#434 Sam Walton

Founders

This episode explores the business philosophy and rise of Sam Walton, founder of Walmart, through the lens of Vance Trimble's biography. The

Key takeaways

• Sam Walton adopted the 'buy cheap, sell low' model learned from JCPenney to drive volume.
• The 'RC factor' (Resistance to Change) was a critical metric for Walton, emphasizing flexibility in business strategy.

Main topics

• Retail expansion strategies
• Cost control and efficiency

Notable quotes

Buy cheap, sell low, every day, and while doing it with a smile.

Conclusion

The episode provides a masterclass in operational excellence and the p

Transcript preview

Speaker 1 (0:00) For his first 50 years, Sam Walton was not at all a national figure. He remained in the shadows off the beaten track. It was only in the early 1980s that a startled public discovered that the richest man in America was not a Rockefeller, a DuPont, a Trump, a Kennedy, a Getty, or a Perot, but an unglamorous guy from Arkansas named Sam Walton. Reporters discovered that he was ordinary, that he grew up in Missouri in the Depression, 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. Pretty darned ordinary, but only on the surface. Sam Walton, underneath, was no ordinary man. It's one of my favorite paragraphs in the book I'm going to talk to you about today, which is Sam Walton, The Inside Story of America's Richest Man, and it was written by Vance Trimble. So this book is almost 40 years old. It was actually written before. Sam's famous autobiography, Made in America. And what I want to do, this is like the third or fourth time that I read the book. So I just want to run through a bunch of ideas that are mainly focused less on like his early life in the biography, but more about how he essentially worked and how he thought about building his business. And I want to jump into the fact that this is one of the most important paragraphs, I think, of the book because it's an illustration of Charlie Munger's great idea, which is like, you should find a simple idea and take it very seriously. So it says, to him, making money was only a game. a test of his imagination and expertise to see how far he could drive a business concept. Wall Street had a hard time getting the drift of that. Sam's idea, he admitted, was absurdly simple. Buy cheap, sell low every day, and while doing it with a smile. Then it goes into the fact that he, just like Henry Singleton, you and I talked about Henry Singleton a few weeks ago. Singleton was criticized because... But a lot of people said, oh, you don't have like, you know, a five year, 10 year, 15 year business plan. Michael Bloomberg last week was the exact same way. Sam Walton was also the same way. He just wanted to wake up every day, work on Walmart, and then he was fine with changing his mind over and over again in the book. He'll be presented with new information. Like, OK, I was going left, new information. I'm going to go right. So he was a genius in business with an iron mind, unwilling to compromise any of his carefully thought out principles. But Sam Walton is flexible. If he adopts a business course that doesn't work out, he's neither too vain nor too blind to see his mistake, to say so and to change his heading 180 degrees. Another principle that reoccurs throughout the book is the fact that he did not like attention. He'd rather just wake up, work on his business. He was greatly disturbed. It says when Ford Magazine set him at the top of their list of America's 400 richest Americans, this disturbed him greatly. He granted very few interviews. He turned his back on most TV cameras. He shuddered each time another magazine piece appeared. One of the most interesting things about Sam Walton is that he had insanely high energy levels. In fact, a friend of mine just sent me this great post on Napoleon. And I want to read this to you real quick. And I think it applies to Sam Walton as well. And the post says, It will never not be funny to me that when Napoleon got stripped of his empire and exiled, he responded by paving the roads, draining marshes, rebuilding the iron mines, and ordered every house to install a toilet in just two months. Energy is a choice. He said, this is Sam Walton in high school. He was going out for football and basketball, learning to play tennis, making A's and making friends, grinding away on the merit badges in hopes of becoming an Eagle Scout, regularly attending Sunday school and scrambling after every odd job that would put money in his pocket. This is what his dad said about how he raised his sons. The secret is work, work, work. I taught the boys how to do it. Sam's father was a bear for work and he would not tolerate sons who were not likewise industrious, ambitious, and decent. This continues. Sam was the quarterback of the football team, also played on the basketball team, was the president of the student body, and he was in just about every club and organization. He was active. Sam was a hard worker. He was optimistic all the time. He had a great smile on his face and felt like everybody was his friend and that the world was something that he could conquer. He just didn't waste time. He was always busy doing something. And one of the most interesting parts of the book is the fact that Sam, it's not like he set out for a career in retail. In fact, after he graduated school, he had no idea what he wanted to be. At one point, he's like, oh, maybe I'll be the president of the United States. But he decides he needs to make money. So he interviews for a job at the retail store JCPenney. And this is really important because there's a lot of ideas that he learned at JCPenney that he's going to use for the next 50 years of his own career. So he says, I interviewed at JCPenney and I liked what I heard. They offered me a job at $85 a month. Sam Walton plunged into this new world of merchandising with the keen and furious dedication of a quarterback who was one touchdown behind with two minutes to go. Sam Walton knew little of the scope of the JCPenney company chain and absolutely no details of the personality and meteoric rise of the old man himself. He would learn more soon, including one profitable lesson taught to him personally by John Cash Penny, the founder who was then aged 65. In fact, Sam would borrow JCPenney's whole concept of how to succeed by putting customer satisfaction ahead of profits. And at the time that Sam was working for him, it's a massive chain. It has over 1,500 stores and sales were running at over $300 million. That is in 1940. And one thing that Sam learned was that the company's strength, meaning JCPenney, was in these small towns and small cities, an idea he's going to later adopt when he starts Walmart. And this is one of Sam Walton's favorite stories about JCPenney. JCPenney himself arrived in town and spent a lot of time wandering around the store. Sam Walton would do exactly this later on. A customer came in and bought something from Sam. And while he wrapped it for her, JCPenney was observing the transaction closely. After the customer left, Mr. Penny came over and said, boys, I want to show you something. And he took a box about the same size and he 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 then he tied it. 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 that we save. And then another idea that Sam's going to borrow and copy when he does Walmart, and even before in the early days of the stores that he owns, is aligning the incentives and making sure that the managers of each store have essentially unlimited upside, that they can make a lot of money depending on how the sales and profitability of their stores are. So it says, in Sam's memory, those days are still vivid. The manager was a fantastic trainer. He used to invite us out to his house nearly every Sunday to play ping pong, to eat, and to talk business. You could learn a lot. He was a manager who had a 25 % bonus contract. He got his check. It was $65,000. Keep in mind, this is 1940. He waived that around one Sunday. That just made us run faster and work harder. Sam Walton's training and what he learned there would eventually put a few billion dollars into his own cash registers. And so when he's 27, he decides to buy a franchise of a Ben Franklin Five and Dime store. These are tiny stores. They cost about $25,000 at the time. His father-in-law lends him the $25,000 needed to secure the franchise. And this store is in this remote farming town of Newport, Arkansas. And I love this description. of Sam Walton in the very first days of his very first store. This is something he carries on throughout his entire life. He says, even in Newport, Sam Walton worked all of the hours. One of my favorite, I was watching this interview with Michael Dell, who's, you know, one of my personal heroes and someone I get to luckily like spend time and speak to. And the interviewer asked Michael Dell, it's like, well, when you started your first company, like what was your schedule like? What, how many hours did you work? And Michael says something hilarious. He goes, all of them. So it's again, very similar here. Sam Walton worked all of the hours. Before we get back into this, I want to tell you about the presenting sponsor of this podcast, Ramp. I have been reading a lot about SpaceX lately. SpaceX is one of the most valuable businesses in the world. And one of the main themes in the history of SpaceX is constantly attacking and questioning your cost. Ramp helps many of the most innovative businesses in the world do exactly that. And they do this by using first principles thinking. The median company running on Ramp cuts their expenses by 5%. And one thing that SpaceX has demonstrated is that a religious dedication to controlling your costs helps increase revenue because you can pursue opportunities you couldn't otherwise. And we see that in the ramp data, too. The median company running on ramp also grows their revenue by 16 percent. So when you're running your business on ramp and your competitors are not, you have a massive competitive advantage that compounds over time. Ramp is the only platform designed to make your finance team faster and happier. Many of the top founders and CEOs that I know run their business on Ramp. I run my business on Ramp, and you should too. Go to Ramp.com today to learn how they can help your business save time, save money, and grow revenue. That is Ramp.com. And so from day one, we see that Sam Walton is obsessed and driven, and he's always looking for these unique ways of drawing attention to the store and getting more customers to walk through the door. And what he would do is like, so one example that he discovered, he's like, okay, well, if I can rent an ice cream machine, it doesn't cost me that much money. But if I put it on the sidewalk in front of my store, then on the weekends, all of these families mob the ice creams, like the ice cream machine, and then they come into the store. And then he would do the same thing. He'd buy a popcorn machine. And he says something really funny here. He goes, high profit you understand on popcorn. So it 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. Sam Walton was crazy about selling and about satisfying customers. In the recesses of Sam Walton's mind, there lurked volatile and not to be denied impulses that drove him to challenge the status quo of many things and to conjure up risky new business experiments. He would do this throughout his entire career. And I think this is one of the most important parts of his career. He starts at 27. He is now 32. For the first five years, which is going to be the largest retail empire ever created, Sam Walton honed his skills in a single store. He gets this. Now we're in 1948. He gets this all the way up to $225,000 a year in sales in a tiny town. I think there's like less than 4,000 people in the town, if I'm not mistaken. And then his success actually causes his landlord to steal the store away from him. This is very important. It says the fantastic way in which Sam built up and enlarged his sales volume beyond anything that had been done before caught the eye of his landlord. And so when his lease was up, his landlord refused to renew his lease. He says he kept running into a stone wall. And so Sam is talking to his attorney to see if there's anything they can do. And this is what his attorney is saying. It's no good. I hope to God the next time you take over a lease from somebody, you check to make certain it contains a proper renewal clause. They're not going to let you keep the store. The plain truth is that they want to run it in that building. You've shown the whole town what a moneymaker it can be. His attorney watched the color drain out of his client's face. It looks like you're finished, he told Sam. This is one of my favorite parts of the book. The lawyer saw Sam clenching and unclenching his fist. clenching and unclenching his fists, staring at his hands. Then Sam straightened up and said, no, I'm not whipped. I found Newport and I found the store. I can find another good town and another Ben Franklin. Just wait and see. And so at 32 years old, after spending five and a half years building up his business, he has to start out all over again. And so this is a major turning point in his life because this is when he arrives in Bentonville, Arkansas. He finds another store to buy. This time it says, no, no, no. I'm not going to rent. I insist on buying the building that the store is in. I need control over my own destiny. And then he was talking about, even at this point, he would tell other people. His personality was, hey, my store will be number one. It's important for me to be the best. Not one of the best. I must be the best. He says, I want to be the leader in the category I compete in. And he was constantly underfinanced. In fact, talks about the fact that