#434 Sam Walton

What I learned from reading Sam Walton: The Inside Story of America's Richest Man by Vance Trimble. Made possible by: Ramp: https://ramp.com Applovin: https://applovin.com Vanta: https://vanta.com/founders 0:00 — "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." 1:35 — "Sam's idea was absurdly simple: buy cheap, sell low, every day, and while doing it with a smile." 2:15 — "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 one hundred and eighty degrees." 3:34 — "The secret is work, work, work. I taught the boys how to do it." — Sam's father 4:34 — "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." 5:55 — "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." — J. C. Penney 11:10 — "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." — Sam Walton, after losing his first store 11:35 — "I insist on buying the building that the store is in. I need control over my own destiny." — Sam Walton, arriving in Bentonville 11:45 — "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. I want to be the leader in the category I compete in." — Sam Walton 13:05 — "Sometimes hardship can enlighten and inspire." 13:15 — "That same boredom and frustration triggered ideas that eventually bought him billions of dollars." 18:55 — "Many of our best opportunities were created out of necessity, the things that we were forced to learn and do because we started out under financed and under capitalized." — Sam Walton 19:30 — "If they had something good, we copied it." — Sam Walton 24:35 — "This is just part of the education process. I'm still learning." — Sam Walton, on his hands and knees examining a competitor's display 25:00 — "You can make a lot of different mistakes and still recover if you run an efficient operation, or you can be brilliant and still go out of business if you're too inefficient." — Sam Walton 30:55 — "Remember Walmart's golden rule. Number one, the customer is always right. Number two, if the customer isn't right, refer to rule number one." — Sam Walton 31:35 — "Move from Bentonville? That would be the last thing we'd do unless they run us out of here. The best thing we ever did was to hide back there in the hills and eventually build a company that makes folks want to find us." — Sam Walton 32:05 — "I had no vision of the scope of what I would start, but I always had confidence that as long as we did our work well and were good to our customers, there would be no limit to us." — Sam Walton 32:55 — "He also had a very interesting competitive strategy in the early days. He was like a prizefighter who wanted a great record so he could be in the finals. So what did he do? He went out and fought 42 palookas. And the result was knockout, knockout, knockout—42 times. Walton, being as shrewd as he was, basically broke other small-town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at the time. But with his better system, he could sure as hell destroy those small-town merchants. And he went around doing it time after time after time. Then, as he got bigger, he started destroying the big boys. Well, that was a very, very shrewd strategy. It’s an interesting model of how the scale of things and fanaticism combine to be very powerful." — Charlie Munger on Sam Walton's strategy 37:30 — "We have a low resistance to change. We call it our RC factor." — Sam Walton 39:45 — "Control your expenses better than your competition. This is where you can always find your competitive advantage. We rank number one in our industry for the lowest ratio of expenses to sales." — Sam Walton 48:20 — The day the market dropped 500 points and knocked a billion dollars off the value of his stock holdings in Walmart, reporters asked Sam what his reaction to the disaster on Wall Street was. He hadn't heard about it.

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

• 0:00David Senra?

  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.

• 0:44David Senra?

  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's 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 and 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

• 1:27David Senra?

  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." And 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 by a lot of people, they 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, "Okay, I was going left, new information, I'm going to go right."

• 2:09David Senra?

  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.

• 2:52David Senra?

  In fact, a friend of mine just sent this great, sent me this great post on Napoleon, and I want to read this to you real quick, and I think that 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 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."

• 3:37David Senra?

  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.

• 4:22David Senra?

  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.

• 5:07David Senra?

  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.

• 5:49David Senra?

  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.

• 6:32David Senra?

  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 waved 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.

• 7:16David Senra?

  It 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. An interviewer asked Michael Dell, it's like, "Well, when you started your first company, like, what was your schedule like? 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

• 7:59David Senra?

  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%. 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.

• 8:40David Senra?

  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 like, 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 for one example that he discovered, he's like, okay, well, if I can rent an ice cream machine, 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

• 9:24David Senra?

  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 with 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

• 10:08David Senra?

  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's 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."

• 10:53David Senra?

  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 fists, 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, he says, "No, no, no. I'm not going to rent. I insist on buying the building

• 11:37David Senra?

  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 he couldn't even afford to buy a desk. So essentially, he just saw two sawhorses and then put down a piece of plywood on top of them. And then that was his desk for the first five or six years. Not that he spent a lot of time in his office anyways. But he describes the situation. Again, Sam Walton, at this point in the story, he's 32 years old, and he is all in. He says, "I used all the money I was bringing out of Newport. I was down to zero again."

• 12:20David Senra?

  So, used all his money, set up his new store. The same time he's dealing with this, his mother dies unexpectedly. She developed cancer. She underwent surgery. The surgery did not go well, and within days, she dies at only 52 years old. And at the exact same time, he starts to drive back and forth between his new store in Bentonville and his old store in Newport. This is very important because then he starts thinking about, "How am I going to move over these mountain roads in these small rural towns faster?" And I'll get to why this is so important. So it says, "Throughout the fall of 1950, Sam shuttled between his new store in Bentonville and his old one in Newport, having to drive about 250 long miles over curving mountain roads each way. That was when he began to think, 'There must be a faster way to cover ground.'"

• 13:02David Senra?

  "Sometimes hardship can enlighten and inspire." This is why I'm reading this entire section to you. "That was the case for Sam Walton, as he put in hours and hours of driving Ozark mountain roads in the winter of 1950. But that same boredom and frustration triggered ideas that eventually bought him billions of dollars. These countless eight-to-ten-hour commutes between Bentonville and Newport were when he was struck with the realization that if he were competent enough to operate separate stores in two towns successfully, why not three stores, four stores, or maybe even a dozen? He could see the possibility of his own chain of five-and-dime stores. And on one evening, as he drove through the corkscrew curves of the mountainous roads,

• 13:43David Senra?

  he heard the drone of a small airplane, and a light flashed in his brain. The next week, for a reasonable fee, he chartered a pilot to take him to Bentonville. The eight-hour road trip shrank to a 90-minute flight." This gave Sam the answer he was looking for. He's going to become a pilot. Without this idea, his Walmart phenomenon would have never seen the light of day. And then even from the very beginning of his career, we see that he's got this handful of ideas that he uses over and over again. They work well together. Number one, make one store profitable, then use that money to get to another store. Number two, be where the work is happening. He's going to talk about management by walking around over and over again. In fact, he repeats it every, almost every day, every week, every month to his employees. This is mentioned multiple times. So, number two, be where the work

• 14:28David Senra?

  is happening. Number three, copy good ideas from successful companies. Number four, align incentives. And number five, don't get distracted. This is all playing out on a few pages. So it says, "Quite a bit of capital was needed to open and stock a new store, and profits did not flow in immediately. So new ventures would require close managing. He would get one store up and running, take those profits, and plow them into the next store." Number two, he had a lifelong aversion to comfortable offices. He preferred to be walking around in the stores. Number three, he studied how successful chains, retail chains, did things, ready to pounce on any successful little trick they had and copy it. Number four, align incentives. He takes that idea that he learned from J.C. Penney,

• 15:10David Senra?

  and the store managers all had a good percentage deal to help get them committed. And at the time, I think maybe he was paying them 25%. So if you're managing one of these stores, obviously it couldn't be in every store simultaneously, so right? If you're managing these stores, you get 25% of the profits. So he was aligning incentives with them. And number five, don't get distracted. So this was actually interesting. I forgot this point because, you know, this guy builds the best retail, the most successful retail empire of all time. And yet, he got temporarily distracted because, at this time in American history, they start developing these new things called shopping centers. And obviously, he's going to put some of his stores in these shopping centers. He's like, "Oh, wait, maybe I want to be on the other side of this transaction. Maybe I want to own and develop these shopping centers." And he says, "So with this success, I immediately thought, 'This is going to sweep the country. I'm going to go out and find some property and develop a shopping center.'" And he makes

• 15:54David Senra?

  a mistake. He says, "He thought it would be easy. I was going to develop shopping centers all over the country without any money and become a magnet. I thought it was a pure cinch." His very first one fails. He says, "I ran out of money, decided to go back to being a merchant and building stores." And from the rest of his career, he never took his eye off that focus. Just wake up every day and build the store. And then we see that Sam is just relentlessly resourceful. He's very scrappy. Again, he's underfinanced for, you know, probably the first half of his career. I would say he's probably underfinanced until he actually takes Walmart public, many, many years from, in the future, from where we're in the story. And so at this time, there's this hula hoops, or it's like this huge trend that's like sweeping across the country. But he's a tiny merchant. They can't hold any of the hula hoops in stock, so he can't get them.

• 16:36David Senra?

  And so he's like, "Okay, well, why can't I just create my own?" And so he just buys a bunch of plastic pipe. And then at night, after the stores are closed, him and the people he's working with says, "We'd make several thousand a night." Sam would then haul them off and spread them around his stores. Now, this is more about him being scrappy and resourceful. It's like, okay, well, you're hauling them. He doesn't have a truck. He didn't have a trailer. He's pulling a John boat. This is what he's using as a trailer. So he says, "He had a sort of a trailer hooked to the back of his car." Actually, it was a boat. It was a John boat. It was about 12 feet long on a two-wheel trailer, but he made do with it. Sam would come over with his John boat trailer and haul off the hula hoops. Every nickel and dime counted. And Sam was already starting

• 17:16David Senra?

  to talk about more stores. Come hell or high water, Sam was dead-set on branching out." And so they're building out this chain of Ben Franklin stores. And actually, there's quotes from Sam and his brother Bud Walton at this point in the story. And they're talking about, "Hey, essentially, we're, back in the early days, we were extremely financially strapped." Because what they were doing is, he says, "We put everything we had in the stores at the beginning. So any kind of money they'd make, they immediately roll it into another store. That starts making money. They don't keep the money. They don't disperse it. They roll it into another store." So, but this is the important part. They said, "All the stuff they were learning in these many, many years of building up this other Ben Franklin franchise, they would use decades later with Walmart." "The decisions were made for Walmart long before the company was developed. Back in

• 17:59David Senra?

  the Ben Franklin days, we learned so much. The Ben Franklin store showed us how much volume there was if we went into larger units in small communities and pushed the merchandise." So what they're talking about... Is first of all, there's way more sales in these tiny towns than they could ever imagine. And the way to access them is all you have to do is if you they would keep increasing the size of the stores every time they increase the size of the stores, the sales would go up. And so Sam says, we were doing an inordinate, an amazing amount of business in a 13,000 square foot store, which is totally out of character for a town of just 2,000 people. We found we could do a million dollars in a store like this. That was unheard of. But that idea about that constraints are your friend is something repeated throughout

• 18:44David Senra?

  the book. In fact, I have a list of some of my favorite quotes from Sam Walton's autobiography. He talks about this multiple times, but I think this is a great illustration of the point that he's making right now in this book. He says, many of our best opportunities were created out of necessity, the things that we were forced to learn and do because we started out under financed and under capitalized. And then another thing he would say over and over again, that he's just been absolutely shameless about stealing great ideas. I think it was said in either this book or his autobiography that he probably visited more retail stores than any other person on the planet. So he says, one of the first basic lessons that Sam Walton learned at JCPenney was not to be so smug, you ignored your competitors, especially their successful policies and

• 19:25David Senra?

  practices. He was always going around inspecting other stores. If they had something good, we copied it, said Sam. I was totally fascinated by the idea of discounting. And then one of the people that he studies most intently is this guy named Harry Cunningham, who comes up with the Kmart concept. So he says, he came up with the Kmart concept. I have always had the greatest admiration for Harry Cunningham, because when he threw that down, that thing was 10 or 20 years ahead of its time, and he did it better than anybody else. What I did later was take pieces of it and make our Walmart as much like it as I could. At the start, we were so amateurish and so far behind. Kmart just ignored us. They let us stay out there while we developed and learned our business. If they had jumped

• 20:08David Senra?

  on us, I hate to think of that, but we were protected by our small town market. It would have been unthinkable for them to have tried to put up a competing store in a small town. So the difference in strategies are essentially they're both doing discounting, uh, discounting retail, but Kmart focused on major metropolis and Sam Walton essentially just developed for multiple decades out in these little tiny towns that he's been doing for a long time. Right? So it says, it would have been unthinkable for them to have tried to put up a competing store in a small town. They gave us a 10 year period to grow. They were self satisfied with what they had accomplished. They thought they could roll over everybody and they woke up one day and found out the world had changed. And before we get back into this, I want to tell you about AppLovin. One of my all time favorite quotes is from the book Zero to One. In that book, Peter Thiel writes,

• 20:52David Senra?

  he says, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas. And that is exactly what AppLovin has done with their advertising platform. AppLovin connects you with over a billion potential new customers in mobile games. AppLovin allows you to capture undivided attention. AppLovin ads are full screen videos that are watched for an average of 35 seconds. That is retention that blows other ad platforms out of the water and you can launch on AppLovin in minutes. You set the goal and AppLovin achieves it. No complex setup, no expertise needed and AppLovin scales quickly. They can put your ads in front of over a billion potential customers.

• 21:36David Senra?

  Other businesses have seen immediate results, scaled to hundreds of thousands of dollars of spend per day and increased their revenue by millions. So you want to get started quickly before all of your competitors are on AppLovin and you can do that by going to applovin.com. That's applovin.com. And then I want to tell you about Vanta. Vanta, Vanta, Vanta. Vanta helps your company prove you're secure so more customers will use your product or service. Vanta is an AI powered security expert that scales with you. The more your business grows, the more complex your security needs get, and that complexity turns into chaos. Vanta tames that chaos for you. Vanta automates compliance, continuously monitors your controls and gives you a single source of truth for compliance and risk. So whether you're a fast growing

• 22:17David Senra?

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• 23:00David Senra?

  of these Ben Franklin stores. So he goes to the headquarters of Ben Franklin and he pitches them on the idea that's going to become Walmart. He's saying, hey, I don't have any money. You put up the money, I'll be the guinea pig. Let's do this. It's obviously working. We can compete with Kmart. His proposal was audacious and certainly unacceptable. He suggested that the variety store franchisers leap into the front line of the booming discount business. This is what he told them. I think the kind of store will fit in the rural markets just as well in the major metropolitan markets. You should franchise them and I will be your guinea pig. The Ben Franklin executives exchanged sour looks. Sam continued, you'd have to cut your wholesale prices. Instead of making 20 to 25% profit off the merchandise, you're gonna have to be satisfied with about 12 and a half percent. And they blew up at

• 23:45David Senra?

  that suggestion, said Sam Walton. To be sophisticated and experienced businessmen, it looked like the tail was trying to wag the dog. What was that Arkansas Country Fellow's experience with only a dozen or so stores compared to their thousand outlets and nearly a century of retailing know-how?

• 24:04David Senra?

  So they turned him down. The very next day, one of the executives from Ben Franklin that was in the store decides to go take a look. He's like, I want to get a close look at this new Kmart idea. And he shows up at the closest Kmart and the next day, Sam Walton was there ahead of him. So he said, here he was 25 miles from our office and he was talking to a clerk. He was writing everything down in that little spiral notebook. And at one point, he got down on his hands and knees to look under the display cabinet. I said, Mr. Walton, what are you doing? He said, this is just part of the education process. I'm still learning. And that is so important. This was not some kind of grand plan. In fact, he said, I was threshing around. That's the word he uses, threshing. I was threshing around for the right way to go.

• 24:47David Senra?

  So one thing that he knows about discount retailing, if you're gonna be a discounter, you have to have low costs. In fact, this is another wild story. Let me pull out this quote from his autobiography that I think is really, really important. He says, you can make a lot of different mistakes and still recover if you run an efficient operation, or you can be brilliant and still go out of business if you're too inefficient. So how dedicated are you to keeping costs low? One of the reasons that Walmart is called Walmart, in part, is because the name Walmart contains fewer letters, which means cheaper signs outside of the store. So he's having this conversation, says, what do you think we should call it? And the guy he's talking to is a guy named Bogle. Bogle studied the list for a few minutes. All were long names, each made up with three or four words. Well,

• 25:31David Senra?

  Sammy said, you had me buying the letters to go up on our Ben Franklin stores and I know how much they cost and how much they cost to repair and how much they cost to light. It's expensive to put that many words in a name. And this beginning of this Walmart empire, which is going to be Sam Walton's life's work, is rather humble. Remember, he was doing these little variety stores. He was getting up to like 13,000 square feet. The first Walmart, he knew he needed to do volume, but he didn't have any money. So the first Walmart was very, very small. It's only 16,000 square feet, but it was profitable from day one. And he drastically improved that store, just like every single other store says. And from that day, that store for 15 years had about a 30% annual increase

• 26:12David Senra?

  in sales. The first year volume was only $700,000, but that store made a profit from the very beginning. This is a great line in this book of Jeff Bezos that I read. It's in the everything store where it says that, you know, if you're good, Jeff will jump on your back and kind of ride you into the ground. And Sam Walton was very, the same way. He would constantly, this is Elon Musk talks about this, where like you just, you're just churning through people. He's so, I think later on, they call, uh, some of the people who work for Sam Walton call him like a slave driver. Um, but he would be very, very hard to like keep up with him. You know, he had legendary work ethic. And so he'd constantly be churning through executives. So he's constantly recruiting, but he's also patient and he would recruit

• 26:55David Senra?

  the same person for decades. So he's gonna recruit this guy named David Glass. David Glass will be the CEO of Walmart 20 years into the future, we're in the story. At this time, Sam tries to recruit him by taking him to the second Walmart ever opened. This is a wild story about what the second Walmart ever opened was like. Glass thought that Sam might have lost his marbles with all this discount store foolishness. It would surprise him if this kind of store had any future. So obviously this recruiting did not go well. "It was the worst retort store I'd ever seen," said David Glass. "Sam had bought a couple of trucks of watermelons and stacked them on the sidewalk. He then had a donkey ride out in the parking lot.

• 27:35David Senra?

  It was 115 degrees and the watermelons began to pop and the donkeys began to do what donkeys do and all the donkey poop and the watermelons mixed together and ran all over the parking lot. And when you went inside the store, the mess just continued, having been tracked all over the floor. He was a nice fellow, but I wrote him off. It was just terrible." Like so many before him and since, David Glass was guilty of snap judgment on unorthodox merchandiser Sam Walton. And so at this point in the book, they put this excerpt in, this is gonna happen many decades in the future, of this profile from Fortune magazine that appears in 1989 about Sam that I think gives a great illustration of these really ideas and this way of operating that he had from his very first, very early days,

• 28:19David Senra?

  something that he would continue for decade after decade. So it says, "So how did Sam Walton get to be America's most admired retailer? He willed it through sheer force of a complex personality, as the donkey watermelon episode illustrates. He's an old fashioned promoter in the P T Barnum style. But he's more than that. He's a little bit Jimmy Stewart, handsome and halting and has an aw shucks charm. He's a little bit of Billy Graham with the charisma and persuasiveness that heartland folks find hard to resist. And he's more than a little bit of Henry Ford, a business genius who sees how all parts of the economic puzzle relate to his business.

• 28:58David Senra?

  Overlaying everything is a lot of the old yard rooster who is tough, loves a good fight and protects his territory." And then David Glass reflects back on this time. He says, "The thing that I underestimated about Sam is that he has an overriding something in him that causes him to improve every day. That's not difficult when you have something as bad as what he had. But sometimes you achieve success and say, 'Boy, now I got it like I want it. I can lay back and enjoy it a little.' Sam has never done that. He has never gotten to the point where he is comfortable with who he is or how we're doing." And this is just fantastic. "He is a modern day combination of Vince Lombardi insisting on solid execution of the basics

• 29:39David Senra?

  and General George Patton. A good plan violently executed now is better than a perfect plan next week." And then this speaks to what they just mentioned, the fact that he had charisma, he can get you fired up. I think one of the principal reasons that Sam was successful is because of his ability to motivate people. He's a tremendous motivator. At 48 years old, what I also love is just how slow and methodical he was when he was learning and once he figured it out, he just, he essentially put gasoline on promising sparks, is the way to think about this. So when he's 48 years old, his empire consists of 18 Ben Franklin variety stores and just four Walmart discount stores. And wait till you see how fast he goes later in his career. Goes back to the fact that he was just, this is mentioned multiple times, he's a relentless recruiter.

• 30:21David Senra?

  A lot of people would turn him down. So a lot of people would say no many, many times before he got them to say yes. So some person he successfully, finally successfully recruited after he said no a few times, said, "Sam came and talked to me, you just couldn't help but believe what he was telling you. He would tell you what he had in mind, what he was looking for, and he convinced you that it was a great opportunity." And then the book mentions again, what I already mentioned to you before, that he had just a handful of these ideas that all worked together, that he would use decade after decade. "Sam Walton's magic is a combination of parts, basic and few. The first essential ingredient is of course customer satisfaction. Hardly a day passed without Sam reminding an employee, 'Remember Walmart's golden rule. Number one, the customer is always right. Number two, if the customer isn't right, refer to rule number one.'"

• 31:04David Senra?

  And so he's constantly wanting to go above and beyond. So he gives this example, like, let's say you buy a pair of shoes at Walmart and you return them. So the customer buys this pair of shoes, brings them back for whatever reason. Says, "Sam reminded his stores that not only should the shoes be cheerfully replaced, but the sales clerk should throw in a pair of socks or stockings for the hassle of having to bring back the defective merchandise." And so as he continues to be more successful, like, okay, well, why are you still in this little town in Bentonville? Why don't you move your company headquarters? And I just love this sentence, this is Sam's response to that question. "I love this sentence. I love this mindset. Move from Bentonville? That would be the last thing we do unless they run us out of here. The best thing we ever did was to hide back there in the hills and eventually build a company that makes folks want to find us."

• 31:48David Senra?

  And then this sentence from him reminds me of exactly what Michael Bloomberg said in his autobiography. "There's no possible way that I could have predicted the success of Bloomberg. I just showed up every day, try to relentlessly improve, make the best product, make the best company, and then let time do most of the work. I had no vision of the scope of what I would start, but I always had confidence that as long as we did our work well and were good to our customers, there would be no limit to us." And so then I want to read this paragraph that compares and contrasts Sam and one of his competitors. Before I get there, there's two things that came to mind when I, when I read this the first time. One, that Steve Jobs quote where he says, "Never, ever, ever, ever, ever forget the dynamic range of humans." They could be in the same business, look the same, start at the same time. Sam Walton is a thousand times more talented than the people he's competing against.

• 32:33David Senra?

  That's the first thought that comes to mind. The second one was Charlie Munger on what he would describe, because Munger intently studies Sam Walton, and he describes what he calls Sam Walton's very shrewd strategy. I want to read this quote to you. So this is directly from Munger. "Walton also had a very interesting competitive strategy in the early days. He was like a prizefighter who wanted a great record so he could be in the finals. So what did he do? He went out and fought 42 pelucas." That's just a funny word, by the way. "And the result was knockout, knockout, knockout, 42 times. Walton, being as shrewd as he was, basically broke other small town merchants in the early days with his more efficient system.

• 33:16David Senra?

  He might not have been able to tackle some titans head on at the time, but with his better system, he could sure as hell destroy those small town merchants. And he went around doing it time after time after time. Then as he got bigger, he started destroying the big boys. Well, that was a very, very shrewd strategy. It was an interesting model on how the scale of things and fanaticism combined to be very powerful." And so this is the paragraph comparing the founder of Walmart with the founder of this company called James Way. Says, "Both of the founders sport no-frills headquarters, call employees by the more dignified term of associates, and promote the same we care mottos in the store. Over the years, they've even borrowed a few merchandising concepts from each other.

• 33:59David Senra?

  But they part company rather quickly when it comes to growth and profits. Walmart is 26 times the size of James Way, yet it still racks up profit margins three times as high as its smaller rival. Each square foot of Walton stores generates $210 of sales, nearly twice as much as James Way." And then what the book does a great job of, just talking about, you know, at the beginning, again, Walmart's gonna be one of the most valuable companies ever created. In the beginning, there's just, there's gonna be a lot of rough edges and there's just not a lot of process. There's a lot of half-working things. And it says, "It was still largely a seat of the pants instinct of Sam Walton that guided his Walmart expansion. There was a lot of rough edges."

• 34:40David Senra?

  They talk about the eighth Walmart ever, they didn't have a lot of resources, which I've mentioned a few times. So they have to take over, the eighth Walmart ever was this old Coca-Cola bottling plant that had went out of business. And it had all these pipes sticking out of the floor. And so you had to stack all your inventory and what the customers would eventually buy around these pipes and all these drains. And the building also didn't even have any air conditioning. So they go out and buy 28 window fans. And in the late 60s, he's having a hard time financing the expansion. He feels, he feels he's got the concept down, but they're moving too slow. Walmart's eventually gonna go public in 1970. Before that, they're borrowing money from banks, they're borrowing for a life insurance company. So he's pitching this life insurance company.

• 35:21David Senra?

  And again, I just, I think this is absolutely nuts, that he kind of nails down the future sales growth of Walmart. And so Sam Walton is sitting across from this insurance company, trying to get money. And they're saying, "Hey, so your sales volume is around $20 million, right?" And Sam goes, "Yes. Our business is really growing. For the fiscal year 1969, we did 21 million. That's quite a jump because the year before, we only did 12 million." And so they ask him, "What do you think your sales volume will be five years from now?" And Sam says, "Our calculation is that in 1975, our sales volume will be 230 million." And they respond, "What?" "The people from the insurance company were very skeptical. Sam Walton, however, was right on target. Total sales for 1975 came to 236 million."

• 36:05David Senra?

  That is nuts. So now he's got a working system, he's got way more capital and he's public now. And he's pushing the pace. This is also where they talk about over and over again, that he just, he just churns through executives. And he just pushed his top executives really hard. "Sam was aware of the Walmart lifestyle. He was alert to its dangers, the risk of burnout. Sam had seen others resign or get fired because of the rigors of working in a pressure cooker for a boss that some staffers called 'that old slave driver.'" And so the people working with them also point out, "Yeah, he's got this like folksy, you know, charming country boy exterior, but you're missing what's actually underneath all that." So it says, "He also claims that the public conception of Sam as a good old country boy wearing a soft velvet glove

• 36:50David Senra?

  misses the fact that there's an iron fist within that glove. Sam Walton is not one to stay still." This is what Sam says. "I guess I can get a little tough if I see things that I don't like. He stressed, though, that he knew his business from top to bottom. I used to do it all, sweep the floor, keep the books, buy the merchandise. One of my assets is my willingness to try something new, to change. That is a concept we carry throughout the company." The idea of changing course when you get new information was so important to him that he came, he would repeat it throughout the entire company. He would call it RC. You need to have a low RC, which is resistance to change. We have a low resistance to change. We call it our RC factor.

• 37:31David Senra?

  And another interesting thing is, as hard as he was on his executive, he seems to be, in the other direction, super supportive of the frontline workers and the people actually serving the customers. And you see stories over and over again. So one time, Sam's on the road, he sees one of his semi trucks, he flags it down. He jumps into the cab and rides 100 miles with the driver to gain firsthand experience that might improve Walmart's transportation. There's other stories of him showing up at 2:30 in the morning, buying a bunch of donuts and taking them over to his warehouse where they're doing a loading dock for all of the inventory. And he would sit there and solicit ideas from the dock workers for how to upgrade their efforts.

• 38:14David Senra?

  And in some cases, they'd be like, oh, you know, we could really use an extra shower or two. And he'd immediately get them whatever they asked for. And this is where he's spending most of his time. He's not hanging out in the office. He's in the stores. He's in the warehouses. He's riding along with the truck drivers. So as Sam discusses his management style, he's dead serious about identifying it as MBWA, management by walking around. It means his tactic of haunting stores, which means not only his own stores, but his competitors' stores as well. He's on the lookout for methods and means, the winning and losing tricks of mass merchandising. And then this goes back to the fact that, yeah, he's got a velvet glove, but he's got an iron fist within it. The other side of the coin is Sam's toughness in dealing with merchandise salesmen, who he calls vendors.

• 38:59David Senra?

  And likewise, with his own buyers, who are charged with never failing to obtain rock bottom wholesale prices. At Sam's insistence, his buyers have demanded price concessions, promising high-volume sales from the biggest names in manufacturing, including P&G, General Electric, and Sony. And this is a description of what it's like to be on the other side of these buyers. These people are folksy and down-to-earth as homegrown tomatoes. But when you start dealing with them, when you get past that down home in Bentonville business, they're hard as nails and every bit as sharp. And one of the things they're excessively sharp about is having the lowest cost structure of anybody in their industry. In fact, let me read one of my favorite sentences from his autobiography before I get to this sentence in this book, which is about the importance of watching your costs.

• 39:42David Senra?

  Sam Walton writes, "Control your expenses better than your competition. This is where you can always find your competitive advantage. We rank number one in our industry for the lowest ratio of expenses to sales." In this book, it says, "Walmart boasts that their total administrative cost amounts to 2% of revenue, far below industry norms." And then we go back to this idea that number one, he's always recruiting, and that two, he would pitch the same person over and over and over again. "Someone said Sam Walton used up men the way he threw wood into his fireplace. Just like the logs, they blazed up with a fury, generated powerful and beautifully efficient flames, and after a time, died down into cold ashes. It was necessary for him always to be looking to replenish his stockpile of talent.

• 40:27David Senra?

  He fell back on his old habit of going after somebody who had already turned him down before." And then we go back to his idea of, hey, I want to make sure I have a low resistance to change, even at 61, which is, you know, he's been running, now he's been in retail for four decades at this point. He's willing to listen to new information to change his mind. So at first, this is 1979, okay? So at first, other executives in Walmart are telling him about the importance of computers, that maybe we can use this, we can have an advantage. There's a very old idea. The first time this really clicked for me is when I read Andrew Carnegie's autobiography, I don't know, like, seven years ago. And it's, "Invest in technology, the savings compound, it gives you an advantage over your slower-moving competitors, and can be the difference between a profit and a loss." And so when his executives were first pitching Sam Walton to invest heavily into computers,

• 41:12David Senra?

  he thought it was just overhead. But then he listened, he learned, and then changed his mind and his course. And then he goes in big. He spends half a billion dollars in 1979 on this new computer system. Finally, his lieutenants educated and convinced Sam, and Walmart spent $500 million. So it's this computer system that's going to link the Walmart stores, warehouses, and distribution centers. And so it says, "Now the stores and warehouses can communicate around the clock with headquarters. They would get daily sales from the 36 departments in each store, bank deposits, estimated sales figures, reports on hot-selling items, and warehouse inventory." In the 1979 Walmart annual report, Sam wrote, "The financial savings and the number of

• 41:53David Senra?

  person-hours saved daily by using the computer center are incalculable, even by the computer." And then he goes back to his idea, once he knew something was working, he was intolerant of slowness in expanding that. So it says, "Walmart was growing too slowly to suit Sam. Anyone but Sam might have been satisfied with his company's progress." So between 1974 and 1977, okay, so three years, they go from 78 to 153 stores, and from sales of 167 million to $478 million. And so Sam can't figure out how to grow any faster organically, so then he starts doing acquisitions. And so there'll be like a chain of, say, like 16 other stores. He'll buy them and then convert those 16 stores into Walmarts.

• 42:36David Senra?

  And so he discovers, hey, I'm only able to make two to three, at this point in his career, only two to three my own, but I can buy 16 in one fell swoop. I can move a lot faster. And then he goes and targets bigger retail, like chains. At one point, he buys this one retail chain that has 104 stores, and then converts all 104 stores into Walmarts. And then a few pages later, he goes back to this. "This is a trademark of ours. We are willing to change. Every day is a different situation in the retail business. We have been very flexible and have been looking every day for changes that need to be made." And so there's all these great stories that spread throughout the book, where just Sam is constantly collecting info from the front lines. And so one of his friend's daughters has a bad experience in a Walmart. She buys a pair of shorts, they weren't the right size, so then she goes back to the

• 43:21David Senra?

  store, they didn't have the right size to exchange, she's like, okay, let me just get my money back, and the manager wouldn't give it. And so he's telling the story where he's at this party with the Waltons, Sam Walton and his wife, and his daughter calls and he pits Sam on the phone. So he says, "We were at this bridge party with the Waltons, and my daughter wanted to speak to Sam. He got on the phone and listened. And then Sam calls the manager, talked to the manager for a bit, and then hung up, and then the manager got awfully nice and gave the money back. Not long after that, Sam and I were talking, and I said I wanted to apologize for my daughter calling while we had a party. And he said, oh, no, I'm glad she called. Boy, that's been its weight in gold. I told the manager that I wanted him to bring that pair of shorts to our Saturday morning meeting. I made him stand up and hold up those shorts. Then I asked him, what is our motto? And he said, satisfaction guaranteed.

• 44:06David Senra?

  You know, every once in a while, you have to refresh their memory." And so this is one of my favorite Sam Walton stories. This is what I was mentioning earlier, is like, remember that he worked on one, a single store for the first five and a half years of his career. Look how fast he's able to go later on in his career. This is when he copies Sol Price. I've done a few episodes on Sol Price. Sol Price is probably the most influential retailer who's ever lived. Sam Walton said he stole more ideas from Sol Price than anybody else. Jeff Bezos got ideas from Sol Price. Jim Sinigal, the founder of Costco, was mentored by Sol Price. The Home Depot concept, Bernie Marcus, got that idea from Sol Price. So Sol Price is, again, very, maybe like the general population don't know, aren't aware of who he was, but if you were in retail, you damn sure studied him. And Sam Walton did so too.

• 44:48David Senra?

  And it winds up, as a result of this, creating one of the most valuable lines, like this extension, this extension into, from Walmart into Sam's Club. And this is happening in the 1980s. Listen to the story, it's excellent. "On a sunny January morning in 1983, Sam Walton flew into San Diego to investigate a new wrinkle in the discount business, a membership wholesale club. The idea was originated five years earlier by a savvy California entrepreneur named Sol Price. Sol Price was making an astounding success by selling merchandise at only 10% above manufacturing prices and getting rich. If Sol Price could do that, Sam Walton figured he could do it too. Sam intended to borrow from Sol Price, just as he had copied schemes originated by J.C. Penney, Herb Gibson, and many other good merchants.

• 45:32David Senra?

  The wholesale club idea was good. It was extraordinary good. Sam returned to Bentonville and called together his top strategists. Walton hopped on this new scheme with enthusiasm. Brashly copying from Sol Price, Walton began creating a division of Sam's wholesale clubs. For years, Walton had been seeking some effective way to get his everyday low-price methods and concepts into the rich and sophisticated metropolitan markets, and now he had finally found it. New Sam's clubs were opened rapidly. By the end of 1983, three clubs were up and running. Eight more clubs opened in 1984. In 1985, he opened 12 more. By the end of that year, he had 23 clubs doing 776 million in sales.

• 46:17David Senra?

  By 1990, Walton had 105 of these wholesale clubs in operation with annual sales in excess of $5 billion." So think about that. For the first five and a half years of his career, he had a single store. Later on, in a seven-year period, he's able to start 105 stores of a new concept and get to $5 billion in sales. And then this is probably one of his best ideas. It's certainly surprising, and it's just another example of Sam copying good ideas. So it says, "For when and how and why, he and his wife shared their business resources with their four children," is one of the more fascinating untold Walton episodes. "The children have each owned 1/5 of their parents' stock and property since 1954."

• 47:02David Senra?

  And I think at the time, he gave them stock, I think it was worth something like $5,000 if I remember correctly. "Sam and Helen created the trust that set this up when Ron was 10 and Alice was only five. Doing this kind of estate planning so early in the game was urged on Sam by his father-in-law, L.S. Robson, who had earlier done precisely the same thing in giving Helen and her siblings equal shares in a vast ranch that he owned in Oklahoma. Mr. Robson was a banker and a lawyer and pretty smart, Sam once explained. I could see it was the thing to do. And this all took place four decades ago. I came home and had the papers drawn up." And one of his sons talks about this, "At the time, all Dad and Mom had was a variety store or two. Our shares couldn't have been worth more than $5,000 each.

• 47:46David Senra?

  It has been Sam's imagination, genius, and drive that has exploded these shares to a value of almost $2 billion each." And at the time of recording this, those shares, depending on the child, are worth somewhere between $130 billion, $127 billion, and $117 billion. And then I'll close with one of my favorite stories about Sam Walton's relentless focus on work. This has to do with the Wall Street crash of October 1987. It is one of my all-time favorite Sam Walton stories. "Stock market crashes," says, "The day the market dropped 500 points and knocked $1 billion off the value of his stock holdings in Walmart. Reporters asked Sam what his reaction to the disaster on Wall Street was.

• 48:30David Senra?

  He hadn't heard about it." And that is where I'll leave it. Highly recommend reading the book. If you haven't read Sam's autobiography, I would start with that first, but if you had read Sam's autobiography, I would definitely buy this book. I will leave a link down below. If you buy the book using that link, you'll be supporting the podcast at the same time. That is 434 books down, 1,000 to go, and I'll talk to you again soon.