#107 Sol Price (Costco)

What I learned from reading Sol Price: Retail Revolutionary & Social Innovator by Robert E. Price. ---- What was it about this man that engendered so much admiration and respect? [0:01] Sol Price’s early life [4:39] Sol Price was a misfit / “If you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, "This sucks. I'm going to do my own thing.” [5:40] Learning to love being productive / Sol Price on the importance of time / DO IT NOW! [12:20] The beginning of FedMart [16:00] Sol Price learned from other founders [21:25] Sol Price’s business philosophy [28:50] What happened when Sol opens a pharmacy in FedMart / A creative solution to being cut off by gasoline suppliers [36:25] Sol Price’s idea on teaching and “alter egos” / “You train an animal. You teach a person.” —Sol Price [39:13] The intelligent loss of sales [42:00] The idea for Price Club [52:37] What Sol Price meant to his son [1:05:28] ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  About 4 years ago, shortly after his death, and a few days after we had lunch together, I received a letter from Saul Price. "Dear Jim, It's always nice seeing you and experiencing your enthusiasm, knowledge, and commitment to your values. You've been very generous about giving me some credit for influencing you. I suspect that's true, but you would have been a great achiever under any circumstance." Upon reading his letter, I turned to my assistant and said, "I've been waiting 50 fucking years for this letter." It was well-known that compliments from Saul came about as frequently as Halley's Comet. After digesting the letter, I reflected on the fact that here I was, in my 70s, and I'm still seeking approval from this guy.

• 0:46David Senra?

  What was it about the man that engendered so much admiration and respect? Not just from me, but from thousands of us who worked with Saul over the years. Certainly, there was his intelligence and creativity, but that's not the complete answer, because as we know, there are millions of bright people in the world, and only a handful make a lasting impact. There was so much more on Saul's leadership qualities that touched all of us and made everyone confident that we would persevere regardless of the obstacles.

• 1:22David Senra?

  I started working at FedMart in 1954, while still in college, a path that was followed by many of Costco's current executives. Saul gave us incredible opportunities to learn the business, teaching us the skills and core principles we applied throughout our business careers, and then later when we launched Costco in 1983. Saul's teachings had a great impact on our business ethics, our core values, and of course, our merchandising philosophy. He believed in developing strong operating efficiencies, and he continually emphasized passing on savings to customers. We owe our legacy to the retail concept that Saul pioneered,

• 2:07David Senra?

  with FedMart and Price Club, as do all of our competitors in the industry and big-box retailers in general. Sam Walton, who started Walmart in 1962, eight years after FedMart was founded, later admitted that he had borrowed many of Saul's innovations.

• 2:28David Senra?

  Perhaps Saul's greatest business legacy was the creation of the Price Club concept that as many as a dozen existing retailers and startups attempted to clone. At one point, a reporter asked Saul how it felt to be the father of an industry, to which he wryly replied, "I should have worn a condom." He was able to be creative and he had the courage to do what was right in the face of a lot of opposition. It's not easy to stick to your guns if you are swimming against a current of traditional thought. His lessons and philosophy, that business is about more than making money and that a company also has an obligation to serve society, are still valuable reminders for

• 3:11David Senra?

  many of us in business today. The fact that he instilled these concepts in so many who were around him is, in my mind, his greatest legacy. Alright, so that is the founder of Costco, the protege of Saul Price, Jim Sinigal, writing in the foreword to the book that I read this week, and the one I'm going to talk to you about today, which is Saul Price: Retail Revolutionary and Social Innovator. And it was written by his son, Robert Price. So this book is a great illustration of this point that you and I always talk about, which is books are the original links. You could be reading a book on, say, Jeff Bezos, for example, and you realize, oh,

• 3:53David Senra?

  wow, a lot of the ideas that we credit Jeff Bezos for having, he actually learned from Sam Walton and Jim Sinigal. And then you study Sam Walton and Jim Sinigal, and they both say, hey, there was nobody else alive that I learned more from than Saul Price. So that's what we're going to do today. We're going to learn from the life and career of Saul Price. So I want to start with this one sentence. It gives you an insight into Saul's personality, but also it talks about why I think this book is so special, because it's written by his son. And this is his son writing, he says, "For more than 40 years, we had worked together. I had learned that my father expected to be fully informed, openly and honestly, even if he did not like what he heard." So I'm going to talk a little bit about Saul's early life so we get a good idea of

• 4:38David Senra?

  who he was as a person before we jump into his ideas. He's a first-generation American. He says, "Their immigrant parents," talking about Saul and his siblings, "who were poorly-educated, unskilled laborers, expected their children to study hard, to go to college, and make their mark as doctors or lawyers." Saul's parents and others of that generation had high expectations. Saul wound up exceeding their high expectations. He spent the first half of his career as an attorney, which I'll talk a little bit about today, but also, he has the distinction that he's probably one of the few people in the world that founded and took three separate companies public.

• 5:22David Senra?

  So where did he get this drive? What causes a person to push themselves so much? And from the very beginning, you'll learn that he's just a misfit. He had a physical deformity, and this motivated him to prove himself through achievement. So this is Saul talking about it. He says, "When I was three or four years old, I had an infirmity in my left eye that caused a drooping eyelid. It was something that bothered me and made me self-conscious. And it looked, it almost looked like his entire eye, like you see pictures of him when he was older, it looked like his entire eye was closed." He says, "The kids teased me a lot, and consequently, I was shy, and I compensated this by being an overachiever in school." So yeah, he's an overachiever, but he's also kind of like a, I guess a misfit is the way to put it. Let me tell you what that means.

• 6:07David Senra?

  He says, "Being an overachiever meant reading at an early age, holding his own with adults in games of cards and chess, and doing well in school without really trying." Saul skipped two grades, but he was also very mischievous in school. So he gets into a bit of trouble, and this is what I mean about being a bit of a misfit. This is what his mother has to come into the school, and this is what the teacher tells his mom. "The teacher told Bella," that's his mother, "that her son was very smart, but she warned that he could go in one of two directions: a career as a gangster or as someone who would do much good." So when I read that, I immediately thought back to one of my favorite quotes from one of my favorite entrepreneurs of all time, which is Yvon Chouinard, the founder of Patagonia.

• 6:52David Senra?

  And he says repeatedly, he says, "Listen, if you want to understand the entrepreneur, study the juvenile delinquent. The delinquent is saying with his actions, 'This sucks. I'm going to go do my own thing.'" And so that idea about doing your own thing, realizing, hey, the situation, what I'm looking at could always be improved, that's something that we're gonna see a lot in the, we're gonna see a lot in the career of Sol Price. Before I get there, let me tell you a little bit more about his early life. His dad was lazy and most likely faking an illness so he could receive disability benefits. So he talks about the role this plays on his life. He, Sol was essentially the exact opposite of that.

• 7:33David Senra?

  And he's dating, which is gonna eventually be his wife, this woman named Helen, and her parents were very, they tried to convince her not to marry him. And here's a reason why. He says, "My father didn't do anything except play cards and chess, so they weren't wild about me. They didn't think I was good enough for their daughter."

• 7:55David Senra?

  He grew up during the Great Depression, and actually, the fact that his father was on disability benefits actually saved the family from poverty. And so this is a, this is an experience that Sol's having. He would drive across the country at the time, because his family had to move from the northeast to San Diego, and he went back and forth a few times, and he just had a really good insight. So he says, Sol would later recall, he says, "This was in the middle of the Depression, and I don't know that many people in the US realize how close we came to a real revolution in this country. I saw with my own eyes farmers standing with guns pointed at the sheriff, keeping them from coming on the land and foreclosing. It was an extremely scary time for our country."

• 8:39David Senra?

  This also, I think, influenced his decision where he thought of, yes, business, you have to make a profit, but very much like Henry Ford, he thought the original purpose of your business is to serve. He was very big on serving your customers. But not only that, since your employees are the ones that are actually serving the customers while you're running the business, you need to make sure that you're, that you're paying them well and you're giving them benefits. So, just like Costco's well-known for doing today, Sol's businesses would pay, would pay their employees much higher rates than they could, like the equivalent, like a competitor would.

• 9:19David Senra?

  So I'm gonna skip ahead. At this point, he's already practicing law. His parents were, it was very important for them to, their kids to either be doctors or lawyers. And this is what Saul says about that experience, though. He says, "Over a period of time, I really learned far more from my clients than I ever learned in law school." So he had, most of his clients were entrepreneurs. They're founders. They're running businesses. And he became completely in love with the idea of business, and he started to develop a passion for it, a passion that he didn't have with, with law. But that quote from him made me think of another quote from Henry Ford, where he says, "True education is gained through the discipline of life." And I think that's what a lot of us are realizing, that, you know, "I've learned way more on my own than I ever did in any kind of schooling."

• 10:03David Senra?

  Alright, so, he starts to, he starts practicing law, but he also builds up his own law practice, right? And so he gets clients for his law firm by first giving away value for free. So I wanna talk about that, and then I wanna talk about his reaction to, to the bombing of Pearl Harbor. And he says, uh, he was doing a lot of pro bono work. He says, "Not charging for one's legal services, especially for a young attorney, struggling to earn a living, might not have been so obvious. However, his pro bono legal work introduced him to many people in the community, some of whom eventually became his clients." And this is Saul. He says, "I had developed a reasonably fair practice and was making a halfway decent living, but literally overnight, life in San Diego changed forever." So there's

• 10:48David Senra?

  these more, these traumatic experiences that, that undoubtedly have an influence on our future. Um, and in this case, San Diego is known for being, uh, like a huge base for the United States Navy. And so I didn't know this. This blew my mind. So I wanna talk, uh, I wanna share this with you, even though I've studied a lot about, uh, the history of World War II. And so it talks about what the, what, uh, happened to the city of San Diego is, they would, um, they would do these blackouts when they were in, they thought, "Okay, if we just turn off all the power..."

• 11:18David Senra?

  The Japanese, if they wind up bombing, they don't know, they can't see what they're bombing. So this is how Saul remembers this. He says, "All of the sudden, there was a barrage of balloons all around San Diego in total blackouts every night. It's hard to even recall how inconvenient it was. Trying to get around dark without lights in your car, without any lights in the street, and trying to figure out where you were going and how to get there. It was a very, very difficult thing. But somehow, we still managed to keep moving, and I really can't recall clearly how we did it."

• 11:51David Senra?

  So it's during this time of his life, we see the complete opposite traits that his father had. Saul loved, he learned to love being productive. And then, as a result of packing his days full of productivity, he also understood the importance of time. So he talks about that. And I want to, I want to tell you a little bit about that. So he's, uh, let me just give you some background here. He's working nights at a place that is manufacturing airplanes for the war. It's called Consolidated, okay? So it says, "Throughout the rest of the war, Saul was at his law office at 8:00 in the morning until noon. Then he worked at Consolidated until 11:15 at night. He would eat dinner, go to sleep, and the next morning do it all again. He didn't complain. He said, 'I enjoyed the experience.'"

• 12:35David Senra?

  Unlike his father, who had managed to find ways not to work, Saul thrived when he was busy, working hard and feeling productive. His desire to work hard and get the most out of every hour of the day was not characteristic of his earlier years. So they're saying he had to learn this trait. He commented that he never worked very hard in school, at least not until law school. Beginning with his early career in law and then at Consolidated, Saul would continue to live his life, working hard and taking full advantage of every hour of the day. In his later years, Saul frequently spoke about the importance of time. So this is his granddaughter speaking at Saul's memorial service about what she learned from her grandfather. She said, "The concept of time was very important to my grandfather.

• 13:20David Senra?

  I remember on a couple of occasions, talking to grandpa about how I would be able to accomplish certain goals. He explained to me that we always have more time than we think." "How much sleep do you get?" he would ask. "How long does it take you to study? How long does it take you to eat your meals? So many questions about my day." "Well, you have enough time," he would say. "There are 24 hours in a day, 168 hours in a week. We just waste so much of it. There was always enough time." And so on his desk, he had, uh, he was famous for having the sign that says, "Do it now." He had extreme levels of impatience. Um, so I want to tell you a little bit about what he learned, uh, from his law practice. He says, "The big thing about the practice during the war and during all those years after

• 14:05David Senra?

  the war was that I was dealing with small businessmen and I was very involved, not only with their legal problems, but with their overall business as well. I handled bankruptcies, real estate deals, partnerships, divorce and estates. Over a period of time, I really learned far more from my clients than I ever learned in law school. And because I would involve myself so deeply, I think that is where I began to accumulate the knowledge and interest in business." And one of these businesses that he gets involved in is this thing called Seven Seas. Check this out, this was very interesting. So it says, "In the 1960s, Navy regulations required that sailors depart from their ships and come back to their ships in uniform.

• 14:46David Senra?

  Uh, because sailors wanted to change into their civilian clothes once they were onshore, they needed a place to store their uniforms and to purchase clothing. In response, a few enterprising entrepreneurs, uh, opened locker clubs." So what was a locker club? A locker club was stores that, that not only had lockers where the sailors could store their uniforms, but offered a wide range of goods and services for sailors to purchase. The most successful of the locker clubs were the Seven Seas Locker Club. And so he winds up giving, um, legal advice and general business advice to, to the founders. It says, "Seoul took an active interest in the Seven Seas business. The Seven Seas was another learning experience for Seoul. An opportunity to see how a large store selling a variety of goods and services

• 15:29David Senra?

  all under one roof could be successful catering," this is an important sentence, "they could be successful catering to a focused segment of the marketplace. In other words, a niche."

• 15:43David Senra?

  Now, why is understanding, like seeing an example of a successful business and focus on a niche important? Because this is where we're at in the book now is the beginning of his first business, which is going to be FedMart, which is, you're going to see, focuses on a niche. Now, I have to tell you, he's got a really interesting story. He feels it's like almost accidental. He accidentally fell into the field that he's going to pioneer, that he's going to create a lot of innovations in, and that's retailing. And so, his father-in-law dies, his mother-in-law needs help, she needs a lawyer, she's looking to do, they're selling one piece of commercial property, but he's, like, they're deferring the taxes by buying another property that actually produces income. So, they're investing in commercial property, okay? And so, her name's Bertha, let me just read that, this part too.

• 16:28David Senra?

  It says, "After weeks trying to convince Bertha to agree to the trade, Sol was faced with the challenge of finding a tenant for the Main Street property." So, his, this is the property that his mother-in-law is going to, to buy, okay? And it says, "Sol's client and good friend, Mandel Weiss, not only helped find a tenant, in so, in doing so, he introduced Sol to his career in retailing." So, Weiss tells him about this, this business that's called FedCo. Remember, he starts FedMart, okay? And this is an example of a very successful niche that's servicing government employees. And so, they take this long, they're living in San Diego, they decide, hey, we're going to, there's a lot of people, this is, I guess, a good indication that you have a good business too, right? Or that somebody else has a good business.

• 17:13David Senra?

  Where there's a lot of people living in San Diego that do the drive to Los Angeles just to shop at this store because they save so much money, okay? And so, we're going to see a lot of these ideas that he notices in other businesses that he's going to apply to FedMart now and then Price Club later, which in turn, Sam Walton, Jim Sinigal, and Jeff Bezos apply to their businesses. So, this is extremely interesting to me. So, he says, "They decided," Sol and two of his friends, one of them is this guy named Weiss, but I'm not going to try to burden you with remembering all these names. It says, "decided to take a trip to see FedCo. It was a large store located in a non-traditional retail area of Los Angeles near a cow pasture." So, what Costco famous for? They are located in non-traditional retail areas, right? It says, "FedCo was not a for-profit company."

• 17:59David Senra?

  It was a nonprofit corporation operating a membership retail store that catered to federal employees such as postal workers. The Fedco store was doing a brisk business with customers coming as far away as San Diego. In fact, 5,000 Fedco members lived in San Diego and were driving 200 miles round trip to take advantage of Fedco's bargain pricing. On the way back, the men had a spirited discussion about Fedco, the membership concept, the nonprofit nature of the business, and categories of products being sold. They sold a bunch of different stuff like clothing, appliances, cameras. Anyways, we know Costco knows what they sold. They were convinced, this is an important insight, they were convinced that Fedco-type

• 18:41David Senra?

  businesses could be successful in San Diego. As soon as they returned to San Diego, Sol took these other two guys to see the Main Street warehouse. Everyone agreed that the building could be adapted to retail businesses. So you see, all these things had to come together. He had this big problem, he's trying to help his family, and now they got a large warehouse, a commercial property, but they don't have a tenant. He learned from the locker store, he's like, "Oh, that's interesting, you could, you just built a business on like a small segment of the population that have a very distinct need." And then he sees Fedco, and all these ideas start processing in his mind. And the result is going to be that he's going to start FedMart.

• 19:25David Senra?

  Sol was also really good at analyzing the business decisions and philosophies of other businesses and finding areas where he could do things differently and give him advantage. This is one example, at the time in San Diego, almost all the shopping was done downtown, and he just noticed a lot of weird quirks about these businesses that he didn't think were actually optimized for all the consumers. So when I read this section, you realize that like Costco, Price Club, FedMart, they do essentially the opposite of what everybody else was doing. It says downtown store hours were 9:00 a.m. to 5:00 p.m., Monday through Saturday, and they were closed Sunday in evenings. Personal service was common. Nicely dressed sales clerks provided friendly service. And merchandise was packaged in attractive boxes that clearly displayed the name of the store.

• 20:10David Senra?

  So Costco does none of that. And when I read that section, I'm also listening to this audiobook that goes through like the history of the Americas, like focus on like different Native American tribes. And they talk about the Incas in the book. And so I started doing some other reading on Incas and it was fascinating. Came across one paragraph that made me think of, essentially it's the story of adaptability and resourcefulness, which is, I think, a key characteristic in all the people that we study in this podcast. But it also reinforces that like there's not one right way to do something. That you can have success, and sometimes extraordinary level of success, if you think of Costco, doing things the opposite, or your own way. So let me give you an example of that.

• 20:54David Senra?

  This paragraph, it says, "The Incas lacked the use of wheeled vehicles. They lacked animals to ride. They lacked wagons and plows. They lacked knowledge of iron and steel. Above all, they lacked a system of writing." And this is the most important part. "Despite these supposed handicaps, the Incas were still able to construct one of the greatest imperial states in human history." I think there's a lesson for entrepreneurs or anybody that wants to master their craft in there. All right, let me move forward. So, no idea is original, right? Like every other founder, Sol learned from other founders. So there's other people that were innovating in retail that he also learned from and he adapted their ideas. This is an example of that. "Increasing consumer demand motivated entrepreneurs to challenge traditional retailing concepts.

• 21:38David Senra?

  A new type of retailing," this is called discounting, "was launched by Eugene Ferkoff, founder of EJ Corvette, with his first discount store operating in New York City in 1948." So this is a guy that was innovating in retailing a decade before Sol even starts working in the industry.

• 21:58David Senra?

  And so his store, which is called Corvettes, it says Corvettes sold, I'm sorry, Corvettes displaced earlier five and dime retailers and preceded later larger discount stores. Corvettes sold home appliance and other household products at deep discounts from the manufacturers suggested fair trade prices. So this used to be a law, and this is what Eugene is trying to get around. He says Corvettes circumvented the fair trade laws by requiring, essentially what they did is they instituted a floor on pricing. And regardless if you could figure out a way to sell it for cheaper, you weren't allowed to. It's a bizarre law. But it says Corvettes, this is how, I'm not being clear here, sorry. This is how Eugene gets around this, right?

• 22:40David Senra?

  And this is an idea that Sol's gonna borrow from him, he's gonna steal it from him. He says, "He circumvented the fair trade laws by requiring that shoppers became members in order to shop. The membership was really just a way of outsmarting the fair trade laws." Isn't that interesting, how these ideas stick around through history? Like, it was started by one guy because he wanted to go get around a law that doesn't even exist anymore, yet Sam's Club, Costco, all the, these wholesale retail clubs, or whatever you wanna call them, still use that today. It's very, very fascinating to me. Okay, so at this point in the story, Sol's, he's like, "I'm gonna open FedMart." He's gonna, he raises, he grabs some partners, raises some money.

• 23:24David Senra?

  But he says something that's really interesting, looking back at this time. And he says, "Fortunately," Sol later recalled, "most of us had backgrounds that were alien to retailing. We didn't know what wouldn't work, or what we couldn't do." Okay, so he's hitting on a very, very old idea. This is an idea that he's discovering in the 1950s. But if you go back to the podcasts I've done on Henry Ford, this is something Henry Ford said in the early 1900s. And he says, "That is the way with wise people. They are so wise and practical that they always know to adopt just why something cannot be done." They always know the limitations. That is why I never employ an expert in full bloom.

• 24:06David Senra?

  So what Henry's saying there and what Sol's saying here is that the fact that we were ignorant wound up being beneficial to us. We didn't know what wouldn't work. We didn't know what we quote unquote couldn't do. We just experimented. We thought about it and we came up with ideas and then tested those ideas. That is extremely powerful because that is how you gain knowledge. That is what makes reading these biographies so valuable. Because they're going to learn things that you can only get through multiple decades of trying to do something. That learning process using trial and error, it cannot be replicated in school. Alright, so it says, "He raised $50,000 from a handful of investors, including his own $5,000 as seed money." For most of the investors, this is important, $5,000 investment was not a lot of money.

• 24:51David Senra?

  But for Sol, $5,000 was a significant amount of money. So he's taking a big risk here. But, like most of these founders, he does something that's genius. He finds a way to cap his downside. So you need to find ways to cap your downside in life, but always leave your upside unlimited. So he goes in and he uses the experiences he had as a lawyer to negotiate leases and to change certain clauses in a lease, so his downside is capped. "We negotiated a lease for 10 years. We were so uncertain as to the future of this enterprise that we reserved the right to cancel the lease at the end of one year if it didn't work." So one of the most famous examples of entrepreneurs doing that is Richard Branson goes to start,

• 25:35David Senra?

  I think it was Virgin Atlantic, whichever one was his first airline. And he negotiates with Boeing, says, "Listen, I'm going to buy, you know, I'm going to buy all these planes from you, but I need it out. So after one year, if I'm not succeeding, you have to agree to buy them back from me." That caps his downside. This is just a good rule for life. This is, this is, this is a really interesting observation. So this is Sol talking. He says, "I used to say afterwards that when we didn't know what we were doing, it only took $50,000 to start a business," meaning his first store. "And five years later, when we were really experienced at running FedMarts, it took $5 million to open one."

• 26:15David Senra?

  It's really interesting.

• 26:18David Senra?

  This is, I love this idea from James Dyson, I think about it all the time, in his autobiography. He says, "Difference for the sake of it, in everything, because it must be better." That's a good description of the early days of FedMart. He says FedMart broke about, just about all the conventions in 1950's retailing. Shoppers had to be military or government employees. This is the early days. He eventually changes this later on, right? But again, he's just copying FedCo. We all copy. That's just what humans do. They had to be military or government employees. They purchased a $2 lifetime paper membership card and needed to show their card in order to shop. Instead of being open 9:00 a.m. to 5:00 p.m., FedMart's hours were 12:30 to 9:00 p.m.

• 27:02David Senra?

  These hours were designed for the convenience of civil servants and military families. Most products were paid at a central register area in cash or with a check. No credit except for purchases of furniture or appliances. In addition, FedMart refused to stock products from manufacturers who enforced fair trade laws. That's why they have that $2 membership card. From the day that FedMart opened for business in November 1954, the story was, the store was an immediate and spectacular success. Those early FedMart days were not without challenge, though. Some of the downtown merchants tried to cause problems. So now, this is, this is what I hate about businesses that don't want to compete fairly. And he, Sol's gonna have to deal with this constantly.

• 27:46David Senra?

  They go and like, try to like, tattletale on them and try to find other ways to knock them out. Instead of competing with somebody that, that is doing, is providing a better service to the customer, they find like, crony capitalistic ways to knock out their, their, their competitors. So it says, "Right before we were to open, a guy came," this is Sol talking. "Right before we were, we were going to open, a guy came into the FedMart premises. He represented himself as being a bedding inspector for the state of California who was responsible for seeing that things like pillows and mattresses do not have any deleterious stuff in them. Here comes in this bedding inspector and he has a long list of questions, and the questions had nothing to do with pillows and mattresses. I politely and firmly told him to get the hell out.

• 28:31David Senra?

  If you want to close us down, then take your best shot." And we never heard from him again.

• 28:38David Senra?

  So I'll talk more about, he runs into more shenanigans like this when he starts to sell prescriptions for the best price around. Let me get a little bit into, we're going to see in his early days, he starts developing his business philosophy. It says, "Soul described his business approach as the professional fiduciary relationship between us, the retailer, and the member, which is the customer. We felt we were representing the customer." This is, I just wish every business did this. "You had a duty to be very, very honest and fair with them, so we avoided sales and advertising." It's just like Costco. "We have in effect said that the best advertising is by our members. The unsolicited testimonial of the satisfied customer."

• 29:22David Senra?

  This is something that we just, we learned from Les Schwab, we've learned from a lot of people. The best form of advertising is word of mouth advertising. Like, if you can invest that money, there's nothing wrong, like, I'm not saying anything wrong with advertising, of course, but you might feel that the money you're spending on advertising might, could be better, like, what if you could invest, is there ways to invest that money into making your product better? Because if you make your product better, humans are social creatures, and if they come across a good product, or a good movie, or good anything, what do we do? We tell our friends about it. So that's, that's like Soul's fundamental understanding of human nature, that insight he derived there. So he says, "The way Soul put it, if you want to be successful in retail, just put yourself in the place of a cranky, demanding customer. In other words, see your business through the eyes of the customer.

• 30:06David Senra?

  A few months after FedMart opened its first store, Soul and his partners made a number of strategic decisions. They had a belief that there needed to be one merchandising strategy throughout the store." So, in some stores that would open up, you'd have this big open warehouse, and part of it would be run by the person that owns the warehouse, and then they'd, they'd like rent out space to like other independent operators. So Soul copied this decision, and he's like, "Oh, this doesn't make any sense." So he buys them all out. He's like, "No, we're gonna, it's gonna be consistent, and we're gonna be running everything and throughout the entire store." "All the departments would thereafter be operated with consistent merchandising philosophy."

• 30:44David Senra?

  Now, before I tell you another one of his philosophies that I really enjoy, he does another smart move. I feel like, if you look at the notes that I have in the book, it's like, "smart, smart, smart, damn that smart, smart move." He's just a really clever guy. And so, another smart move is, he starts this business, and yet, he caps his downside again. He's still practicing law! Because if it doesn't work out, what's happening? Are you gonna close down your law practice before you know your next business is successful? So he says, "Saul was still practicing law. He began spending more and more time at the main street location while trying to be attentive to his law practice. Eventually, he gave up his law practice and became the president of FedMart Corporation. By the late 1950s, Saul had changed his career from business attorney to businessman. He never regretted his decision."

• 31:29David Senra?

  Now, this is also something that I think is interesting and that you need to know. At this time, he's making this decision, he's lived... He's 41 years old. Like, it took a lifetime of experience and learning. There's a lot of people in a rush to find their business, I understand. I envy the people I see now, where they find what they want to do early in life, and they're just able to let that compound, you know, for many decades. But for a lot of people, including like myself, you know, you could be confused as to what you want your life to be, or the things that you want to work on. You could go into an endeavor and be like, "Oh, this is what I want to do", and then realize, "Oh, there's a lot of things that I didn't know that I didn't like about it beforehand." So I think that's extremely inspiring, and something you see very commonly. I mean, the example of Sam Walton, he was like 44 when he founded Walmart.

• 32:12David Senra?

  Okay, so now, back to more of Saul's philosophy. He says, "Saul made..." I'll read my note in a minute. He says, "Saul made his decision from the point of view of his own experience. The fact that he was an attorney and not a retailer, and that he was an entrepreneur and not a chain store executive. He was never driven by the need to have the most stores and the most money, but by the desire..." This is the important part. "...but by the desire to give the customer the best deal and to provide fair wages and benefits to FedMart's employees." And what's interesting about this is, like, this may be rare in business, but companies run with this mentality, they wind up ending up with all the money anyway. Okay, so what does it mean to take care of your employees, though?

• 32:54David Senra?

  Sol was insistent on paying them very well. So let me give you an example of that. Employers were paying their employees 50 cents per hour. Sol knew that people could not live on 50 cents an hour. He decided that the wage rate at FedMart would be a dollar per hour. And what was the result? Of course, everyone wanted to work at FedMart. So I don't remember if at the beginning... I usually try to tell you where I found this book. I might be repeating myself because I can't remember if I told you or not. But I was watching this conversation. So first of all, through Charlie Munger, I discovered his love and admiration for the operator Jim Sinigal. And I was listening to a talk by Jim Sinigal like a week ago, two weeks ago, whenever it was. And he kept bringing up Sol Price. I'm like, "Where have I heard that name before?"

• 33:38David Senra?

  Realized it's in Sam Walton's book, his biography that I did on Founder's Number Six. If you haven't listened to it, go back and listen to it. That book's amazing. Hopefully, the podcast is too. But he was talking about that he learned from his mentor the value of paying people like more than you needed to, right? And it's so important because it reduces turnover, you get more qualified candidates, and then you get happier employees. And then what happens? People are happier at work, they serve your customers better. So Jim gave an example of like this is a virtuous feedback loop that he would get that now people... Costco has a reputation for paying well. And so they just had a job opening. They needed to hire 200 new people.

• 34:21David Senra?

  22,000 people applied for those 200 positions. It's crazy. All right, so I don't know if I finished that thought, but of course, when he kept mentioning Sol, I looked for a book on him. I ordered it the day it came. I picked it up. I was planning on doing a different book this week. And I started reading. I couldn't put it down. So I was like, "Oh." Like, that's a good indication that that's the book I needed. Like, when I'm that excited, I think it'll like it'll show. And I think it'll make it more interesting to hear me talk about like what I learned from reading a book. All right, so back to this. He's... What did he just do? His competitors are paying 50 cents. I'm like, "That's not enough. I'm paying a dollar." Why would you require FedMart wages to be twice as much as the competitors? FedMart was paying a dollar an hour in San Diego and Phoenix. The wage decision in San Antonio was simple.

• 35:06David Senra?

  Employees in San Antonio worked just as hard and as well as other FedMart employees. So what he's talking about is other retailers would adjust market rates down if there was like a depressed market, right? He's like, "No, that doesn't make sense. Like, let me just simplify here and everybody makes a dollar an hour." FedMart had excellent profits in San Diego and Phoenix while paying good wages. Why not apply the same wage philosophy in San Antonio?

• 35:30David Senra?

  Now, this philosophy didn't just apply to wages. Sol always wanted to do the right thing. And so he's opening stores in Texas and this isn't the age of segregation in America. And so there's constantly like, "You're gonna see him stand up because he thinks the practice of segregation is disgusting." So he says, "Sol was negotiating a mortgage for the property with a major insurance company when he noticed that the mortgage agreement stipulated that FedMart must maintain separate bathrooms for whites and colored people. Sol told the lender that the separate bathroom provision was unacceptable and that he would not enter into the mortgage agreement unless the provision was removed. The lender removed the provision. Once again, Sol chose the right way and was able to achieve a victory in the battle of segregation."

• 36:16David Senra?

  Okay, so let's go back to some of the struggles that you have when you're in the early days of a company. They start, this is what happened when they opened a pharmacy in FedMart. And that talk I referenced from June 10 ago, he talks about specifically like Costco sells prescription medication way lower. He gave an example of one of the customers that now is a Costco loyalist called around to like Walgreens, a bunch of other prescription pharmacies. And let's say he got three different quotes and it was in the area of like $700. He calls Costco and it's like $53. When a customer has an experience like that, like you have a customer for life. But to get to the point where Costco could sell pharmacy or prescription drugs, FedMart first had to like blaze the trail because you had a lot of interest groups that were not interested in seeing real competition on these prices.

• 37:01David Senra?

  So it says, This is what happened when they start selling drugs. They withstood numerous obstacles in operating and opening the first pharmacy. They had pressure from the local and state pharmacy organization. Pressure placed on wholesale companies not to deliver ourself to FedMart. Difficulty in obtaining a permit from the state board of pharmacy. He was expelled from the local and state pharmacy organizations and he received numerous death threats. A rock was thrown through his living room window and he was treated like a traitor.

• 37:33David Senra?

  That is, that is just silly nonsense. That is just absolutely ridiculous. Now, he also ran some problem. Anytime you're, you know, when you don't have, when you don't have real competition and you have these like artificially inflated prices, you're gonna see human behavior like that. And he saw similar stuff like that when they wanted to sell gasoline. So this is his creative solution to being cut off by gasoline suppliers. Alright, so it says, "There was nothing new about selling gasoline at discount. Sol did some research about the cost of gasoline and discovered that the cost to acquire premium gasoline was only a few pennies higher than the cost of regular." So this is his idea. "He decided to sell premium gasoline, pricing the gasoline at a few pennies above more than the price of regular."

• 38:18David Senra?

  So I'm only gonna carry premium, I'm just gonna price a few cents of what you would normally pay for regular. "Major gasoline suppliers cut off the supply of gasoline to FedMart." Uh oh. So what does he do? He starts a fake shell corporation. So it says, "Although the action by suppliers clearly violated the law, there was no quick opportunity for legal redress. Therefore, Sol devised a solution. He created a FedMart subsidiary that functioned as a wholesale gasoline supplier. Gasoline was acquired in Texas and then shipped throughout the Panama Canal and offloaded in Long Beach, California. This kept the supply of gasoline flowing."

• 38:58David Senra?

  So there's an entire chapter all about the emphasis that Saul put on teaching. It starts with a quote from Jim Sinigal. He says, "If you're not spending ninety percent of your time teaching, you're not doing your job." And so now the author writes, "Those of us who were Saul's students would all agree that Saul, above all else, was a great teacher." Jim Sinigal started working for Saul in 1954 at the age of eighteen. Jim recounted the time that he received a call from a reporter to answer some questions. And so the reporter says, "You knew him for a long time. You must have learned a lot." And now Jim says, "My response was, 'No, that's inaccurate. I didn't learn a lot. I learned everything. Everything I know.'"

• 39:41David Senra?

  Saul had a favorite adage that he frequently found appropriate to repeat. "You train an animal. You teach a person." Saul really wanted all FedMart employees to think about and understand why their jobs were important to the success of FedMart. He was not a big fan of procedures and training manuals because he believed that manuals were a substitute for thinking. His emphasis on teaching was expressed in the phrase "alter ego." It was a rather simple concept. He used the following example. "If the owner of a store was able to do all the jobs himself, greet customers, order and receive merchandise, do the accounting, sweep the floors, clean the bathrooms, he would. But the reality is that normally the owner can't do all the work himself.

• 40:26David Senra?

  Therefore, he must hire people to help. He must teach his employees to become his alter ego so that they understand the importance of their jobs and perform their jobs as well or better than he, the owner, would do if he had the time. The owner of the store needs to use his time to do the highest skilled work and delegate less skilled work to his alter egos. In that way, the owner will devote his time to managing the business and making sure that his alter egos are doing their jobs and doing them well." And here's a good example of that. This comes from one of the employees and describing an encounter with Saul. It says, "He," which is Saul, "comes in one night and we're all exceptionally busy. The sales floor was shot and it was a mess.

• 41:10David Senra?

  And I'm out there pulling cardboard, turning the egg rack, making sure the milk case is full, just trying to keep our heads above water. We were drowning. Saul finally grabs me by the shoulder and yanks me back to the warehouse. He drags me back there and he's got me by the shoulder and he looks me in the eye and says, 'You're not running this place. It's running you.' And I mean, he was yelling and on me. The main message had stuck with me my entire life. It made me change everything I did. After that day, I just stayed ahead of the business." His point was that all I was doing was reacting to what was happening. You have to take charge, you have to run the place, and you have to stay ahead of it.

• 41:58David Senra?

  Okay, so now I want to tell you about, he's got a really interesting idea. He calls "Intelligent Loss of Sales." Alright, so it says, "Saul proved that it was possible to do more sales with fewer merchandise items. He pioneered large package sizes as a way of lowering prices. But why does limited selection result in higher sales? Part of the answer lies in what Saul called the 'intelligent loss of sales.' Conventional wisdom in retailing is to stock as many items as possible in order to satisfy every customer's needs and wants. The intelligent loss of sales turns that theory on its head, postulating that customer demand is most sensitive to price, not selection.

• 42:42David Senra?

  How did the intelligent loss of sales work? Saul's classic example at the time was 3-in-1 oil. The manufacturer produced the oil in three sizes. Most stores carried all three sizes of 3-in-1 oil, even though the large 8-ounce size was a better value per ounce than the smaller sizes. Most people who need 3-in-1 oil will buy the 8-ounce size if that's all there is on the shelf." He said most, but not all, all, remember that point. The price is far better per ounce, though eight ounces is a lot more, uh, is a lot more for some customers, is acceptable for most customers. What about the customer who doesn't buy the eight ounce size?

• 43:27David Senra?

  That was the intelligent loss of sales. What does limited selection have to do with efficiency? This part is going to remind, if you listen to my podcast I did on Herb Keller and all the efficiencies he got from Southwest Airlines and why it was one of the only airlines to pull, um, be able to be profitable. He uses a lot of ideas very similar to this one. So I'm going to read this whole paragraph to you, but just keep that in mind as I'm reading to you. What does limited selection have to do with efficiency? Because payroll and benefits represent approximately 80% of retailers' cost of operations, pricing advantage follows labor productivity. Fewer items result in reduced labor hours throughout the, all of the product supply

• 44:09David Senra?

  channels, ordering from suppliers, receiving them at the distribution center, stocking them at the store, and checking out the merchandise. Putting out the, he's going to simplify all the stuff that he just said there. Put simply, the cost to deal with 4,500 items is a lot less than the cost to deal with 50,000 items. That's the intelligent loss of sales. Alright, so at this time FedMart's doing so well, it gets the attention of Sam Walton. Let me just read this quote from Sam. He says, "I learned a lot from Sol Price, a great operator who had started FedMart out in Southern California in 1954. I've stolen," I actually prefer the word "borrowed," as many ideas from Sol Price as from anybody else in the business.

• 44:54David Senra?

  I really liked Sol's FedMart name, so I latched right on to it with Walmart." Okay, so I, that brings up a good point that I'm going to set up for labor later, okay? And it comes to this, um, this quote I love from Charlie Munger that I always keep on my phone and I think about it. And he always recommends that we need to, we need to copy or learn the best of what other people have already figured out. So he says, "How does Sam Walton, a guy in Bentonville, Arkansas with no money, blow right by Sears? He played the chain store game harder and better than anyone else. Walton invented nothing, but he copied everything anybody else ever did that was smart. So he blew right by them all." Remember that sentence? So he blew right by them all.

• 45:38David Senra?

  I believe in the discipline of mastering the best that other people have figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody is that smart. Okay, so remember that quote and remember what Sam just said for later.

• 45:55David Senra?

  Okay, so FedMart starts to do well, but as every business kind of plateaus out. And now they're having some difficulty. They have increased competition. A lot of people are competing with them now. They're copying them, right? So it says, "The early years of the 1970s were proving to be quite a challenge for FedMart." So we're, you know, almost 20 years after the business was started. "Sohle began to feel pressure and a lack of enjoyment with the chore of running and expanding company with increasingly competitive challenges." So later commented that we were good at creating the business, but we weren't as good at running the business. So what does he do? He's trying to get out of this rut he's in and he decides he's gonna learn. He starts learning from other founders.

• 46:36David Senra?

  He travels to Europe and starts studying other retailers that are innovating and maybe finding some kind of partnership, right? So there's a big section on this. I'm just gonna hit a few highlights. He visited three retail chains, one in Holland and two in Germany. One of them was, is it, I don't know if Marco's the name of the store or the person? So I visited Marco. Yeah, okay, that's the store. He talked about Marco at length, in particular, the passport membership concept for business customers. So what they did is they separated their business into, you could get extra discounts if you owned a business. Then he meets, that's an idea he's gonna use later for the business he's gonna start after FedMart. And he gets fired from FedMart.

• 47:21David Senra?

  And so I'm setting up him getting fired, okay? And it starts with one of this person he meets in Germany, this billionaire retailer by the name of Hugo Man. Hugo Man created these things called hypermarkets, okay? So Sohle's really impressed about it. What's a hypermarket? He says, "Hypermarkets now operating throughout the world are what Americans would think of as large discount stores such as Walmart Supercenters." So before the Walmart Supercenter, that's everywhere, Target's very similar, they talk about that, they talk about Kmart as other competitors. You have this guy Hugo Man in Germany doing all this, okay? Hugo's got a lot of money. And so Saul's like, okay, well, why don't we combine our ideas with Hugo's money? And so he starts this idea of the process of selling FedMart to Hugo doing that.

• 48:06David Senra?

  And it says, "The negotiation session proved plenty of opportunity to gain insight into the characters we were dealing with. But Saul had decided that FedMart had much to gain by reaching a deal with Mann and his group. Later on, looking back on our times with Mann, the warning signs seemed so obvious. But at the time, we were caught up in the euphoria of making a big deal." So this is a mistake that he's making. Winds up selling the business to Hugo. And he, essentially, he wanted to do the deal with Mann so FedMart could expand, also expand with Mann's money. But Mann owns it. And it's his money, and he's gonna decide what happens. And so, this is what happens. They have a board meeting, and it says, "The first time that Saul and I experienced a

• 48:50David Senra?

  real Hugo Mann was at this board meeting. Rather than the friendly person we had seen, Mann launched into a 90-minute tirade criticizing Saul and FedMart's performance. He only looked at me." So Saul's son, Robert, who's writing this book, is also helping him run the business. So he's in this meeting, it's kind of how weird this would be. So he's criticizing performance, and he's locking eyes on one person, it'd be very bizarre. So it says, "He only looked at me, never once looking at Saul or addressing a single remark directly to him. Neither Saul nor I uttered a word despite the humiliating attack launched against us. We were finally seeing Hugo Mann's true character, a side of him that executives in Germany saw every day."

• 49:34David Senra?

  So there's a lot of thoughts I had that came to mind when I was reading that section. And one is like, Saul has a lot of accomplishments, right? But he also started and stopped. Like, he'd start a company and then sell it. You know, that's why he was able to found three companies and take them all public. So FedMart's the first one, Price Club, which is essentially, is gonna be merged into Costco, is the second one, and then he starts this huge real estate investment company, he was the third one. And what I thought about is like, isn't it weird that like, okay, so first of all, he's in this, he's in this meeting, he's getting just, like, you know, Saul's a very proud, smart, successful person. It's not easy for you to sit there and have somebody else that you're now technically working for dress you down in front of everybody, you know?

• 50:19David Senra?

  There's a reason why a lot of entrepreneurs optimize for control over money. But then I also thought, I was like, well, it's weird. He came up with all the ideas, but because he did this starting and stopping, sometimes it was, they were all his decisions. I mean, it was his, I was gonna say sometimes it was his decision, sometimes it wasn't. But no, it was his decision to sell to Hugo. So it was in turn his decision. Now, think about all the people that took a lot of innovations and ideas from Sol, but never quit, refused to sell. And think about the success they had, because what's rule number one? Don't interrupt the compounding. Right? Sam Walton, never sold. Became one of the richest people in history. Jeff Bezos, never sold, became one of the richest people in history. Jim Sinigal, never sold.

• 51:03David Senra?

  Costco's one of the most successful retailers. I think it's the most successful retailer in the United States right now, if I'm not mistaken. There's just something to that. Everybody's gotta make their own decision, but I just can't help but seeing the contrasts between Sol, even though he came up with a lot of the ideas and innovation. Remember I just said, what Charlie, remember I asked you to remember what Charlie Munger was telling us? Remember, he said he never invented anything. He just copied what everything else, other smart, anything else that's smart, that was smart, and he blew right past them. He blew right past them. He tries to buy Sol's business, his second business. I'll get there in a minute. I just think there's a lesson there, that like, if you have a good idea, if it's, you

• 51:43David Senra?

  have a business that you're passionate about, like, just let it compound. Like, why start over? I don't know. I just, the contrast is so obvious when you read this book, assuming you've studied obviously Jeff, and Sam, and Jim, and everybody else, like, just like, wow, man, I wonder if, you know, he's also older this time. He's like 60 with the first time he sells FedMart to Hugo. I just wonder if he'd ever, like, he never, he says anything about it, but I would just wonder if he regrets that, so. Okay, so, he gets fired, and now, you know, he's gotta start all over. He says if he rang him dry at this point in his life, he'd have a net worth of around a million dollars.

• 52:28David Senra?

  So he's like, all right, well, what are we gonna do? And so this is where he comes up with the idea for the Price Club, which is they're really iterations. All these ideas are iterations on, like, so you start with Fedco, right? He studied Fedco and he makes FedMart. Then he has a lot of experience, 20 years almost running FedMart. And now he wants to take that a step further. And that's where you have Price Club, which is closest to what Costco is because they wind up merging. All right. So this is the idea. The Price Club idea was finally conceived sometime in the middle of January 1976. A wholesale business selling merchandise to small independent businesses. It's also what he learned in Germany. He took an idea from there. The business owners would come to a large warehouse, select the products from steel rack displays,

• 53:13David Senra?

  pay either by check or cash, and pay either by check or cash. Instead of each business owner purchasing products from various suppliers who specialize in specific product categories, hundreds or even thousands of small businesses would pool their buying power by shopping at a wholesale warehouse. So think about that. That is Costco. If you take out the business part of it and let anybody do it, that's what they're doing. They buy everything. They buy in bulk at a huge discount to what you could as an individual could procure this, the same merchandise for, right? They mark everything up with a standard. I think it's like 14%. I could be wrong, something like that, 14%. What they're doing is just trying to cover their operating costs. And then they're gonna charge you a membership fee to access this wholesale benefit.

• 53:57David Senra?

  And that's where all their profit comes from. That's very similar to the early days of, like Costco's further iteration on Price Club. So he's gonna start out with business customers. But, you know, he's gonna run into some problems. So I'm gonna, I'm gonna go right there. I'm gonna skip over a bunch of parts of the early days. And because you just need to focus on the fact that the idea, when you describe it to somebody, it makes sense, right? But... Sometimes you can launch an idea that other people agrees, makes sense, but you have a hard time finding customers to actually follow through on that. So they opened Price Club, right? And again, he's got a little bit of money, but he's supporting himself, his family.

• 54:40David Senra?

  His two sons that used to work in FedMart were fired, so he gives them a job and he has to pay them. So it's off to a slow start. This is scary, scary times, especially when you're, he'd be 60, around 61 at the time. Alright, so Sol was hoping that Price Club would be on track within a month or two to do $200,000 per week. But by the end of the first week, sales were averaging below $30,000. Uh oh. Price Club is off to a shaky start. Business was so bad that employees were asked to park their cars in the front parking lot, spaces that were previously reserved for members, just to make sure that people knew Price Club was open for business. And this is a terrifying part in any new endeavor.

• 55:24David Senra?

  "We could not figure out what was going wrong," confessed Sol. Was it the membership fee? Did we have the wrong merchandise? The numbers clearly showed that if something were not done soon to change the trend line, the Price Club was on its way to bankruptcy.

• 55:44David Senra?

  So now here they discover something through trial and error that was very surprising and saved their business. So they're like, their brainstorm is like, how can we figure out, like, get customers? So their idea was like, hey, what if we pitch the government? And see if we can go talk to government purchasing managers and see if they want to shop and buy memberships. And so at one of these meetings, they're like, well, we don't want to do this. But one of the people on the council was actually the head of the San Diego Credit Union. And he's like, hey, we're not business owners, but would you, can we shop at, like, could our members take advantage of the cost savings? And so, and it says, "We quickly contacted the San Diego City Credit Union to let them know that their members could shop at Price Club. This one thing that happens changes the trajectory of their business and saves their business.

• 56:28David Senra?

  People joined credit unions to save money, to borrow money at low interest rates, and to receive a variety of other financial benefits, including discounts at retail stores. Shopping at Price Club, a wholesale warehouse, was clearly consistent with the credit union's mission." So they're both membership programs. If you think about it, one is a membership saving on money, which is the interest rate. Right, the other's saving money on the price you pay for goods. So they're very similar, the kind of person that would shop at like a Price Club or a Costco would probably also understand the benefits of being a member of a credit union. So the credit union agrees that they do free marketing for them. It says they agreed to include a Price Club flyer, free of charge, in the monthly statements that were mailed to their members' homes.

• 57:12David Senra?

  The flyer stated that as a member of the credit union, they could shop at Price Club without paying a membership fee. So it's very smart on how they approached, they're like, hey, you already have a large membership base, right? What if we add another value to your members? You don't have to pay us anything. And essentially, it's increasing the value of both memberships at the same time. Because now the San Diego credit union members have an additional benefit that they didn't have to pay for. And it's saving money, which is why they joined the credit union to begin with. And from a Price Club perspective, it's distribution and advertising. Now these people realize, oh, I didn't even know this thing was open. Let me go check it out. What happened next was quite surprising.

• 57:55David Senra?

  The credit union members quickly responded to the flyer and signed up for the new group membership card. Many of these group members realized that if they could qualify as business members, they would save an additional 5%. So you'd have a 5% discount if you were a business member. Someone in their families might have a business, a store or a law office, or any other type of business. This is the whole point of this section I'm telling you. The unanticipated consequence of this, of this campaign, was an increase in business members, which is exactly what Price Club wanted. They wanted more people to sign up. If you're going to pay for a membership, you're more likely to actually use the store. And that's exactly what happened. So not only do they get more members, but they get more sales because now they're like, hey, I want to take advantage of this thing I'm paying for.

• 58:38David Senra?

  Although the Price Company's investors would have to wait until June 1977 before the business reported its first profitable month, the introduction of the group membership turned the business around.

• 58:51David Senra?

  So now we get to the part where we realize, hey, everything that made Price Club different is what makes Price Club successful. Go back to James Dyson, difference for the sake of it in everything because it has to be better. Price Club was new and different, combining merchandise features brought over from FedMart with a warehouse format. Price Club differed from its competitors because of the number of items offered for sale. The typical grocery or discount store carried about 50,000 different items compared to Price Club's 3,000 items. Item selection also included everything from automobile tires to institutional-sized packs of toilet paper and detergent. Price Club was a warehouse with rack storage, high ceilings and concrete floors.

• 59:33David Senra?

  Price Club sold products for office and institutional customers, products that were normally ordered over the telephone and delivered to business customers at the time. And most importantly, the prices for the merchandise, whether for business customers or retail buyers, were overall far less than prices available elsewhere. The operating efficiencies of the warehouse concept and the direct delivery of products from the suppliers to Price Club made it possible to sell the merchandise for less. So now the business is becoming really successful and what happens? When you're successful, you draw attention. And now we're going to see other founders learning from Saul again. Now, check this out. This person, if you've listened to all my podcasts, is going to sound very familiar. Back on Founder's Number 45, I did a podcast on one of the co-founders of Home Depot,

• 1:00:18David Senra?

  Bernard Marcus. Well, look, here's Bernard back in the 70s. It says, "Even though Price Club had tried to stay under the radar, people in the retail industry were taking notice. In 1978, Bernard Marcus, soon to be the founder of Home Depot, came to see the Price Club and to visit with Saul. Saul took Marcus on a tour of the Price Club. He suggested to Marcus..." This is huge. Think about the difference this one meeting has in the life of Bernard Marcus. "He suggested to Marcus that he open his own home improvement business using the knowledge and experience he had gained at Handy Dan." That's when he got fired, the company that he was running before he starts Home Depot and he gets fired from. "Marcus took Saul's advice and with his partner, Arthur Blank, opened the first Home Depot in Atlanta, Georgia in 1979."

• 1:01:03David Senra?

  So it was almost a year later. "Blending what Marcus had learned in the traditional hardware business with Price Club's warehouse format." So you could think about a Home Depot almost like a Price Club that focuses on home improvement. Okay, so Bernard Marcus is learning from him now. Guess who's back? We just had a quote from Sam Walton saying, "Hey, FedMart, I like that idea so much, I added it to Walmart." Well, now this is Sam Walton 20 years after the fact. He's coming back to Saul, he's coming back to the fountain of good ideas at his sole price. In 1982, Sam Walton, who had created Walmart by using FedMart as a model, called Saul. Walton wanted to come out to have a look at Price Club. He eventually tries to buy it, but Saul decides to merge with Costco instead.

• 1:01:48David Senra?

  So he says, "Sam was interested in learning as much as he could about the warehouse club business. Once again, Saul was open and generous with information. Sam thanked Saul and returned to Arkansas. The next year, in 1983, Walton opened his first Sam's Club in Oklahoma City."

• 1:02:06David Senra?

  So I want to now talk to you about another mistake that Saul makes. And it's all about the importance, and we've talked about it a lot over the last few weeks, is the importance of focus. This is, this note I have for myself is, "Don't lose your focus." So at the time, I don't even understand why. But Saul was really, he was more interested in like the real estate deals because they would, they would buy the property that they want to build on, which is just good advice. Don't, you know, don't build a business on somebody else's property. But he, like, he, he just started essentially taking away resources from expanding the business that was working to buying more real estate. I mean, this is kind of, this is a mistake, I think, but he also like, he gets insights that leads him to make that,

• 1:02:49David Senra?

  to create that real estate investment trust that he takes public, but it's bizarre. So he says, "Some of the company's senior executives and most of the investment community frowned on the company's directing so much of its financial resources into real estate development. Real estate development was a diversion from the company's core business." And this is the weird part, "The immediate financial returns on real estate were much lower than the returns on Price Club's operating business." No idea why he did this. Eventually, he gets to the point where...

• 1:03:18David Senra?

  He was, he was more focused on real estate than, than the actual warehouse business. And so then he realizes, hey, it's time to sell. So we see another trade of his, like, I got bored. I want to do something else. It's not clear when Sol began to consider seriously the sale of The Price Company. It may have been prior, oh, his grandson dies of a brain tumor really young, he's like 15. It's also the son of the author of the book, which is just devastating. So it says it may have been prior to Aaron's death, but in the days, weeks, and months after, I came to believe that Sol must have agonized over how to approach me about this subject. So they're just dealing with just the worst possible thing that could happen

• 1:04:01David Senra?

  to a person, right? On one hand, he had a strong sense that it was time to sell. He had always believed that his and my business strengths were in the creative area and not in the management side of operating a big business. He was tired of the constant pressure from Wall Street and from more growth. There were only two realistic possibilities, Costco's and Sam's.

• 1:04:25David Senra?

  And of course, if you have to choose between Sam's and Costco, he's going to pick his, you know, his protege, or you would assume he would. So in 1993, Costco and Price Club merge, and, you know, Costco is still around today, which brings us full circle because we started our discussion today with Jim Senegal in his 70s, talking about, I've waited 50 years for this guy to give me a compliment, like, how important, it just speaks to how important Sol was to his life. And, you know, Jim Senegal is one of the most successful entrepreneurs in history, and Costco is one of the most successful companies. So it just, it just reaffirms everything that we're doing here, that the value in learning from founders

• 1:05:04David Senra?

  of the past. Now, I want to get to the part where not only was, obviously, Sol had a huge impact in Jim's life, but he worked hand in hand with his son for 40 years. And so this part is where his son is now talking about the impact he had on his life. And I just, I think this is probably, from a, from a personal perspective, the most important part of the entire book. As much as Sol's public accomplishments represent a tremendous legacy, his more enduring legacy may be the impact he had on the lives of the people who knew him through personal or business relationships. All of us can honestly say that there is at least one person who has had a transformative impact on the course of our lives.

• 1:05:47David Senra?

  For me, that person was my father. Whatever I have learned about business, I learned from my father. Everything, from how to read a financial statement, to management, to good judgment, and fair dealings. My father taught me how to think, and how to question, and not to fall into the trap of assuming rather than checking things out for myself. He also taught me to be humble, to appreciate the unpredictability of life, to care for people, to remain hopeful, and always to be there for people who are in need. Working alongside my father for nearly forty-five years, I came to appreciate how unique our relationship was.

• 1:06:30David Senra?

  My father was a strong man, who told me that he had to be tough to grow up in the Bronx and survive. He was very smart, opinionated, and could make his case with anyone. My father was so competent, responsible, and protective, that as he withdrew from day-to-day activities, I wondered whether I could ever carry on without him. The greatest tribute I can give him is that he taught me so much, sometimes without even realizing a lesson was taking place. When it was time for me to step up, I was ready. What greater legacy could there be from a father to a son than leaving the gift of life skills necessary to carry on?

• 1:07:13David Senra?

  He was a poster child for the American dream. His immigrant parents were born in a small Russian village. He was raised in the Bronx, graduated from high school in San Diego, and was the first in his family to graduate from college. He earned a law degree. He became an exceptionally successful businessman and philanthropist. He celebrated seventy years of marriage to his wife Helen. He was a good father, who instilled high values in his sons, and he never walked away from responsibility. It doesn't get much better than that. Writing this book has given me a unique opportunity to provide a permanent record of my father's life and contributions for the benefit of members of the family,

• 1:07:56David Senra?

  those who knew and worked with him, and students of business and philanthropy, and people in general who may learn about and be inspired by his story. May his life be a blessing and an inspiration.

• 1:08:12David Senra?

  If your loved ones feel that way about you when your life is over, I think that's evidence of a life well-lived. I hope the stories on this podcast inspire you like they do me. I hope these ideas add value to your life. If you want the full story, buy the book using the link on your podcast player or at founderspodcast.com, and I'll talk to you next week.