Dear friends,

In JC’s Newsletter, I share the articles, documentaries, and books I enjoyed the most in the last week, with some comments on how we relate to them at Alan. I do not endorse all the articles I share, they are up for debate. 

I’m doing it because a) I love reading, it is the way that I get most of my ideas, b) I’m already sharing those ideas with my team, and c) I would love to get your perspective on those. 

If you are not subscribed yet, it's right here! 

If you like it, please share it on social networks!

Share 💡JC's Newsletter

Today I want to share some insights from Sam Walton’s book “Made in America”. He speaks about his journey of transforming a small-town grocer into Wal-Mart, the largest retailer in the world.

Walton writes about building a successful business model, about reporting, about values and how they help in building successful businesses and about managing a public company.

I highly recommend to purchase this book if you are interested to dig deeper into his lessons for entrepreneurship.

🔎 Some topics we will cover this week:

• How Wal-Mart embodies customer obsession

• The way Wal-Mart managed to compete and succeed on low prices

• Building and managing a business around core values

• Reporting and going deep in the numbers to understand your business

• Sam Walton’s attitude around analysts and their opinions on the business

Business model

Customer obsession

• The secret of successful retailing is to give your customers what they want. 

  • And really, if you think about it from your point of view as a customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience. 

  • You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or just pretends you’re invisible.

➡️ Totally applies to us! How do we exceed expectations of our customers all the time?

• EXCEED your customers’ expectations. If you do, they’ll come back over and over. 

  • Give them what they want— and a little more. 

  • Let them know you appreciate them.

  • Make good on all your mistakes, and don’t make excuses— apologize. 

  • Stand behind everything you do. 

  • The two most important words I ever wrote were on that first Wal-Mart sign: “Satisfaction Guaranteed.” They’re still up there, and they have made all the difference. 

Lower prices

Larger profit thanks to lower prices

• Here’s the simple lesson we learned—which others were learning at the same time and which eventually changed the way retailers sell and customers buy all across America: say I bought an item for 80 cents. 

  • I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. 

  • I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. 

  • Simple enough. 

  • But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. 

  • In retailer language, you can lower your markup but earn more because of the increased volume. 

➡️ How much does being low margin increase our sales productivity? When does it become worth it to reduce prices? That is why reducing cost to serve is important. 

Being scrappy to afford low prices

➡️ On the importance of saving every dollar to translate it into competitiveness for your customers. We should apply this mindset while investing in efficiency and team.

• Sometimes I’m asked why today, when Wal-Mart has been so successful, when we’re a $50 billion-plus company, should we stay so cheap? 

  • That’s simple: because we believe in the value of the dollar. 

  • We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money. 

  • Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers’ pockets. Every time we save them a dollar, that puts us one more step ahead of the competition—which is where we always plan to be. 

Negotiate with vendors

• Every buyer has to be tough. That’s the job. I always told the buyers: ‘You’re not negotiating for Wal-Mart, you’re negotiating for your customer. And your customer deserves the best price you can get. Don’t ever feel sorry for a vendor. He knows what he can sell for, and we want his bottom price.’ 

➡️ How to negotiate with vendors!

Go direct! Verticalize!

• “When you own and manage your distribution and logistics channel, you have a great competitive advantage over companies that rely on third-party suppliers. 

  • It automatically shortens your lead times, but also you can constantly look for ways to improve your operation and try to make it more efficient. 

  • You never have to rely on what’s going on in somebody else’s shop.” 

➡️ On the importance of controlling everything in your journey. Going direct is what we are doing with Alan. It is hard, but it is how you build the largest companies on earth. Both for customers and suppliers. 

Stay Lean

• Anytime a company grows as fast as Wal-Mart has, pockets of duplication are going to build up, and there will be areas of the business which we may no longer need. 

• Operate on a 2 percent general office expense structure 

  • In other words, 2 percent of sales should have been enough to carry our buying office, our general office expense, my salary, Bud’s salary—and after we started adding district managers or any other officers—their salaries too. 

  • We haven’t changed that basic formula from five stores to two thousand stores. 

• In fact, we are actually operating at a far lower percentage today in office overhead than we did thirty years ago, and that includes tremendous expenses for computer support and distribution center support—though not the actual cost of running the distribution centers. 

  • It has been our heritage—our obsession—that we would be more productive and more efficient than our competition. 

➡️ How to get more efficient, leaner and still a lot more delightful!

Values for success

• It is a story about entrepreneurship, and risk, and hard work, and knowing where you want to go and being willing to do what it takes to get there. 

• It’s a story about believing in your idea even when maybe some other folks don’t, and about sticking to your guns. 

• I learned from a very early age that it was important for us kids to help provide for the home, to be contributors rather than just takers. 

• In the process, of course, we learned how much hard work it took to get your hands on a dollar, and that when you did it was worth something. 

Be passionate

• COMMIT to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work.  

• If you love your work, you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you—like a fever. 

Learn all the time, steal from Competition

• When he meets you, he proceeds to extract every piece of information in your possession. He always makes little notes. 

• I always carry my little tape recorder on trips, to record ideas that come up in my conversations with the associates. I usually have my yellow legal pad with me, with a list of ten or fifteen things we need to be working on as a company.  

➡️ Take notes of everything! Be curious.

• Most everything I’ve done I’ve copied from somebody else. 

• “I remember him saying over and over again: go in and check our competition. 

  • Check everyone who is our competition. And don’t look for the bad. Look for the good. 

  • If you get one good idea, that’s one more than you went into the store with, and we must try to incorporate it into our company. 

  • We’re really not concerned with what they’re doing wrong, we’re concerned with what they’re doing right, and everyone is doing something right.” 

• Kmart had interested me ever since the first store went up in 1962. I was in their stores constantly because they were the laboratory, and they were better than we were. I spent a heck of a lot of my time wandering through their stores talking to their people and trying to figure out how they did things. 

➡️ A good way to think about competition, but understand their why and your own why. Always think about the good ideas we can steal from the competition!

➡️ When we have great intuitions, we should build fast.

Learn & build from the field

• The folks on the front lines—the ones who actually talk to the customer—are the only ones who really know what’s going on out there. 

• “For a long, long time, Sam would show up regularly in the drivers’ break room at 4 A.M. with a bunch of doughnuts and just sit there for a couple of hours talking to them.

  • “He grilled them. ‘What are you seeing at the stores?’ ‘Have you been to that store lately?’ ‘How do the people act there?’ ‘Is it getting better?’ 

  • It makes sense. The drivers see more stores every week than anybody else in this company. 

  • And I think what Sam likes about them is that they’re not like a lot of managers. They don’t care who you are. They’ll tell you what they really think.” 

➡️ Talk more to people on the field: customer service, sales, …

Eat What You Cook

• My favorite buyer program is one called Eat What You Cook. 

  • Once a quarter, every buyer has to go out to a different store and act as manager for a couple of days in the department he or she buys merchandise for. 

  • I guarantee you that after they’ve eaten what they cooked enough times, these buyers don’t load up too many Moon Pies to send to Wisconsin, or beach towels for Hiawatha, Kansas. 

➡️ How can we do this? Have PMs and engineers sell their products to customers? Have sales doing the care when they oversell?

Building the Partnership with your team

• The more you share profits with your associates—whether it’s in salaries or incentives or bonuses or stock discounts—the more profit will accrue to the company. 

• The way management treats the associates is exactly how the associates will then treat the customers. 

➡️ Very important insight on how to lead the team. 

• Historically, as unions have developed in this country, they have mostly just been divisive. They have put management on one side of the fence, employees on the other, and themselves in the middle as almost a separate business, one that depends on division between the other two camps. And divisiveness, by breaking down direct communication, makes it harder to take care of customers, to be competitive, and to gain market share. 

➡️ I like the emphasis on direct communication as we do.

Trust, responsibility, appreciation

• You’ve got to give folks responsibility, you’ve got to trust them, and then you’ve got to check on them. 

• There’s no better way to keep someone doing things the right way than by letting him or her know how much you appreciate their performance. 

• He is a master at erasing that ‘larger-than-life’ feeling that people have for him. How many heads of state always start the conversation by wanting to know what you think? What’s on your mind? 

• After a visit, everyone in the store has no doubt that he genuinely appreciates our contributions, no matter how insignificant. Every associate feels like he or she does make a difference. 

Reporting & how to challenge it

• “Sam had us send our sales report in every week, and along with it we had to send in a Best Selling Item. I mean we had to. 

  • What he was doing was teaching us to look for what’s selling all the time. 

  • You had to look because you had to send in this report every week, and if you reported that nothing was selling well, Mr. Walton would not be happy. 

  • He would think you weren’t studying your merchandise, and in that case he’d come study it for you. He’s been that way ever since I first met him in 1954.” 

➡️ Weekly Reporting can push people to think deeply about what makes them successful. 

• I come in every Saturday morning usually around two or three, and go through all the weekly numbers. 

  • I can go through those sheets and look at a store, and even though I haven’t been there in a while, I can remind myself of something about it, the manager maybe, and then I can remember later that they are doing this much business this week and that their wage cost is such and such. I do this with each store every Saturday morning. It usually takes about three hours, but when I’m done I have as good a feel for what’s going on in the company as anybody here—maybe better on some days. 

➡️ Going very deep in the numbers.

Managing a Public Company

Don’t spend too much time on what analysts/others say

• During that time, our business was growing at annual rates of anywhere from 30 to an incredible 70 percent in some years.

• Along the way, we always had lots of people waiting for us to stumble and fall—especially Wall Street types. 

  • They said we’d never be able to keep doing things our way after we reached $1 billion in sales. But we did, and kept right on going. 

  • Then they said everything would fall apart at $10 billion because you just couldn’t manage a company that big with our little down-home management philosophies. We roared past that, and then hit $20 billion and $30 billion. 

➡️ We heard so many similar things about Alan & our culture.

• We’ve had reports predicting that when we got to St. Louis, or wherever, and met some real competition, we would never be able to stay profitable. Our demise has been predicted ever since we hit the stock market. And whenever one of these big institutional investors reads something like that, and decides he believes it, he unloads a million shares, or 500,000 shares, and in the past that has created some fluctuations in the price of our stock. 

  • From an analyst: “We would very much like to recommend purchase of the stock ... Unfortunately, however, the future of the company appears uncertain, and we think that Wal-Mart is one of those threshold companies that runs the risk of stumbling.”

➡️ People will always believe we won’t succeed. We just have to prove them wrong. 

• I feel like our time is better spent with our own people in the stores, rather than off selling the company to outsiders. 

  • I don’t think any amount of public relations experts or speeches in New York or Boston means a darn thing to the value of the stock over the long haul. 

  • I think you get what you’re worth. Not that we don’t go out of our way to keep Wall Street up to date on what’s going on with the company.  

➡️ Focus on building the best business, and it will pay off. 

It’s already over! Please share JC’s Newsletter with your friends, and subscribe 👇

Let’s talk about this together on LinkedIn or on Twitter. Have a good week!