something, and then if you're wrong about something, just shake it off and keep going. You— if you're going to be wrong, try to be wrong for the smallest amount of time possible. And, and that's what Sam did. He was always looking for what's the best thing that works. Let me implement it in my business, and if I'm wrong, we can change it and make it right. Here's another quote from the book. We were trying to find out if customers in a town of 6,000 people would come to our kind of barn and buy the same merchandise strictly because of price. The answer was yes. So he basically tested low prices and found out that that does attract people to your store. And so it goes on to say that what we were obsessed with was keeping our prices below everybody else's. Our dedication to that idea was total. This is something that Charlie Munger has observed, that the winner in industries usually goes to someone who goes to the extreme of maximizing or minimizing one variable. And so in this case, Sam Walton is minimizing prices, and so they are reaping the rewards of doing that and owning the retailing industry. And something that we saw Jeff Bezos ended up doing later on after Walmart on the internet space, basically an internet retailer that the whole— his whole focus was minimizing prices, and he— and Amazon is now dominant today. Jeff Bezos actually read this autobiography written by Sam Walton and took a lot of notes and applied a lot of the things that he learned out of this book into his business, Amazon. Here's another quote from the book: Most of these early guys were very egotistical people who loved to drive big Cadillacs and fly around in their jets and vacation on their yachts, and some of them lived in houses like I never even thought about before. I remember going to dinner at one of these houses and we got picked up by a limousine that must have had room for 14 people. Man, they were living high and they could afford to back they could afford to back then because discounting thing was working so well. Customers just flocked to their stores, and these fellows were covered up in cash. Most of them could still be around today if they had followed some basic principles about running good stores. There are a lot of ways to build strong companies. They don't have to be done the Walmart way or my way or anybody else's way, but you do have to work at it. And somewhere along the line, these folks stopped short of setting the goals and paying the price that needed to be paid. Maybe it wasn't the Cadillacs and the yachts, maybe they just decided it wasn't worth it, but whatever it was, they just didn't stay close enough to their business. They sort of chose to get over on the other side of the road. And so I think this is a really key thing, is staying focused on your business. You know, so a lot of folks, and I've seen this happen, and I've in my own life observed it, myself, in myself, is when you get to a certain level of success, you sometimes start getting distracted, pulled away to different things, and that can be dangerous also. Or just indulging, you know, you get to a certain level of success, you want to indulge and like start buying all the fancy stuff and show off, you know, your wealth. And that, doing that is often can be your downfall. And so during this time, discount retailing was a big thing that was really working for a lot of different companies, not just Walmart, but a lot of them ended up failing because they got distracted and they weren't trying to improve their position and continue to push the envelope. So I think this is a key lesson that we need to protect ourselves against is not get distracted, stay close to our businesses, and keep the eye on the ball. So by 1970, Walmart becomes a publicly traded company, and there's a quote from the book: "Coming back from New York that day, I experienced one of the greatest feelings of my life knowing that all our debts were paid off." So leading up to the, the time where they were publicly traded, Sam Walton took out a lot of debt to finance the growth of Walmart. So they're opening up a lot of others, a lot of stores throughout the country, and so they took on a lot of debt to finance that growth. And so when they became publicly traded, that basically took away those debts, and that was a great lift to him. Here's another quote from the book: If we fail to live up to somebody's hypothetical projection for what we should be doing, I don't care. It may knock our stock back a little bit, but we're in it for the long run. We shouldn't care less about what is forecast and what the market says we gotta do. If we listen very seriously to that sort of stuff, we would never have gone into small town discounting in the first place. So basically, you know, once they go public, you have a lot more shareholders involved and you have all these market projections and analysts analyzing Walmart and whether they're on track or off track for quarterly earnings. And he's basically like saying, hey, We just ignore that stuff. We just focus on pleasing our customers and providing a great service. If we're doing that, in the long run, we're going to win. In the short term, you know, next quarter, maybe we have our sales go down a little bit, but we're not concerned with that. But as long as we're staying focused on pleasing our customers, we'll be fine. I think that's something we could take to us as a lesson for ourselves. You know, maybe you have a slow winter and things are tough. But as long as you're still pleasing your customers, you can get through those tough times and folks are going to refer you. And once the economy comes back around or slow season comes back around, you'll be there. So if you have that long-term view of just providing a great service to people, other people are going to take notice and they can't ignore you. And you're going to be able to stick around. So having that long-term view is really helpful. Here's another quote from the book. My style has always been to lay off a lot of the day-to-day operating responsibilities to folks. So basically, he delegated a lot of the day-to-day responsibilities to his team. And this is a common thread that we see for other successful folks like Rockefeller and Jeff Bezos. They, they free up their time by giving empowering people to, to take the work and get it done and give them the freedom to get it done in the way that they need to get it done. So they— he's basically picking the, the good people and giving them maximum authority and responsibility. And then here's some other excerpts from the, from the book about Sam Walton and his— what he did with his time. So this is an excerpt from Loretta Boss Parker, who was the personal secretary for 25 years. And, and she says, he has always been like this. His mind works 10 times faster than anybody else's. I mean, he just gets going and stays 2 or 3 jumps ahead, and he's quick to, to go with what's on his mind. If he gets something in his mind that needs to be done, regardless of what else might have been planned, the new idea takes priority and it has to be done now. Everybody has their day scheduled, and then bang, he just calls a meeting on something In the early years, this caused a number of embarrassments. I would make appointments for him and then tell him about it, and we kept two calendars, one on his desk and one on mine, but he would just totally forget. I've had people flying in from Dallas to see him. I'd come in at 8 AM to meet, meet them and find out that he had flown out at 5 AM without telling anybody where he was going. I would have to look at this man from Dallas and say, he's gone. So after a few times, I I finally said, I'm not going to make appointments for you anymore. So basically, he, when he identified a priority in his business, he would try to get it knocked out as soon as possible with his team. And he would move his calendar or disregard his calendar completely and act on that immediately. And it goes on, here's another excerpt from Sam Walton. He says, except for reading my numbers on Saturday morning and going to our regular meetings, I don't have much of a routine for anything else. I always carry my little tape recorder on trips to record ideas that come up in conversations with the associates. I usually have my yellow legal pad with me with a list of 10 or 15 things that we need to be working on as a company. And that's the quote from the book. So basically he just had that, his focus of his priorities, and then he would try to execute those. Here's another quote from someone he worked with. When Sam feels a certain way, he's relentless. He'll just wear you out. He will bring up an idea, we'll all discuss it, and then maybe decide that it's not something we should be doing right now or ever. Fine, case closed. But as long as he is convinced that is the right thing, it just keeps coming up week after week after week until finally somebody capitulates and says, you know, well, let's give it a try. So he, once he had something in his mind, he was relentless about it. Another quote: The percentage of gross margin in this industry, really the markup on the merchandise has dropped steadily from around 35% in the early '60s to only 22% today. Almost all, all of that represents increased value in savings to customers who shop discount stores. So the guys who weren't running efficient operations, who had taken on loads of debt and were living high and not taking care of their associates, who weren't scrambling around to get the best deals on merchandise and passing those deals on their customers, these guys got into trouble. So, this is another point. Basically, his focus was a low-cost discount retailer, and he not only just lowered his prices, he was also relentless about decreasing his operational costs and getting more efficient and getting better deals on what he was buying to resell. So even though they had really low prices at the stores, they also had— they kept good margins because they're running such a lean operation. And, you know, we've seen founders like Rockefeller, Carnegie, and now Sam Walton, they're so obsessed with controlling their costs so they can maintain their margins and beat out their competition. And then towards the end of the book, he has Sam Walton provides rules that he has for running a great business, and he calls it Sam's Rules for Building a Business, which are pretty useful. So rule number 1 is commit to your business, believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by sheer passion I brought to my work. Rule number 2, share your profits with all your associates. So that, that's something that he had done. Is you figure out an incentive program for his associates so that they brought— so everybody's moving in the same direction with the same incentives. Rule number 3: Motivate your partners. Money and ownership alone aren't enough. Constantly, day by day, think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. Make bets with outrageous payoffs. So he's always trying to figure out how to motivate. That's rule number 3. Rule number 4, communicate. Communicate everything you possibly can to your partners, and the more they know, the more they'll understand. So, keeping those lines of communication open so that they understand the intent of what you're doing. Rule number 5, appreciate. Appreciate everything your associates do for the business. A paycheck and a stock option will buy one kind of loyalty, but all of us like to be told how much somebody appreciates what we do for them. We like to hear it often, and especially when we have done something we're really proud of. So not only are we incentivizing them with a share of the profits or whatever, we're also verbally telling them, because people are motivated different ways, we're saying, hey, we really appreciate the work that you're putting in. Rule number 6, celebrate your successes. Find some humor in your failures. Don't take yourself too seriously. Loosen up and everybody else around you will loosen up. Rule number 7: Listen to everyone in your company and figure out ways to get them talking. The folks on the front lines, the ones who are actually talking to the customer, those are the ones that really know what's going on. So make sure you're listening and getting that feedback. Rule number 8: Exceed your customers' expectations. Rule number 9: Control your expenses better than your competition. This is where you can always find the competitive advantage. For 25 years running, long before Walmart was known as the nation's largest retailer, we ranked number 1 in our industry for the lowest ratio of expenses to sales. And then rule number 10: Swim upstream. Go the other way. Ignore conventional wisdom. If everybody else is doing it one way, there's a good chance you can find your niche by going exactly opposite direction. So those were Sam Walton's 10 rules for business, running and building a business. In 1992, Sam Walton received the Presidential Medal of Freedom from George W. Bush, and then he ended up passing away shortly after receiving the award. So all in all, I highly recommend taking a look at Made in America by Sam Walton. A lot of great wisdom in here that I think you can apply in your business. And with that, I'll see you next week.