Founders - #354 Sam Walton: The Inside Story of America's Richest Man

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Starting point is 00:01:33 and I hope you enjoy this episode on Sam Walton. So the book that I want to talk to 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. In fact, this book came out a few years before Sam's autobiography was 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

Starting point is 00:02:10 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. It says he was in the shadows. He was off the beaten track, just building his incredible business empire. And so by the time the Forbes 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 Bentonville, 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 II, married an Oklahoma banker's daughter, opened up his first five and dime store

Starting point is 00:02:54 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. 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

Starting point is 00:03:31 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 or minimizing one or a 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 almost a quarter of a trillion dollars.

Starting point is 00:04:12 And yet it took Sam Walton 20 years of experimenting inside of retailing before he thrushes about, that's the word he uses, and finds the idea slowly but surely through trial and error, finds the idea that turns into Walmart trial and error, finds the idea that turns into Walmart. But before I get there, I just want to point out a few things that happened 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 lets go of, a sense of duty.

Starting point is 00:04:37 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 out 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.

Starting point is 00:05:20 And so here's a little more about Sam in 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 lettered 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.

Starting point is 00:05:40 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 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 his parents' divorce, which is obviously very rare at that time period. And he talks a little

Starting point is 00:06:16 bit about seeing his father struggle through this time. He says, my father quit the mortgage company and went into business for himself in the real estate 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, hovering around the poverty line. And so Sam and his brother Bud get

Starting point is 00:06:47 jobs to try to help out the family. And there's a line in the book that I think is very important to understanding the kind of personality that Sam had. And it 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,

Starting point is 00:07:31 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 taxi 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 it's really important, especially in this section, is because, OK, we see he's got this fierce work ethic, right? 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

Starting point is 00:08:10 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 skyrocketed. Today, that family, present day, 100 years after Sam Walton was born, you know, they have a quarter of a trillion dollars, $250 billion. But 100 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.

Starting point is 00:08:51 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 audio book, get the paperback, whatever you have to do. And then if you've already read that book, buy this book because you will see it took

Starting point is 00:09:15 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 president of 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 has this ruthless competitive drive as well. But he did not have this dream to be a retailer when he was a boy. He stumbled into it.

Starting point is 00:09:49 And so let's go there right now. He actually gets a job at JCPenney. 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 JCPenney. 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 JCPenney was. It was around when I was a kid. I don't even know if they exist anymore. But in 1940, right where we are in the story, JCPenney 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 this job. He's being paid $85 a month. Remember that for this upcoming story

Starting point is 00:10:31 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 JCPenney had built 1600 stores avoiding big cities. This is exactly what Sam's 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 more business out in these small towns than we thought. The second idea, John JCPenney 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

Starting point is 00:11:11 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 this wiser, more successful retail legend. He's 65 years old, says a customer came in and bought something from Sam. And while he wrapped it up for her, JCPenney was observing the transaction closely. I finished wrapping and tying the package and the lady left. Then Mr. Penny came over. Boys, 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.

Starting point is 00:11:46 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 Walton 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.

Starting point is 00:12:07 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 at JCPenney. Here's the third. His direct manager, this guy named Duncan, he said he was a fantastic trainer.

Starting point is 00:12:27 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. He was one of the managers who had a 25% bonus contract. Again, another idea Sam is directly going to steal. At the very beginning of Walmart, he sets up all his managers and gives them 25% of the profits of the store. And remember I said that at this time, Sam is making $85 a month. His manager shows him the 25% bonus check.

Starting point is 00:12:57 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 at JCPenney and applying what he learned there would eventually put a few billion dollars into his own cash registry. 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 going to live and where they're going to live. They're going to try to buy a Ben Franklin store.

Starting point is 00:13:32 So they're called Ben Franklin Five 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 Five and Dimes is because most of the things that you buy there, 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,

Starting point is 00:14:04 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, and they laughed him 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. He can buy the Ben Franklin franchise. It's going to 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.

Starting point is 00:14:36 He's a lawyer, a rancher, a 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 going to take the obsession with customer satisfaction that JCPenney had, and I'm just going to apply it to my own little five and dime store. And so he's trying to figure out ways to like 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 with these less conventional ways to attract more customers He's very much like a P.T. Barnum. He's got the charisma of a Southern preacher.

Starting point is 00:15:10 And so he's constantly experimenting with these less conventional ways to attract more customers into the store. And you wouldn't believe how some of these really simple ideas were so effective. So he spent a bunch of money on an ice cream machine. People are like, what the hell are you doing? It's 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

Starting point is 00:15:30 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 other people. And so five and a half years from now, when he loses this store, it is by far the most successful.

Starting point is 00:15:42 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 worked. What else can I do? 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, 50% off or buy one, get one free. He's finding another way to attract customers. And even if he only converts a small percentage of the people that buy ice cream, the people that buy the popcorn, it's still a great return on investment for buying a popcorn machine

Starting point is 00:16:10 and ice cream machine. And that's something that Sam's going to repeat. He really felt one of his best advantages was consistent around-the-clock customer satisfaction. He says the most important discovery Sam Walton made in Newport 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' obsess over customers.

Starting point is 00:16:42 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 of 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 Walton 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.

Starting point is 00:17:11 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.

Starting point is 00:17:38 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 God the next time you take over a lease from somebody, you check to make certain it contains a proper renewal clause. They're not going to let you keep the store. The plain truth is they want to run the Ben Franklin in that building. You've shown the whole town what a moneymaker can be. His attorney watched the color drain out of Sam's face. It looks like you're finished, the attorney said. The lawyer, this is one of my favorite parts of this entire book, the lawyer saw Sam clenching and unclenching his fist, staring at his hands, and then he straightened right up. No, he said, I'm not whipped. I found

Starting point is 00:18:16 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 Sam Walton. You're 32 years old. You have a wife, 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. Sam wasn't out there blaming other people. And I love his response there. He's like, I'm not whipped. I'm not going to 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 Bentonville, Arkansas, because he's driving around.

Starting point is 00:18:51 He's looking again, running the same plug book. Let me go to the small town. Let me try to buy a Ben Franklin franchise for somebody who wants to sell. He finds one in Bentonville and he doesn't make the same mistake. So what he does is like, OK, I will buy this store from you. It's too small. So I also need to get the barbershop next door. Sam insists on buying the building. And then next door, he's like, well, this store is too small. We're not going to make any money. I got to knock down this

Starting point is 00:19:14 wall. And so he finds that the barbershop next door is actually not for sale. And so he's like, 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, the lease, the barbershop is owned by two widows. They say the first time he comes to them, they say no. The second time, 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.

Starting point is 00:19:51 This guy is relentless. But finally, the sixth time, they finally agree to this outrageous, you know, 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 in 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 old, right? He used all, he's married with kids, like I said earlier. He used all of his money setting up the new store in Bentonville. Okay. He's got no, he's got no money. So he's 32, wife, kids, no money. Your mom, who you adore, dies at 52 years old unexpectedly. At the same time, he still has to run his Newport store till

Starting point is 00:20:37 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 eight 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 stretch as 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 the heck? If I cannot move ground faster, I will always be relegated to just having one store. You already know by now, Sam Walton's not the personality type to be like, oh, I'm just going to run one store for the rest of my life. And so it's during these long drives to the mountain, eight hours, 10 hours each way, he's like, I've got to figure out a way to cover faster

Starting point is 00:21:20 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, why not 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. He's like, maybe there's a faster way, kind of like charter

Starting point is 00:22:04 a plane? And can somebody fly me between Bentonville and Newport? And so it says, for a reasonable fee, he chartered a pilot to take him to Bentonville. The eight-hour road trip shrank 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 to every single thing. And he just has this idea. Now, I guess I need to back up. He is constantly, until the IPO, he is constantly underfinanced and undercapitalized.

Starting point is 00:22:38 He actually talks about that in his autobiography. So I want to read from his autobiography again before I pick this story back up. He says, many of our best opportunities were created out of necessity, the things that we were forced to learn and do because we started out underfinanced and undercapitalized in these remote, small communities 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 what I referenced earlier, We tried to give away the idea to Walmart and they said, no, we might never tried 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

Starting point is 00:23:19 dreamed of. So his idea at the very beginning, this is a good thing. He's like, he had to prove the concept over, you know, many, many years. Then once he knew the very beginning, this is a good thing. He had to prove the concept over many, many years. Then once he knew it was working, he poured gasoline on these promising sparks. But his idea first is like, let's get one store up. That store is 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 like flying around. There's a bunch of almost like very close calls. You know, Sam Walton was a kind of reckless flyer. But, you know, thankfully nothing happened in his 40 years of flying.

Starting point is 00:23:54 But without these like small little Cessnas and little planes, 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 JCPenney 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 and dimes. Same thing Sam would do when he has his chain of Walmarts. He did it for every single one of his competitors. He visited more retail stores than anybody else in history. He does this. He actually, he does it for the stores. And then his autobiography 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.

Starting point is 00:24:34 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 and Arkansas and 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.

Starting point is 00:24:53 And so when I got to the section of the book, two things happened. One, I had like a big smile on my face because I just think it's hilarious. I love people that are truly dedicated to what they're doing. And I would say one of my favorite maxims is actions express priority. You demonstrate to other people what's important to you, not by what you say,

Starting point is 00:25:09 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 with Mr. Beast. Mr. 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 to Mr. Beast's headquarters and spent seven hours with him, his top team. One of my friends is a major investor in Mr. Beast companies as well. And I heard a story that just screams like this is something that Sam Walton would do. And so Mr. Beast comes back from doing,

Starting point is 00:25:45 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 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. And Mr. Beast's chocolate company, Feastables, has a massive deal with Walmart. And so what he does, instead of flying home, he maps out

Starting point is 00:26:10 every single Walmart in like a 500 mile radius and decides, hey, I'm going to drive. You know, you could take a couple hour flight or you could do like a 15 hour drive. I think this was 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 look like all the Feastables was sold out. And then he'd pull up. He's like, 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 could get more sales. I think that is what Sam Walton would do.

Starting point is 00:26:50 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 doctor, and just riddling them with questions and using it as a form of education. And then you see 70 years later, 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 earlier, he literally lifts that idea from JCPenney. He's like, OK, I can't be here. But he knew that you had to have a

Starting point is 00:27:25 single, like single threaded leadership. There has to be one person that is completely responsible for the performance of the story when Sam was not there. So that's when he says, hey, I'll give you 25% of all the profits. And then here's a fascinating story for you. This is what I love about biographies. We have some of the smartest, most productive people to ever live. And the biographies, their life stories are full of them making mistake after mistake 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 just like, oh, my God, this concept is genius.

Starting point is 00:28:06 And so he gets distracted. He is already building a small but very successful variety store five and dime chain. And he takes a detour from something that's already working and says, I'm going to develop shopping centers. I have a line for this, what he's doing, because I did this the other day. I was on the phone with my friend Jared and I was explaining about this other idea I had for another podcast. And he completely shut it down

Starting point is 00:28:32 and he used the blackjack analogy. He's like, don't split tens. Sam Walton split tens. I'll cut right to the punchline. We lost our 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 got distracted. He gave into distraction and it cost him the opportunity cost of his time and a bunch of his money. So now he is back fully dedicated, fully focused on expanding

Starting point is 00:28:54 his burgeoning retail empire. I love scrappy people. I love relentlessly resourceful people. I love people who don't take no for an answer. And so Sam is always on the lookout for new, exciting merchandise that he can stock in his stores. At this time, hula hoops is like this is this like phenomenon spreading all across the country. The main like manufacturers of hula hoops will not sell to these small little merchants because he's tiny at this time. And so Sam's like, OK, cool. You won't sell to us. That's fine.

Starting point is 00:29:19 We're going to make our own. So he started he realized, like, what is a hula hoop? It's like this little it's colored plastic pipe with just a connector at the end. He's like, we're just going to make our own. So he started, he realized like, what is a Hulu? It's like this little peak it's colored plastic pipe with just a connector at the end. He's like, we're just going to make our own. So after the stores close 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 me. Remember Sam does not have a lot of money. He's under finance, 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 them at one central location, but they have to

Starting point is 00:29:53 distribute them throughout all the stores that they have, right? Sam didn't even have a truck. So how is he going to do this? He has a car. 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 the hula thousands of hula hoops 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 hula hoops were so popular that you couldn't keep them in stock and so there's a combination of two ideas here that i think are really important. Number one, doing things that others were not doing lead to unexpected success. And two, goes back to that quote that I read from Sam's autobiography, the fact that many of the

Starting point is 00:30:34 best opportunities were created out of necessity because we were so underfinanced, we were so undercapitalized. We had no idea just how large these businesses can be built in what, you know, these towns, these towns were ignored. And so they arrived at this very valuable 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 they made the store, the more money they made. The decisions were made for Walmart long before Walmart as a company was developed.

Starting point is 00:31:02 Back in the Ben Franklin days, we learned so much. And so they use one example of a store where they make a slightly bigger, slightly larger Ben Franklin store. And how much sales grew as a result of just having a larger store surprised them. And so this store, the example that they're using was in this little town called St. Robert. So St. 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

Starting point is 00:31:45 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 was very counterintuitive, that you lower the price, 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, you know, I have no shame in admitting this. Like if I was searching for good ideas, and if I found a good idea, if I found a competitor that had a better idea than I did,

Starting point is 00:32:24 I would just adopt. He was always he didn't care of the origination source of the idea. He just wanted the very best idea. So he's like he says, if they had something good, 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 Ann and Hope. They only had six stores, but they're doing $250

Starting point is 00:32:50 million 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'd studied it before him. There's this guy named Harry Blair Cunningham. He is the one that comes up with 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 I'm about to read to you in 1990, after he's already beaten Kmart. He says, I've always had the greatest admiration for Harry Cunningham 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

Starting point is 00:33:38 pieces of Kmart and make our Walmart as much like it as we could. The difference was, and this is a fascinating thing that happens over and over again, is Kmart took the discounting idea and they set up shop in major cities. Walmart looked at that and was like, 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 on us, I hate to think of that. But we were protected by our small town market. It would have been unthinkable for them

Starting point is 00:34:15 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 up 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 find-and-die business. Discounting is going to roll over everything.

Starting point is 00:34:49 Let's get ahead of this. And this is where he goes. So keep in mind, I guess I should back up. He's 43 years old when he's trying to make this transition. He's got 13 of these variety stores, right? These Ben Franklin franchises. Over the last 11 years, he's built 13 of these variety stores, right? These Ben Franklin franchises. 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

Starting point is 00:35:10 away the idea for Walmart. He's going to 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 going to 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 rural markets just as well in the major metropolitan markets, Sam said. You should franchise them and I will be your guinea pig. Imagine Sam Walton pitching you on the idea that of a brand new business that's growing like a weed. That is clearly the future.

Starting point is 00:35:50 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 going to have to cut your wholesale prices. Instead of making 20 to 25% profit off the merchandise that you sell to your retailers, you're going to 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

Starting point is 00:36:15 and experienced businessmen in their tailored suits and custom 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

Starting point is 00:36:56 the incentives of the people that you're selling to, that no one is ever eager to fix a cash machine that isn't broken is 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 Dyson do? 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. 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 bagless vacuum cleaner to people that make $500 million a year selling vacuum bags.

Starting point is 00:37:37 You cannot sell the idea of discounting at a lower margin and saying, hey, sell me your stuff at 12 and a half percent and selling instead of selling it to me at 25 percent. How do you think they paid for those tailored suits and those custom shoes with that 25 percent 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, all right, maybe I should go check out this new Kmart thing that this crazy Sam Walton fella is talking about. And here's a description of what happens.

Starting point is 00:38:13 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 said, Mr. Walton, what are you doing? 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, right? But he wasn't sure if he could do it. He was going to succeed at it. He knew he was really good at the variety store business,

Starting point is 00:38:41 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 threshing 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?

Starting point is 00:39:18 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 and 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 his executive says, well, Sam, you had were long names, each made up of three or four words. And so his 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

Starting point is 00:40:01 list was Walmart. And so Jeff Bezos has this 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

Starting point is 00:40:24 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 consider a success? $700,000 in total sales, which may seem like a small number, but from that day, from day one, the store, that furry first Walmart store, for the next 15 years has a consistent 30% 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 into the future is going to become the CEO of Walmart.

Starting point is 00:41:07 Sam tried to recruit him really early. In fact, it takes him a decade to get David Glass to say yes. So he invites David Glass out to 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

Starting point is 00:41:43 watermelon 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. In fact, there's a great description of Sam's personality and part of his success is this promotion ability. There's this article in 1989 in Fortune magazine I'm going to quote from. And it says, so how from there, from 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 P.T. Barnum style. But he's more than that. He's a little bit Jimmy Stewart. He's handsome and he's

Starting point is 00:42:34 got this all-shucks charm. He's also a little bit Billy Graham. This is what I meant, Billy Graham's this 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 hard to resist. And he's more than a bit Henry Ford, 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 is tough, loves a good fight, 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

Starting point is 00:43:12 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 in Harrison. This is the donkey in the watermelon store. But sometimes you achieve success and say, 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,

Starting point is 00:43:53 and General Patton, 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, basic plan, simple, basic principles that he executes on. So the first thing is he's obsessed. I've already mentioned it once, just like there's principles for Amazon that could be distilled down to obsess over customers. For Walmart, it was just customer satisfaction. He said the essential ingredient is, of course, customer satisfaction. Hardly a day ingredient is, of course, customer satisfaction.

Starting point is 00:44:30 Hardly a day passed without Sam reminding an employee, remember Walmart's golden rule. Number one, the customer is always right. Number two, 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't fit. You don't like them. Whatever the case is, you bring them back. Sam would tell his stores, not only should you cheerfully replace the shoes, meaning you should be happy,

Starting point is 00:44:52 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 next week, not just next week, not just next month. Humans are habitual. They'll probably be shopping there for decade after decade, as long as you don't upset them or let them down. And then as far as expansion, you know, this is pre-computers, which we'll get to just the massive surprising investment that Walmart made in computers in the 1970s. But before that, he's like, okay, well, I want to run a bunch. He had like this idea. He was like, I need to make sure that all my stores

Starting point is 00:45:27 are 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 worked backwards. And he's like, 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.

Starting point is 00:45:43 And so the first handful of Walmarts were in this 300 mile radius of Bentonville, Arkansas. And that's really what it was, his faith and this adherence to this small handful of principles that he refused to deviate from. He talks about this later. I had no vision of the scope of what I would start, but I always had confidence that 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 and these early company stories are so important because it talks about like how there's a lot of rough edges in these Walmart stores. The eighth Walmart ever, they put it in this old, it used to be a Coca-Cola bottling plant. And so it still wasn't all the way converted. And so you had like all these pipes sticking up on

Starting point is 00:46:24 the floor everywhere. There was no air conditioning in that entire building. So what's their solution? OK, we don't have AC. 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 of what's going to become a very valuable company.

Starting point is 00:46:41 It says it was still largely a seat of the pants instinct of Sam Walton that guided this Walmart expansion. Again, 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 that book. I just covered the history of Walt Disney. If you haven't listened to it, 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. He says, you asked the question, what was our process like? I kind of laughed because process is an organized way of doing things. I have to remind you,

Starting point is 00:47:23 during the Walt Disney period of designing Disneyland, we didn't have processes. We just did the work. Process came later. All of those things, 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 all in the same boat at one time, and we just have to figure out what to do

Starting point is 00:47:40 and how to do it on the fly as we go along and not even discuss plans, 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 Sam realizes, 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's really think about how long, like he did five and a half years with one store store in Newport.

Starting point is 00:48:06 Right. Learning, learning, slowly proving that he knows what he's doing. Then he gets Ben Franklin, another Ben Franklin store. Then, you know, a handful, I think in what, 11 years, he does 13 more stores. Watch how he is. The weird thing I'm trying to describe to you is 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 going to work. 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,

Starting point is 00:48:33 he's got one big problem. He is eyeballs deep in debt. It's like causing him anxiety, 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's like, we have to IPO. We have to tap the public markets. And so he's going to meet these local Arkansas entrepreneurs. They're called the Stephen Brothers. They're going to team up with another Wall Street firm that is successful in selling the stock. I'm going to get there in one second Street firm that is successful in selling the stock. I'm going to get there in one second because it's kind of nuts at how spookily accurate a bunch of Sam Walton's predictions are.

Starting point is 00:49:11 But I just love they give a short background in the book on the Stephen brothers who are very helpful in getting this IPO done. I'm going to skip over all that. I just love the advice because they were like, you know, poor Arkansas boys, too. And they wind up being they hit the Forbes Forbes 400 list too for different reasons. But I love the advice that their dad told them when they were grown up in like rural Arkansas. He says, he used to tell his sons, 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 that Sam's, he was just dead on on a lot of his sales growth. So he's doing this pitch to potential investors. And they're

Starting point is 00:49:52 like, okay, your sales volume right now is around $20 million a year. And Sam's like, yes, sir, our business is really growing. This year we did 21 million, 21.3 million. That's quite a jump because the year before we only did 12.6 million. And he says, 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. They're like, this guy's nuts. And here's the punchline. Sam Walton, however, 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's like, we're going to hit 230 million five years from now. And he came in at 236.

Starting point is 00:50:38 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 frontline workers, who he spends a lot of time with, pays attention to them, 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.

Starting point is 00:51:18 There's a line from one of Jeff Bezos' biographies that's very similar. It says if you're not good, 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,

Starting point is 00:51:48 covers the first 35 years of Bill Gates' life, you realize that a young Bill Gates was just Genghis Khan in a Mr. Rogers costume. Something similar is going on here with Sam. Says he also claims that the public conception of Sam as a good old country boy wearing a soft velvet glove misses the fact that there's an iron fist within that glove.

Starting point is 00:52:06 The boss himself candidly agrees. I guess I can get a little tough if I see things I don't like. Sam stressed that he knew his business from top to bottom. I used to do it all. Sweep the floor, keep the books, buy 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

Starting point is 00:52:31 the book of what I just referenced. The fact that as hard as he is on his executives, as hard as he seems to be on his executives, he's just as supportive of his frontline workers and genuinely cares about them. There's a bunch of examples. Here's one. He would flag down one of his own 18-wheelers and climb into the cab to ride 100 miles with the driver to gain firsthand experience that might improve Walmart transportation. He would get up at 2.30 in the morning, buy a box of donuts,

Starting point is 00:52:55 and take them over 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 would repeat. Remember, repetition is persuasive. So he repeats over and over again 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

Starting point is 00:53:26 Walmart World that would go out every month. And it says this adherence, 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 the 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

Starting point is 00:54:03 because someone else is 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, you know, I don't want to just, I want to run my whole company. Like I want to be CEO of Walmart. And you know, if I can't do that here, then I'll have to do it somewhere else. And so it says, as he approaches 57th birthday, Sam Walton was reluctantly trying to change his lifestyle completely by surrendering the day-to-day command of his Walmart empire. Now, Sam was going to find this impossible to do. And I'll describe him. Essentially, he retired and never retired.

Starting point is 00:54:33 It's the weirdest 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 his official, Sam, had retired. Ron was the new chairman and CEO of Walmart. It is the most uncharacteristic Sam Walton kind of thing

Starting point is 00:54:50 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'd just step in and correct it on the spot. That is the way I've always been. I guess I was getting in the way of Ron's authority. And the problem is the numbers, the sales and profits under Ron Mayer. He's doing a magnificent job, but Sam just has to control the company. It bothered Sam's conscience that he personally had 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

Starting point is 00:55:29 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 demotion. He winds up leaving the company. So Sam takes back over control of the company. He does exactly what he goes back to doing exactly what he was doing. And that's say he's always recruiting. Now, not only did he lose Ron Mayer, he lost a bunch of like Ron Mayer's lieutenants. So he lost, you know, a 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.

Starting point is 00:55:59 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 CEO, 10, 12, maybe 15 years into the future where we're in the story. He's eventually going to become CEO 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

Starting point is 00:56:45 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 is not resistant to change. Now, he has his principles he's not going to deviate from, but he always wants the best ideas. And he repeats over and over again. You know, He says, RC is that formula, resistance to change. We want a low resistance to change. We're willing to change. It's a trademark of the Walmart culture, the Walmart philosophy. Every day is a different situation in the retail business. We have to be flexible. These are the things that Sam Walton would repeat. Now, this is insane what they do here,

Starting point is 00:57:21 the size of the investment. So at first, you know, this is 1979. Okay. At first his team, his top executives, people he trusts are like, we need computers. We need help. The business is like, it's too unwieldy. We don't, we need access. We need more organized data, be 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 importantly, and he invested, he put his money where his mouth was. Finally, his lieutenants educated and convinced Sam and Walmart plucked down $500 million for a modern communications computer system. And when they say computers at this time in history, it was like giant IBM mainframes.

Starting point is 00:58:11 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 it just goes on and on and on. So Sam was

Starting point is 00:58:45 writing the annual report of Walmart in 1979. And he summarizes this perfectly. He says the financial savings and the number of personnel hours saved daily by using the computer center are 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. He talked about investing in technology is a huge advantage that he had over other discounters too. But he's putting his money and his actions behind this where his mouth is. When he said, you know, he was saying with his

Starting point is 00:59:29 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 with that. 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

Starting point is 01:00:22 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, converts them to Walmart. Then he buys another chain of 104 stores, converts them to 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.

Starting point is 01:00:57 Two main ones, but here's another interesting one. They reference the fact that Sam is constantly collecting information from the front lines. He hates people sitting in the office. He's 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

Starting point is 01:01:26 and so we're hearing the story says my daughter bought a pair of shorts for her father-in-law they turned out not to be the 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 he goes, 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 later on, Sam's friend was apologizing. Oh, sorry, you know, to disrupt you getting on the phone with my daughter. And he goes, no, I'm glad that Sarah

Starting point is 01:02:02 called. What he learned on that phone call had been been it's been worth its 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 asked him, what is our motto? And he said, 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 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

Starting point is 01:02:49 him set up the estate planning. The Forbes 400 list assumed 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 parents' stock and property since 1954. Sam and Helen created the trust that set this up when Ron was 10 and Alice was only 5. Doing this kind of estate planning so early in the game was urged on by Sam through his father-in-law L.S. Robson, who had earlier done precisely the same thing in giving Helen and her siblings

Starting point is 01:03:40 equal shares in the vast ranch that he assembled in Oklahoma. Mr. Robson was a banker and a lawyer, and he was pretty smart, 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 of 80% 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

Starting point is 01:04:20 your assets away before they appreciate. All right, 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 this guy was on studying everything that everybody else was doing. He's like, this is the person I learned the most from. In fact, I had a cool experience happen. You might be interested in this. I read sole price's autobiography. It's not my autobiography. His biography was written after Sol Price passed away by his son, Robert Price. That is episode 304. In that episode, I talked about how Sol Price is the most influential retailer of all time. Sam Walton learned from

Starting point is 01:05:00 him. Jeff Bezos, Jim Sinegal, the founder of Costco, the founders of Home Depot. The list goes on and on and on about how influential Sol Price was. Anyways, I put that episode out. Robert Price, Sol 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 haven't listened to the episode, go back and listen to it and try to find that book. It's incredible.

Starting point is 01:05:23 Sol Price is a remarkable man. So let's talk about Soul Price and speed. Look how fast Sam Walton is moving. Okay. So he's got this idea. He's got it. And that Walmart's already 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.

Starting point is 01:05:47 And he realizes that Sol Price is going to invent an entire new category. And so it says, on a January morning in 1983, Sam Walton flies to San Diego to investigate a new wrinkle in the discount business, a membership wholesale club, what we think of as Costco, which obviously turns into Sam's Club as well. The idea originated five years earlier by a savvy California entrepreneur named Sol Price. Sol Price was making an astounding success by selling merchandise at only 10% above manufacturers' prices and getting rich. If Sol Price could do that, Sam Walton figured he could too.

Starting point is 01:06:21 The Wholesale Club idea was good, extremely good. And so Sam goes back to Bentonville and he's like, okay, we're just going to do the exact same thing that Soul Price is doing out on San Diego. And we're going to do it. We're going to call it Sam's Club and we're going to start right now. This is insane. First visit, January, 1983. Okay. 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 1983, okay, so January 1st, he visits the first one, 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,

Starting point is 01:07:10 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 $5 billion a year. Extreme patience coupled with extreme intolerance for slowness. That is the career of Sam Walton. He's going to take his time 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

Starting point is 01:07:48 early days of Amazon is frugality 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 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

Starting point is 01:08:13 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 entrepreneur biographies, autobiographies, Sam Walton's autobiography has 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 is episode 234. If

Starting point is 01:08:39 you've already listened to the podcast, listened 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.

Starting point is 01:08:57 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 actually do.

Starting point is 01:09:16 You know, if people say, oh, David, you have a great memory. My wife would laugh at that because I forget things all the time. It's not that I 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.

Starting point is 01:09:34 That option is now available to you. If you like what you hear, if you think it's valuable, if you're already running a 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 can go to foundersnotes.com and sign up. I want to start out first with why this

Starting point is 01:09:56 is so important. There's actually this book that came out in like 1997. It's called In the Company of 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 there, 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, especially in the early days, like basically all your time doing this. In a typical startup, a manager may not always have the time to spend recruiting other

Starting point is 01:10:43 people. Then Steve jumps in. 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 going to 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 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 is 10% of the company. So why wouldn't you take as much time as necessary to find all A players? If three, three of the 10 were not so great, why would you start a company

Starting point is 01:11:27 where 30% of your people are not so great? A small company depends on great people much more than a big company does. Okay, so to answer this question, the advantage that I have making founders and that you have as a byproduct of listening to founders is not only that I've read, you know, 300 something biographies

Starting point is 01:11:47 of entrepreneurs now, but I have all of my notes and highlights stored in my Readwise app. And that means I can search for any topic. I can look at the past highlights of books

Starting point is 01:11:56 or I could search for keywords. So what I did is, first of all, like what I've started to do with these AMA questions is I read them, decide which ones I'm going to do next, and then think about it for a few days. I don't put any, I just literally, I know that's the next

Starting point is 01:12:09 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, I may 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 about, hey, you know, the great way 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 easier, right? Than if you're just somebody that doesn't have reputation, maybe you don't have resources, maybe your company's rather new or not as well known.

Starting point is 01:12:53 David Ogilvie, I just did Confessions of an Advertising Man a couple episodes ago, I think 306 or something like that, 307. And he did the same thing, but he's David Ogilvie 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 find, he'd go through magazines, find great advertising, great copywriting, and he'd write the person a letter and then set up a phone call. And he says he wouldn't, he was so well known and, you know, 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, he'd want to hire the person, never mention it. And the person would apply to him. And so again, I think if you can do that, then of course, it's straightforward. Find somebody who does great work.

Starting point is 01:13:30 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 DMing them and then convincing them to work on things. And that usually works,

Starting point is 01:13:45 especially with people like younger people earlier in their 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, that, that came to mind, but I found surprising is you read any biography on Rockefeller and he had a couple ideas where he felt the optimization, you know, 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 to this, 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.

Starting point is 01:14:20 And I pay for, I pay more for that ability than any other under the sun. There's a second part to this, though. And this also works well if you have access to more resources. Rockefeller would hire people as he found, as he found talented people, not as he needed them. It's not like, okay, Standard Oil has six open spots. Let's go find six candidates, right? He'd come across what he considered a talented person. It didn't even matter if he didn't know what they were going to do. He's like, I'm just going to stack his team. And if you really think about his partners at Standard Oil, he essentially built a

Starting point is 01:14:52 company, an executive team of founders, 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 you. 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 Vannevar Bush. I did two episodes on him. I think it's 270 and 271. He is the most important American ever, uh, in history, uh, in terms of connecting the scientific field, private enterprise, and the government. The most important person to keep alive for the American war effort was FDR. The second one was Vannevar Bush. Vannevar Bush is like the Forrest Gump of this historical period. He is involved in everything from the Manhattan Project to discovering like a young Claude

Starting point is 01:15:40 Shannon to building a mechanical computer. Like this guy literally has done, he's just, he pops up in these books over and over again. If you were reading about American business history during World War II and post-World War II, you are going to come across the name Vannevar Bush 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 this organization he's running called Amrad. At Amrad, I hired a young physicist from Texas named C.G. 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

Starting point is 01:16:21 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 Chuck E. Cheese, 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 laid on a foundation of creative people.

Starting point is 01:16:51 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.

Starting point is 01:17:07 I've known many talented engineers who hated science fiction but loved, say, books on birdwatching. A blatant but often accurate generalization. People who are curious and passionate read. People who are apathetic and indifferent don't. I remember one... That's such a great line, and I obviously agree with it. I remember one...

Starting point is 01:17:24 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 so i started mentioning books i hadn't read and she had read those too i didn't know how someone in her late 20s found that time this much time to read so much. But I was so impressed that I hired her right there and assigned her to international marketing, which was having problems. This is why. This is why I'm reading this whole section to you.

Starting point is 01:17:54 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 do you see what I mean? Like we start with Steve Jobs saying this is the most important thing that your role as the leader of the company and the founders do, right? And it's so important to study. And this is why I'm glad this question exists 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 me 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.

Starting point is 01:18:33 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's Jobs, Buffett, Bezos, Peter Thiel, this just pops up over and over again. They talk about the importance of trying to find people that are better than you. 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, entire company of A players, but they had 400 players. They had 400 team members. He's like, at the time Apple had 3000. It's like, it's impossible to have 3000 A players. So there is

Starting point is 01:19:14 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 and 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 Ogilvie'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 the people building your product. We subscribe to the philosophy of Ogilvy and Mather's founding genius, David Ogilvy.

Starting point is 01:19:52 This is what Ogilvy said. If each of us hires people who are 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 shall become a company of giants. Jeff Bezos used a variation of Algovie'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 pool is always improving. They talk about this idea on Amazon where the future hires that we do should be so good that if you had applied for the job you already have at Amazon, you wouldn't get in.

Starting point is 01:20:27 That's a very interesting idea. Take your time with recruiting. Take your time with hiring. There's this great book on the history of PayPal. It's written, actually, I've recently become friends with the author. His name is Jimmy Soni. And this is in his book. The most fascinating thing that I found

Starting point is 01:20:45 was that PayPal prioritized speed. So from the time they're founded to the time they sell to eBay, it's like four years. Jimmy spent more time researching the book than he spent six years researching the book. I always tease him. He goes like,

Starting point is 01:20:58 you took longer on a book than 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 Lutgen kept the bar for talent exceedingly high, even if that came at the expense of speedy staffing. Max kept repeating A's hire A's, B's hire C's. So the first B you hire takes the whole company down. Let's read that again.

Starting point is 01:21:26 A players hire A players, B players hire 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-part series on Larry Ellison. I should read those books again because the podcast is like 50 times bigger than when I published those episodes. And he's just crazy. So he would hire based on the self-confidence level of the candidate. Listen to this. I have tears in my eyes.

Starting point is 01:22:06 I don't know why I'm laughing. Okay. This is just so... Because you read about Larry Ellison, and he's one of these people that's really easy to interface with because you just know exactly who he is and what's important to him.

Starting point is 01:22:20 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 instead. 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 with 10,000 lives, right? I was just texting a

Starting point is 01:22:53 founder friend of mine. He listens to the podcast. I actually met him through the podcast. And he's going through this process of self-discovery. He's already started a bunch of companies that 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 hopefully his next mission is like his life's mission, you know. And you can't get to your life's mission unless you figure out who you are. Ellison knew who he was. Ellison's swaggering combative style became a part of the company's identity. This arrogant culture had a lot to do with Oracle's success.

Starting point is 01:23:23 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 the right person could actually be a form of distribution for his hotel. He gave me the idea because of what? What do we know? What do you and I know in our bones? 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 he did? He picked up a biography of Cesar Ritz, the guy that Ritz-Carlton is named after, arguably the greatest hotelier of all time.

Starting point is 01:23:58 And when he realized, oh, shit, Ritz, he says, 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 talking about? Cesar Ritz went out and partnered with August Escoffier. What Cesar Ritz wasamous chef, and now they know about your hotel. That leads to more activity in your restaurant that you own, but also leads to more brand recognition of your hotel, and then as a byproduct of that, more people staying at the hotel. So hiring as a form of distribution, this is fascinating. That is a fascinating idea. Okay, here's the problem. You can identify great people, right? Maybe they even want to come work. Like you've identified them. You've sold them, hey, this is our mission. This is what we're doing.

Starting point is 01:24:52 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.

Starting point is 01:25:11 They can't go for some other reason. Okay, well, the great founders are not going to take no for an answer. I read in this book called Liftoff, which is about the first six years of SpaceX, this is what Elon Musk did. They had anticipated his friend's issue. Having convinced Musk they needed to bring

Starting point is 01:25:26 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. These were solvable problems, and Elon's better at solving problems than almost anyone else.

Starting point is 01:25:41 Musk, therefore, came into his job interview prepared. About halfway through, Musk 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 Google. Well, 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, Musk had called his friend Larry Page, the co-founder of Google. The engineer sat in 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 from within or from without? That's dependent on you,

Starting point is 01:26:17 depending on what's going on. I do think this is interesting, though. There's a guy named Les Schwab who built this really valuable chain of tire companies in the Pacific Northwest. I actually found out about him because Charlie Munger is like, hey, you should read this biography. He said it in a – he didn't say it to me personally. He said it to – in like one of the Berkshire meetings that to study – Les Schwab had one of the most – one of the smartest financial incentive structures or any company that Charlie Munger had come across. So this is what Les Schwab did. He did not want to hire from, he didn't want to hire other people from other companies

Starting point is 01:26:52 because they might come with bad habits. He liked 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 and A players, A players don't like to be micromanaged.

Starting point is 01:27:15 And so this came in Larry Miller's autobiography called Driven. He owns like 93 companies all throughout Utah, car dealerships, movie theaters, all kinds of crazy stuff. But he also owned 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 business, right? That's what you're hiring me for. One of the best things we had ever done was hire Jerry Sloan as coach.

Starting point is 01:27:43 At the time, he said, I'm only going to ask you for one thing. If I get fired, let me get fired for my own decisions. If you hire me, let me run the team slash business. Here's another idea from Thomas Edison that I think is fascinating. Really, the way I think about a founder is like you're developing skills that you can't hire for. You're going to hire for everything else, but you shouldn't be hireable. And Edison wasn't. Edison, expressing his views on the preeminent role of applied scientists, which that's what he considered himself, coined the expression, I can hire mathematicians, but they can't hire me. And so when I read that paragraph for the first time, the note I left myself was develop skills that you can't hire for.

Starting point is 01:28:27 Capitalism rewards things that are both rare and valuable. Estee Lauder would give you advice that you need to hire people aligned with your thinking and values. Hire the best people. This is vital. Hire people who think as you do and treat them well. In our business, they are a top priority. So this idea is like, that seems kind of weird. Like hire people who think like you. There's obviously not one right way to build a business.

Starting point is 01:28:48 I think that your business should be an expression of your personality and who you are as a person at the core. And so I think there is an art to the building of your business. And the reason I use the word art, I don't mean in like a hoity-toity, you know, pretentious manner. That's not me at all. I don't even care about art at all, really. I mean that you're making decisions

Starting point is 01:29:08 not just based on economics. Like there are non-economic important decisions based on how you're building your business. Like you could probably make more money doing decision A, but decision A goes against who you are as a person or you just don't like it or it's just not as elegant or beautiful. And so therefore you don't do it. So that's what not as elegant or beautiful. And so therefore, you don't do it.

Starting point is 01:29:26 So that's what I mean about hire people who think as you do. And for whatever reason, when I read Estee Lauder say that, I was like, okay, there's like this art to what she's doing. One thing that's going to be helpful in recruiting, this comes from Peter Thiel. I think this is the book Zero to One. Understand that most companies don't even differentiate their pitches to potential recruits and to hiring. So therefore, as a byproduct of that, you're going to wind up with a lower overall talent base. And so he says, what's wrong with valuable stock? Smart people are pressing problems. Nothing. But every company makes these claims. So they won't help you stand

Starting point is 01:30:00 out. General and undifferentiated pitches to join your company don't say anything about why a recruit should join your company instead of money of instead of many others so that idea of like your pitch your actual he would tell you you're you shouldn't be building an undifferentiated commodity business but even above and beyond that like you're the the mission that you're trying to engage everybody to join you in that That pitch, that sale you're trying to make to potential recruits should be differentiated, should not. If that person's applying to five other jobs, there should not be like, it's like, they may not like your mission, they may not like your pitch, but they shouldn't be able to compare it to anything else. Another quote from Nolan Bushnell, hire for passion and intensity. That's what he would do, or that's what he did when he

Starting point is 01:30:42 found Steve Jobs. If there was a single characteristic that separates Steve Jobs from the mass of employees, it was his passionate enthusiasm. Steve had one speed, full blast. This was the primary reason we hired him. And one thing all these founders have in common is that they know how important hiring is. And when something's important, you do it yourself. This is, again, Elon Musk on hiring.

Starting point is 01:31:03 He interviewed the first 3,000 employees at SpaceX. That's how important it yourself. This is, again, Elon Musk on hiring. He interviewed the first 3,000 employees at SpaceX. That's how important it was. One of Musk's most valuable skills was his ability to determine whether someone would fit his mold. His people had to be brilliant. They had to be hardworking, and there could be no nonsense. There are a ton of phonies out there, and not many who are the real deal, Musk said, of his approach to interviewing engineers. I can usually tell within 15 minutes, and I can for sure tell within a few days of working with them.

Starting point is 01:31:26 Musk made hiring a priority. He personally met with every single person the company hired through the first 3,000 employees. It required late nights and weekends, but he felt it was important to get the right people for his company. And then to close on this, we started with Steve Jobs telling us

Starting point is 01:31:41 why it was so important and why it should be a large part of how you spend your time. And now we'll close with what you do after. What do you do after you hire the person? This is what he says. It's not just recruiting. After recruiting, it's building an environment that makes people feel they are surrounded by equally talented people and their work is bigger than they are.

Starting point is 01:31:59 The feeling that their work will have a tremendous influence and is part of a strong, clear vision. So that is the end to that 20-minute mini episode. I just re-listened to the whole thing. And it really does, I think, it's a perfect explanation and illustration of why I think Founders Notes is so valuable. Because some of those books I haven't read in five, six years. And just the ability to have a searchable database of all these ideas, like this collected knowledge of some of history's greatest entrepreneurs to reference and then contextually

Starting point is 01:32:31 apply to our own businesses. It's nothing short of like, it's magic. That's really the way I think about it. I think it's a massive superpower. It gives me a massive superpower. I couldn't make the podcast without it. I also think if you have access to it, it'll make your business better. And so if you're already running a successful business, I highly recommend that you invest in a subscription and you can do that by going to foundersnotes.com.

Founders - #354 Sam Walton: The Inside Story of America's Richest Man

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