Sunday, May 31, 2020

Made in America (Sam Walton) - Book Review

Summary - 
Sam Walton tells his story on how he founded Walmart 

My thoughts -  
I don't think there's any story more inspirational than Sam Walton's start as the owner of one small town store to the owner of the gargantuan that is Walmart. I must admit that I did judge the book by its cover at first (it was written in 1992!) and wondered just how relevant this book would still be today. However, it came highly recommended, and since I am fascinated by retail, I thought I should at least give it a shot. And I'm glad I did. While it isn't my favorite book, there's a lot to be learned from Sam Walton's principles in life. In particular - two things I took to heart was (1) constant learning, and (2) don't be afraid of being wrong.

What I do admire most about him is how he managed to keep his small town mentality through all the successes he's faced - it reminded me of Warren Buffet. Like with many successful people, it wasn't the money and it was never about the money. It was pure passion that drove him to these heights. 

I also found it very interesting that his success was also predicated on a constraint. He started setting up stores in small towns because his wife said she wanted to raise their kids with small town values and didn't want to live in big cities. And that particular constraint also meant that they were able to scale very quickly with very little marketing budget (word of mouth is strong in small towns) and was able to fly under the radar for years, ignored by their competition. This idea of with constraints comes opportunity, really resonated with me, especially during these COVID-19 times. I do think that creativity flourishes the most when there are constraints and I do think I work best with constraints. As someone who struggles to pick a direction and stick to my decision, I'm thinking I may need to place some artificial constraints on myself. 

Who would like this book - 
The ultimate book for people who's interested not only in starting a company in retail but scaling and growing it from $1 million to $500 billion in annual sales. 

My 5 main takeaways - 
  1. Frugal - every dollar saved is a dollar saved for the customer. Being undercapitalized was also what made them stronger and more innovative.

    When they went on business trips, would stay at motels and share rooms. Operated at 2% general office expense structure (2% of sales should have been enough to carry our buying office, general office expense my salary, Bud's salary)

    Very different from the cash rich start ups we have today. Is cash the death of innovation? Are start ups less innovative now given the easy access to capital? (Or at least it was up until 6 months ago)
  2. He constantly studied his competition and learned what made them succeed. He was shameless too and would bring his yellow notepad and ask the store staff everything about how they ran the store. Even on holiday, if he passed by a variety store he would have to stop and check it out.
  3. Making customers Numbers One - not afraid to send business to a competitor if they didn't carry a product.
  4. Care for your people, give them autonomy and responsibility, and make them partners. Be transparent with your information - that's the only way they can be proper partners. Push responsibility down - people on the ground see the stores from a very different perspective and have a lot to contribute.

    If you take someone who lacks the experience but has the real desire and willingness to work his tail off to get the job done, he'll make up for what he lacks. And that proved true nine times out of ten. It was one way we were able to grow so fast.
  5. Wake up every morning determined to improve something. Don't be afraid of being wrong, just shake it off and move on.

In Sam Walton's own words - these are the 10 rules that worked for him - 

I have always favored the mavericks who challenged my rules. I may have fought them all the way, but I respected them, and, in the end, I listened to them a lot more closely than the people who always agreed with me. 
Rule 1: Commit to your business. Overcame shortcomings by the sheer passion he bought to work. People will catch the passion from you. 

Rule 2: Share you profits with your associates and treat them as partners. Behave as a servant leader in a partnership. Encourage associates to hold a stake in the company. 

Rule 3: Motivate your partners - set high goals, encourage competition, make bets with outrageous payoffs. If all else fails, cross pollinate; have managers switch jobs. Don't become too predictable.

Rule 4: Communicate everything you possibly can. The more they know, the more they'll understand, and the more they'll care. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors. 

Rule 5: Nothing can quite substitute sincere words of praise

Rule 6: Don't take yourself so seriously. Have fun. Celebrate your successes. Find some humor in your failures.  Show enthusiasm. Put on a costume and sing a silly song. And it fools your competition - Why should we take those cornballs at Walmart seriously?

Rule 7: Listen to everyone in your company. And figure out ways to get them talking. The ones at the front line really know what's going on out there. 

Rule 8: Exceed your customers' expectations. Give them what they want - and a little more. Let them know you appreciate them. Make good on all your mistakes and don't make excuses - apologize. 

Rule 9: Control your expenses better than your competition. You can make a lot of mistakes and still recover if you run an efficient operation.

Rule 10: Swim upstream. Ignore the conventional wisdom. If everyone else is doing it one way, there's a good chance you can find your niche by going in exactly the opposite direction. He was told all the time - a town of <50,000 cannot support a discount store very long. 


In retail, you are either merchandise driven or operations driven.

On bureaucracy 
If you don't zero in on your bureaucracy every so often, you will naturally build in layers. Believe that IBM was successful because they decided to never have more than 4 layers from the chairman of the board. 

When merchandise came back into the back of a store, it was supposed to be marked at the right price or marked correctly on the spot. But because it often wasn't getting done properly, we created positions called test scanners, making sure everything is priced correctly. There's another layer right there and same didn't ever visit a store without asking if we really needed these folks.

What we've done is overhaul our back office procedures to make sure we get it right more often the first time, and, in the process, we eliminated 1.5 people out of the company.

What you have to do is just draw a line in the dirt, and force the bureaucracy back behind that line. And then know for sure that a year will go by and it will be back across that line, and you'll have to do the same thing again. 

The importance of Thinking Small
Have that personal touch (that's the edge a local, small business has over a large corporate)

On discount stores
Attract customers in to the store by selling items at cost. That's the items you pushed in your newspaper advertising. Everything else in the store was priced low too, but it had a 30% margin. 

On how they scaled
Focused on stores that every one else was ignoring (in towns < 5000 people)

While the big guys were leapfrogging from large city to large city, they became so spread out and so involved in real estate and zoning laws and city politics that they left huge pockets of business out there for us. 

The method was to saturate a market area by spreading out, then filling in. 

Build our stores so that our distribution centers (warehouses) could take care of them, but also so those stores could be controlled. We wanted them within reach of our district managers and ourselves here in Betonville, so we could get out there and look after them. Each store had to be within a day's drive of a distribution center. So we would go as far as we could from a warehouse and put in a store. Then we would fill in the map of that territory, until we had saturated that market area. 

Build our stores in a ring around a city and wait for the growth to come to us. 

As a result of focusing on small towns, they never had to spend much on advertising and could rely on word of mouth. 


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