Founders - #107 Sol Price (Costco)

Episode Date: January 20, 2020

What I learned from reading Sol Price: Retail Revolutionary & Social Innovator by Robert E. Price.----Come see a live show with me and Patrick O'Shaughnessy from Invest Like The Best on October 19th in New York City. Get your tickets here! ----Subscribe to listen to Founders Premium — Subscribers can listen to Ask Me Anything (AMA) episodes and every bonus episode. ---What was it about this man that engendered so much admiration and respect? [0:01]Sol Price’s early life  [4:39]Sol Price was a misfit / “If you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, "This sucks. I'm going to do my own thing.”  [5:40] Learning to love being productive / Sol Price on the importance of time / DO IT NOW! [12:20]The beginning of FedMart [16:00] Sol Price learned from other founders [21:25] Sol Price’s business philosophy [28:50]What happened when Sol opens a pharmacy in FedMart / A creative solution to being cut off by gasoline suppliers [36:25] Sol Price’s idea on teaching and “alter egos” / “You train an animal. You teach a person.” —Sol Price [39:13] The intelligent loss of sales [42:00] The idea for Price Club [52:37] What Sol Price meant to his son [1:05:28]—“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

About four years ago, shortly after his death, and a few days after we had lunch together, I received a letter from Saul Price. Dear Jim, It's always nice seeing you and experiencing your enthusiasm, knowledge, and commitment to your values. You've been very generous about giving me some credit for influencing you. I suspect that's true, but you would have been a great achiever under any circumstance. Upon reading his letter, I turned to my assistant and said, but you would have been a great achiever under any circumstance.

Upon reading his letter, I turned to my assistant and said, I've been waiting 50 fucking years for this letter. It was well known that compliments from Saul came about as frequently as Haley's Comet. After digesting the letter, I reflected on the fact that here I was in my 70s, and I'm still seeking approval from this guy. What was it about the man that engendered so much admiration and respect? Not just from me, but from thousands of us who worked with Saul over the years. Certainly there was his intelligence and creativity, but that's not the complete answer

because as we know, there are millions of bright people in the world and only a handful make a lasting impact. There was so much more on Saul's leadership qualities that touched all of us and made everyone confident that we would persevere regardless of the obstacles. I started working at FedMart in 1954 while still in college, a path that was followed by many of Costco's current executives. Saul gave us incredible opportunities to learn the business, teaching us the skills and core principles we applied throughout our business careers and then later when we launched Costco in 1983. Saul's teachings had a great impact on our business ethics,

our core values, and of course, our merchandising philosophy. He believed in developing strong operating efficiencies, and he continually emphasized passing on savings to customers. We owe our legacy to the retail concept that Saul pioneered with FedMart and Price Club as do all of our competitors in the industry and big-box retailers in general. Sam Walton who started Walmart in 1962 eight years after FedMart was founded later admitted that he had borrowed many of Saul's innovations.

Perhaps Saul's greatest business legacy was the creation of the Price Club concept that as many as a dozen existing retailers and startups attempted to clone. At one point, a reporter asked Saul how it felt to be the father of an industry, to which he wryly replied, I should have worn a condom. He was able to be creative, and he had the courage to do what was right in the face of a lot of opposition. It's not easy to stick to your guns

if you are swimming against the current of traditional thought. His lessons and philosophy, that business is about more than making money and that a company also has an obligation to serve society are still valuable reminders for many of us in business today. The fact that he instilled these concepts in so many who were around him is, in my mind, his greatest legacy. All right, so that is the founder of Costco, the protege of Sol Price, Jim Sinigal,

writing in the forward to the book that I read this week, and the one I'm going to talk to you about today, which is Sol Price, Retail Revolutionary and Social Innovator. And it was written by his son, Robert Price. So this book is a great illustration of this point that you and I always talk about, which is books are the original links. You could

be reading a book on, say, Jeff Bezos, for example, and you realize, oh, wow, a lot of the ideas that we credit Jeff Bezos for having, he actually learned from Sam Walton and Jim Sinegal. And then you study Sam Walton and Jim Sinegal, and they both say, hey, there was nobody else alive that I learned more from than Sol Price. So that's what we're going to do today. We're going to learn from the life and career of Sol Price. So I want to start with this one sentence. It gives you an insight into Sol's personality, but also it talks about why I think this book is so special is because it's written by his son. And this is his son writing.

He says, for more than 40 years we'd worked together, I had learned that my father expected to be fully informed openly and honestly, even if he did not like what he heard. So I'm going to talk a little bit about of Saul's early life so we get a good idea of who he was as a person before we jump into his ideas. He's a first generation American. He says their immigrant parents, talking about Sol and his siblings, who were poorly educated, unskilled laborers, expected their children to study hard, to go to college, and make their mark as doctors or lawyers. Sol's parents and others of that generation had high expectations. Sol wound up living

exceeding their high expectations. He spent the first half of his career as an attorney, which I'll talk a little bit about today. But also, he has the distinction that he's probably one of the few people in the world that founded and took three separate companies public. So where did he get this drive? What causes a person to push themselves so much?

And from the very beginning, you'll learn that he's just a misfit. He had a physical deformity and this motivated him to prove himself through achievement. So this is Saul talking about it. He says, when I was three or four years old, I had an infirmity in my left eye that caused a drooping eyelid. It was something that bothered me and made me self-conscious. And it looked, it almost looked like his entire eye, like you see pictures of him when he was older, it looked like his entire eye was closed. He says, the kids teased me a lot and consequently, I was shy and I compensated this by being an overachiever in school. So yeah, he's an overachiever, but he's also kind of like a, I guess a misfit is the way to put it. Let me tell you what that means.

He says, being an overachiever meant reading at an early age, holding his own with adults and games of cards and chess, and doing well in school without really trying. Sol skipped two grades, but he was also very mischievous in school. So he gets into a bit of trouble, and this is what I mean about being a bit of a misfit. This is what his mother has to come into the school. And this is what the teacher tells his mom. The teacher told Bella, that's his mother, that her son was very smart, but she warned that he could go in one of two directions, a career as a gangster or as someone who would do much good.

So when I read that, I immediately thought back to one of my favorite quotes from one of my favorite entrepreneurs of all time, which is Yvon Chouinard, the founder of Patagonia. And he says repeatedly, he says, listen, if you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, this sucks, I'm going to go do my own thing. And so that idea about doing your own thing, realizing, hey, the situation, what I'm looking at could always be improved, that's something that we're going to see a lot in the career

of Sol Price. Before I get there, let me tell you a little bit more about his early life. His dad was lazy and most likely faking an illness so he could receive disability benefits. So he talks about the role this plays on his life. Saul was essentially the exact opposite of that. And he's dating, which is going to eventually be his wife, this woman named Helen. And her parents were very, they tried to convince her not to marry him. And here's a reason why.

He says, my father didn't do anything except play cards and chess, so they weren't wild about me. They didn't think I was good enough for their daughter. He grew up during the Great Depression, and actually the fact that his father was on disability benefits actually saved the family from poverty. And so this is an experience that soul's having he would drive across the country at the time um because his family had

to move from the northeast to san diego and he went back and forth a few times and he just had a really good insight so he says soul would later recall um he says this was in the middle of the depression and i don't know that many people in the US realize how close we came To a real revolution in this country I saw with my own eyes Farmers standing with guns pointed at the sheriff keeping them from coming on the land and foreclosing It was an extremely scary time for our country this also I think influenced his decision where

He thought of yes business you have to make a profit, but very much like Henry Ford, he thought the original purpose of your business is to serve. He was very big on serving your customers. But not only that, since your employees are the ones that are actually serving the customers while you're running the business, you need to make sure that you're that you're paying them well, and you're giving them benefits. So just like Costco is well known for doing today, Sol's businesses would pay their employees much higher rates than they could get, like the equivalent, like a competitor would. So I'm going to skip ahead. At this point, he's already practicing law. His parents were, it was very important for them to, their kids to either be doctors or lawyers. And this is, he's already practicing law. His parents were, it was very important for them to, their kids to either be doctors or lawyers. And this is what Sol says about that

experience though. He says, over a period of time, I really learned far more from my clients than I ever learned in law school. So he had, most of his clients were entrepreneurs, they're founders, they're running businesses. And he became completely in love with the idea of business. And he started to develop a passion for it, a passion that he didn't have with law. But that quote from him made me think of another quote from Henry Ford, which he says, true education is gained through the discipline of life. And I think that's what a lot of us are realizing that, you know, I've learned way more on my own than I ever did in any kind of schooling. All right. So he starts to he starts practicing law, but he also builds up his own law practice. Right. And so he gets clients for his law firm by first giving

away value for free. So I want to talk about that. And then I want to talk about his reaction to the bombing of Pearl Harbor. He says he was doing a lot of pro bono work. He says not charging for one's legal services, especially for a young attorney struggling to earn a living, might not have been so obvious. However, his pro bono legal work introduced him to many people in the community, some of whom eventually became his clients. And this is Saul. He says, I had developed a reasonably fair practice and was making a halfway decent living. But literally overnight, life in San Diego changed forever. So there's these more of these traumatic experiences that undoubtedly have an influence on our future.

And in this case, San Diego is known for being like a huge base for the United States Navy. And so I didn't know this. This just blew my mind. So I want to share this with you, even though I've studied a lot about the history of world war ii and so it talks about what the what uh happened to the city of san diego is they would um they would do these blackouts when they were in they thought okay if we just turn off all the power um the the japanese if they wind up bombings they don't know they can't see what they're bombing so this is uh how se this. He says, all of a sudden there was a barrage of balloons all around San Diego and total blackouts every night.

It's hard to even recall how inconvenient it was, trying to get around dark without lights on your car, without any lights in the street, and trying to figure out where you were going and how to get there. It was a very, very difficult thing. But somehow we still managed to keep moving. And I really can't recall clearly how we did it. So it was during this time of his life,

we see the complete opposite traits that his father had. Saul loved, he learned to love being productive. And then as a result of packing his days full of productivity, he also understood the importance of time. So he talks about that. And I want to, I want to tell you a little bit about that. So he's let me just give you some background here. He's working nights at a place that is manufacturing airplanes for the war. It's called consolidated.

Okay. So it says throughout the rest of the war, Seoul was at his law office at eight in the morning until noon. Then he worked at consolidatedolidated until 11.15 at night. He would eat dinner, go to sleep, and the next morning do it all again. He didn't complain. He said, I enjoyed the experience. Unlike his father, who had managed to find ways not to work,

Saul thrived when he was busy, working hard and feeling productive. His desire to work hard and get the most out of every hour of the day was not characteristic of his earlier years. They're saying he had to learn this trait. He commented that he never worked very hard in school, at least not until law school. Beginning with his early career in law and then at consolidated, Saul would continue to live his life working hard and taking full advantage of every hour of the day. In his later years, Saul frequently spoke about the importance of time.

So this is his granddaughter speaking at Saul's memorial service about what she learned from her grandfather. She said, the concept of time was very important to my grandfather. I remember on a couple of occasions talking to grandpa about how I would be able to accomplish certain goals. He explained to me that we always have more time than we think. How much sleep do you get? He would ask. How long does it take you to study? How long does it take you to eat your meals? So many questions about my day. Well, you have enough time, he would say. There are 24 hours in a day, 168 hours in a week. We just waste so much of it. There was always enough time. And so on his desk, he was famous for having the sign that says, do it now.

So you get extreme levels of impatience. So I want to tell you a little bit about what he learned from his law practice. He says, the big thing about the practice during the war and during all those years after the war was that I was dealing with small businessmen and I was very from his law practice. And because I involved myself so deeply, I think that is where I began to accumulate the knowledge and interest in business. And one of these businesses that he gets involved in is this thing called Seven Seas. Check this out. This was very interesting. So it says, in the 1960s, Navy regulations required that sailors depart from their ships and come back to their ships in uniform. Because sailors wanted to change into their civilian clothes once they were on shore, they needed a place to store their uniforms and to purchase clothing. In response, a few

enterprising entrepreneurs opened locker clubs. So what was a locker club? A locker club was stores that not only had lockers where the sailors could store their uniforms, but offered a wide range of goods and services for sailors to purchase. The most successful of the locker clubs were the Seven Seas Locker Club. And so he winds up giving legal advice and general business advice to the founders. It says, Seoul took an active interest in the Seven Seas business. The Seven Seas was another learning experience for Seoul, an opportunity to see how a large store selling a variety of goods and services all under one roof could be successful catering, this is an important sentence, they could be successful catering to a focused segment of the marketplace. In other words, a niche. Now, why is understanding, like seeing an example of a successful business and focus on a niche important?

Because this is where we're at in the book now is the beginning of his first business, which is going to be FedMart, which is you're going to see focuses on a niche. Now, I have to tell you, he's got a really interesting story. He feels it's like almost accidental. He accidentally fell into the field that he's going to pioneer, that he's going to create a lot of innovations in and that's retailing and so his father-in-law dies his mother-in-law needs help she needs a lawyer uh she's looking to do they're selling one piece of commercial property but he's like they're they're deferring the taxes by buying another uh property that actually produces income so they're investing in commercial property okay and so her name's bertha. Let me just read that. This part two says,

after weeks trying to convince Bertha to agree to the trade, Sol was faced with the challenge of finding a tenant for the Main Street property. So this is the property that his mother-in-law is going to buy. Okay. And it says Sol's client and good friend, Mandel Weiss, not only helped find a tenant, in doing so, he introduced Sol to his career in retailing. So Weiss tells him about this business that's called Fedco. Remember, he starts FedMart, okay? And this is an example of a very successful niche that's servicing government employees. And so they take this long, they're living in San Diego, they decide, hey, we're going to, there's a lot of people, this is a,

I guess, a good indication that you have a good business too, right? Or that somebody else has good business, where there's a lot of people living in San Diego that do the drive to Los Angeles just to shop at this store because they save so much money. Okay. And so we're going to see a lot of these ideas that he notices in other businesses that he's going to apply to FedMart now and then Price Club later, which in turn, Sam Walton, Jim Senegal, and Jeff Bezos apply to their businesses. So this is extremely interesting to me. So he says, they decided, Saul and two of his friends, one of them is this guy named Weiss, but I'm not going to try to burden you with remembering all these names. It says, decided to take a trip to see FedCo. It was a large store located in a non-traditional retail area of Los Angeles near a cow pasture so

what's Costco famous for they are located in non-traditional retail areas right says Fedco was not a for-profit company it was a non-profit corporation operating a membership retail store that catered to federal employees such as postal workers. The Fedco store was doing a brisk business with customers coming as far away as San Diego. In fact, 5,000 Fedco members lived in San Diego and were driving 200 miles round-trip to take advantage of Fedco's bargain pricing. On the way back, the men had a spirited discussion about Fedco, the membership concept, the non-profit nature of the business, and categories of products being sold. They sold

a bunch of different stuff like clothing, appliances, cameras. Anybody that's been to Costco knows what they sold. They were convinced that, this is an important insight, they were convinced that Fedco-type businesses could be successful in San Diego as soon as they returned to San Diego Seoul took took these other two guys to see the Main Street warehouse everyone agreed that the building could be adapted to retail businesses so you see all these things had to come together he had this big problem is trying to help his family and now they got a large warehouse a commercial property we didn't have a have a tenant. He learned from the locker store. He's like, oh, that's interesting. You just built a

business on a small segment of the population that have a very distinct need. And then he sees Fedco and all these ideas start processing in his mind. And the result is going to be that he's going to start FedMart. Sol was also really good at analyzing the business decisions and philosophies of other businesses and finding areas where he could do things differently and give him advantage. This is one example at the time in San Diego, almost all the shopping was done downtown. And he just noticed a lot of weird quirks about these businesses that he didn't think were actually optimized for all the consumers. So when i read this section you realize that like costco price club fed more they do essentially the opposite of what everybody else was doing it says down toward downtown store hours were 9 a.m to 5 p.m monday through saturday and they

were closed sunday and evenings personal service was common nicely dressed sales clerks provided friendly service. And merchandise was packaged in attractive boxes that clearly displayed the name of the store. So Costco does none of that. And when I read that section, I'm also listening to this audiobook that goes through like the history of the Americas, like focus on like different Native American tribes. And they talk about the Incas in the book. And so I started doing some other reading on incas and it was fascinating he was one paragraph that made me think of uh essentially it's it's the story of adaptability and resourcefulness which is i think uh key characteristic and all the people that we study in this podcast

but it also reinforces that like there's not one right way to do something that you can have success and sometimes extraordinary level of success if you think of costco um doing things the opposite are your own way um so let me give you an example of that this this paragraph it says the incas lacked the use of wheeled vehicles they lacked animals to ride they lacked wagons and plows they lacked knowledge of iron and steel. Above all, they lacked a system of writing. And this is the most important part. Despite these supposed handicaps, the Incas were still able to construct one of the greatest imperial states in human history. I think there's a lesson for entrepreneurs or anybody that wants to master their craft in there. All right, let me

move forward. So no ideas original, right? Like every other founder, Sol learned from other founders. So there's other people that were innovating in retail that he also learned from and he adapted their ideas as an example of that. Increasing consumer demand motivated entrepreneurs to challenge traditional retailing concepts. A new type of retailing, this is called discounting, was launched by Eugene Furcoff founder of ej Corvette with his first discount store operating in New York City in 1948 so this is a guy that was that was innovating and retailing a decade before Seoul even starts working the industry and So his store which is called Corvettes. It says Corvettes sold. I'm sorry Corvettes displaced earlier five and dime retailers and preceded later later larger discount stores.

Corvette sold home appliance and other household products at deep discounts from the manufacturer's suggested fair trade prices. So this used to be a law. And this is what Eugene is trying to get around. He says Corvette circumvented the fair trade laws by requiring essentially what they did is they they they instituted a floor on pricing and regardless if you could figure out a way to sell it for cheaper you weren't allowed to it's a bizarre law but it says corvettes this is how he i'm not being clear here sorry this is how eugene gets around this right and this is an ex an idea that seoul is going to borrow from him and He's going to steal it from him. It says, he circumvented the fair trade laws by requiring that shoppers became members in order to shop. The membership was really just a way of outsmarting the fair trade laws. Isn't that interesting how these ideas stick around through history?

It was started by one guy because he wanted to get around a law that doesn't even exist anymore. Yet, Sam's Club, Costco, all these wholesale retail clubs, or whatever you want to call them, still use that today. It's very, very fascinating to me. Okay, so at this point in the story, he's like, I'm going to open FedMart. He grabs some partners, partners raises some money But he says something that's really interesting looking back at this time And he says fortunately soul later recalled most of us had brat backgrounds that were alien to retailing We didn't know what wouldn't work or what we couldn't do. Okay, so he's hitting on a very very old idea This is an idea that he's discovering the 1950s. But if you go back to the podcast I've done on Henry Ford, this is something Henry Ford said in the early 1900s.

And he says, that is the way with wise people. They are so wise and practical that they always know to a dot just why something cannot be done. They always know the limitations. That is why I never employ an expert in full bloom. So what Henry's saying there and what Sol is saying here is that the fact that we were ignorant wind up being beneficial to us. We didn't know what wouldn't work. We didn't know what we, quote, unquote, couldn't do. We just experimented.

We thought about it, and we came up with ideas and then tested those ideas. That is extremely powerful because that is how you gain knowledge. That is what makes reading these biographies so valuable because they're going to learn things that you can only get through multiple decades of trying to do something. That learning process using trial and error, it cannot be replicated in school. All right. So it says he raised $50,000 from a handful of investors, including his own $5,000 as seed money. For most of the investors, this is important, a $5,000 investment was not a lot of money. But for Sol, $5,000 was a significant amount of money. So he's taking a big risk here. But like most of these founders, he does something that's genius. He finds a way to cap his downside. So you need to find ways to cap your downside in life, but always leave your upside unlimited. So he goes in and he uses the

experiences he had as a lawyer to negotiate leases and to change certain clauses in a lease so his downside is capped. We negotiated a lease for 10 years. We were so uncertain as to the future of this enterprise that we reserved the right to cancel the lease at the end of one year if it didn't work. So one of the most famous examples of entrepreneurs doing that is Richard Branson goes to start, I think it was Virgin Atlantic, whichever one was his first airline. And he negotiates with Boeing and says, listen, I'm going to buy all these planes from you, but I need it out. So after one year, if I'm not succeeding, you have to agree buy all these planes from you but I need it out so after one year if I'm not succeeding you have to agree to buy them back from me that caps is downside this is just a good rule for life this is this is um this is really interesting observation so this is Saul

talking he says I used to say afterwards that when we didn't know what we were doing it only took a 50 it only took $50,000 to start a business Meaning his first door and five years later when we were really experienced at running Fed Marts. It took five million dollars to open one It's really interesting This is I love this idea from James Dyson. I think about all the time in his autobiography He says difference for the sake of it in everything, because it must be better. That's a good description of the early days of FedMart. He says, FedMart broke just about all the conventions in 1950s retailing. Shoppers had to be military or government employees. This is the early days. He eventually

changes this later on, right? But again, he's just copying Fedco. We all copy. That's just what humans do They had to be military government employees They purchased a $2 lifetime paper membership card and needed to show their card in order to shop Instead of being open 9 a.m. To 5 p.m. Fed marked hours were 1230 to 9 p.m These hours were designed for the convenience of civil servants and military families. Most products were paid at a central register area in cash or with a check. No credit except for purchases of furniture or appliances. In addition, FedMart refused to stock products from manufacturers who enforced fair trade laws. That's why they have that $2 membership card.

From the day that FedMart opened for business in November 1954 the story was the store was an immediate and spectacular success Those early Fed Mart days were not without challenge though some of the downtown merchants tried to cause problems So now this is this is what I hate About businesses that don't want to compete fail it fair fairly and he soul's gonna have to deal with this constantly they Go and like try to like tattletale on them and try to find other ways to knock them out Instead of competing with somebody that that is doing is providing a better service for the customer They find like crony capitalistic ways to knock out their their their competitors So it says right before we were to open a guy came this is soul talking

Right before we were we're going to, a guy came into the FedMart premises. He represented himself as being a betting inspector for the state of California who is responsible for seeing that things like pillows and mattresses do not have any deleterious stuff in them. Here comes in this betting inspector, and he has a long list of questions. And the questions had nothing to do with pillows and mattresses i politely and firmly told him to get the hell out if you want to close us down then take your best shot and we never heard from him again so i'll talk more about um he runs into more shenanigans like this when he starts to sell prescriptions for the best price around. Let me get a little bit into, we're going to see in his early days, he starts developing his

business philosophy. It says, Sol described his business approach as the professional fiduciary relationship between us, the retailer, and the member, which is the customer. We felt we were representing the customer. This is, I just wish every business did this. You had a duty to be very, very honest and fair with them, so we avoided sales and advertising. It's just like Costco. We have, in effect, said that the best advertising is by our members, the unsolicited testimonial of the satisfied customer.

This is something that we learned from Les Schwab, learned from a lot of people The best form of advertising is word-of-mouth advertising Like if you can invest that money, there's nothing wrong like I'm not saying anything wrong with advertising of course But you might feel that the money you're spending on advertising might Could be better like what if you could invest is there ways to? Invest that money into making your product better because if you make your product better humans are social creatures And if they've come across a good product or good movie or good anything what do we do we tell our friends about it so that's that's like soul's fundamental understanding

of human nature that insight he derived there so he says um the way soul put it if you want to be successful in retail just put yourself in the place of a cranky demanding customer in other words see your business through the eyes of the customer. A few months after FedMart opened its first store, Sol and his partners made a number of strategic decisions. They had a belief that there needed to be one merchandising strategy throughout the store. So in some stores that would open up,

you'd have this big open warehouse and part of it would be run by the person that owns the warehouse and then they'd like rent out space to like other independent operators. So he'll copy this decision. He's like, oh, this doesn't make any sense. So he buys them all out. He's like, no, we're going to, it's going to be consistent and we're going to be running everything throughout the entire store. All the departments would thereafter be operated with consistent merchandising philosophy. Now, before I tell you another

one of his philosophies that I really enjoy, he does another smart move. I feel like all, if you look at the notes that I have in the book, it's like smart, smart, smart, damn that smart, smart move. He's just a really clever guy. And so another smart move is he starts this business and yet he caps his downside again. He's still practicing law. Because if it doesn't work out, what's happening? Are you going to close down your law practice before you know your next business is successful? So he says, Saul was still practicing law. He began spending more and more time at the Main Street location

while trying to be attentive to his law practice. Eventually, he gave up his law practice and became the president of Fedmark Corporation. By the late 1950s, Saul had changed his career from business attorney to businessman he never regretted his decision now this is also something i think is interesting and that you need to know at this time he's making this decision he's lived he's 41 years old like it took a lifetime of experience and learning there's a lot of people in a rush to find their business i understand i envy the people i see now where like they they find what they want to do early in life and they just

able to let that compound, you know, for many decades. But for a lot of people, including like myself, you know, you could be confused as to what you want your life to be or the things that you want to work on. You could go into an endeavor and be like, oh, this is what I want to do. And then realize, oh, there's a lot of things I didn't know that I didn't like about it beforehand. So I think that's extremely inspiring. It's something you see very common. I mean, Sam, an example of Sam Walton, he was like 44 when he founded Walmart. Okay. So now back to more of Sol's philosophy. He says, Sol made, I'll read my note in a minute. He says, Sol made his decision from the point of view of his own experience. The fact that he was an attorney and not a retailer and that he was an entrepreneur and not a chain

store executive. He was never driven by the need to have the most stores and the most money but by the desire, this is the important part, but by the desire to give the customer the best deal and to provide fair wages and benefits to Fed Mart's employees. And what's interesting about this is like this may be rare in business, but companies run with this mentality. They wind up ending up with all the money anyways. Okay, so what does it mean to take care of your employees though? Sol was insistent on paying them very well. So let me give you an example of that. Employers were paying their employees 50 cents per hour. Sol knew that people could not live on 50 cents an hour.

He decided that the wage rate at FedMart would be a dollar per hour. And what was the result? Of course, everyone wanted to work at FedMart. So I don't remember at the beginning. I usually try to tell you where I found this book. I might be repeating myself because I can't remember if I told you or not. But I was watching this conversation. So first of all, through Charlie Munger, I discovered his love and admiration for the

operator, Jim Sinegal. And I was listening to a talk by Jim Sinegal like a week ago, two weeks ago, whenever it was, and he kept bringing up Sol Price. I'm like, where have I heard that name before? Realized it's in Sam Walton's book, his biography that I did on Founders number six. If you haven't listened to it, go back and listen to it. That book's amazing. Hopefully the podcast is too. But he was talking about that he learned from his mentor the value of paying people more than you needed to. And it's so important because it reduces turnover, you get more qualified candidates, and then you get happier employees. And then what happens? People are are happier at work they serve your customers better so jim gave an example of like this is a virtuous feedback loop that he would get that um now people costco has a reputation for for for paying well and so they

just uh they just had a um a job opening they needed to hire 200 new people, 22,000 people applied for those 200 positions. It's crazy. Um, all right. So, so I don't know if I finished that thought, but of course, when he kept mentioning soul, I looked for a book on them. I ordered it the day it came. I picked it up. I was just like, I was planning on doing a different book this week and I started reading as I couldn't put it down.

So I was like, oh, like that's a good indication that that's the book I need. Like when I'm that excited, I think it'll like, it'll show. Um, and I think it'll make it more interesting to, to hear me talk about like what I learned from reading the book. All right. So back to this, he's, what did he just do? His competitors are paying 50 cents. I was like, that's not enough. I'm paying a dollar. Um, why would you require FedMart wages to be twice as much as the competitors? FedMart was paying a dollar an hour in San Diego and Phoenix. The wage decision in San Antonio was simple. Employees in San Antonio work just as hard and as well as other FedMart employees.

So what he's talking about is other retailers would adjust market rates down if if there was like a depressed market, right? He's like, no, that doesn't make sense. Like, let me just let me just simplify here and everybody makes a dollar an hour. FedMart had excellent profits in San Diego and Phoenix while paying good wages. Why not apply the same wage philosophy in San Antonio? Now, this philosophy didn't just apply to wages. Stahl always wanted to do the right thing.

And so he's opening stores in Texas. And this is in the age of segregation in America. And so there's constantly, like, you're going to see him stand up because he thinks the practice of segregation is disgusting. So he says, Sol was negotiating a mortgage for the property with a major insurance company when he noticed that the mortgage agreement stipulated that FedMart must maintain separate bathrooms for whites and colored people. Sol told the lender that the separate bathroom provision was unacceptable and that he would not enter into the mortgage agreement unless the provision was removed. The lender removed the provision. Once again, Sol chose the right way and was able to

achieve a victory in the battle of segregation. Okay, so let's go back to some of the struggles that you have when you're in the early days of a company. This is what happened when they opened a pharmacy in FedMart. And in that talk I referenced from June Sunago, he talks about specifically like Costco sells prescription medication way lower. He gave an example of one of the customers that now is a Costco loyalist called around to like Walgreens, a bunch of other prescription pharmacies. And let's say he got three different quotes and it was in the area of like $700 he calls Costco and is like $53 when a customer has an experience like that like you have a customer for life But to get to the point where Costco could sell pharmacy or prescription drugs

Fedmart first had to like blaze the trail because you had a lot of interest groups that were not Interested in seeing real competition on these prices. So it says This is what happened when they start selling drugs. They withstood numerous obstacles in opening the first pharmacy. They had pressure from the local and state pharmacy organization, pressure placed on wholesale companies not to deliver ourself to FedMart, difficulty in obtaining a permit from the state board of pharmacy. He was expelled from the local and state pharmacy organizations, and he received numerous death threats. A rock was thrown through his living room window, and he was treated like a traitor. That is just silly nonsense.

That is just absolutely ridiculous. Now, he also ran into some problems. Ran some some problem anytime you're you know When when you don't have when you don't have real competition and you have these like artificially inflated prices You're gonna see human behavior like that and he saw similar stuff like that when they want to sell gasoline So this is his creative solution to being cut off by gasoline suppliers Alright, so it says there was nothing new about selling gasoline at discount So did some research about the cost of gasoline and discovered that the cost to acquire premium gasoline was only a few pennies higher than the cost of regular. So this is his idea. He decided to sell premium gasoline, pricing the gasoline at a few pennies more than the price of regular. So I'm only going to carry premium. I'm just going to price it a few

cents at what you would normally pay for regular. Major gasoline suppliers cut off the supply of gasoline to FedMart. Uh-oh. So what does he do? He starts a fake shell corporation. So it says, although the action by suppliers clearly violated the law, there was no quick opportunity for legal redress. Therefore, Sol devised a solution. He created a FedMart subsidiary that functioned as a wholesale gasoline supplier. Gasoline was acquired in Texas and then shipped throughout the Panama Canal and offloaded in Long Beach, California. This kept the supply of gasoline flowing.

So there's an entire chapter all about the emphasis that Saul put on teaching. It starts with a quote from Jim Senegal. He says, if you're not spending 90% of your time teaching, you're not doing your job. And so now the author writes, those of us who were Saul students would all agree that Saul, above all else, was a great teacher. Jim Senegal started working for Saul in 1954 at the age of 18. Jim recounted the time that he received a call from a reporter to answer some questions. And so the reporter says, you knew him for a long time. You must have learned a lot. And now Jim says, my response was, no, that's inaccurate. I didn't learn

a lot. I learned everything. Everything I know. Saul had a favorite adage that he frequently found appropriate to repeat. You train an animal. You teach a person. Saul really wanted all FedMart employees to think about and understand why their jobs were important to the success of FedMart. He was not a big fan of procedures and training manuals because he believed that manuals were a substitute for thinking. His emphasis on teaching was expressed in the phrase alter ego. It was a rather simple concept. He used the following example. If the owner of a store was able to do all the jobs himself, greet customers, order and receive merchandise, do the accounting, sweep the floors, clean the bathrooms, he would. But the reality is that normally the owner can't do all the work himself.

Therefore he must hire people to help. He must teach his employees to become his alter ego, so that they understand the importance of their jobs and perform their jobs as well or better than he, the owner, would do if he had the time. The owner of the store needs to use his time to do the highest skill work and delegate less skilled work to his alter egos. In that way, the owner will devote his time to managing the business and making sure that his alter egos are doing their jobs and doing them well. And here's a good example of that.

This comes from one of the employees and describe an encounter with Saul. It says he, which is Saul, comes in one night, and we're all exceptionally busy. The sales floor was shot, and it was a mess. And I'm out there pulling cardboard, turning the egg rack, making sure the milk case is full, just trying to keep our heads above water. We were drowning. Saul finally grabs me by the shoulder and yanks me back to the warehouse. He drags me back there, and he's got me by the shoulder, and he looks me in the shoulder and yanks me back to the warehouse. He drags me back there and he's got me by the shoulder and he looks me in the eye and says,

You're not running this place. It's running you. And I mean he was yelling and on me. The main message had stuck with me my entire life. It made me change everything I did. After that day, I just stayed ahead of the business. His point was that all I was doing was reacting to what was happening. You have to take charge, you have to run the place, and you have to stay ahead of it. Okay, so now I want to tell you about, he's got a really interesting idea he calls intelligent loss of sales. All right, so it says,

Saul proved that it was possible to do more sales with fewer merchandise items. He pioneered large package sizes as a way of lowering prices. But why does limited selection result in higher sales? Part of the answer lies in what Saul called the intelligent loss of sales. Conventional wisdom in retailing is to stock as many items as possible in order to satisfy every customer's needs and wants. The intelligent loss of sales turns that theory on its head, postulating that customer demand is most sensitive to price, not selection. How did the intelligent loss of sales work?

Seoul's classic example at the time was 3-in-1 oil. The manufacturer produced the oil in three sizes. Most stores carried all three sizes of 3-in-1 oil, even though the large 8-ounce size was a better value per ounce than the smaller sizes most people who need three-in-one oil will buy the eight ounce size if that's all there is on the shelf he said most but not all remember that point the price is far better per ounce though eight ounces is a lot more a lot more for some customers is acceptable for most customers what about the customer who doesn't buy the 8-ounce size?

That was the intelligent loss of sales. What does limited selection have to do with efficiency? This part is going to remind, if you listen to my podcast I did on Herb Keller and all the efficiencies he got from Southwest Airlines and why it was one of the only airlines to be able to be profitable, he uses a lot of ideas very similar to this one. So I'm going to read this whole paragraph to you, but just keep that in mind as I'm reading to you. What does limited selection have to do with efficiency?

Because payroll and benefits represent approximately 80% of retailers' cost of operations, pricing advantage follows labor productivity. Fewer items result in reduced labor hours throughout all of the product supply channels, ordering from suppliers, receiving them at the distribution center, stocking them at the store, and checking out the merchandise. He's going to simplify all the stuff that he just said there. Put simply, the cost to deal with 4,500 items is a lot less than the cost to deal with 50,000 items. That's the intelligent loss of sales. All right. So at this time, FedMart's doing so well, it gets the attention of Sam Walton. Let me just read this quote from Sam. He says, I learned a lot from Sol Price,

a great operator who had started Fedmart out in south in southern california in 1954. i've stolen i actually prefer the word borrowed as many ideas from sole price as from anybody else in the business i really liked soul's fred fedmart name so i latched right on to it with walmart okay so i that brings up a good point that i'm gonna set up for labor later okay and it comes to this um this quote I love from Charlie Munger that I always keep on my phone and I think about it. And he always recommends that we need to copy or learn the best of what other people have already figured out. So he says,

How does Sam Walton, a guy in Bentonville, Arkansas with no money, blow right by Sears? He played the chain store game harder and better than anyone else. Walton invented nothing, but he copied everything anybody else ever did that was smart. So he blew right by them all. Remember that sentence? So he blew right by them all. I believe in the discipline of mastering the best that other people have figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody is that smart. Okay. So remember that quote and remember what, what Sam just said, uh, for, for later. Okay. So FedMart starts to do well, but as every business kind of plateaus out and now they're

having some difficulty, they've increased competition. A lot of people are competing with them now. They're copying them, right? So it says, the early years of the 1970s were proving to be quite a challenge for FedMart. So we're almost 20 years after the business was started. Sol began to feel pressure and a lack of enjoyment with the chore of running an expanding company with increasingly competitive challenges.

Sol later commented that we were good at creating the business, but we weren't as good at running the business. So later commented that we were good at creating the business, but we weren't as good at running the business. So what does he do? He's trying to get out of the, this, this rut he's in and he decides he's going to learn. He starts learning from other founders. He travels to Europe and starts studying other retailers that are innovating and maybe finding some kind of partnership, right? So there's a big section on this. I'm just going to hit a few highlights. He visited three retail chains, one in Holland and two in Germany. One of them was, I don't know if Marco is the name of the store or the person.

So I visited Marco. Okay, that's the store. He talked about Marco at length, in particular, the passport membership concept for business customers. So what they did is they separated their business into, you could get extra discounts if you owned a business. Then he meets, that's an idea he's going to use later for the business he's going to start after FedMart. And he gets fired from FedMart. And so I'm setting up him getting fired. Okay. And it starts with one of this person he meets in Germany, this billionaire retailer by the name of Hugo Mann. Hugo Mann created these things called hypermarkets. Okay. So Seoul's really impressed about it. What's a hypermarket? It says hypermarkets now operating throughout the world are what Americans would think of as large discount stores, such as Walmart super centers. So before the Walmart super center that's everywhere,

Target's very similar, they talk about that, they talk about Kmart as other competitors. You have this guy Hugo Mann in Germany doing all this. Hugo's got a lot of money. And so Saul's like, okay, well, why don't we combine our ideas with Hugo's money? And so he starts this idea of the process of selling FedMart to Hugoo doing that and it says

the negotiation session proved plenty of opportunity to gain insight into the characters we were dealing with but seoul had decided that fed mart had much to gain by reaching a deal with man in his group later on looking back on our times with man the warning sign seems so obvious but at the time we were caught up in the euphoria of making a big deal so this is a mistake that he's making winds up selling the business to hugo and he essentially he wanted to do the deal with man so fed mark could expand also expand with with man's money but man owns it and it's his money and he's going to decide what happens. And so this is what happens. They have a board meeting and it says the first time that soul and I experienced a real Hugo man

was at this board meeting rather than the friendly person we had seen man launched into a 90 minute tirade criticizing soul and Fred Martz performance. He only looked at me. Uh, so, uh, soul's son, uh, Robert, who, who's writing this book is also helping him run the business. So Sol's son, Robert, who's writing this book, is also helping him run the business. So he's in this meeting. It's kind of how weird this would be. So he's criticizing performance. He's locking eyes on one person. It'd be very bizarre.

So it says, he only looked at me, never once looking at Sol or addressing a single remark directly to him. Neither Sol nor I uttered a word despite the humiliating attack launched against us we were finally seeing hugo man's true character a side of him that executives in germany saw every day so there's a lot of thoughts i had that came to mind when i was reading that section and one is like seoul has a lot of accomplishments right but he But he also started and stopped. Like, he'd start a company and then sell it. You know, that's why he was able to found three companies and take them all public. So, FedMart's the first one. Price Club, which is essentially, it's going to be merged into Costco, is the second one. And then he starts this huge real estate investment company, which is the third one and what i thought about is like isn't it weird that like okay so first of all he's in he's in this he's in this meeting he's getting just like you know soul's a very proud smart successful person it's not easy for you to sit there and have somebody else that you're now technically working for dress you down in front of everybody you know there's a reason why a lot

of entrepreneurs optimize for control over money but then then I also thought, I was like, well, it's weird. He came up with all the ideas, but because he did this starting and stopping, sometimes they were all his decisions. I mean, I was going to say sometimes it was his decision, sometimes it wasn't, but no, it was his decision to sell to Hugo. So it was, in turn, his decision. Now think about all the people that took a lot of innovations

and ideas from Seoul but never quit, refused to sell, and think about the success they had because what's rule number one? Don't interrupt the compounding, right? Sam Walton never sold. He became one of the richest people in history. Jeff Bezos never sold, became one of the richest people in history. Jim Senegal never sold. Costco is one of the most successful retailers. I think it's the most successful retailer in the United States right now, if I'm not mistaken. There's just something to that. Everybody's got to make their own decision.

But I just can't help but seeing the contrast between Sol, even though he came up with a lot of the ideas and innovation. Remember I just said what Charlie – remember I asked you to remember what Charlie Miller was telling us. Remember, he said he never invented anything. He just copied what everything else, other smart, anything else that's smart, that was smart, and he blew right past them. He blew right past them. He tries to buy Soul's second business. I'll get there in a minute. I just think there's a lesson there.

Like, if you have a good idea, if you have a business that you're passionate about, like, just let it compound. Like why start over? I don't know. I just couldn't, the contrast is so obvious when you read this book, assuming you've studied obviously Jeff and Sam and Jim and everybody else. Like, she's like, wow, man, I wonder if, you know, he's also older this time. He's like 60 the first time he sells FedMart to Hugo. I just wonder if he'd ever, like he never says anything about it, but I just wonder if he regrets that.

Okay, so he gets fired, and now, you know, he's got to start all over. He says if you rang him dry at this point in his life, he'd have a net worth of around a million dollars. So he's like, all right, well, what are we going to do? And so this is where he comes up with the idea for the Price Club, which is they're really iterations. All these ideas are iterations. So you start with Fedco, right?

He studied Fedco, and he makes FedMart. Then he has a lot of experience 20 years almost running FedMart and now he wants to take that a step further and that's that's where you have price club which is closest to what Costco is because they wind up merging all right so this is the idea the price club idea was finally conceived sometime in the middle of January 1976 a wholesale business selling merchandise to small independent businesses. It's also what he learned in Germany. He took an idea from there. The business owners would come to a large warehouse,

select the products from steel rack displays, and pay either by check or cash. Instead of each business owner purchasing products from various suppliers who specialize in specific product categories, hundreds or even thousands of small businesses would pool their buying power by shopping at a wholesale warehouse. So think about that. That is Costco. If you take out the business part of it and let anybody do it,

that's what they're doing. They buy everything. They buy in bulk at a huge discount to what you could as an individual could procure the same merchandise for. They mark everything up with a standard. I think it's like 14%. I could be wrong.

Something like that, 14%. What they're doing is just trying to cover their operating costs, and then they're going to charge you a membership fee to access this wholesale benefit, and that's where all their profit comes from. That's very similar to the early days of, like Costco's further iteration on price club. So he's going to start out with, um, with business customers, but there's, you know,

he's going to run into some problems. So I'm going to, um, I'm going to go right there. I'm going to skip over a bunch of, uh, parts of the early days. And cause you just need to focus on the fact that the idea when you describe it to somebody, it makes sense. Right. But sometimes you can launch an idea that other people agree makes sense. But you have a hard time finding customers to actually follow through on that. So they open Price Club. Right. And again, he's got a little bit of money, but he's supporting himself, his family, his two sons that used to work in FedMart were fired. So he gives them a job and he has to pay them. So it's off to a slow start. This is scary, scary times, especially when you're, he'd be 60, around 61 at the time. All right. It says, Sol was hoping that Price Club would be on track within a month or two to do $200,000 per week. But by the end of the first week, sales were averaging below $30,000. Uh-oh. Price Club was off to a shaky start. Business was so bad that employees were asked to park their cars in the front parking lot, spaces that were previously reserved for members, just to make sure that

people knew Price Club was open for business. And this is a terrifying part in any new endeavor. We could not figure out what was going wrong, confessed Sol. Was it the membership fee? Did we have the wrong merchandise? The numbers clearly showed that if something were not done soon to change the trend line, the price club was on its way to bankruptcy. So now here they discover something through trial and error that was very surprising

and saved their business. So they're brainstormers, like, how can we figure out, like, get customers? So their idea was like, hey, what if we pitch the government and see if we can go talk to government purchasing managers and see if they want to shop and buy memberships? And so at one of these meetings,

they're like, well, we don't want to do this, but one of the people on the council was actually the head of the San Diego Credit Union. And he's like, hey, we're not business owners, but can we shop at, like, could our members take advantage of the cost savings? And it says, we quickly contacted the San Diego City Credit Union to let them know that their members could shop at Price Club. This one thing that happens changes the trajectory of their business and saves their business people join credit unions to save money to borrow money at low interest rates and to receive a variety of other financial benefits including discounts at retail stores shopping

at price club a wholesale warehouse was clearly consistent with the credit union's mission so they're both membership programs if you think it. One is a membership saving on money, which is the interest rate, right? The other is saving money on the price you pay for goods. So they're very similar. The kind of person that would shop at like a price club or a Costco would probably also understand the benefits of being a member of a credit union. So the credit union agrees that they do free marketing for them. It says they agreed to include a price club flyer free of charge in the monthly statements that were

mailed to their members' homes. The flyer stated that as a member of the credit union, they could shop at price club without paying a membership fee. So it's very smart on how they approached. They're like, hey, you already have a large membership base right um what if we add another value to your members you don't have to pay us anything and essentially it's it's it's increasing the value of both memberships at the same time because now the san diego uh credit union members have an additional benefit that they didn't have to pay for and it's saving money which is why they joined the credit union to begin with and from from a price call perspective, it's distribution and advertising. Now these people realize, oh, I didn't even know this thing was open. Let me go check it out.

What happened next was quite surprising. The credit union members quickly responded to the flyer and signed up for the new group membership card. Many of these group members realized that if they could qualify as business members, they would save an additional 5%. So you'd have a 5% discount if you're a business member. Someone in their families might have a business, a store or a law office or any other type of business. This is the whole point of this section I'm telling you. The unanticipated consequence of this campaign was an increase in business members, which is exactly what Price Club wanted. They wanted more people to sign up. If you're going to pay for a membership, you're

more likely to actually use the store. And that's exactly what happened. So not only do they get more members, they get more sales because now they're further, they're like, Hey, I want to take advantage of this thing I'm paying for. Although the price companies investors would have to wait until June, 1977, before the business reported its first profitable month, the introduction of the group membership before the business reported its first profitable month, the introduction of the group membership turned the business around. So now we get to the part where we realize, hey, everything that made Price Club different is what makes Price Club successful. Go back to James Dyson, difference for the sake of

it in everything because it has to be better. Price Club was new and different, combining merchandise features brought over from FedMart with a warehouse format. Price Club differed from its competitors because of the number of items offered for sale. The typical grocery or discount store carried about 50,000 different items compared to Price Club's 3,000 items. Item selection also included everything from automobile tires to institutional-sized packs of toilet paper and detergent. Price Club was a warehouse with rack storage, high ceilings, and concrete floors. Price Club sold products for office and institutional customers, products that were normally ordered over the telephone and delivered to business customers at the time. And most importantly, the prices for the merchandise, whether for business customers or retail buyers, were overall far less than prices available elsewhere. The operating efficiencies of the warehouse concept and

the direct delivery of products from the suppliers to Price Club made it possible to sell the merchandise for less. So now the business is becoming really successful and what happens when you're successful you draw attention and now we're going to see other founders learning from from saul again now check this out this this person if you've listened on my podcast is going to sound very familiar back on founders number 45 i did a podcast on one of the co-founders of home depot bernard marcus well look at here here's bernard back in the 70s it says even though price club has tried to stay under the radar people in the retail industry were taking notice. In 1978, Bernard Marcus, soon to be the founder of Home Depot, came to see the Price Club and to visit with Saul. Saul took Marcus on a tour of the Price Club. He suggested to Marcus. This is huge. Think about the difference this one meeting has in the life of Bernard Marcus. He suggested to Marcus that he open his own home improvement business using the knowledge and experience he had gained at HandyDan.

That's when he got fired. The company that he was running before he starts Home Depot and he gets fired from. Marcus took Sol's advice and with his partner, Arthur Blank, opened the first Home Depot in Atlanta, Georgia in 1979. So it was almost a year later. Blending what Marcus had learned in the traditional hardware business with price clubs warehouse formats.

You could think about a Home Depot almost like a price club that focuses on home improvement. Okay. So Bernard Marcus is learning from him now. Guess who's back? We just had a quote from Sam Walton saying, hey, FedMart, I like that idea so much, I added it to Walmart. Well, now this is Sam Walton 20 years after the fact. He's coming back to Sol, he's coming back to the fountain of good ideas that is Sol Price. In 1982, Sam Walton, who had created Walmart by using FedMart as a model, called Sol. Walton wanted to come out to have a look at Price Club. He eventually tries to buy it, but soul decides to merge with costco instead so he says sam was interested in learning as much as he could about the warehouse club business

once again seoul was open and generous with information sam thanks all and returned to arkansas the next year in 1983 walton opened his first Sam's Club in Oklahoma City. So I want to now talk to you about another mistake that Sol makes. And it's all about the importance that we've talked about a lot over the last few weeks. It's the importance of focus. So this is this note I have for myself is don't lose your focus. So at the time, I don't even understand why. But Sol was really, he was more interested in like the real estate deals because they would buy the property that they want to build on, which is just good advice. Don't, you know, don't build a business on somebody else's property.

But he just started essentially taking away resources from expanding the business that was working to buying more real estate. I mean, this is a mistake, I think, but he also gets insights that leads him to create that real estate investment trust that he takes public. But it's bizarre. So he says, some of the company's senior executives and most of the investment community frowned on the company's directing so much of its financial resources into real estate development.

Real estate development was a diversion from the company's core business. And this is the weird part. The immediate financial returns on real estate were much lower than the returns on Price Club's operating business. No idea why he did this. Eventually, he gets to the point where he was more focused on real estate than the actual warehouse business. And so then he realizes, hey, it's time to sell. So we see another trade of it. He's like, I got bored. I want to do something else. It's not clear when sold, again, to consider seriously

the sale of the price company. It may have been prior. Oh, his grandson dies of a brain tumor really young. He's like 15. It's also the son of the author of the book, which is just devastating. So it says it may have been prior to Aaron's death, but in the days, weeks, and months after, I came to believe that soul must have agonized over how to approach me about this subject. So they're just dealing with just the worst possible thing that could happen

to a person, right? On one hand, he had a strong sense of his time to sell he had always believed that his and my business strengths were in the creative area and not in the management side of operating a big business he was tired of the constant pressure from Wall Street and for more growth there were only two realistic possibilities Costco's and Sam's and of course if you have to choose between Sam's and Costco, he's going to pick his protege, or you would assume he would.

So in 1993, Costco and Price Club merge, and Costco is still around today, which brings us full circle because we started our discussion today with Jim Sinegal in his 70s talking about, I've waited 50 years for this guy to give me a compliment. It just speaks to how important Sol was to his life.

And Jim Senegal is one of the most successful entrepreneurs in history. And Costco is one of the most successful companies. So it just reaffirms everything that we're doing here, the value and learning from founders of the past. Now I want to get to the part where not only was obviously Saul had a huge impact in Jim's life, but he worked hand in hand with his son for 40 years. And so this part is where his son is now talking about the impact he had on his life. And just i think this is probably from a from a personal perspective the most important part of the entire book as much as seoul's public accomplishments represent a tremendous legacy his more enduring legacy may be the impact he had on the lives of the people who knew him through personal or business relationships all of us can honestly say that there is at least one person who has had a transformative impact on the course of our lives.

For me, that person was my father. Whatever I have learned about business, I learned from my father. Everything, from how to read a financial statement, to management, to good judgment, and fair dealings. My father taught me how to think, and how how to question and not to fall into the trap of assuming rather than checking things out for myself. He also taught me to be humble, to appreciate the unpredictability of life, to care for people, to remain hopeful, and always to be there for people who are in need. Working alongside my father for nearly 45 years, I came to appreciate how unique our relationship was. My father was a strong man who told me that he had to be tough

to grow up in the Bronx and survive. He was very smart, opinionated, and could make his case with anyone. My father was so competent, responsible, and protective that as he withdrew from day-to-day activities, I wondered whether I could ever carry on without him. The greatest tribute I can give him is that he taught me so much, sometimes without even realizing a lesson was taking place. When it was time for me to step up, I was ready. What greater legacy could there be from a father to a son than leaving the gift of life skills necessary to carry on?

He was a poster child for the American dream. His immigrant parents were born in a small Russian village. He was raised in the Bronx, graduated from high school in San Diego, and was the first in his family to graduate from college. He earned a law degree. He became an exceptionally successful businessman and philanthropist. He celebrated 70 years of marriage to his wife, Helen. He was a good father who instilled high values in his sons, and he never walked away from responsibility. It doesn't get much better than that. Writing this book has given me a unique opportunity to provide a permanent record of my father's life and contributions for the benefit of members of the family, those who knew and

worked with him, and students of business and philanthropy, and people in general who may learn about and be inspired by his story. May his life be a blessing and an inspiration. If your loved ones feel that way about you when your life is over, I think that's evidence of a life well lived. I hope the stories on this podcast inspire you like they do me. I hope these ideas add value to your life. If you want the full story, buy the book using the link on your podcast player or at founderspodcast.com, and I'll talk to you next week.