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you about today is sam walton the inside story of america's richest man And is written by vance trimble this book is way less known than sam's incredible autobiography Infact, this book came out a few years before Sam's autobiography is published at the end of the book sam walton is still alive And what is fascinating is how the book begins and it talks about the fact that before the early 80s There was no such thing as the Forbes 400 list and so when the very first Forbes 400 list comes out Sam is on it and then within a few years he obtains the number one spot and just holds it year after year after year But before that happened for the first 60 years of sam walton's life He was not nationally known he says he was in the shadows He was off the beaten track just building his incredible business empire And so by the time the four 400 list has come around Sam has already built this $6.3 billion fortune And so the book opens with all of these reporters in the early 1980s Descending on Benville Arkansas to try to figure out who sam walton is and how he accumulated such a massive fortune And then in their research they give a great overview of his life And so it says he grew up in Missouri in the depression He worked his way through college lived a clean Christian life served stateside in World War 2 Married in Oklahoma bankers daughter opened up his first five-in-dime store in backwater north central Arkansas And raised four healthy kids And then this is my favorite part of this entire section Pretty darned ordinary but only on the surface Sam Walton underneath was no ordinary man He was a genius in business with an iron mind and unwilling to compromise any of his carefully thought out principles And one of the most remarkable things about sam is just how simple his idea really was And he says it's a very simple idea I'm going to buy cheap I'm going to sell low I'm going to do that every day and I'm going to do it with a smile and focus on service And one of the benefits that sam Walton had early in his career was that There's a tendency for people to confuse a simple idea with an ordinary person And Charlie Munger who extensively studied sam Walton hit upon why a simple idea taken very seriously is so powerful in business Charlie said in business we often find that the winning system goes almost ridiculously far In maximizing and are minimizing one are few variables And so most of what I want to talk to you about today is just how long it took Sam to find his path And how messy it was at the beginning of you know one of the greatest businesses that has ever been created I read a little while ago that if you take his family's net worth today It's it's almost a quarter of a trillion dollars And yet it took Sam Walton 20 years of experimenting inside of retailing And before he the rush is about that's the word he uses And finds the idea slowly but surely through trial error Finds the idea that turns into warmer But before I get there just want to point out a few things that happen in his childhood That I think gives you an idea of the kind of person that we're dealing with There's a few traits that appear in his early life that he never let's go of A sense of duty He's extremely disciplined and then he had unbelievable levels of endurance And so this is a description of Sam when he was in high school Sam was going off for football and basketball learning to play tennis Making a's and friends grinding away on merit badges In hopes of becoming an eagle scout Regularly attending Sunday school And working odd jobs such as mowing the grass and delivering newspapers He was following the example of his dad His dad had a life motto that could not be more simple It is only three words and it's the same word over and over again Work work work His dad taught his sons that you were supposed to have a fierce work ethic He would not tolerate any of his sons Not being industrious They had to be industrious They had to be ambitious And they had to be decent people And so here's a little more about Sam And high school and it goes back to this idea that Do not confuse a simple idea with an ordinary person He was quarterback of the undefeated football team He let it in basketball He was president of the student body He was awarded the superlative The most versatile boy He was in every club and organization and he was active The description continues He was a hard worker He was optimistic He felt that the world was something that he could conquer He didn't waste time He was always busy doing something And that's something that he's going to continue for his entire career The fact that he's always working He hated wasting time And he's intolerant of slowness And I don't think you can understand Sam Walton And until you understand the effect that the Great Depression had on Sam He grew up in the Great Depression He was born in 1918 And so he's old enough to see the effects The financial effects And it actually leads to hisparents' divorce Which is obviously very rare at that time That time period And he talks a little bit about Seeing his father struggle through this time Hesays, my father quit the mortgage company And went into business for himself And the real state and insurance industry Then came the Depression Dad's business went down the drain And so then his dad is moving the family around looking for opportunity And yet for the next 10 years This is the prime of his father's life They make no economic progress They are distinctly lower middle class Right hovering around the poverty line And so Sam and his brother bud Get jobs to try to help out the family And there's a line in the book They think is very important To understanding the kind of personality that Sam had And he said the Depression was a big leveler of people Sam chose to rise above it He was determined to be a success And so when I was reading this section What immediately popped into my mind Is one of my favorite ideas It comes from Paul Graham And he was asking What is the better predictor of company success Success in business Is it determination or is it intelligence And Paul's answer to this is incredible He says it turns out It is much more important to be determined than smart If you imagine this hypothetical person That is 100 out of 100 for smart And 100 out of 100 for determination And then you start taking away determination It doesn't take very long Until you have this ineffectual But brilliant person Whereas if you take someone who is super determined And you take away smartness Eventually you get to a guy Who owns a lot of taxing medallions Or a trash hauling business But is still rich It is important to note It only takes one person on the founding team To be super determined And the reason I bring that up And the reason I think is really important And especially in this section is becauseOkay, we see he's got this fierce work ethicRight?
He is determined to be a success He is not going to allow his family To hover over the poverty line Think about how insane If you were mapping out This I was thinking about this this morning If you were mapping out The family tree And the trajectory The economic trajectory Of the Walton family Before Sam Walton comes on the scene You would see middling success And then all of a sudden there's this one data point This generational inflection point Where it just skyrocket Today that family Present day A hundred years after Sam Walton was born You know they have Quarter of a trillion dollars $250 billion dollars But a hundred years ago They were straddling the poverty line The difference was One person This super determined person Made that difference He changed the trajectory Of his entire family for generations And so it starts with determination But in this hypothetical situation It's not that we have to remove points for intelligence It took Sam to find where he can be intelligent What is the field that he can be the most intelligent If you have a list of the greatest retailers of all time Sam Walton has to be at the top of that list And the reason I recommend If you haven't read his autobiography Get it immediately Get the audiobook Get the paper rock Whatever you have to do And then if you've already read that book by this book Because you will see it took decades Of him applying his determination And then matching it With 100 of 100 intelligence In a specific field And it's important to understand This was not planned out Sam had no idea He had one idea One idea of what his future career could be When he was around college age He's like maybe I should be present In other the United States That's another personality trait that he has He's going to aim straight to the top He has to be I think he calls it being like the top of the heap Or the top of the pile He's just said Has his ruthless competitive drive as well But he did not have this dream to be a retailer And he was a boy He stumbled into it And so let's go there right now He actually gets a job at JC Penny This is an extremely important turning point in his life And you're going to see a lot of the lessons That he's going to learn From JC Penny He applies later on to Walmart And so let me just tell you Like in case you don't know Like this shocked me Because I knew what JC Penny was It was around when I was a kid I don't even know if it exists anymore But in 1940 Where we are in the story JC Penny has almost 1600 stores And they're doing 300 million a year in revenue And the founder is still actively involved Even though he's in his 60s His name is John Cash Penny Sam is actually going to meet John And get a lesson directly from him So Sam gets his job He's being paid $85 a month Remember that for this upcoming story About sharing incentives with store managers Which I'll get to in one second But the first idea I have to point out to you That Sam's going to use for Walmart Is the fact that the company strength That JC Penny had built 1600 stores Of voiding big cities This is exactly what Sam is going to do for Walmart And he focused on small towns You're talking about towns of 2,000 people 6,000 people 8,000 people That's the first idea It's like oh maybe there's a lot of more business out And these small towns and we thought The second idea John JC of JC Penny is constantly in the stores He's traveling around In the stores wanting to know what's going on Sam does this his entire life And it is one of these store visits To the store that Sam is working in Sam's around 22 years old at the time That he gets this lesson from thisWiser, more successful Retaillegend, he's 65 years old Says the customer came in and bought something from Sam And while he wrapped it up for her JC Penny was observing the transaction closely I finished wrapping and tying the package And the lady left Then Mr Penny came overBoy, he said I want to show you something And he took a box about the same size And went around it with paper And let it overlap Maybe a quarter of an inch Then he went around it with twine One time like this and one time like that And he tied it And he said boys You know we don't make a dime Out of the merchandise we sell We only make our profit out of the paper And string we save This idea of watching your cost 24-7 Of making sure you're ruthlessly efficient Is an idea that Sam Walden holds onto For the rest of his life There's a lot of things in Sam's autobiography That I absolutely love that he said And this is one of my favorite things that he said In the autobiography that I think Relates to the story that we're learning right now He says 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 So that is the second thing He learned from his time atG.C.
Fanning Here's the third His direct manager This guy named Duncan He said he was a fantastic trainer He used to invite us to his house Every Sunday To play ping pong And to eat and talk We talk about business of course You could learn a lot And he was one of the managers Who had a25% bonus contract Again another idea Sam is directly gonna steal At the very beginning of Walmart He sets up all his managers And gives him25% of the profits of the store And remember I said that at this time Sam is making $85 A month His manager shows him the25% bonus check It was for $65,000 This is Sam's response He waved that around And that made us run faster and work harder Sam Walton's time working atG.C.
Penney And applying what he learned there Would eventually put a few billion dollars Into his own cash register So I want to get into where Sam buys his first store Where he gets the money from He is 27 years old He marries a woman from Oklahoma named Helen They both have this desire They're small town people So they're looking around Where they're gonna live And where they're gonna live They're gonna try to buy a Ben Franklin store So they're called Ben Franklin 5 and Dimes The way I would think about this now Is like the modern day equivalent Would be like the dollar store The reason they were called 5 and Dimes Because most of the things that you buy there Or you know you can get for a nickel or a dime And so Sam and Helen are going around looking for a small town Where they can raise their kids And Sam could have his store This is the very beginning of his retail empire Sam is 27 years old And so they stumble upon This little town in Arkansas called Newport There is a Ben Franklin franchise Now keep in mind At the very beginning for like 20 years of his life Sam Walton is a franchisee Of a much larger company And we'll get there in a little bit But it's crazy He tried to give the idea for Walmart To Ben Franklin To the big corporation They laughed them out of the room And so 27 year old Sam Finds a store The town There's 4,000 people that live in Newport This is a tiny tiny town That he can buy the Ben Franklin franchise It's gonna cost him $25,000 He does not have $25,000 So his Father-in-law Is going to be very important in their lives Which I'll get to later His Father-in-law is very successful He's a lawyer A rancher banker and so he loans Sam Walton the $25,000 needed To buy the Ben Franklin franchise And at this time Sam's plan is very simple He's like well I'm just gonna take The obsession with customer satisfaction That JC Penny had And I'm just gonna apply it To my own little five-in-dime store And so he's trying to figure out ways Tolike, drum up business And this is the first sign of something That Sam's a showman He's like very much like a PT Barnum He's got the charisma of a southern preacher And so he's constantly experimenting In these less conventional ways To attract more customers into the store And you wouldn't believe how some of these Like really simple ideas were so effective So he bought He spent a bunch of money on an ice cream machine People are like what the hell are you doing This is like a crazy idea And he put it out in front of his store And on the weekends Families and all the farmers And all the people in this rural area They would mob his ice cream machine And then some of them would come into the store And then turn into customers And then he'd obsess over their customer satisfaction So then he'd make sure they return And then if they return They're going to tell the people And so youknow, five and a half years from now When he loses this store It is by far the most successful I think he's tied for first In all the Ben Franklin franchises If I'm not mistaken So he's like oh the ice cream work What else can Ido?
Then he buys a popcorn machine Does the same thing Puts out the popcorn Same exact thing happens He's like oh there's different ways To draw attention to the store Than just by saying hey you know50% off or buy one get one free He's finding another way to attract customers And even if only converts A small percentage of the people that buy ice cream With the people that buy the popcorn It's still a great return on the investment For buying a popcorn machine and ice cream machine And that's something that Sam's going to repeat He really felt one of his His best advantages Was consistent Around the clock customer satisfaction Says the most important discovery Sam Walden made a new port Was that there was a charm And satisfaction in retailing That he had not fully expected He was crazy about selling And about satisfying customers So customer satisfaction Satisfying customers Repeated over and over again Throughout the book The way I would think about this Is that Sam's satisfying customers Is Jeff Bezos's Obsessed over customers It's the same exact idea You and I have talked about this many times in the past If you read about the early days Amazon Jeff Bezos is going around Handing out highlighted copies Of Sam's autobiography For the early employees at Amazon The life and career of Sam Walden had a huge influence Over how Jeff Bezos built Amazon in the early days And so Sam Walton's Ben Franklin store Was a smashing success And then we're going to see something That happens over and over again That opportunity is a strange beast It frequently appears after a loss He's running this thing for five and a half years He gets sales up to 225,000 a year No other store in Newport was performing like this And that catches the eye of his landlord And so this I consider one of the most important decisions Of his entire life Because at 32 years old Sam Walton is going to lose everything And be forced to start over again And it is because of an inexperienced Kind of rookie mistake When he bought the store He didn't read the lease close enough And he did not have the option to renew And so Sam is meeting with his attorney And his attorney is telling him what's taking place It's no good I hope to guide the next time you take over Release from somebody you check to make certain It contains a proper renewal clause They're not going to let you keep the store The plane truth is they want to run The Ben Franklin in that building You've shown the whole town what a money maker can be His attorney watched the color drain out of Sam's face It looks like you're finished the attorney said Thelawyer, this is one of my favorite parts of this entire book The lawyer saw Sam clenching And unclenching his fists Staring at his hands And then he straightened right upNo, hesaid, I'm not whipped I found Newport and I found the store And I can find another good town And another Ben Franklin just wait and see And so think about that You're SamWalton, you're 32 years old You havewife, several kids And you just spent five and a half years Building up a store that was a phenomenal success And somebody took it from you From your own mistake He wasn't saying he wasn't out there blaming other people And I love his response He'slike, I'mnot, youknow, I'm not We have to not can feel sorry for myself That's fine I made a mistake I won't make that mistake again Which we'll get to in a minute And I'll build up again from scratch And so this is when he finds Bettenville Arkansas Because he's driving around He's looking again Running the same political When he goes to the small town When he tried to buy a Ben Franklin franchise So somebody wants to sell He finds one in Bettenville And he doesn't make the same mistake So what he does islike, okay I will buy this store from you It's too small So I also need to get the barber shop next store Sam insists on buying the building And then next store He'slike,well, this store is too small I'm not going to make any money I got to knock down this wall And so he finds that the barber shop next store Is actually not for sale And so he'slike, I will lease that But I need a 99 year lease You won't sell to me that's fine Then I need a lease that lives longer than I do Now thelease, the barber shop is owned by two widows They say the first time he comes in They say no The second time he says they say no The third time they say no The fourth time they say no The fifth time they say no The sixth time It took six tries And you'll see he does this exact same playbook When he's recruiting people In some cases he will recruit the same person And they'll tell him no for a decade This guy is relentless But finally the sixth time They finally agree to this outrageous 99 year lease And at the same time he suffers a devastating personal tragedy His mom dies unexpectedly from cancer She was just 52 years old She went for an operation to remove some of the cancer And then a few days after the operation She passed away So think about this He's 32 years oldRight?
He used all he's married with kids like I said earlier He used all of his money Setting up the new store in BentonvilleOkay?
He's got no money So he's 32Wife,kids, no money Your mom who you adore dies at 52 years old Unexpectedly At the same time he still has to run his new port store Till the end of the year So he is commuting back and forth And even though the store is only 250 miles apart It's like an 8 to 10 hour drive Because it's through these mountains And the reason I bring that all up together Is because you know no money Your mom dies Your stretches thin as could be And yet it is this driving back and forth That leads to one of the most important ideas That he ever finds Because he starts to think What theheck?
I'm... If I cannever...
If I cannot move ground fasterRight?
I will always be relegated Just having one store You already know by now Sam Walton's not the personality type to be likeOh, I'm just gonna run one store For the rest of my life And so it's during these long drives To the mountain 8hours, 10 hours each way He'slike, I've got to figure out A way to cover faster ground And then he hears the buzz Of an airplane Overhead And the author does a great job of describing this I want to read this to you Sometimes hardship can enlighten and inspire This was the case for Sam Walton As he put in hours and hours Of driving Ozark mountain roads In the winter of 1950 But that same boredom and frustration Triggered ideas that eventually brought him billions of dollars He was struck with the realization That if he was competent enough To operate separate stores in two towns successfully One at three Four or maybe even a dozen He could see the possibility of his own chain of five and dime stores One evening he heard the drone of a small airplane overhead And a light flash in his brain So he goes down to the local airport And he'slike, maybe he was a faster way Kind of like charter a plane And could somebody fly me between Bentonville and Newport Andsays,says, for a reasonable fee He chartered a pilot to take him to Bentonville The 8 hour road trip Strength to a 90 minute flight This gave Sam the answer he was looking for Without this His Walmart phenomenon Never would have been able to see the light of day And so it's no surprise that the Bentonville store Starts to do really well Because Sam's paying attention every single thing And he's just has this ideaNow, I guess I need to back up He is constantly Until the IPO he is constantly under-financed And under-capitalized He actually talks about that in his autobiography So I want to read from his autobiography again Before I pick this story back up Hesays, many of our best opportunities were created out of necessity The things that we were forced to learn and do Because we started out under-financed And under-capitalized In these remote small communities It contributed mightily to the way we've grown as a company Had we been capitalized Or had we been the offshoot of a large corporation The way I wanted to be That's whatever offense earlier We tried to give away the idea to Walmart And they said no We might never try all these small little towns That we went into in the early days It turned out That the first big lesson we learned Was that there was much Much more business out there in small town America Than anybody including me Had ever dreamed of So his idea at the very beginning This is a good thing He had to prove the concept over many many years Then once he knew what was working He poured gasoline on these promising sparks But his idea first is like let's get one store up That stores profitable Let's take the profits Dump that into another store Then get that store profitable Then dump it into another store And so that is why the planes become so important These are not corporate jets He's flying around There's a bunch of almost like very close calls Youknow, Sam Walton was a kind of reckless flyer But youknow, thankfully nothing happened In his 40 years of flying But without these like small little sessonies And these little planes Theycouldn't, he could have never Gone and traveled to all these stores Because that leads me to the next thing I want to talk to you about It's not just that you know what JC Penney was doing back in the day Going to all of his 1600 stores Same thing Sam would do when he has this chain of five of dimes Same thing Sam would do when he has this chain of Walmart's He did it for every single one of his competitors He visited more retail stores than anybody else in history He does it for the stores And in his autobiography he says that he would also show up at the headquarter Like the corporate headquarters Without an appointment And he says if you just show up and you ask More often than not They would let you in And then he would ask him questions about pricing Distribution and all this other stuff He's like it was another form of education And so he's doing this in the 1950s He's going to like Oklahoma In Arkansas In all these little country towns And he says he studied how they did things He was ready to pounce on any successful little trick they had And would copy it And so when I got to this section of the book Two things happened One I had like a big smile on face Because I just think it's hilarious I love people that are truly dedicated To what they're doing And I always say one of my favorite maxims Is this actions express priority You demonstrate to other people what's important to you Not by what you say Not by what you believe But what you do Actions express priority And so you got Sam running around All over the south Visiting every single store And so that just made me smile and laugh And I love people like that The second thing that came to mind Is because I've become friends withMr.
BeastMr. Beast is like the biggest creator on the internet Biggest YouTuber He's got like a billion followers across all these platforms I actually flew toMr.
Beast headquarters And spent seven hours with him His top team One of my friends is a major investor AndMr.
Beast companies as well And I heard a story that just screams Like this is something that Sam Walton would do And soMr.
Beast comes back from doing He's like a 17 hour flight Or something like that Lands back into the United States Needs to do another connecting flight To get back to like the remote area Where his headquarters is And instead of jumping on another flight He maps out There's like a 500 mile distance Between where he's at and where his home is AndMr.
Beast chocolate company Feastables has a massive deal with Walmart And so he does Instead of flying home He maps out every single Walmart And like a 500 mile radius And decidesHey, I'm going to drive Youknow, you can take a couple of our flight Or you do like a 15 hour drive I think this is over multiple days And he visited every single Walmart In between where he was And where he was going And so at every single store visit He would find room for improvement And one of the funniest things I heard was When in some cases In the front of the store It'd be it looked like All the feastables was sold out And then he'd pull up He'slike,well, my system says That you have inventory So he would go to the back of the store And he would find The inventory in the back And he'd literally carry it to the front So he'd get more sales I don't think that is what Sam Waltz would do I just love that idea Where you have this crazy Determined madman In the 1950s Driving through all these little towns Inspecting every single retail store that he finds Going to the headquarters Dropping in on the CEO and a thopter And just riddling them with questions And using this as a form of education And then you see 70 years later And the same kind of determined individual Doing something very similar I just love that part So as Sam is expanding He's opening new stores I already told you so earlier He literally lifts that idea from JC Penny He'slike,okay, I can't be here But he knew that you had to have a single Like single threaded leadership There has to be one person that Is completely responsible for the performance of the store When Sam is not there So that's when hesays,hey, I'll give you25% of all the profits And then here's a fascinating story for youDude, this is what I love about bogg-free We have some of the smartest Most reduct people that ever live And the bog frees their life stories Or full of them making mistake Aftermistake, after mistake And so as he's expanding He comes across This brand new phenomenon At this point in American history There is no such thing as the shopping center And so as he's looking for locations to expand He comes across I think it's the second shopping center ever built in the United States And he's justlike, oh my god This is this concept is genius And so he gets distracted He is already building a small But verysuccessful, variety store Five in dime chain And he takes a detour from something that's already working Hesays, I'm gonna develop shopping centers I have a line forthis, what he's doing Because I did this other day I was on the phone with my friend Jared And he was explaining about this other idea I had for another podcast And he waslike, completely shut it down And he used the blackjack analogy He'slike, don't split tents Sam Walton's split tents I'll cut right to the punchline We lost their money and left town So he had like a one to two year detour Where he took his eye off the thing that was working He gotdistracted, he gave into distraction And it cost him the opportunity to cost his time And a bunch of his money So now he is back fullydedicated, fully focused On expanding his burgeoning retail empire I love scrappy people I love relentless to your sourceful people I love people who don't take no for an answer And so Sam is always on the lookout fornew, exciting merchandise That he can stock in his stores at this time Hula Hoops is like This is like phenomenon Spreading all across the country The main manufacturers of Hula Hoops Will not sell to these small little merchants Because he's tiny at this time And so Sam islike, okay cool You want sellers tous?
That'sfine, we're gonna make our own So he's starting to realizelike, what is a Hula Ho It's like this little piece It's colored plastic pipe Where there's a connector at the end He'slike, we're just gonna make our own So after the store's closed Him and a bunch of other people They get together and they start making several thousand of these a night So that's the first part of this high agency relentless resourcefulness This is hilarious to meRemember, Sam does not have a lot of money He's underfinance, under capitalized for a long time All the way until Walmart goes public And Walmart doesn't even exist yet And so they're making him at one central location But they should distribute them Through all the stores that theyhave,right?
Sam didn't even have a truck So how's he gonna dothis?
He has acar, you know what he does He sets up a John boat A like 12 foot little John boat behind his car and loads the John boat With all theHula, thousands of Huluops That they spent the night making And then he drives it around to his stores And a car and using a John boat as a trailer And the end result is this line The Huluops are so popular that you couldn't keep them in stock And so there's a combination of two ideas here They think are really important Numberone, doing things that others were not doing Lead to unexpected success Andtwo, goes back to that quote That I read from Sam's autobiography The fact that many of the best opportunities were created at a necessity Because we were so under finance We were so undercapitalized We had no idea Just how large these businesses can be built Inwhat, youknow, these towns These towns were ignored And so they arrived at this very valued idea Through trial and error They're just testing a bunch of things And so here's a description of one of the things they found out That the larger theymade, thestore, the more money they made The decisions were made for Walmart Long before Walmart as a company was developed Back in the Ben Franklin days We learned so much And so they used one example of a store Where they make a slightlybigger, slightly larger Ben Franklin store And how much sales grew as a result of just having a larger store surprised them And so thisstore, the example that they're using Was in this little town calledSt.
Robert SoSt. Robert showed us how much volume was there If we went into much larger units In small communities and push the merchandise We became the first independent variety chain in the country To try large stores in small towns We were doing an amazing amount of business In a 13,000 square foot store Which is totally out of character for a town of just 2,000 people We found that we could do a million dollars in each variety store That was unheard of And so it is through this constant experimentation The fact that he is still relentlessly Visiting every single retailer everywhere he's at That he discovers what is going to be his life's work Which is discounting The concept behind discounting at this time is very counterintuitive That you lower theprice, you lower the margin But you'll make more money because you sell more And all throughout his autobiography All throughout this book Every single interview that you'll see with Sam Even though he didn't do a bunch of interviews He talks about the fact that Youknow, I have no shame in admitting this Like if Iwould, I would searching for good ideas And if I found a good idea If I found a competitor that had a better idea than I did I would just adopt He wasalways, he didn't care of the origination source of the idea He just wanted the very best idea So he'slike, hesays, if they had somethinggood, we copied it And it is through this that he says I was totally fascinated by the idea of discounting And when he discovers discounting in the 1960s He's blown away He winds up studying this guy named Irwin Chase Who starts this company called Anne and Hope They only had six stores But they're doing 250 million dollars a year in sales So all throughout the early 1960s it says there was no discount store in existence Between 1960 and 1962 That did not get a visit from Sam Walton And it is through this that he discovers that another person Had studied Anne and Hope too And they had studied it before him There is this guy And Harry Blair cunning him He is the one that comes up the concept for Kmart And so Kmart was a dominant player way before Walmart and so Sam Walton is looking back on this He's saying what about to read to you in 1990 After he's already beaten Kmart Hesays, I've always had the greatest admiration for Harry cunning him Because when he threw that business down That thing was 10 or 20 years ahead of its time And he did it better than anybody else What I did later was take pieces of it Meaning take pieces of Kmart And make our Walmart as much like it as we could The differencewas, and this is the fascinating thing that happens over and over again Is Kmart took the discounting idea And they set it up in major cities Walmart looked at that and waslike, well why would we compete head on with somebody that's already doing that We'll take the discount idea and set up in tiny tiny little towns And so back to what Sam was saying At the start we were so amateurish and so so far behind Kmart just ignored us They let us stay out there while we developed and learned our business If they had jumped onus, I hate to think of that But we were protected by our small town market It would have been unthinkable for them to have tried to put a competing store in a small town They gave us a 10 year period to grow And then he also brings with the fact that they got rich And successful and fat and lazy They were self-satisfied with what they had accomplished Sam Walton was never To the day he died was never like that They were self-satisfied with what they had accomplished They thought they could roll over everybody And they woke up one day and found out that the world had changed And so now Sam knows he's like I cannot stay in the variety store business I cannot stay in this fine and die business Discounting is going to roll over everything Let's get ahead of this And this is where This is where he goes So keep in mind I guess just should back up He's 43 years old when he's trying to make this transition He's got 13 of these variety storesRight, he's Ben Franklin franchisees Our franchise is Over the last 11 years he's built 13 of these stores So he goes This is what I meant when he goes and tries to give away the idea for Walmart He's gonna go to the headquarters of Ben Franklin in Chicago And he's going to pitch this idea to them And this is the idea that turns out to be Walmart I'm gonna read this whole section to you Because it's so fascinating to me His proposal was audacious Certainly unacceptable He suggested that the variety store franchisers Leap into the front line of the booming discount business I think that kind of store will fit in the role markets Just as well in the major metropolitanmarket, Sam said You should franchise them and I will be your guinea pig Imagine Sam Walton pitching you an idea of that Of a brand new business that's growing like a weed And it's clearly the future and he's like I will be your partner and operator And you say no That's incredible The Ben Franklin executives exchanged sour looks Sam went on You're gonna have to cut your wholesale prices Instead of making 20 to25% profit off the merchandise That you sell to your retailers You're gonna have to be satisfied with about 12 and a half percent So almost half They blew up They blew up at Sam To these sophisticated and experienced businessmen And their tailored suits and customs shoes in Chicago Okay It looked like the tail was trying to wag the dog What was this Arkansas country fellows experience With only a dozen or so stores Compared to their thousand outlets And nearly a century of retailing know-how We have to pause here because this is such an important point You have to think about the incentives Of the people that you're selling to Sam Walton is trying to sell to them So the greatest example that got lodged in my brain many years ago No one is ever eager to fix a cash machine that isn't broken And the person that put that idea into my brain The fact that you have to think about the incentives Of the people that you're selling to Then no one is ever eager to fix a cash machine That isn't broken In James Dyson's autobiography He invents the world's first cyclonic vacuum cleaner That means his vacuum cleaner doesn't need bags So before that if you own a vacuum cleaner You're constantly having to buy more vacuum bags Right What does James Dysondo?
The first person he tries to go and sell his invention to Is a company that is making 500 million a year selling vacuum bags It he's like oh they're going to see how superior a cleaning machine That my vacuum is compared to theirs That is irrelevant You cannot sell a bag this vacuum cleaner To people to make 500 million a year selling vacuum bags You cannot sell the idea of discounting At a lower margin And saying hey sell me your stuff at12.5% And selling instead of selling it to me at25% How do you think they paid for those tailored suits And those custom shoes With that25% margin And so they laugh them out of the room And then there's a great story that is told In this book it's also told in Sam Walton's autobiography The very next day one of the Ben Franklin executives Goes and checks out he's like I maybe I should go check out this new Kmart thing That this crazy Sam Walton Vella is talking about And here's a description of what happens He got a surprise Sam Walton was there ahead of him Here he was 25 miles from our office And he was talking to a clerk He was writing in a little notebook And at one point he got down on his knees To look under the display cabinet I saidMr.
Walton what are youdoing?
And he said it's just part of the education process Don I'm still learning And so Sam talks about this time It's not like he thought discounting was the future But he wasn't sure if he could do Like he was going to succeed at it He knew he could He was really good at the variety store of business But he decides I'm just going to experiment He's constantly experimenting And he talks about this The way he describes this point of his life He has a great term on it He says I was thrushing around for the right way to go It was uncertain But one thing that he knew is that discounting does not work If you have a high cost structure Discounters must They must have low cost And there's like all these indicators That Walmart might be more successful than their competitors Early on It was because even after they go public They have like the lowest cost to sales ratio In the entire industry And so how dedicated was Sam to keeping costs low Well Walmart is called that in part Because fewer letters Means cheaper signs on the outside of a store And so Sam and one of his executives have this list of names They're trying to figure out What are we going to call this new concept You know I have to go out on my own The Ben Franklin guys they don't want anything to do with this So I'm going to do it anyways Which one of those do you think we should call it They study the list for a few minutes And all were long names Each made up of three or four words And so as executive says Well Sam you had me buying the letters To go up on our Ben Franklin stores And I know how much they cost And how much they cost to repair And how much to light these letters It's expensive to put that many words in a name And the shortest name on the list was Walmart And so Jeff Bezos has the saying He says we know from our past experiences That big things start small The biggest oak starts from an acorn If you want to do anything new You've got to be willing to let that acorn grow Into a little sapling And then into a small tree And then maybe one day it'll be a big business on its own Listen to the description of the very first Walmart The business that is going to generate for the Walton family Quarter of a trillion dollars of wealth The first Walmart is in a small town And is only 16,000 square feet It is an immediate success from the very first year What do they considersuccess?
700,000 dollars in total sales Which may seem like a small number But from thatday, from day one Thestore, that furry first Walmart store For the next 15 years Has a consistent30% growth in sales It made a profit from the very beginning So then he opens the second one He invites this guy named David Glass Who is going to many years into the future Is going to become the CEO of Walmart Sam tried to recruit him really early Infact, it takes him a decade To get David Glass to say yes So he invites David Glass out to the second opening of The opening of the second Walmart And this is what David Glass said David Glass thought that Sam Might have lost his marbles with all this discount store foolishness It would surprise him if this kind of store had any future It was the worst retail store I had ever seen Sam had brought a couple of trucks of watermelons in And stacked them on the sidewalk He also had a donkey ride out in the parking lot It was 115 degrees and the watermelons began to pop And then the donkey began to poop all over the sidewalk And the water melon and the donkey shit Ran together all over the parking lot And got inside the store Like so many people before him And since David Glass Was guilty of a snap judgment on this unorthodox merchandiser named Sam Walton Infact, there's a great description of Youknow, Sam's personality and part of There's like success Is this like promotion ability There's this article in 1989 in Forture magazine I'm going to quote from And it says so how From there from this like crap You know In this This exploding watermelon donkey crap Opening So how from there did Sam Walton get to be America's most admired retailer He willed it through sheer force of a complex personality As the donkey watermelon episode illustrates He's an old-fashioned promoter in the PT Barnum style But he's more than that He's a little bit Jimmy Stewart He'shandsome, he's got this all-shocks charm He's also a little bit Billy Graham This is what Imeant, Billy Graham's his famous preacher Sam Walton's very much an evangelist He's a little bit Billy Graham with a charisma and a persuasiveness That heartland folks find harder to resist And he's more than a bit HenryFord, a business genius Who sees how all parts of the economic puzzle relate to his business Overlaying everything is that of an old yard rooster Who istough, loves a goodfight, and protects his territory And so the mistake that glass made is the mistake that most people make They don't understand that small improvements every day over a long period of time What that compounding can generate The thing that I underestimated about Sam Is that he has an overriding something in him that causes him to improve every day That's not difficult when you have something as bad as he had Back inHarrison, this is the donkey in the watermelon store But sometimes you achieve success andsay, boy Now I got it like I want it I can lay back a little and enjoy it Sam never did that He has never gotten to the point where he is comfortable With who he is or how we're doing And this is probably my favorite description of Sam Walton in the book His tactics prompted people to describe him as a modern day combination of Vince Lombardi Who insisted on a solid execution of the basics And GeneralPatton, who said a good plan violently executed now Is better than a perfect plan next week And so once he realizes Walmart is a winning formula He starts to expand really rapidly But what you see is at the very beginning He's just got a simple basicplan, simple basic principles that he executes on So the first thing is he'sobsessed, we've already mentioned it once Just like there's principles for Amazon that could be distilled down to obsess over customers ForWalmart, it was just customer satisfaction He said the essential ingredient is of course customer satisfaction Hardly a day passed When without Sam reminding an employee Remember Walmart's golden rule Numberone, the customer is always right Numbertwo, if the customer isn't right Refer to rule number one And so what he means by customer satisfaction is always exceeding the expectations of the customer So let's say you buy a pair of shoes They don'tfit, you don't like them One of the case is you bring them back Sam would tell his stores Not only should you cheerfully replace the shoes Meaning you should behappy, you should be smiling Then you should throw in a pair of socks and stockings for the hassle He understood the value of a satisfied customer That customer is going to come back to Walmart Not nextweek, not just nextweek, not just next month Where humans are habitual They'll probably be shopping there for a decade after a decade As long as you don't upset them or let them down And then as far asexpansion, youknow, this is pre-computers Which we'll get to just the massive surprising investment that Walmart made in computers in the 1970s But beforethat, he'slike,okay, well I want to run a bunch He had like this idea It's like I need to make sure that all my stores Or so close to the distribution center that my trucks Can deliver whatever you're missing that same day He essentially started with the distribution center and then work backwards And he'slike, I don't want to expand outside of this distribution center If it takes my truck drivers longer than five or six hours to get to any one store And so the first handful of Walmarts were in this 300 mile radius ofBentonville, Arkansas And that's really what itwas, his faith and his adherence to this small handful of principles That he refused to deviatefrom, he talks about this later I had no vision of the scope of what I would start But I always had confidence As long as we did our work well and we were good to our customers There would be no limit to us And for this fact alone is why reading these biographies in these early company stories Or so important because it talks about like how There's a lot of rough edges in these Walmarts stores The eighth Walmart ever And they put it in thisold, it used to be a Coca-ColaUh, bottling plant And so it still wasn't all the way converted And so you had like all these pipes sticking up out of the floor everywhere There was no air conditioning in that entire building So what's thesolution?
Okay, we don't haveAC, we can't put it in before we open We'll just get 28 window fans And then we'll take care of the AC problem later And there's a line that describes what this was like in the very early days And what's going to become a very valuable company It says it was still largely a seat of the pants instinct Of Sam Walton that guided this Walmart expansionAgain, at the beginning there's going to be a lot of rough edges And half working things and not a lot of process The way I think about the early days of Walmart Is the exact way I think about the early days of Disneyland with Walt Disney There's a great line in thatbook, I just covered the history of Walt Disney If you haven't listened to itUh, it's episode 347 How Walt Disney built his greatest creation Which he considered his greatest creation to be Disneyland And one of the people working with Walt was describing this time Says you asked aquestion, what was our processlike?
I kind of laughed because process is an organized way of doing things I have to remind you During the Walt Disney period of designing Disneyland We didn't have processes We just did the work Process came later All of thosethings, all of these things had never been done before Walt just gathered up all these people who had never designed a theme park Or never designed a Disneyland So we're on the same boat at one time And we just have to figure out what to do And how to do it on the fly as we go along And not even discussplans,timing, or anything We just worked And Walt just walked around and made suggestions Same exact idea is happening in the early days of Walmart And so now Samrealizes,oh, Walmart is the main thing This is where my entire focus should be on And so this is where he really really wants to start putting He'sreally, think about how long Like he did five and a half years with one store in NewportRight?
Learning,learning, slowly proving that he knows what he's doing Then he gets another Ben Franklin storyThen, youknow, ahandful, I think in what 11 years he does 13 more stores Watch how he's the weird thing I'm trying to describe to you He's like he's simultaneously impatient And has an abundance of patience if that makes any sense So it takes a while to make sure he knows what he's doing And it's actually gonnawork, but once he knows it's going to work He puts his foot all the way on the gas pedal And so up until this point he's got one big problem He is eyeballs deep in debt It's like causing himanxiety, stress He's been borrowing and financing the expansion of Walmarts He gets loans from banks and loans from insurance companies And he's dying for a permanent solution And he only has one idea for a permanent solution He'slike, we have to IPO We have to tap the public markets And so he's gonna meet these local Arkansas entrepreneurs They're called the Stephen Brothers They're gonna team up with another Wall Street firm That is successful in selling the stock I'm gonna get there in one second because it's kind of nuts At how spookily accurate a bunch of sandwaltons predictions are But I justlove, they give a short background in the book on the Stephen Brothers Who are very helpful in getting this IPO done I'm gonna skip over all that I just love the advice because they werelike, youknow, poor Arkansas boys too And they went upbeing, they hit the Forbes 400 list too For different reasons But I love the advice that their dad told them When they were growing up in like rural Arkansas Hesays, he used to tellsons, don't be ashamed of your poverty And don't be proud of it Just get rid of it as quickly as you can And his sons made good on that advice But I want to talk about how nuts it is ThatSam's, he was just dead on on a lot of sales growth So he's doing this pitch to potential investors And they'relike,okay, your sales volume right now is around 20 million dollars a year And Sam'slike, yessir, our business is really growing This year we did 21million, 21.3 million That's quite a jump Because the year before we only did 12.6 million And hesays, our calculation is that in the next five years Our five-year projection from now that in 1975 Our sales will be 230 million And so the other side of the table is like decidedly skeptical Like this guy's nuts and here's the punchline, Sam Walton however It was right on target Total sales for 1975 came to $236 million So in 1969 when he was done with that he was at 21.3 He'slike, we're gonna hit 230 million five years from now And he came in at 236 And then I want to point out a part of Sam's personality This is also something he shares in common with Jeff Bezos He's very polite He has a country charm but he drives The way he pushes his top executives He pushes them unbelievably hard It's really fascinating the difference The way he treats his like front line workers Who he spends a lot of time with Pays attention tothem, makes them feel special Make sure they're doing their good job But like he doesn't push them like he pushes his top executives And so it says Sam had seen others resign or get fired Because of the rigors of working in a pressure cooker For a boss that some executives called That old slave driver That's his internal nickname There's a line from one of JeffBezos' Biographies that's very similar It says if you're notgood, Jeff will chew you up And spit you out And if you are good he will jump on your back And ride you into the ground So they both hold their top executives To an unbelievable rigorous standard of excellence The way I think about Sam's Affable country boy personality with what's really inside When I read a biography on a young Bill Gates Excellent book if you haven't read it yet It's called Hard Drive The Making of the Microsoft Empire Covers the first 35 years of Bill Gates life You realize that a young Bill Gates was just gangus con And aMr.
Rogers costume Something similar is going on here with Sam Says he also claims that the public conception of Sam Is a good old country boy Wearing a self velvet glove Misses the fact that there's an iron fist within that glove The boss himself can't really agree I guess I can get a little tough if I see things I don't like Sam stress that he knew his business from top to bottom I used to do it all sweep the floor keep the books by the merchandise One of my assets is my willingness to try something new and to change That is a concept that we carry out throughout the company We have a low resistance to change We call it our RC factor And so there's many examples in the book of what I just referenced The fact that as hard as he is on his executives And hard as he seems to be on his executives He's just as supportive of his front line workers And genuinely cares about them There's a bunch of examples here is one He would flag down one of his own 18 wheelers And climb into the cab to ride a hundred miles With a driver to gain first hand experience That might improve Walmart transportation He would get up at 2.30 in the morning Buy a box of donuts And take him over to his warehouse to the warehouse loading dock Where he solicited ideas to upgrade their effort If the docker said they needed two additional shower stalls They immediately got them This is all connected to something that Sam Walton repeated Remember repetition is persuasive So he repeats over and over and over and throughout this book But also in internal communications that he believed in Management by walking around When Sam discusses his management style He's dead serious about identifying it as MbWA Management by walking around There's this company newsletter Called Walmart World that would go out every month And it says thisadherence, this reference This repetition of the importance of management By walking around for Sam and for everybody in the company It rarely not appear in an issue Think about how crazy it is Every month he's just repeating the same thing The importance of this same thing over and over and over and over again These are all great ideas and smart things that Sam Walton does Let's get back to another mistake He winds up retiring He recruits this guy named Ron Mayer Who he thought of like this boy genius And so I will read to you my note Which gives an overview of what's about to take place here Stepping aside of the company you spent your whole life building Because someone else's in a rush does not seem wise And so Sam is about to turn 57 And Ron Mayer is putting pressure on him Saying hey I don't want to just I want to run my whole company Like I want to be CEO of Walmart And if I can't do that here then I'll have to do it somewhere else And so it says As he approaches 57thbirthday, Sam Walton was reluctantly trying to change his lifestyle completely By surrendering the day-to-day command of his Walmart empire Now Sam is going to find this impossible to do And I'll describe Such a retired and never retired It's a weird thing And so he's having this conversation with his wife and his top executives He says I'm going to lose Ron If I don't step aside and I don't want to lose him He's a very talented guy And so it wasofficial, Sam had retired Ron was a new chairman and CEO of Walmart It is the most uncharacteristic Sam Walton kind of thing that Sam Walton ever did So essentially he retires but he's still working His role was now supposed to be unofficial But he couldn't keep his hands off When he saw something anything he didn't think was right He just stepped and incorrect it On the spot That is the way of always been I guess I was getting in the way of Ron's authority And the problem is thenumbers, the sales and profits under Ron Mayor He's doing a magnificent job But Sam just has to control the company It bothered Sam's conscious that he had personally made a mistake He discovered that he really wasn't ready to retire That he missed his old job And so he comes to this fork in the road He's like okay This obviously isn't working You either have to get back into it Take back your job or you have to leave completely And so when he tells Ron hey I'm coming back over I'd love to keep you Of course Ron's going to do what most people would do He's like you know I can't accept that I'm not going to stand for a demotion He winds up leaving the company So Sam takes back over control The company does exactly what he goes back to doing Exactly what he was doing And that's that he's always recruiting Now he's not only to lose Ron Mayor he lost a bunch of like Ron Mayor's with tenants So he lost you know big chunk of his executive staff So he's got to go back and recruit And he does what he does over and over again He would pitch the same person over and over and over again So someone said Sam Walton used up men the way He threw wood into his fireplace Just like the logs they blazed up with a fury Generated powerful and beautifully efficient flames And after a time Died down into cold ashes It was necessary for him always to be looking For good men and talent to replenish his stockpile He fell back on old habits And started to recruit Again those who had scornfully turned him down before One of these people was going to be David Glass The eventual CEO10, 12 maybe 15 years into the future Where we're in the story he's eventually going to Become CEO and and rather successful CEO of Walmart And David didn't go into this job You know ignorant or blindly He knew he says he was under no misconceptions He could expect to work harder And put in more hours than ever before in his life And now we get to one of the most Mind-blowing things that happens in the book At least mind-blowing to me Remember he was talking about the fact that he's It's not resistant to change Now he has his principles He's not going to de-wait front But he always wants the best ideas And he repeats over and over again You know he saysR.C.
is that formula And resistance to change Like we want to low resistance to change We're willing to change It's a trademark of like the Walmart culture The Walmart philosophy Every day is a different situation In the retail business We have to be flexible These are things that Sam Walton would repeat Now this is insane What they do here The size of the investment So at first You know this is 1979 Okay At first His team is top executives People he trusts They're like we need computers We need help The businesses like It's too unwieldy We don't we need we need more organized data We able to make better decisions And at first Sam thought computers were just overhead But then he listened And he learned And he changed his mind And more important that And he invested He put his money where his mouth was Finally his lieutenants educated and convinced Sam And Walmart Plucked down $500 million dollars For a modern communications computer system When they say computers this time of history It's like giant IBM mainframes And so now all the Walmart stores The warehouses and the distribution centers Are able to communicate in real time By 1979 The stores and warehouses Could communicate around the clock with headquarters So keep in mind Inside of every single store There's at least 36 departments in each store And they're all selling different things So this computer system is now telling them Daily sales from not only every store But every single department inside of every store They tell them what the bank deposit for that day is They would estimate sales figures They would flag reports on like hot selling items That they may need to either order more And deliver more to the stores You'd have up to date warehouse inventory And he just goes on and on and on So Sam was writing the annual report of Walmart in 1979 And he summarizes this perfectly He says the financial savings And the number of personal hours saved daily By using the computer center or incalculable Even by the computer So it's one thing to say yeah we're willing to change We want the best ideas Sam is 61 years old when he makes this decision 61 years old Investing 500 million A half a billion dollars In 1979 dollars That's one of the most remarkable things in the entire book And this just proves his dedication Like I want He talked about investing in technology As a huge advantage he had over other disconters too But he's putting his money And his actions behind this Where's mouth is When he said you know He was saying with his mouth No we have a low resistance to change We want the best ideas And then it's one thing to say that's a completely different thing To match up his actions in this half a billion dollar investment That's nuts to me Another surprising thing that I don't think I remembered You know I've read this book before I've read Sam Walton's autobiography twice I've reread my highlights and notes from those books I don't even know dozens of times And I had forgot So once he realized oh Walmart's the thing He's like man this thing's growing too slowly And it's hilarious because this is what he considers slow growth And I'll tell you how he fixes this So from 1974 to 1977 He goes from 78 Walmarts to 153 So let's call that double And he goes from annual sales of 167 million To 478 million And he's like this is too slow So what he does next is something I had forgotten He actually accelerates store growth By acquiring entire retail chains And then converting them to Walmarts Now that he's a public company Now he's got access for the first time in his ever He's got access to way more resources He's not constrained by money anymore And so he buys a chain of 16 Discount stores conversant of Walmart Then he buys another chain of 104 stores conversant of Walmart He's showing that he can master both growth internally And by acquisition So there's just a few more ideas that I want to tell you about Two main ones but here's another interesting one That reference or effect that Sam is constantly Collecting information from the front lines Hates people sitting in the office Like you need to get in stores And you need to go all across the country But as Walmart grows They have like this entire fleet of planes And so they use their planes every single day To be on site where the work is actually happening But his friend's daughter has a bad experience at Walmart And she actually calls her dad Who just happens to be with Sam at the time And it was fascinating And so we're hearing this story He says my daughter bought a pair of shorts For her father-in-law They turned out in the three to right size So she goes back And they didn't have the right size But the manager is refusing to give the money back And so she calls her dad from the store Her dad just happens to be with Sam Sam gets on the phone And he listens to the customer And her name is Sarah Bell And so he listens to Sarah Bell And hegoes,okay, let me talk to the manager Sam talks to the manager Then the manager suddenly gets really really nice And gives the money back And so lateron, Sam's friend was apologizingOh,sorry, youknow, to disrupt you Getting on the phone with my daughter And hegoes,no, I'm glad that Sarah called That the way he learned on that phone call Had been it's been worth it's weight in gold I told the manager that I wanted him to bring that pair of shorts To our Saturday morning meeting I made him stand up and hold up those shorts Then I askedhim, what is ourmotto?
And hesaid, satisfaction guaranteed You know every once in a while you have to refresh their memory This constant flow of information from the front lines From the people actually serving the customers from the customers themselves Is something that Sam Walton definitely believed in Here's another fascinating idea This one definitely surprised me And I think it's another example of Sam copying good ideas I mentioned earlier that his father-in-law played a huge role in his life Youknow, having a successfulbusinessman, entrepreneur As a father-in-law to give advice to Not only did he loan the first $25,000 for that first store But he saved them untold amount of money In the way that he had him set up the estate planning The Forbes 400 list Assume that Sam Walton owned all that Walmart stock Turned out he had given it away Years before it had any value And he got that idea from his father-in-law When and how and why he and Helen shared their business resources With their four children is one of the more fascinating untold Walton stories The children have each owned one fifth Of their parent's stock and property since 1954 Sam and Helen created the trust that set this up when Ron was 10 and Alice was only five Doing this kind of estate planning so earning the game was urged on By Sam through his father-in-lawL.S.
Ropson Who had earlier done precisely the same thing in giving Helen and her siblings Equal shares in the vast ranch that he assembled in OklahomaMr.
Ropson was a banker and a lawyer and he was prettysmart, Sam said I could see it was the thing to do And this all took place four decades ago And so his son is talking about this At that time all dad and mother had was a variety store or two Our shares then couldn't have been worth more than $5,000 each At the time the book was printed Which is in 1990 Each of the kids were worth about $2 billion because of this So by turning over ownership of80% of his holdings to his children so early on He avoided any substantial gift or inheritance taxes And so his father-in-law put it best The best way to reduce paying estate taxes is to give your assets away before they appreciate Allright, so let's talk about speed and sole price This is one of my favorite stories in the entire book Something that Sam Walton said over and over again That he took more ideas from sole price than any single other person Think about how relentless the sky was on studying Everything that everybody else was doing He's like this is the person I learned the most from In fact that a cool experience happened You might be interested in this I read sole prices autobiography It's not my autobiography His biography was written after sole price passed away by his son Robert Price That is episode 304 in that episode I talked about how sole price is the most influential retailer of all time Sam Walton learned from him Jeff Bezos Jim Synagol the founder of Costco The founders of Home Depot The list goes on and on and on about how influential sole price wasAnyways, I put that episode out RobertPrice, sole price's son The author of that book listened to the episode and emailed me He loved the episode and he thought it honored his father And his father should be honored If you have an list in the episode go back and listen to him Try to find that book it's incredible Soul price was a remarkable man So let's talk about sole price and speed Look how fast Sam Walton is movingOkay, so he's got this idea he's got one more story successful He's never we just heard somebody else say earlier He doesn't he never gets fat and happy with his success That never has never happened didn't happen in the past and didn't happen up until the day he died And so he's always looking for you know I believe in Walmart and discounters But there's always people coming with new ideas And he realizes that sole price is going to invent an entire new category And so it says on a January morning in 1983 Sam Walton flies San Diego to investigate a new wrinkle in the discount business A membership wholesale club What we think of as Costco and what which obviously turns into Sam's club as well The idea originated five years earlier by a savvy California entrepreneur named Soul Price Soul price was making a stounding success by selling merchandise that only a10% above manufacturers prices And getting rich If Soul price could dothat, Sam Walton figured he could too The wholesale club idea wasgood, extremely good And so Sam goes back to Ben Bill and he's likeokay, we're just going to do the exact same thing The Soul Price is doing out on San Diego And we're going to do a we're going to call Sam's club and we're going to start right now This is insane First visit January 1983Okay?
January he does his first visit April the same year he opens the first Sam's club In the next eight months before the end of 1983Okay?
So January 1st he visits the firstone, doesn't have any By the end of that same calendar year he's got three Then the next 12 months he opens eight more Within three years of stepping foot in Soul Price's price club Sam now has 23 Sam's club wholesale stores And he's doing $776 million That's insane From nothing to almost a billion dollars in sales in three years And then within seven years he's got 105 of these things and they're doing five billion a year Extreme patience coupled with extreme intolerance for slowness That is the career of Sam Walton He's going to take a sign to make sure this thing works And when it works he pours gasoline on it And so it's this extreme bias for action that runs throughout this entire book It's what Jeff Bezos says Jeff Bezos said that two of the things that he learned most from Sam Walton's autobiography That he applied to the early days of Amazon is through gallery and a bias of action And I think this extreme bias of action is a great place to close And we'll close in Sam's own words Our method of success as I see it is action with a capital A And a lot of hard work mixed in As we've said throughout the years Do it try it fix it It's not a bad approach and it works There are a lot of people out there who have some great ideas But nothing in the world is cheaper than a good idea Without any action behind it And that is where I'll leave it If you have not yet read Sam Walton's autobiography I would read Sam Walton's autobiography first If you have a top 10 list of you know entrepreneur or Biography's autobiography's that Sam Walton's autobiography's got to be in that list So if you haven't read that one yet I would highly recommend doing that You can also listen to the episode I did on the last episode I did on Sam Walton's autobiography It's episode 234 If you've already listened to the podcast Listen to it again And read the book then I would highly recommend getting this book as well Sam Walton is far too important of an entrepreneur to only read one book about So if you buy this book using the link that's in the show notes in your podcast player Also available at FoundersPodcast.com You'll be supporting the podcast at the same time That is 354 books down 1,000 to go And I'll talk to you again soon Okay so what you're about to hear is this question I was asked a few months ago I actually recorded this a few months ago They asked how did history's greatest entrepreneurs think about hiring All the answers People think I have a better memory than I Than actually do You know if people say oh David you have a great memory My wife would laugh at that I forget things all the time It's not to have a good memory It's I reread things over and over and over again Every single answer Every single reference you're about to hear in this 20 minute mini episode Came from me searching All of my notes and highlights That option is now available to you If you like what you hear If you think it's valuable If you're already running its successful company And you want an easy way to reference The ideas of history's greatest entrepreneurs In a searchable database That you can go through at your convenience anytime you want Then you go to foundersnotes.com and sign up I want to start out first with Why this is so important There's actually this book that came out in like 1997 It's called In The Company Giants I think it's episode 208 of Founders It's two Stanford MBA students if I remember correctly And they're interviewing a bunch of technology company founders And in their Steve Jobs is one of them This is you know right I think Even before he came back to Apple And they were talking about Well yeah we know it's important to hire But in a typical startup a manager or a founder May not always have time to spend Recruiting other people And I first read this Steve's answer to this you know I don't know two years ago And I never forgot it I think it's excellent I think it sets up Why this question is so important And you should really be spending Existing the early days Basically all your time doing this In a typical startup manager May not always have the time to spend Recruiting other people Then Steve Jobs said I disagree totally I think it's the most important job Assume you're by yourself in a startup And you want a partner You take a lot of time finding a partner right He would be half of your company I'm gonna pause there This idea of looking at each new hire As a percentage of the company is genius Why should you take any less time Finding a third Or a fourth of your company Or a fifth of your company When you're in a startup The first 10 people will determine Whether the company succeeds or not Each is10% of the company So why wouldn't you take as much time as necessary To find all a players Ifthree, three of the 10 We're not so great Why would you start a company Where30% of your people are not so great A small company Depends on great people Much more than a big company doesOkay, so to answer this question The advantage that That I have making founders And that you have as a bifurcative Listening to founders Is not only that I've read 300 Some biographies of entrepreneurs now But I have all of my notes And highlights stored in my read wise app And that means I can search for any topic I can look at the past highlights of books Or I can search for keywords So what I did is First ofall, like What I've started to do with these AMA Questions is I read them Decide which ones I'm gonna do next And then think about it for a few days I don't put any I just literally that I know that's the next question Just let my brain work on it In the background for a few days And then I'll go through And start searching all my notes And so that's what I did here And so there's a bunch of Youknow, I don't have I might have like 10 or 15 different founders Talking about hiring The first idea is the most obvious But I think Probably works best when you're already established So Steve Jobs is talking aboutHey, you know Great way to To hire is Just find great work And find the people That did that and then try to hire them When you're Steve Jobs That's a lot easierRight?
Then if you're just somebody that doesn't have a reputation Maybe you don't have resources Maybe your company's rather new Or not as well known David Ogovie I just did Confessions of an advertising man Couple episodes ago I think 306 or something like that 307 And he did the same thing But he's David Ogovie at that point So he would find He'd go through magazines Find great advertising Great copywriting And he'd write the personal letter And then Set up a phone call And he says he wouldn't He was so well known And youknow, he's one of the best in his field That he wouldn't even have to offer a job Just the conversation Then the person would The He would want to hire the person Never mention it And the person would apply to him And soagain, I think If you can do that Then ofcourse, it's Straightforward Who Find for somebody that does great work Usually you can do this I actually have a friend I can't say who it is He's doing this right now actually I have a friend that's really good at doing this He's finding people That do great stuff on the internet And then just cold Cold DMing them And then Getting convincing them to work on things And that usually works Especially with people Like younger people early on the career There's a bunch of different ways to think about this And a bunch of different ways to prioritize So The first thing that came to mind That I found surprising Is you read any biography on Rockefeller And he had a couple ideas where He felt The optimization Youknow, table stakes That you're intelligent And you're driven and you're hardworking Right We don't even have Like if you're listening tothis, you already know that But he prioritized hiring people With social skills And so this is what he said The ability to deal with people Is as purchasable A commodity as sugar or coffee And I pay for I pay more for that ability Than any other under the sun There's the two The second part to this though And this also works well If you have access to more resources He Rockefeller would hire people as he found As he found how to people Not as he needed them It's notlike,okay, standard oil has Six open spots Let's go find sixcandidates, right He'd come across What he considered a talented person He didn't even matter If he didn't know what they were going to do He'slike, I'm just going to stack his team And if you really think about the His partners are standard oil He essentially built a company An executive team of founders Of course Because he was buying up all their companies So it's very rare But There's a line from Titan I want to read to Taking for granted the growth of his empire He hired talented people as found Not as needed And then I found another idea In the hiring like the actual interview process So there's this guy named Vannever Busch I did two episodes on him I think it's 270 and 271 He is the most important American ever In history In terms of connecting the scientific field Private MRIs and the government The most important person to keep alive For the American War effort was FDR The second one was Vannever Busch Vannever Busch is like the force gump of This historical period He is involved in everything From the Manhattan Project To discovering like a young Claude Shannon To building a mechanical computer Like this guy literally has done He just he pops up in these books over and over again If you are reading about American business history During World War II And post World War II You are going to come across the name Vannever Busch over and over again I read his fantastic autobiography Called Pieces of the Action And I came across this weird highlight And so this is his brilliant and unusual job interview process And so he's talking about his organization He's running called Amrade At Amrade I hired a young physicist From Texas named CG Smith The way I hired him is interesting An interview of that sort is always likely to be On an artificial basis And somewhat embarrassing So I discussed with him a technical point On which I was then genuinely puzzled The next day he came in with a neat solution And I hired him at once Here's another idea This is from Nolan Bushnell Nolan Bushnell is the founder of Atari Founder of ChuckE.
She's And Steve Jobs mentor He hired Steve Jobs When Steve Jobs was like 19 at Atari He would ask people their reading habits in interviews This is why One of the best ways his whole thing was He wanted to build all of his companies Late on a foundation of creative people So that's what he's looking for He's like I need creative people One of the best ways to find creative people Is to ask a simple question What books do you like I've never met a creative person in my life That didn't respond with enthusiasm to a question about reading habits Actually which books people read Is not as important as the simple fact that they read it all I've known many talented engineers Who hated science fiction But loved say books on bird watching A blatant but often accurate generalization People who are curious and passionate Read people who are apathetic In a different don't I remember one that that's such a great line And I obviously agree with that I remember one I'm going to read it again A blatant but often accurate generalization People who are curious and passionate Read people who are apathetic And indifferent Don't I remember one particular woman Who during an interview told me that she had read Every book that I had read Sorry started mentioning books I hadn't read and she had read those two I didn't know how someone in her late 20s found That's this much time to read so much But I was impressed I was so impressed that I hired her right there And assigned her to international marketing Which is having problems This is why this is why I'm reading this whole section too A job with a lot of moving parts Benefits from a brain that has a lot of moving parts It wouldn't be possible to have read that many books Without such a brain So you see what I mean Like We start with Steve Jobs saying this is the most important thing That your role is the leader of the company The founders to do Right And you are And it's so important to study And this is why I'm glad this to this question Exist and why I'm glad that I took the time And I had like the foresight to like Hey I should really organize my thoughts and notes Because there's no way I would have remembered all this Without being able to search my read wise right But you have Rockefeller saying this is what's important to me You have Bush saying this is how I hire Now you have Nolan Bush now Saying well here's another weird thing that I learned Let me go through What Warren Buffett says about this So this is about the quality One thing that is consistent Whether it'sjobs,Buffett,Bezos, Peter Teal This just pops up over and over again They talk about the importance of trying to find people That are better than you The the hiring bar constantly has to increase Now obviously the larger the company gets That's impossible Steve Jobs has this great quote Where he's like you know Pixar was the first time I see I saw an entire team A tire company of A players But they had 400 players They had 400 team members He's like at the time apple of 3000 It's like it's impossible to have 3000 A players So there is some number That your company may grow to Where it's just you're just not You're not going to have thousands of A players In my argument I don't even know if you get a 400 I guess you I mean I'll take Steve's word for it On there in Pixar Definitely produce great products But it's probably a lot lower than that as well So Warren Buffett would tell you To use David Ogovie's Hiring philosophy And so Warren said Charlie and I know That the right players will make Almost any team manager look good Again that is why it's the most important Function of the founder Maybe directly next to the product Or right above the product actually Because those are people building your product We subscribe to the philosophy of Ogovie and Mathers Founding genius David Ogovie This is what Ogovie said If each of us hires people who are smaller Smaller than we are We should become a company of dwarfs But if each of us hires people who are bigger than we are We should become a company of giants David or Jeff Bezos Rather use a variation of Ogovie's idea too Jeff used to say in Amazon Every time we hire someone He or she should raise the bar for the next hire So that the overall talent pull Is always improving And they talk about this idea in Amazon Where the future hires that we do should be so good That if you had applied for the job You already have an Amazon you wouldn't get in That's a very interesting idea Take your time with recruiting Take your time with hiring This is great book on the history of PayPal It's written actually I recently become friends with the authors Name is Jimmy Sony Um and this is in his book The most fascinating thing that I found Was that PayPal prioritized speed So from the time they found it to the time they sell to eBay It's like four years Jimmy spent more time researching the book Then he spent six years researching the book I always tease him because like you took a long run of book Then they took to start and sell their company It just speaks to like the quality he's trying to do But as a byproduct of that Like obviously they move fast But they prioritize speed over everything else Except in one area Recruiting Max Lubchin kept the bar for talent exceeding the high Even if that came at the expense of speedy staffing Max kept repeating A's higher A's B's higher C's So the first B you hire takes the whole company down Let's read that again A players higher A players B players higher C players So the first B player you hire takes the whole company down Additionally the team the company leaders Mandated that all prospects Here's another idea for you All prospects must meet every single member of the team Now the next one is the most bizarre It makes sense If you study I did this three part on Larry Ellison Three parts series on Larry Ellison I should read those books again Because the podcast is like 50 times bigger Then when I publish those episodes And he's just crazy So he would hire based on the confidence The self-confidence level of the candidate Listen to this I have tears of my eyes I don't know why I'm laughing Okay Because you read about Larry Ellison And he's one of these people it's like really easy to interface with Because you just You just know exactly who he is And what's important to him That's why I think it's so funny Ellison insisted that his recruiters hire only the finest and cockiest new college graduates When they were recruiting from universities they'd ask people Are you the smartest person you know And if they said yes they would hire them If they said no they would say who is And they would go hire that guy and said I don't know if you got the smartest people that way But you definitely got the most arrogant Ellison's and this is why The personality of the founder is largely the culture of the company Apple is Steve Jobs Apple is just Steve Jobs in 10,000 livesRight?
I was just texting a founder friend of mine He was assisted by the podcast I actually met him through the podcast And he's going through this like Processes self-discovery Like he's already started a bunch of companies are really successful But he's like I think I'm more of this type of founder than the other type of founder And that's good that he's doing that Because he's he's hopefully his next mission is like his life's mission You know And you can't get your life's mission unless you To figure out who you are Ellison knew who he was Ellison swaggering combative style became a part of the company's identity This arrogant culture had a lot to do with Oracle's success Here's another odd idea for you Izzy Sharp the founder of Four Seasons Actually could figure it out that in his business Which was hotels right That hiring could at hiring the right person Could actually be a form of distribution for his hotel He gave me the idea Because ofwhat?
What do weknow? What do you and I know in ourbones?
That history's greatest founders all read biographies They all read biographies of people that came before them and took ideas from them Izzy Sharp is trying to build four seasons What do you think hedid?
He picked up a biography of Cesar Ritz The guy that Ritz Carlton's named after The great arguably the greatest hotel the air of all time And when he realized oh shit Ritz He says uh Remembering that Cesar Ritz made his hotels world famous by hiring some of the foremost chefs We decided to do something similar So what is he talkingabout?
Cesar Ritz went out and partnered with August Ascafe What Cesar Ritz was to hotel to building hotels August Ascafe was to French cooking And so what happened is you partnered with world famous chefs People come into your restaurant That's in the hotel Because of the world famous chef And now they know about your hotel That leads to more get that means leads to more activity in your restaurant that you own But also leads to more brand recognition of your hotel And then by as a biopartic that more people staying at hotel So hiring as a form of distribution This is fascinating as a fascinating ideaOkay, here's a problem You can identify greatpeople,right?
Maybe they even want to come work Like if you've identified them You've sold them hey This is what this is our mission This is what we're doing And yet Humans have complicated lives They have spouses They have kids They have a reason maybe they can't move across the country To work for you even though they want to So There's a problem solving element that you see in these books On you have to solve like you've already identified the person You've recruited them They can't go for some other reasonOkay, well the great founders are not going to take no for an answer I read in In this book called Lift Off Which is about the first six years of SpaceX This is what Elon musted They had anticipated his friend's issue Having convinced must they needed to bring this brilliant young engineer from Turkey on board It became a matter of solving the problem His wife had a job in San Francisco She would need one in Los Angeles Right because that's where SpaceX is at the time They're these were solvable problems And Elon's better at solving problems than almost anyone else Must therefore came into his job interview Prepared about halfway through Must told the guy that he wants to hire So I heard you don't want to move to LA And one of the reasons is that your wife works for GoogleWell, I just talked to Larry and they're going to transfer your wife down to LA So what are you going to do now To solve this problem Must could call his friend Larry Page The co-founder of Google The engineer sat and stunned silence for a moment But then he replied Given all that He would come to work at SpaceX That's really smart There is another idea When you're promoting Are you going to promote one within or from without You know that's dependent on you Depending on what's going on I do think this is interesting though This is a guy named Lush Schwab Who built this This really valuable chain of Like tire companies in the Pacific Northwest I actually found out about him because Charlie Munger is like Hey You should read the spyography He said it in a He didn't say to me Personally He said it to In like one of the Berkshire meetings That To study Lush Schwab had one of the most One of the smartest Financial incentive structures And he company that Charlie Munger had come across So this is what Lush Schwab did He did not want to hire from He didn't want to hire other people from other companies Because they might come with bad habits He'd like to train his own executives And so he says in our 34 years of business We have never hired a manager from the outside Every single one of our More than 250 managers And assistant managers started at the bottom Changing tires They have all earned their management job By working up And then another thing If you're going to hire the best of the best in A players There are players that like to be my crewmanage And so this came in Larry Miller's Autobiography Called Driven He owns like he owned like 93 companies All throughout Utah Cardiola shows movie theaters All kinds of crazy stuff But he also owned the The NBA team Utah Jazz And what was fascinating is he's trying to recruit Jerry Sloan As the coach at the point And Jerry Sloan would only take the job on one condition And I really like it I really like this idea If you hire me let me run the team in businessRight?
