A Couple of Things We Could Learn From Sam Walton

The richest family in the world – The Waltons, estimated total wealth $150 billion – owe their fortune to the genius of Sam. From what I have read about his he would be the first to say he was nowhere near the vicinity of genius but if seeing what others don’t see and persevering in the pursuit of a vision is genius then he most certainly was.

He was a classic business model innovator. He would get up every day, I’m told, with boundless energy and a simple goal of improving something and he did that without any fear of being wrong. To him, progress was built on trying new things and if they worked great, if not, great lesson learned – don’t do that again! In the fullness of time it’s inevitable you’ll move forward.

One of his business model innovations was when he owned a bunch of Ben Franklin variety store franchises. He opened several in communities not too far from his home in Bentonville Arkansas and each store was operated as a separate partnership entity (this is essentially the model Richard Branson uses for Virgin.)  Various family members, including his children, invested different amounts in his stores and each store manager had the opportunity to become a partner.

This was not the norm at the time but it did enable Sam to have the capital to expand his “empire.” What most people don’t know however, Sam was not an overnight success. He failed totally a few times and even when he started to get traction it took him 15 years to get to the point where his stores were doing revenues of $1.4 million and made him the largest independent variety store operator in the US.

sam walton
First Lesson: success is rarely an overnight phenomenon
. Interestingly this is what Jim Collins found in his research for Good to Great – the great companies took 15 years for the momentum of their strategy to take hole and the flywheel of success to get momentum.

The second lesson involves seeing around corners or to put that another way, coming up with a different strategy.

Sam approached the Butler Bros.  who started and owned the Ben Franklin variety store franchise system and asked if they would back him in a new discount store business venture. They declined and the franchise subsequently filed for bankruptcy in the mid ’90s. Sam on the other had created Wal*Mart. His friends and most of his family thought it was another of Sam’s crazy ideas so he and his wife had to borrow enough to fund a 95% shareholding – that’s why the family is now worth $150 billion.

Sam said of this experience:

It (the discount store model) was totally unproven at the time, but it was really just what we’d been doing all along: experimenting, trying to do something different, educating ourselves as to what was going on in the retail industry and trying to stay ahead of these trends. This is a big contradiction in my makeup that I don’t completely understand to this day. In many of my core values I’m very conservative. But for some reason in business, I have always been driven to buck the system, to innovate, to take things beyond where they’ve been.

Second Lesson: buck the system. Zig while everyone else zags. Experimentation is the only way to stay ahead of the trend.

The next lesson, is stay with what works and is core to your strategy unless and until you can improve it.

When he was operating the Ben Franklin stores the “model” had been for everything to by dumped on tables and have customers ferret around looking for something to buy.  Sam told his people to group the merchandise by category or department. sales literally exploded and that’s when he got the insight that a “department” store in the burbs would work.

But that was only part of it. Sam realized that everyday low prices (though that term was not used as a by-line until later) were key to his strategy at the time – namely organize merchandise by department and offer low prices. It can’t get much more simple than that. However, here’s the kicker. Apparently, there would be occasions when they’d take delivery of merchandise that might come in with a recommended retail price of $1.98 and a cost to Wal*Mart of $0.50; his managers would say “let’s sell it for $1.25” but Sam insisted “No. We paid 50 cents for it. Mark it up to [achieve a] 30% [margin], and that’s it. No matter what you pay for it, if we get a great deal, pass it on to the customer.”

And that’s what they did. You might disagree with the 30% margin strategy but it seems to work of the Walton family!

Third Lesson: understand what your value proposition is and embrace a set of values that are consistent with the delivery of that value prop. Don’t be seduced by the possibility of short term gain if it contradicts the essence of the value proposition that underscores your strategy.

And that brings me to the fourth lesson.

By the late 60’s Sam had 18 variety stores and a handful of Wal*Marts that he ran from his tiny office in Bentonville with a three-lady team. Each month, they would produce a hand-written P&L for each store. A copy would be sent to the store manager and Sam would have a copy when he visited each store. He would try to get together with every store manager once a week to discuss what was happening, to coordinate promotional programs and to look at mistakes that had been made. he made a religion on visiting his competitors’ stores to see what they were doing and he expected his store managers to do likewise.

Fourth Lesson: keep your eye on the numbers, run a lean team, communicate regularly with your key people (accountability is key), have a healthy respect for your competitors, and celebrate failure as an opportunity to learn and move forward.

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