How I Built This with Guy Raz - Live Episode! The Home Depot: Arthur Blank

Episode Date: December 28, 2017

In 1978, Arthur Blank and his business partner Bernie Marcus were running a successful chain of hardware stores called Handy Dan – but then, they were unexpectedly fired. The next year, they conceived and launched a new kind of home improvement store that flopped on opening day, but went on to become one of the biggest private employers in the U.S. The Home Depot now earns annual revenue of almost $100 billion. Recorded live in Atlanta. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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So at 6 o'clock at night, they were standing in front of the stores still handing out $1 bills. So we had this grand opening, and nobody came. From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on this special. live episode, when Arthur Blank got fired from his corporate job in his mid-30s, he didn't wallow in self-pity. He got revenge by building a business plan for a new company, the Home Depot. So back in 1979, when Home Depot opened its first store in Atlanta, there were, of course,

other hardware stores. But at the time, there was nothing quite like Home Depot. For starters, it was huge, almost twice as big as its competitors. And second, it offered. It offered things like free workshops and staff who could tell you how to fix stuff at home. But most importantly, Home Depot was cheap like 10 to 20 percent cheaper than other hardware stores. Now, initially, Home Depot wasn't a sure thing. In fact, on day one, it wasn't clear it would work. But today, Home Depot is a company that does almost $100 billion in annual revenue. And it's one of the 10 biggest private employers in the U.S. And the story of how Arthur Blank and his mentor Bernie Marcus built it will inspire anyone who's ever been fired. Because if those guys had never got fired from their safe and comfortable corporate jobs, they'd have never started Home Depot. Now, Arthur and Bernie no longer run the company, but they still own lots of shares. And Home Depot's made them rich.

Arthur Blank's net worth is estimated at more than $4 billion. And one other thing about Arthur, he is beloved in his adopted hometown of Atlanta. And a big part of that has to do with his stewardship of the Atlanta Falcons, which he now owns. Arthur Blank sat down with me in front of a live audience at the Buckhead Theater in Atlanta, and we started out by talking about his boyhood and growing up in Flushing, New York. What are your earliest memories of your childhood? Oh, Lord. probably fighting with my brother.

That would be one. It was you, your brother, your mom, and your dad, right? Yes, exactly. We lived in a small apartment. It was a one-bedroom apartment, one bathroom. We shared that. Actually, my brother and I shared the bedroom, and my mom and dad slept in a little pull-out thing in the foyer.

I went out in the morning, stayed out all day, and came home when it got dark. And it was a, you were middle-class. family, right? Very middle class family, yes. What did your, what did your dad do? My dad was a pharmacist. He passed away when he was 44. I was 15 at the time. Several years before that, he had left, he was working for his brother in a retail drug store, and he started his own pharmaceutical distribution company to hospitals and nursing homes and doctors across the country. When he passed away, my mother was only 37 at the time, and without any business background, she went in and started to run the business.

My mother was one of these people, which, you know, failure was not part of her vocabulary, and she was going to succeed, and she was going to do whatever it took to be successful in the business. And I would go to school, and I was playing football then and do my football practice. Come home, I'd start dinner. I did the family laundry and just did a variety of things to support the house as best I could and try to be as good a friend to my mother as I could be. I remember periodically I would take her and go bowling. And I remember one time, you know, she was very young looking.

Somebody would ask me, well, is that your girlfriend? I said, no, that's my mother, actually. It's not my, actually, my girlfriend. But she was always very young at heart and very young in spirit. She loved to dance. very much of a caring person. You went off to college at Babson College as a small business college in Massachusetts.

Was that your intention to get into business out of school? Well, I think really what happened after my dad died, we would talk about what's going to happen to the family business. We had hoped, you know, my mother would, you know, get remarried.

She did, she exceeded our wishes. She did several times over. She would laugh at that too. She wouldn't say my mother would think that would be very funny. So, but in any event, so my brother was going to take over the pharmaceutical end of the business, and I would take over the business end of the business. So that was really the plan. He went to pharmacy school.

I went to business school and was able to develop some skills in terms of how to work with others and be inclusive and be a good leader. So that was very important for me in college. So out of college, I guess you start work as an accountant, right, for a couple of years? Right, right, for five years. But I kind of realized during that period of time I didn't want to spend the rest of my life recording what other people were doing and making sure the books are balanced and all that kind of stuff and giving good audit advice.

But I wanted to be on the other side of the desk, if you will, where I actually could help make the decisions and help drive the business and build the businesses. So I guess it was in your mid-20s or late 20s you went and worked for a company called Dailen. What was what was Dailen? Dailen was a conglomerate when that word was really fancy and drew high P ratios. The great majority of the company ended up being in bankruptcy. I was running a chain of drugstores. I originally started out as a CFO there. We were the only part of the company that was making any money and they had a small home improvement center company in California called Handy Dan Home Improvement Centers. They were also making a little bit of money, but the rest of the company is all losing money.

So I had an option to stay there and continue just to run the business as it was or potentially go to California. I met my partner at HD, Bernie Marcus, through Dela. Bernie was running the discount store division for them. That wasn't doing well. So at that time, I was 24 or five years old. I mean, I was a young man. Just to be, so just to clarify, you were the CEO of the drugstores that Dailen owned, and Bernie was involved with their discount stores. Right, right.

Both of those businesses were sort of collapsing, and you had this option to go work for another business they owned, which was Handy Dan, which was the home improvement. Well, just to be clear, the drugstore business we were running was actually very profitable. Right. I just want to be clear on that. We were making a lot of money. The parent company had no money to give us for expansion, and I didn't want to be part of that. I don't want to be just maintaining 75 stores

until I got 75 years old. So I decided then, either I was going to leave or whatever, and they offered me this opportunity in California to work with Bernie, and Bernie and I had been very close. So then I went to work for Bernie in California at Handy Dan Home Improvement Centers. My wife then didn't want to go to California because she was positive that we would be consumed by a quake of some sort, but she ended up coming and we ended up, you know, having some kids there. I've had kids all over.

You name an age, I have a child. So I've got six wonderful children and my wife has three children. And I always consider the Home Depot to be my seventh child. So you moved to Southern California, you start working for Handy, Dan. Bernie Marcus is there as well. But he's about, I guess, about 14, 15 years older than you. Was he sort of like a mentor to you? Yeah, Bernie is, he's 14 years my senior.

He's probably a combination of brother and a father figure. Having lost my dad and a rabbi. I mean, he's always considered himself to be a rabbi. And so he's a great storyteller. I'm a great joke teller. And I'm not a great storyteller, but I'm a great audience. He would tell the same stories, and I would keep laughing at the same stories. It was like a great partnership because he loved hearing, you know, me laugh.

And it was like a marriage. It was like a marriage. It was like a very good marriage. So what did you and Bernie start to do at Handy Dan? You start to, I mean, you were trying to make this into a successful company. So what were some of the things that you were doing at that company and experimenting with at that company at the time? Well, that company, Handy Dan Home Improvement Centers, was,

and we operated kind of a traditional model, 40,000 square feet, 40% gross margin, 40 associates on the floor. And it was by far the most successful chain of Home Improvement Center stores in the country then. And we had a tax treaty with our parent company, parent company being Dalyan. And so we would send our tax money instead of going to the government and we sent it directly to Dalyam.

So we were a favorite child in that company because we were kind of keeping the company afloat, if you will, with our tax money. At some point, the parent company was bought by a guy named Sanford Sigeloff, who was actually quite famous at the time. He was in these Wicks commercials and he was...

His real name was Ming the Mercilus. Right. That's right. And he actually called himself. That too, right? Yeah. And he comes into the company, and he fires you guys. He gets rid of you.

What do you remember about that day? Were you shocked? Yeah. Yes, I was shocked. Yeah. I mean, at that time, we were running the most successful home improvement center company in the United States. And Bernie and what is the name, Sandy's Merciless Ming.

Sigeloff, yes. Sigeloff. Right. He and Bernie would get into fights during board meetings, And I mean, they both were very, you know, self-confident, strong people. Sandy had a difficult time because basically all the profitability, all the cash flow from Daly was coming from this Home Improvement Center company. Bernie was properly, you know, taking credit for the results that we were producing.

Sandy didn't like that. So this was, you know, war of the giants. And they owned more stock than we did. And so called my wife and I told her, and she started laughing. Because she didn't believe you. Well, she didn't believe me. She said, well, I mean, how can you be fired? I said, well, I try to explain, you know, political strife in the business context to her.

And so I said, she said, I still don't believe you. I said, well, I'm going to get in the car and start driving home. And by the time I got home, Wall Street Journal had called the House, the L.A. Times had called the House, the Orange County newspaper called. I mean, there were people on the phone that wanted to talk to me. So, I'm walking the house, she said, I guess you weren't joking, why are you? I said, no, I'm not.

So, um, wow. I mean, you were 36. You had kids, I guess, at that point. Right. Um, they had three children then. Were you, uh, that's called first batch. That's what they call themselves.

Right. Did you, did you have, I'm just curious. I mean, you know, you've got this job. You moved to California. It's very successful. You've got this career ahead of you. I don't know. Were you worried?

Did you feel like the rug was pulled from out from under you? Well, I, you know, I was shocked. But, you know, I mean, given the financial background that I had, we had saved up some money. I wasn't, you know, I wanted to take my time as did Bernie and think through the options that we had. You know, he was still a feel, a young man at that point as well. And I didn't want to rush into anything.

So I took basically the better part of the year off, did a lot of running, ran my first marathon that year, spent all the time with my kids. I mean, I did a lot of things that I wanted to do. I was looking at a lot of different alternatives. We wanted to think about outside the box, and Bernie had said, well, you know, if we were, we ever to leapfrog our own business, Handy Dan Home Improvement Centers, what kind of home improvement center store could we not compete against? And so we said we could never compete against the big warehouse, no frills,

down market, low prices, great service, great services. So instead of kind of taking that handy Dan model of the fours, four million dollars, 40 percent margin, 40 staff people, et cetera, we said, let's try to leapfrog the industry, you know, dramatically. How did you, how, when Bernie came to you and said, hey, here's the business plan. You were in, you were in right away. You said, let's do this thing? Well, we did the business plan together. And I, and Bernie and I, Bernie lived in the San Fernando Valley. For those who know LA, it's from a three hour to a three-day drive to get from Orange County to San Fernando Valley. And so we would talk a lot by phone.

And I would develop really all the business plans and work on the models and things that nature. I would send him to him. He would look at him. Oh, we'd meet at a coffee shop that was somewhere in the middle, which we met at, I don't know how many times. But they had a table that it was kind of named after us. And we kept, you know, developing this model and developing it. And finally, I remember one night I had, you know, all these papers spread out on a dining room table. And I, you know, I called Bernie and I said, you know, listen, partner.

I mean, I've applied, you know, five years of experience in a large public accounting firm, my own business experience, my experience running and change drugstores. And these numbers don't add up. And I still remember what Bernie said on the other end of the phone. He just said, change the numbers. He says, change the numbers. Like, change the numbers. So, I mean, his argument, which really was valid, was that, look, this is a model.

We don't have any of these stores. We're just projecting what one might do. But, you know, at that time, I mean, so I understood. I said, but it's got to be, we've got to be able to present this to very sophisticated investors and have it make some sense and be plausible. But reality is that the investors who invest in our company was 144 of them. really what they were buying into was just myself and Bernie. Yeah, because you had the experience.

We had the experience, and they looked back at Handy-Dan Home Improvement Centers, and they said, we're betting on people here. We're not going to bet on that experience, on that smallest store. Arthur, why did you guys decide to start this company in Atlanta? You were based in Southern California at the time. How did you pick this area? Well, I had lived in Atlanta. The chain of drug stores was based in Griffin, Georgia.

Right. Griffin is the first city south of Atlanta. I always remembered Atlanta. It was a growth city, growth market. I love the city. So I asked Bernie, let's go to Atlanta. And at that time, this is hard to imagine because Atlanta, even today,

qualifies as a national park based on number of trees that are still up in Atlanta, despite all the development here. but there was less than a million people living in Atlanta at that time. So when I drove Bernie around Atlanta to look at the sites, 285, which is everybody here is familiar with it, all you could see was trees. And so every once in a while, every 10 minutes,

Burma, we say there's nobody living here, Arthur. So you can't open up a business here, there's nobody living here. There's nothing but trees here. I'd have to get off the highway, drive them around for a little bit, you own some divisions, subdivisions, get back on highway, drive some more. He said, there's still not enough people. There's nobody here. There's just going to be all these trees.

So we did that like for two hours. We drove around 285 and got off and looked at subdivisions. So finally, he became convinced that Atlanta would be an important growth market. And it was even growing then. It was less than a million people when we opened up here in 1979. And today it's something north of seven million people. On that opening day in 1979, you'd raise the money to open two shops. You're in Atlanta.

You open the doors to home. Depot and is there just a mad rush of people to come in? Not as expected. That'd be a mild statement. So we agreed, Bernie and I went to one store and I'm plotting a Pat and other associates obviously went to the other store and we agreed we weren't going to talk to each other in the morning and my three older children, they were each given $500 in $1 bills and I told them, I said, look, I told the mother they'll never,

and said, they'll be back in school by 11, 12 of the very latest. So at 6 o'clock a night, they were standing in front of the stores still handing out $1 bills. So we had this grand opening and nobody came. In just a minute, how the Home Depot went from a flop on opening day to the largest home improvement chain in the world. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to How I Built This from NPR.

I'm Guy Raz. So Arthur Blank and his business partner, Bernie Marcus, opened their first two stores in the Atlanta area in 1979. But to say the least, it didn't quite go as expected. And so over the next year, they worked really hard to identify what wasn't working. And they experimented with different pricing and different merchandise to try and get more customers into the front door. We spent really the next year in one of our core values is to listen and respond.

and listening, I probably spent 75% of my time, as did Bernie, as did really most of our associates, on the floor of the store, finding out from customers what is it they like, what it didn't like, and we kept changing the mix, adding things, taking things off, changing prices, changing assortments, changing vendors, making sure we had service levels in areas they wanted them. So we kept refining the model. Every competitor came into our stores and visited us and said, I mean, these, I can't use bad words here because this is like kind of a live radio thing, but these, whatever you want to call us, they're crazy. The stores are much too big, prices are much too low, they have way too much product and stock,

they have too many services. I mean, the math isn't going to work. And of course, the math during 79 wasn't working as great. We fine-tuned it, got it where it needed to be, exploded in 80 and 81, and the numbers were incredible. and we went public in 81, obviously we got a great reception from the stock market. And then there's a long story after that, but at that point forward, we knew we were going to be very successful. Arthur, I want to ask you about how you and Bernie thought of the company, and you have to, of course, agree on what it's going to be, what the values the company are. So what were the core values of Home Depot?

Well, I think that, you know, we never really wrote them down. I remember I went to a lunch at Bernie and I said, you know, we're living these values, which by far in a way is the most important thing that we can do, but they're not written down. And I'm going to give you some shocking news today that I've kind of figured out and know it to be true, and that is that you and I are going to approve a lot of stores in the future that we will actually never see. We'll never be in them. We'll never get a chance to go visit them. I remember stop eating lunch, put down that before, let me see you're nuts. He said, that's crazy.

How can we approve stores and never go visit them? I said, Bernie, because we spent about half our time in our stores. And I said, if you do the math of it, we visit certain numbers of our existing stores every year. And we just realized that there were too many new stores. So I said, we need to document, lead to write down. And, you know, I think the beauty of our core values, which are really focused on our associates and people and relationships and community and giving back. The people who was serving drive everything that we're doing. Those are the ones that we listen to, those the ones we respond to, those the ones we care for, those the ones we nurture.

And that's the mentality of the training that we've given to all of our associates. You went, Home Depot went from zero revenue in 1979 to 700 million in 1985, the fastest company in U.S. history to hit $40 billion in revenue. How did you manage that growth? Was that overwhelming? I'll tell you a story, Sam Walton, Sam was the founder of Walmart. Sam was speaking at a retail conference I went to, and somebody asked them, and the company had gone from, I know, on the 10 billion to 20 billion or something. Today, I don't know what, they own half the world.

But they, whatever, you know, between the name and Amazon, but we said, well, how did you get from 10 to 20 billion dollars? And Sam said, we opened up one store at a time, and that's all we did. And so, really, at HD, we had a five-year-old. plan, we had a one-year budget, we had all of that, but we focused on every single store, and our plan was that each store had to be better than the last store we opened up. So we didn't have any planograms, we didn't have any, you have to do it this way, we didn't let the model get frozen, we didn't let it, we made the folks running the store

think about this is the last store, how do I make this store better? How do I own it? How do I feel accountable for it? I inject my ideas into it and how do I make it better. So every store got better. What about your personal life? I mean, did it take a toll on the time you were able to spend with your kids, your family, and you must have been working all the time?

I thought you weren't going to ask me about my personal life. I don't know you can ask me whatever you want. I told guys anything you want to talk about, it's fine. I think it's one of the things I'm most proud of, my oldest daughter, who she was running a nonprofit for young women in San Francisco. And when they did a retirement dinner for me in 2001, she couldn't be there. She couldn't get away.

And she did a video piece, and she sent it. And I still remember what she said there and says, Dad, you know, I never realized when I was growing up, you know, the size of the Home Depot and the success of it because you're always there for me. You're always at events that were important to me. You're always there when I was doing dance recitals. They're always there, you know, important school programs, whatever it may be.

And I worked around the kid's schedule, and I would work early in the morning. I'd work late at night. I'd put them to bed and work after that. And so I always made sure there was balance in my life. And I think, you know, I often asked by young folks, most people are younger than me, so it's easy for me to find people that want that advice today. But I always tell them, you know, make sure you have balance in your life. And because too many young executives, men or women, their attitude is that we've got to work now, work hard, and put my career on fifth gear and go, go, go.

And so when you return home in 10 years, you're not going to recognize your kids. And your spouse is going to look at you and say, who are you again? So I think it's important to find balance in your life. You stepped down, stepped away from the company, left the company at a pretty young age. You were 58. This is 2001. Why did you leave? Were you just kind of your time there was done? Well, I told the board at that time.

I mean, I had done, I mean, the earlier days in the company, the first, I don't know how many years, but that was a 23-year period of time. That it was great fun. It was all these adventures, starting a new business, you know, going half broke, figuring out how to work through that, you know, responding to customers. And as time went on, I found myself spending more time in meetings. more time doing things that I had to do that were part of the job and I didn't dislike doing them, but there weren't as much fun for me anymore. So, and I really felt that 23 years was a long time for somebody in my position, first as president, later as CEO and chairman and what have you.

And Bernie and I'd always operate as a very close partnership. I mean, it was really more like two brothers working together, two partners working together than anything else. And you still talk to them, right? Well, I talked as often as I can. We probably had two dinners and a lunch in the last 60 days together. So I see him a lot, and, you know, it's always great to do that. So I felt the time was right. We began to do a search. The board found a candidate that was, his name is Bob Nardelli. You're going to get some hisses from my HD folks in the audience now.

But they brought in Bob Nodelli as the CEO, the board. made that decision and I was sure happy I wasn't there during the six years that he was there. That would have been the worst time in my life. But that was a time in your life when you really made your biggest mark on the city of Atlanta by buying the Falcons. Yeah. I mean, that was, can you explain what was the, I mean, did you have this burning passion to own the Falcons?

Was it sort of a chance to run a business again? What was the thinking behind doing that? Well, I was a season ticket holder since I had moved to Atlanta, and I didn't realize this, but the commissioner before, Commissioner Goodell, Commissioner Taggabu, at the closing one I bought the team, you said, you realize the team you just bought has never had back-to-back-winning seasons.

And I said, Paul, you know, Paul's the smartest guy in the room, not because he told you, just because he really was the smartest guy in the room. I said, that can't be correct. So I went back and I checked and it turned out that was correct. So I realized all those years that I was a season ticket holder and I would have such angst over the Falcons, I understood why, because it was constantly like this.

So I said to myself, I can either sit and complain about it for the next 40 years in my life or just try to buy the team and fix it. So I felt, you know, buying the team and fixing it seemed like more fun than sitting there and just watching them to play and lose the games and what have you. So that was in 2001, and I'm just finishing up our 17th year as owners. Now, we've had, you know, we've had multiple back-to-back winning seasons, multiple championships, played well last year in the Super Bowl. We just forgot there was a fourth quarter in the game.

Played really well for three quarters. and somehow, you know. This has been, to say the least, an interesting year in the NFL. Do you feel like players who are trying to bring awareness to the way our criminal justice system treats black men and women versus white

by not standing for the national anthem? Do you feel like that's acceptable? Yeah, I think it's less exceptional. to deny people if First Amendment rights. So I think that's less acceptable. Having said that, I mean, I think that players should stand and should stand respectfully for the National Anthem. And I will tell you, there are 1,750 players in the NFL,

and I will tell you, these players have great respect for the military. And so it's not about the military to them. It's just that becomes an opportunity of platform for them to speak about their concerns about social injustice, police accountability, their focus is on turning that platform now into progress on these issues and making sure that owners and organizations and America are listening to voices that cannot be heard. And I think I'm more for that. How much of your, this is a question I ask everybody who comes in the show, how much of your, how much of your, this is a question to ask everybody who comes in the show, how much of your success do you attribute to your intelligence and your hard work and how much of it to luck and timing? Well, I think that luck and timing is a big deal. I mean, I really do. A lot of it is success is based on timing and luck and being the right place, but then seizing opportunities. I think being

willing to go out of your comfort zone, and I'm a big proponent of outward bound. I've done, I don't know how many outward bound courses myself, but we did a lot of that. in terms of the training at HD, but a lot of it is based on their philosophies to serve, to strive, and not to yield. So I think that having that entrepreneurial drive and spirit to get up every day,

to have purpose in your life every day, to become better every day. I'm doing this because I have a passion for doing it, and I love being of service to other people in whatever form that I can be. Arthur Blank, founder of Home Depot, owner of the Atlanta Falcons. Thank you.

That was my conversation with Arthur Blank, founder of the Home Depot, live in Atlanta, Georgia at the Bucket Theater. And in addition to the Falcons, Arthur owns Atlanta's new major league soccer team, Atlanta United, that started playing in 2017. And by the way, in case you were wondering,

the guy who fired you in 1978, Sanford Sigeloff, did you ever have any contact with him after Home Depot? Like, did you and Bernie ever... You know, I used to tease Bernie, we go to send him a thank you note, you know, every anniversary date when we were fired, and he didn't want to do that. Anyway, he did us a favor. Hey, thanks for listening to this special live episode of How I Built This. This episode was produced by Casey Herman with music composed by Ramtin Arablui.

Thanks also to Neva Grant, San Azmeshkampur, Claire Breen, and Jeff Rogers. Our intern is Diana Mustak. I'm Guy Raz, and you've been listening to Howe, I built this from NPR.