The Inside Story of America's Richest Man: Sam Walton

1. 0:00 – 2:31

   Sam Walton's Hidden Rise and the Power of a Simple Idea

   1. DSDavid Senra0:00

      So the book that I wanna 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 holds it year after year after year. But before that happened, for the first sixty years of Sam Walton's life, he was not nationally known. He-- 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 six point three billion dollar 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 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, a very simple idea: I'm going to buy cheap. I'm gonna sell low. I'm gonna do that every day, and I'm gonna do it with a smile and focus on service. And one of the benefits that Sam Walton had early in his career was that there's a tendency for people to confuse a simple idea with an ordinary person. And Charlie Munger, who extensively studied Sam Walton, hit upon why an i-- 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 wanna 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, I read, uh, a little while ago that if you take his family's

2. 2:31 – 8:11

   Childhood, the Depression, and Determination

   1. DSDavid Senra2:31

      net worth today, it's s-- it's almost a quarter of a trillion dollars. And yet it took Sam Walton twenty years of experimenting inside of retailing d-- before he threshes 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. But before I get there, I just wanna 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, 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 As and friends, grinding away on merit badges in hopes of becoming an Eagle Scout, regularly attending Sunday school, and working odd jobs such as mowing the grass and delivering newspapers. He was following the example of his dad. His dad had a life motto that could not be more simple. It is only three words, and it's the same word over and over again: Work, work, work. His dad taught his sons that you were supposed to have a fierce work ethic. He would not tolerate any of his sons not being industrious. They had to be industrious, they had to be ambitious, and they had to be decent people. And so here's a little more about Sam 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: 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 gonna 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 nineteen eighteen, and so he, 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, that time period. And he talks a little 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 ten years, this is the prime of his father's life. They make no economic progress. They are distinctly lower middle class, right hovering around the poverty line. And so Sam and his brother Bud get jobs to try to help out the family. And there's a line in the book 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 was incredible. He says, "It turns out it is much more important to be determined than smart. If you imagine this hypothetical person that is one hundred out of one hundred for smart and one hundred out of one hundred for determination, and then you start taking away determination, it doesn't take very long until you have this ineffectual but brilliant person. Whereas if you take someone who is super determined and you take away smartness, eventually you get to a guy who owns a lot of 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, and especially in this section, is because, okay, 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, this-- I was thinking about this, this morning. If you were mapping out the family tree and the trajectory, the economic trajectory of the Walton family before Sam Walton comes on the scene, you would see middling success, and then all of a sudden there's this one data point, this generational inflection point where it just skyrockets. Today, that family, present day, a hundred years after Sam Walton was born, you know, they have a quarter of a trillion dollars, two hundred and fifty billion dollars. But a hundred years ago, they were straddling the poverty line. The difference was one person, this super determined person, made that difference. He changed the, the trajectory of his entire family for generations. And so it starts with determination, but in this hypothetical situation, it's not that we have to remove points for intelligence. It took Sam to find where he can be intelligent. What is the field that he can be the most intelligent? If you have a list of the greatest retailers of all time, Sam Walton has to be at the top of that list. And the reason I recommend if you haven't read his autobiography, get it immediately. Get the audiobook, get the paperback, whatever you have to do, and then a- if you've already read that book, buy this book, because you will see it took decades of him applying his determination and then matching it with one hundred of one hundred intelligence in a specific field. And it's important to understand this was not planned out. Sam had no idea. He had one idea [chuckles] one idea of, 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 gonna 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 just, uh, 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.

3. 8:11 – 11:36

   Lessons from J.C. Penney

   1. DSDavid Senra8:11

      And so let's go there right now. He actually gets a job at J.C. Penney. This is an extremely important turning point in his life, and you're gonna see a lot of the lessons that he's gonna learn from J.C. Penney, he applies later on to Walmart. And so let me just tell you that, like, in case you don't know, uh, like, this shocked me, 'cause I knew what J.C. Penney was. It was around when I was a kid. I don't even know if they exist anymore. But in nineteen forty, right, where we are in the story, J.C. Penney has almost sixteen hundred stores, and they're doing three hundred million a year in revenue, and the founder is still actively involved even though he's in his sixties. His name is John Cash Penney. Sam is actually gonna meet John and get a le- lesson directly from him. So Sam gets this job. He's being paid eighty-five dollars a month. Remember that for this upcoming story about sharing incentives with store managers, which I'll get to in one second. But the first idea I have to point out to you that Sam's gonna use for Walmart is the fact that the company strength that J.C. Penney had built sixteen hundred stores avoiding big cities. This is exactly what Sam's gonna do for Walmart. And he focused on small towns. You're talking about towns of two thousand people, six thousand people, eight thousand people. That's the first idea. It's like, ooh, maybe there's a lot more business out in these small towns than we thought. The second idea, John, J.C. of, of J.C. Penney is constantly in the stores. He's traveling around in the stores wanting to know what's going on. Sam does this his entire life. And it is one of these store visits to the store that Sam is working in, Sam's around twenty-two years old at the time, that he gets this lesson from this wiser, more successful retail legend. He's sixty-five years old. Says a customer came in and bought something from Sam, and while he wrapped it up for her, J.C. Penney was observing the transaction closely. "I finished wrapping and tying the package, and the lady left. Then Mr. Penney came over. 'Boys,' he said, 'I wanna show you something.' And he took a box about the same size and went around it with paper and let it overlap maybe a quarter of an inch. Then he went around it with twine one time like this and one time like that, and he tied it, and he said, 'Boys, you know we don't make a dime out of the merchandise we sell. We only make our profit out of the paper and string we save.'" This idea of watching your cost twenty-four seven, 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, and this is one of my favorite w- 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 J.C. Penney. Here is the third. His direct manager, this guy named Duncan, he said, "He was a fantastic trainer. He used to invite us to his house every Sunday to play ping pong and to eat and talk. We'd talk about business, of course. You could learn a lot." He was one of the managers who had a twenty-five percent bonus contract. Again, another idea Sam is directly gonna steal. At the very beginning of Walmart, he sets up all his managers, and he gives them twenty-five percent of the profits of the store. Now, remember I said that at this time, Sam is making eighty-five dollars a month. His manager shows him the twenty-five percent bonus check. It was for sixty-five thousand dollars. This is Sam's response. "He waved that around, and that made us run faster and work harder." Sam Walton's time working at J.C. Penney and applying what he learned there would eventually put a few billion dollars into his own cash registers. So

4. 11:36 – 17:09

   The Newport Ben Franklin Store and Customer Obsession

   1. DSDavid Senra11:36

      I wanna get into where Sam buys his first store, where he gets the money from. He is twenty-seven years old. He marries a woman from Oklahoma named Helen. They both have this desire. They're small-town people, so they're looking around where they're gonna live, and where they're gonna live, they're gonna try to buy a Ben Franklin store. So they're called Ben Franklin 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 'cause most of the things that you buy there are-- you know, you could 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 twenty-seven 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 twenty years of his life, Sam Walton is a franchisee of a much larger company, and we'll get there in a little bit, but it's crazy. He tried to give the idea for Walmart to, to Ben Franklin, to the big corporation, and they laughed him out of the room. And so twenty-seven-year-old Sam finds a store. The town, there's four thousand people that live in Newport. This is a tiny, tiny town that he can buy the Ben Franklin franchise. It, it's gonna cost him twenty-five thousand dollars. He does not have twenty-five thousand dollars, so his father-in-law is going to be very important in their lives, which I'll get to later. His father-in-law is very successful. He's a lawyer, a rancher, a banker, and so he loans Sam Walton the twenty-five thousand dollars needed to buy the Ben Franklin franchise. And at this time, Sam's plan is very simple. He's like, "Well, I'm just gonna take the obsession with customer satisfaction that J.C. Penney had, and I'm just gonna 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-- Sam's a showman. He's like very much like a P.T. 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 into the store. And you wouldn't believe how some of these, like, really simple ideas were so effective. So he bought-- He spent a bunch of money on an ice cream machine. People are like, "What are you, what the hell are you doing? This is, like, it's a crazy idea." And he'd 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 sh- uh, his ice cream machine, and then some of them would come into the store and then tu-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 gonna tell other people. And so, you know, five and a half years from now when he loses this store, it is by far the most successful. I think he's tied for first in all the Ben Franklin franchises, if I'm not, 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, you know, fifty percent 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 or the people that buy the popcorn, it's still a great return on the investment for buying a popcorn machine and an ice cream machine. And that's something that Sam's gonna repeat. He really felt one of his, his best advantages was consistent, around-the-clock customer satisfaction. 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. 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 gonna see something that, that happens over and over again, that opportunity is a strange beast. It frequently appears after a loss. He's running this thing for five and a half years. He gets sales up to two hundred and twenty-five thousand 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 thirty-two years old, Sam Walton is gonna lose everything and be forced to start over again. And it is because of an inexperienced kind of rookie mistake. When he bought the store, he didn't read the lease close enough, and he did not have the option to renew. And so Sam is meeting with his attorney, and his attorney is telling him what's taking place. "It's no good. I hope to 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 gonna 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 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 thirty-two years old. You have 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. He wasn't, Sam wasn't out there blaming other people. And I love his response there. He's like, "I'm not, you know, I'm not whipped. I'm not gonna 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."

5. 17:09 – 20:47

   Losing Newport and Starting Over in Bentonville

   1. DSDavid Senra17:09

      And so this is when he finds Bentonville, Arkansas, 'cause he's driving around. He's looking, again, running the same playbook. Let me go to the small town. Let me try to buy a Ben Franklin franchise from somebody who wants to sell. He finds one in Bentonville, and he doesn't make the same mistake. So what he does is like, "Okay, 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 gonna make any money. I gotta knock down this 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 ninety-nine-year lease. You won't sell to me, that's fine. Then I need a lease that, 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 he says, they say no. The third time, they say no. The fourth time, they say no. The fifth time, they say no. The sixth time, it took six tries, and you'll see he does this exact same playbook when he's recruiting people. In some cases, he will recruit the same person- And they'll tell him no for a decade. This guy is relentless. But finally, the sixth time, they finally agree to this outrageous, 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, with kids, like I said earlier. He used all of his money setting up the new store in Bentonville, okay? He's got n- 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 the end of the year. So he is commuting back and forth. And even though the stores are only 250 miles apart, it's like an eight to ten-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, dies, you're stretched 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? Like, I'm, I'm-- If I can never-- If I cannot move ground faster, right? I will always be relegated to just having one store." Uh, you already know by now, Sam Walton's not the personality type to be like, "Oh, I'm just gonna run one store for the rest of my life." And so it is during these long drives through the mountain, eight hours, ten hours each way, he's like, "I've got to figure out a way to cover faster ground." And then he hears the buzz of an airplane overhead. And the author does a great job of describing this, so I wanna 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 flashed in his brain. So he goes down to the local airport, and he's like, "Maybe there's a faster way. Can I, like, charter 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.

6. 20:47 – 25:46

   Airplanes, Underfinancing, and Visiting Every Competitor

   1. DSDavid Senra20:47

      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 al- constantly-- Until the IPO, he is constantly underfinanced and undercapitalized. He actually talks about that in his autobiography, so I'm gonna 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 underfinan- 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 have 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 dreamed of." So his idea at the very beginning... This is the good thing. He, like, he had to prove the concept over, you know, many, many years. Then once he knew it was working, he poured, you know, gasoline on these promising sparks. But his idea first is like, let's get one store up. That store's profitable. Let's take the profits, dump that into another store. Th-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, [chuckles] Sam Walton was a kinda reckless flyer, but, you know, thank-thankfully nothing happened in f- his forty years of flying. But without these, like, small little Cessnas and these little planes, they could ne- he could have never gone and traveled to all these stores because that leads me to the next thing I wanna talk to you about. It's not just that, you know, what J.C. Penney was doing back in the day, going to all of his sixteen hundred 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 [chuckles] he does it for the stores, and in his autobiography, he says that he would also show up at the headquarter, uh, like the, the corporate headquarters without an appointment. And he says if you just show up and you ask, more often than not, they would let you in, and then he would ask them questions about pricing and 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. And so when I got to this section of the book, two things happened. One, I had, like, a big smile on my face because I just, I just think it's hilarious. I love people that are truly dedicated to what they're doing. And, you know, I, I always 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, 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, I love people like that. The second thing that came to mind is because I've become friends with MrBeast. MrBeast is, like, the, the biggest creator on the internet, biggest YouTuber. He's got, like, a billion followers across all these platforms. I actually flew to MrBeast headquarters and spent seven hours with him, uh, his top team. One of my friends is a major investor in, uh, MrBeast companies as well. And I heard a story that just screams like this is something that Sam Walton would do. And so MrBeast comes back from doing... He's on, like, a 17-hour flight or something like that, lands back into the United States, needs to do another connecting flight to get back to, like, the remote area where his headquarters is. And instead of jumping on another flight, he maps out. There's, like, a 500-mile distance between where he's at and where his home is. And MrBeast's chocolate company, Feastables, has a massive deal with Walmart. And so what he does, instead of flying home, he maps out every single Walmart in like a 500-mile radius and decides, "Hey, I'm gonna 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 be... it looked 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, the inventory in the back, and he'd literally carry it to the front so he could get more sales. [chuckles] Like, that is what Sam Walton would do. I just love that idea where you, you have this, 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 that as a form of education. And then you see 70 years later, um, uh, 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 th- earlier, he literally lifts that idea from J.C. Penney. He's like, "Okay, I can't be here," but

7. 25:46 – 30:13

   Mistakes, Hula Hoops, and Bigger Stores

   1. DSDavid Senra25:46

      he knew that you had to have a single, like single-threaded leadership. There has to be one person that is completely responsible for the performance of the store when Sam is not there. So that's when he says, "Hey, I'll give you 25% of all the profits." And then here's a fascinating story for you. Dude, this is what I love about biographies. We have some of the smartest, most productive people to ever live, and the, 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 is... this concept is genius." And so he gets distracted. He is already building a, 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 gonna develop shopping centers." I have a line for this, what he's doing, 'cause I did this the other day. I was on the, the phone with my friend Jared and was explaining about this other idea I had for another podcast, and he, like, completely shut it down, 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 in to 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 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 s- is, is this, like, phenomenon spreading all across the country. The main, like, manufacturers of Hula Hoops will not sell to these small little merchants 'cause he's tiny at this time. And so Sam's like, "Okay, cool. Uh, you won't sell to us? That's fine. We're gonna make our own." So he start... he realized, like, "What is a Hula Hoop?" It's like this little p- it's colored plastic pipe with just a connector at the end. He's like, "We're just gonna 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-financed, 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 distribute them throughout all the stores that they have, right? Sam didn't even have a truck, so how is he gonna 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... [chuckles] thousands of Hula Hoops that they spent the night making, and then he drives it around to his stores in 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 best opportunities were created out of necessity because we were so under-financed, we were so under-capitalized. 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. Back in the Ben Franklin days, we learned so much. And so they use one example of a store where they make a s- a s- 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 pushed the merchandise. We became the first independent variety chain in the country to try large stores in small towns. We were doing an amazing amount of business in a 13,000 square foot store, which is totally out of character for a town of just 2,000 people. We found that we could do a million dollars in each variety store. That was unheard of.

8. 30:13 – 33:04

   Discovering Discounting and Learning from Kmart

   1. DSDavid Senra30:13

      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 'cause 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, that, you know, I have no shame in admitting this. Like, if I was, 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, I would just adopt... He was always-- He didn't care the, 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 Erwin Chase, who starts this company called Ann and Hope. They only had six stores, but they're doing two hundred and fifty million dollars a year in sales. So all throughout the early 1960s, it says there was no discount store in existence between 1960 and 1962 that did not get a visit from Sam Walton. And it is through this that he discovers that another person had studied Ann and Hope too, and they'd studied it before him. There is 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 ten or twenty years ahead of its time, and he did it better than anybody else. What I did later was take pieces of it," meaning take pieces of Kmart, "and make our Walmart as much like it as we could." The difference was, and this is the fascinating thing that happens over and over again, is Kmart took the discounting idea, and they set it up, 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 to have tried to put a competing store in a small town. They gave us a ten-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

9. 33:04 – 48:04

   Pitching Ben Franklin and Founding Walmart

   1. DSDavid Senra33:04

      so now Sam knows. He's like, "I cannot stay in the variety store business. I cannot stay in this fine and dive business. Discounting is going to roll over everything. Let's get ahead of this." And this is where, this is where he goes. So keep in mind, I, I, I guess I should back up. He's forty-three years old when he's make, trying to make this transition. He's got thirteen of these variety stores, right? These Ben Franklin franchisees or franchises. Over the last eleven years, he's built thirteen of these stores. So he goes-- This is what I meant when he, he goes and tries to give away the idea for Walmart. He's gonna go to the f- to the headquarters of Ben Franklin in Chicago, and he's going to pitch this idea to them, and this is the idea that turns out to be Walmart. I'm gonna read this whole section to, to you 'cause 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, and he's like, "I will be your partner and operator," and you say, "No." That's incredible. The Ben Franklin executives exchanged sour looks. Sam went on. "You're gonna have to cut your wholesale prices. Instead of making twenty to twenty-five percent profit off the merchandise that you sell to your retailers, you're gonna have to be satisfied with about twelve and a half percent," so almost half. They blew up. They blew up at Sam. To these sophisticated 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 fellow's 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 'cause this is such an important point. You have to think about the incentives of the people that you're selling to. Sam Walton is trying to sell to them. So the greatest example that got lodged in my brain many years ago, no one is ever eager to fix a cash machine that isn't broken. And the person that put that idea into my brain, the fact that you have to think about the incentives of the people that you're selling to, 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 five hundred million a year selling vacuum bags. It-- He's like, "Oh, they're gonna 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 five hundred million a year selling vacuum bags. You cannot sell the idea of discounting at a lower margin and saying, "Hey, sell me your stuff at twelve and a half percent and selling s- instead of selling it to me at twenty-five percent." How do you think they paid for those tailored suits and those custom shoes? With that twenty-five percent margin. And so they laugh him 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. He got a surprise. Sam Walton was there ahead of him. Here he was, twenty-five 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-- like he was gonna succeed at it. He knew he could-- he was really good at the variety store business, but he decides, "I'm just gonna experiment." He, he, he's constantly experimenting, and he talks about this. It, it, the way he describes, uh, this point of his life, he has a great term on it. He says, "I was thrashing 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 these, all these indicators that Walmart might be more successful than their competitors early on. It was because even after they go public, they have like the lowest cost-to-sales ratio in the entire industry. And so how dedicated was Sam to keeping costs low? Well, Walmart is called that in part because fewer letters means cheaper signs on the outside of a store. And so Sam and one of his executives have this list of names, and they're trying to figure out what, what are we gonna 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 gonna do it anyways. Which one of those do you think we should call it? They studied 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 me buying the letters to go up on our Ben Franklin stores, and I know how much they cost and how much they cost to repair and how much to light these letters. It's expensive to put that many words in a name." And the shortest name on the list was Walmart. And so Jeff Bezos has this saying. He says, "We know from our past experiences that big things start small. The biggest oak starts from an acorn. If you wanna do anything new, you've gotta be willing to let that acorn grow into a little sapling and then into a small tree, and then maybe one day it'll be a big business on its own." Listen to the description of the very first Walmart, the business that is going to generate for the Walton family quarter of a trillion dollars of wealth. The first Walmart is in a small town and is only sixteen thousand square feet. It is an immediate success from the very first year. What do they consider a f- a success? Seven hundred thousand dollars in total sales, which may seem like a small number, but from that day, from day one, the store f- that very first Walmart store for the next fifteen years has a consistent thirty percent 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 gonna, many years into the future, is going to be, become the CEO of Walmart. 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 second opening of, uh, the, 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 a hundred and fifteen degrees, and the watermelons began to pop, and then the donkey began to poop all over the sidewalk, and the 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, you know, Sam's personality and, and, and part of, uh, h-his, like, success is his, like, promotion ability. There's this article in 1989 in Fortune magazine I'm gonna quote from, and it says, "So how, from there," from this, like, crap, you know, s- this, [chuckles] this exploding watermelon donkey crap, uh, opening, uh, "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 got this aw-shucks charm. He's also a little bit Billy Graham." This is what I meant. Billy Graham is this famous preacher. Sam Walton's very much an ev-evangelist. He's a little bit Billy Graham with a charisma and a per-per-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, they don't understand that small improvements every day over a long period of time, what that compounding can generate. The thing that I est- 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 and the, 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, 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, he starts to expand really rapidly. But what you see is at the very beginning, he's just got a b- a, a simple, basic plan, simple, basic principles that he executes on. So the first thing is he's obsessed, w-well, I've already mentioned it once, just like th-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 passed when, without Sam reminding an employee, "Remember Walmart's golden rule. Number one, the customer's 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, 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 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. And so the first handful of Walmarts were in this 300-mile radius of Bentonville, Arkansas. And that's really what it was, this 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 out of the floor everywhere. There was no air conditioning in that entire building. So what's their solution? Okay, 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. 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. It says, you asked the question, what was our process like? I kind of laugh because process is an organized way of doing things. I have to remind you, during the Walt Disney period of designing Disneyland, we didn't have processes. We just did the work. Process came later. All of 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 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 wants to start putting. He's really, think about how long, like he did five and a half years with one store in Newport, 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's, 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, 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 because it's kind of nuts at how spookily accurate a bunch of Sam Walton's predictions are. 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 poor Arkansas boys too. And they wind up being, they hit the Forbes 400 list too for different reasons. But I love the advice that their dad told them when they were growing up in like rural Arkansas. 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.

10. 48:04 – 48:43

    The IPO, Accurate Projections, and a Tough Boss

    1. DSDavid Senra48:04

       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 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.

11. 48:43 – 52:07

    The Donkey Opening, Sam's Personality, and Walmart's Core Principles

    1. DSDavid Senra48:43

       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. 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 this country charm, but he drives. The way he pushes his top executives, he pushes them unbelievably hard. It's really fascinating the difference he-- the way he treats his, like, frontline workers who he spends a lot of time with, pays attention to them, makes them feel special, makes 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, that's, that's his internal nickname. There's a line from one of Jeff Bezos's 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. It covers the first thirty-five 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. 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 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 eighteen-wheelers and climb into the cab to ride a hundred miles with the driver to gain firsthand experience that might improve Walmart transportation. He would get up at two-thirty in the morning, buy a box of donuts, and take them over to his warehouse-- to the warehouse loading dock, where he solicited ideas to upgrade their effort. If the dockers 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 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 at S-- for Sam and for everybody in the company, it rarely not appear in an, in an issue. Think about how crazy that is. Every month, he's just repeating the same thing, the importance of this same thing over and over and over and over again.

12. 52:07 – 55:14

    Failed Retirement and Rebuilding the Team

    1. DSDavid Senra52:07

       These are all great ideas and smart things that Sam Walton does. Let's get back to another mistake. He winds up retiring. He, he recruits this guy named Ron Mayer, who he thought of like this boy genius. And so I will read to you my note, which gives an overview of what's about to take place here. Stepping aside of the company you spent your whole life building because someone else is in a rush does not seem wise. And so Sam is about to turn fifty-seven, and Ron Mayer is putting pressure on him, saying, "Hey, you know, I, I don't wanna just... I wanna run my whole company. Like, I wanna 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 approached his fifty-seventh birthday, Sam Walton was reluctantly trying to change his lifestyle completely by surrendering the day-to-day command of his Walmart empire. Now, Sam is gonna find this impossible to do, and I'll describe him. [chuckles] Essentially, he retired and never retired. It's the, it's the weirdest thing. And so he's having this conversation with his wife and his top executives. He says, "I'm gonna lose Ron if I don't step aside, and I don't wanna lose him. He's a very talented guy." And so it was official. Sam had retired. Ron was the new chairman and CEO of Walmart. It is the most uncharacteristic Sam Walton kind of thing that Sam Walton ever did. So essentially, he retires, but he's still working. His role was now supposed to be unofficial, but he couldn't keep his hands off. When he saw something, anything he didn't think was right, he'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. They're, they're-- he's doing a mag- 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 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 gonna do what most people would do. He's like, "You know, I can't accept that. I'm not gonna stand for a demotion." He winds up leaving the company. So Sam takes back over control of the company. He does exactly-- He goes back to doing exactly what he was doing, and that's, say, he's always recruiting. Now, he, he 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 gotta 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. Says 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 ten, twelve, maybe fifteen years into the future where we're in the story. He's eventually going to become CEO and, and rather successful CEO of Walmart. And David didn't go into this job, you know, ignorant or blindly. He knew. He says he was under no mi- misconceptions. He could expect to work harder and put in more hours than ever before in his life.

13. 55:14 – 59:16

    The $500 Million Computer Investment and Acquisition-Fueled Growth

    1. DSDavid Senra55:14

       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, he was talking about the fact that he's, he's not resistant to change. Now, he has his principles he's not gonna deviate from, but he always wants the best ideas, and he repeats over and over again. You know, he, he says RC is that formula, resistance to change. Like, we want a low resistance to change. We're willing to change. It's a trademark of, like, the Walmart culture, the Walmart philosophy. Every day is a different situation in the retail business. We have to be flexible. These are the things that, that Sam Walton would repeat. Now, this ins- this is insane what they do here. The, 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 ac- 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 than that, and he invested. He put his money where his mouth was. Finally, his lieutenants educated and convinced Sam, and Walmar- Walmart plucked down $500 million for a modern communications computer system, and when they say computers at this time in history, these are, like, giant IBM mainframes. And so now all the Walmart stores, their warehouses, and the distribution centers are able to communicate in real time. By 1979, the stores and warehouses c- 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, 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 writing the annual report of Walmart in 1979, and he, 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 it just proves his dedication. It's like, "I want..." He talked about investing in technology as a huge, uh, 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, when he said, you know... He was saying with his mouth, "No, w- we have a low resistance to change. We want the best ideas." And then it's one thing to say that. It's a completely different thing to match up his actions and 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 that, oh, Walmart's the thing, he, he's like, "Man, th- 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 [chuckles] of 167 million to 478 million, and he's like, "This is too slow." So what he does next is something I had forgotten. He actually accelerates store growth by acquiring entire retail chains and then converting them to Walmarts. Now that he's a public company, now he's got access... For the first time as ever, he's got access, you know, to way more resources. He's not constrained by money anymore, and so he buys a chain of 16, uh, discount stores, converts them to Walmart. Uh, 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.

14. 59:16 – 1:02:46

    Front-Line Feedback and Estate Planning Through His Father-in-Law

    1. DSDavid Senra59:16

       So there's just a few more ideas that I wanna tell you about. Two main ones, but here's another interesting one, uh, that referenced the fact that Sam is constantly collecting information from the front lines. Hates people sitting in the office. He's like, "You need to get in stores, and you need to go all across the country." B- but as Walmart grows, they have, like, this entire fleet of planes, and so they, they use their planes every single day to be on site where the work is actually happening. But his friend's daughter has a bad experience at Walmart, and she actually calls her dad, who just happens to be with Sam at the time, and it was fascinating. And so he, uh, we're hearing this story. He says, "My daughter bought a pair of shorts, uh, 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 called. That, the-- what he learned on that phone call had been, it's, 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 played a huge role in his life. You know, having a successful businessman, entrepreneur as a, as a father-in-law to, to give advice to. Not only did he loan the first $25,000 for that first store, but he saved them untold amount of money In the way that he had him set up the estate planning. The Forbes 400 list 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 five. 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 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 five thousand dollars each." At the time the book was printed, which is in 1990, each of the kids were worth about two billion dollars because of this. So by turning over ownership of eighty percent of his holdings to his children so early on, he avoided any substantial gift or inheritance taxes. And so his father-in-law put it best. The best way to reduce paying estate taxes is to give your assets away before they appreciate.

15. 1:02:46 – 1:07:25

    Sol Price, Sam's Club, and Closing Lessons on Action

    1. DSDavid Senra1:02:46

       All right, so let's talk about speed and Sol 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 Sol 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 Sol Price's autobiography. It's-- or not autobiography. His biography was written after Sol Price passed away by his son, Robert Price. That is episode 304. In that episode, I talk about how Sol Price is the most influential retailer of all time. Sam Walton learned from 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. Sol Price was a remarkable man. So let's talk about Sol Price and speed. Look how fast Sam Walton is moving, okay? So he's got this idea. He's got... And that, and that Walmart store, he's successful. He's never-- We just heard somebody else say earlier, he doesn't, he never gets fat and happy with his success. That never has, never happened. Didn't happen in the past and didn't happen up until the day he died. And so he's always looking for, you know, I believe in Walmart and discounters, but there's always people coming with new ideas. And he realizes that 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 and what, 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 astounding success by selling merchandise and only at ten percent above manufacturer's prices and getting rich. If Sol Price could do that, Sam Walton figured he could too. The wholesale club idea was good, extremely good. And so Sam goes back to Bentonville and he's like, "Okay, we're just gonna do the exact same thing that Sol Price is doing out, out in San Diego, and we're gonna do it. We're gonna call it Sam's Club and we're gonna 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 Sol Price's Price Club, Sam now has 23 Sam's Club wholesale stores, and he's doing seven hundred and seventy-six million dollars. That's insane. From nothing to almost a billion dollars in sales in three years, and then within seven years, he's got 105 of these things and they're doing five billion a year. Extreme patience coupled with extreme intolerance for slowness. That is the career of Sam Walton. He's gonna 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 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 people out there who have some great ideas, but nothing in the world is cheaper than a good idea without any action behind it." And that is where I'll leave it. If you have not yet read Sam Walton's autobiography, I would read Sam Walton's autobiography first. If you have a top 10 list of, you know, entrepreneur biographies, autobiographies, that-- Sam Walton's autobiography's gotta be in that list. So if you haven't read that one yet, I would highly recommend doing that. You can also listen to the episode I did on-- the last episode I did on Sam Walton's autobiography. It's episode 234. If you've already listened to the podcast, 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 around, about. So if you buy this book using the link that's in the show notes on your podcast player, also available at founderspodcast.com, you'll be supporting the podcast at the same time. That is 354 books down, 1,000 to go, and I'll talk to you again soon.

Episode duration: 1:07:25