Notes from Sam Walton – Made in America
Sam’s Rules for Building Business
- Commit to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work. I don’t know if you’re born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work, you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you—like a fever.
- Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations. Remain a corporation and retain control if you like, but behave as a servant leader in a partnership. Encourage your associates to hold a stake in the company. Offer discounted stock, and grant them stock for their retirement. It’s the single best thing we ever did.
- 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. If things get stale, cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing as to what your next trick is going to be. Don’t become too predictable.
- Communicate everything you possibly can to your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. If you don’t trust your associates to know what’s going on, they’ll know you don’t really consider them partners. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.
- 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. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free—and worth a fortune.
- Celebrate your successes. Find some humor in your failures. Don’t take yourself so seriously. Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm—always. When all else fails, put on a costume and sing a silly song. Then make everybody else sing with you. Don’t do a hula on Wall Street. It’s been done. Think up your own stunt. All of this is more important and more fun than you think, and it really fools the competition. “Why should we take those cornballs at Wal-Mart seriously?”
- 7. Listen to everyone in your company. And figure out ways to get them talking. The folks on the front lines—the ones who actually talk to the customer—are the only ones who really know what’s going on out there. You’d better find out what they know. This really is what total quality is all about. To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.
- Exceed your customers’ expectations. If you do, they’ll come back over and over. 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. Stand behind everything you do. The two most important words I ever wrote were on that first Wal-Mart sign: “Satisfaction Guaranteed.” They’re still up there, and they have made all the difference.
- 9. Control your expenses better than your competition. This is where you can always find the competitive advantage. For 25 years running—long before Wal-Mart was known as the nation’s largest retailer—we ranked number one in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.
- Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find your niche by going in exactly the opposite direction. But be prepared for a lot of folks to wave you down and tell you you’re headed the wrong way. I guess in all my years, what I heard more often than anything was: a town of less than 50,000 population cannot support a discount store for very long.
START OF EXPERIEMENTING
“That was the start of a lot of the practices and philosophies that still prevail at Wal-Mart today. I was always looking for offbeat suppliers or sources. I started driving over to Tennessee to some fellows I found who would give me special buys at prices way below what Ben Franklin was charging me.”
Always Trying Something new
“But this store was ahead of its time too, self-service all the way, unlike the competition. This was the beginning of our way of operating for a long while to come. We were innovating, experimenting, and expanding. Somehow over the years, folks have gotten the impression that Wal-Mart was something I dreamed up out of the blue as a middle-aged man, and that it was just this great idea that turned into an overnight success. It’s true that I was forty-four when we opened our first Wal-Mart in 1962, but the store was totally an outgrowth of everything we’d been doing since Newport—another case of me being unable to leave well enough alone, another experiment. And like most other overnight successes, it was about twenty years in the making.”
“Every crazy thing we tried hadn't turned out as well as the ice cream machine, of course, but we hadn't made any mistakes that we couldn't correct quickly, none so big that they threatened the business.”
ROLLING OUT THE FORMULA
“But 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. Our growth strategy was born out of necessity, but at least we recognized it as a strategy pretty early on. We figured we had to build our stores so that our distribution centers, or warehouses, could take care of them, but also so those stores could be controlled. We wanted them within reach of our district managers, and of ourselves here in Bentonville, so we could get out there and look after them. Each store had to be within a day’s drive of a distribution center"
Circle Bigs Cities
“We never planned on going into the cities. What we did instead was build our stores in a ring around the city – pretty far out-and wait for the growth to come to us”
“From the very beginning, we never believed in spending much money on advertising, and saturation helped us to save a fortune in that department.”
Real Estate Strategy
“But I think our main real estate effort should be directed at getting out in front of expansion and letting the population build out to us.
“I loved doing it myself. I'd get down low, turn my plane up on its side, and fly right over a town. Once we had a spot picked out, we'd land, go find out who owned the property, and try to negotiate the deal right then. That's another good reason I don't like jets. You can't get down low enough to really tell what's going on, the way I could in my little planes.”
SHARING INFORMATION AND LEARNING
“In our individual stores, we show them their store's profits, their store's purchases, their store's sales, and their store's markdowns. We show them all that on a regular basis, and I'm not talking about just the managers and the assistant managers. We share that information with every associate, every hourly, every part-time employee in the stores.” Obviously, some of that information flows to the street. But I just believe the value of sharing it with our associates is much greater than any downside there may be to sharing it with folks on the outside.
Keep Your Ear to the Ground
“A computer is not —and will never be—a substitute for getting out in your stores and learning what's going on”
“That's why we at Wal-Mart are just absolute fanatics about our managers and buyers getting off their chairs here in Bentonville and getting out into those stores.”
Pushing Down Responsibility
“The bigger we get as a company, the more important it becomes for us to shift responsibility and authority toward the front lines, toward that department manager who’s stocking the shelves and talking to the customer. When we were much smaller, I probably wasn’t as quick to catch on to this idea as I should have been.”
CUSTOMER IS NUMBER ONE
“Sam Walton understands better than anyone else that no business can exist without customers. He lives by his credo, which is to make the customer the centerpiece of all his efforts. And in the process of serving Wal-Mart's customers to perfection (not quite perfection, he would say), he also serves Wal-Mart's associates, its share owners, its communities, and the rest of its stakeholders in an extraordinary fashion—almost without parallel in American business." - ROBERTO C. GOIZUETA, chairman and CEO, the Coca-Cola Company
“For my whole career in retail, I have stuck by one guiding principle. It's a simple one, and I have repeated it over and over and over in this book until I'm sure you're sick to death of it. But I'm going to say it again anyway: the secret of successful retailing is to give your customers what they want.”
THE BEAUTY OF COMPETITION
We decided that instead of avoiding our competitors, or waiting for them to come to us, we would meet them head-on. It was one of the smartest strategic decisions we ever made. In fact, if our story doesn't prove anything else about the free market system, it erases any doubt that spirited competition is good for business—not just customers, but the companies which have to compete with one another too. Our competitors have honed and sharpened us to an edge we wouldn't have without them.
I’m asked why today, when Wal-Mart has been so successful, when we’re a $50 billion-plus company, should we stay so cheap? That’s simple: because we believe in the value of the dollar. We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money. Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers’ pockets. Every time we save them a dollar, that puts us one more step ahead of the competition—which is where we always plan to be.
- This is one of the best business books of all time. Reading about the origins of Walmart is really fascinating. Some many company’s have been influenced by Sam Walton’s focus on customers, willingness to change, information and profit sharing, and experimentation.
- It is clear retailers like Costco and Amazon have borrowed quite a few of the lessons from Walton.