Built From Scratch: How a Couple of Regular Guys Grew the Home Depot From Nothing to $30 Billion by Bernie Marcus and Arthur Blank

Summary
  1. The history and philosophy of The Home Depot from the founders themselves
Key Takeaways
  1. Goal of this book is to share what is learnable and shareable for their next generation of leadership as well as for other entrepreneurs
  2. Have to formalize and deeply instill the company‘s values from every level of the company from the bottom up to the top in order to stand a chance
  3. Early Days
    1. Marcus and Blank met while working at a hardware store called Handy Dan’s, based in Los Angeles. Ken Langone learned about the business and after talking to Blank and seeing how great of an operator he was and seeing how cheaply it traded, he started buying every share he possibly could. This worked out really well for him and he learned how good of an operator Blank and Marcus were and how great their business model for a future concept, The Home Depot, truly was. He would become a co-founder of The Home Depot in the future
    2. Pat Farrah operated a store in Canada and eventually beat Blank and Marcus to the punch by starting his own hardware megastore. However, he had no systems or financial plans in place and eventually he partnered with them in order to save his company and they started The Home Depot together
    3. Although they were desperate for cash in the beginning, they turned away several prominent investors because they didn’t believe they shared their values or would be good partners (Ross Perot)
    4. If a founder saw somebody leaving the store empty-handed they would pursue them to their car asked them what they were searching for and if they didn’t carry it they would say that they actually did and it were simply out of stock. Later, they would go buy the product the customer was searching for and hand deliver it to the their home and then start carrying that piece of merchandise in their stores
    5. Build in margin for error by having more capital then you think you’ll need and invest and resources before you need them so that you’re not scrambling and always try to hire someone who is over experienced for their initial position so that they aren’t always in fifth gear, have excess capacity and balance, can always take on new projects and tasks, and more
  4. Business model:
    1. From the beginning they focused on price, selection and customer service. They’d buy direct from distributors so they could charge customers less and they’d have more selection and count on increased volume to make up for it. Nobody understood this concept for a long time
      1. Excellent customer service
      2. Taking care of our people
      3. Building strong relationships
      4. Respect for all people
      5. Entrepreneurial spirit
      6. Doing the right thing
      7. Giving back
      8. Creating shareholder value
    2. Management principles: we are not that smart, we know we’re not that smart, and therefore have to be deeply involved and listen attentively
    3. 14 management principles
      1. The invisible fence – being decentralized allows us to be close to the customers and access the best knowledge in the field
      2. The 3 Bundles – non-negotiables, the entrepreneurial bundle, complete autonomy to make own decisions
      3. Hire people who are overqualified with a view toward growth in the future
      4. Have a financial conscience
      5. One-man shows don’t cut it with us – teach others as much as possible
      6. How would you like your eggs? – communication is vital and must let company know the logic behind our actions
      7. Bernie’s Test – eye contact, if the associates in new stores recognize him they have to first look him in the eye and this is vital for good customer service
      8. Gonna go ’round in circles – 360 feedback
      9. Establish ties that bind, and strengthen them – communication, trust, trips/events to build trust amongst senior ranks
      10. Shut up and show them what you want – sometimes best method of teaching is by doing and leading by example
      11. Kill bureaucracy
      12. Hire the best
      13. The inverted pyramid – the associates at the stores are the most important (after customers)
      14. Respect for the individual – top leaders have to be on the same page
    4. In every situation, aim to always surround yourself with people who are better and smarter than you are
    5. There is nothing like applying yourself fully
    6. They wanted the cash registers near the front so people walking in could see all the action and all orders went through the big front doors so people could see the big items leaving and that contractors paid the same price as customers. They wanted it to look like a warehouse and not a retail store. They wanted people to be amazed by the inventory and filled the store with empty boxes so it looked like they had even more than they really did. Nobody understood the one stop shopping idea at first and they were short on customers the first several months
    7. They put the lumber at the back of the stores so that customers had to hunt for it and stumble across all the accessories that they didn’t know they needed
    8. Pricing is one of the hardest yet most important aspects of any business
    9. Management lives what they preached. The tone was set at the top and carried through to every employee. They all had a great understanding of the culture and had real ownership over their individual stores
    10. Common sense was an overriding factor in their values
    11. The key is not to make a sale. The key is to cultivate the customer. They would rather show them how to fix the broken sink for $1 than sell them a new sink for $200
    12. During their opening an expansion into Florida they took a popular local magazine and highlighted everything that they carried. They also showed that they discounted all those items at 20% and had even more selection at even better prices
    13. The Home Depot has an inverted management structure. They have so many more sales associates than any other position and these are the people who interact with the customers every day, and because of this they have an intimate knowledge of customer needs and pain points so they responsibility and decisions down to them as much as possible.
    14. The single biggest reason for their success is how they treat their associates who in turn can do whatever they think is right to take care of their customers. Treat employees right, treat customers right and you’ll have all the business you need.
    15. Because they hire the best of it in the industry, they tend to pay higher than average wage and on top of that they give all salaried people the opportunity to become owners of the company through equity which they can buy at a 15% discount to the public. And, on top of that, they’re given more room to grow, to be entrepreneurial and are treated better there than anywhere else. So, why would they ever leave? Most don’t. Turnover at The Home Depot after one year is very low which is extraordinary for the home improvement business. If people make it for a year, they tend to stay because they can really see themselves building a career there.
    16. It is all about trust. With the right knowledge and shared values you can trust the lowest, newest person to make decisions to help care for the customer and this creates more customer loyalty and a better experience that could ever be dictated from one person at the top
    17. The future CFO was digging through the trash to see what they were throwing out and determined that much of it could simply be discounted and put on the shop floor because of some configuration but this turned a lot of trash and wasted money into new assets
    18. At the beginning their people were working too hard but not too smart so they created a new dictate that no employee was allowed to work past midnight and no more than 55 hours per week. If you’re not smart about it, a motivated team can fly right into the sun and having a more balanced life will, in the long term, give you better results than burning your people out
    19. It took a lot of focus and effort to establish the culture and make sure that new hires who came from competitors with different cultures understood how the Home Depot is run, how to care for customers, how to make it look like a warehouse and not a retail shop, and much more
    20. Good associates can come from anywhere and one successful outreach they had was with senior citizens. Nobody else would hire them but when the Home Depot did these people were so ecstatic that they would teach the new hires and work harder than almost anybody else
    21. The Home Depot gave out badges to people who got excellent customer service reviews so that they could place them on their aprons for all to see.
    22. As they grew and matured they had to change from a rowdy group of gunslingers who drank a lot into a more refined family-oriented culture where everyone felt comfortable
    23. Any senior-level person who was hired had to work in the store in order to get a feel for the products the customers the customer service and more even lawyers had to do this
    24. You have to look beyond the financials and metrics and to the person. You have to treat people as they’d want to be treated
    25. Sam Walton was a friendly competitor and convinced Blank and Marcus to switch from occasional fire sales to everyday low pricing. This was a tough change for managers to stomach because the spike after sales was an adrenaline rush but the consistency and trust established with everyday low prices brought a better mix of sales and more stable sales
    26. Essence of keeping the company great is it’s nonstop reinvention. If you’re in constant motion (in the right direction) nobody can catch you. Cannot stay still for any length of time
    27. The Home Depot build good relationships with their suppliers and not paying them in 30 days or even 15 days as usual but it five days and sometimes even overnight
    28. They are very weary of acquisitions but they did acquire the Home Depot of Canada and in order to bring everybody onto the same page, they did an exchange program where the Canadians went to some American stores for several months and vice versa
    29. Another key was understanding the vendors, what they wanted and what motivated them
    30. Store walks keep people deeply fluent on the business and visits are required – not only of senior executives but for board members as well
    31. Created a direct line to the highest ranking people for serious customer complaints under the fake name of Ben Hill. This allowed the senior executives to keep their finger on the pulse and the store managers know that they’d have to deal with them directly if a customer called and complained to this number
    32. Only become your best self with competition and if they didn’t have any direct external competitors in a region, they’d find a way to make a competitor internally. They sometime release ads just to rally the troops
    33. Uncertainty is a huge portion of many failures and is a breakdown of internal communications
    34. Bureaucracy is not questioning stupid things and just taking them for granted. People become scared to make decisions because they’re afraid to make mistakes so they start calling meetings and putting off decisions and actions for as long as they can
    35. Whatever you give to the community, you’ll get back ten fold
    36. There were many copycat Home Depots but none of them truly understood the culture, customer focus, and employee focus that Blank and Marcus had so were never truly able to compete. Can copy nearly everything except for culture. Execution above everything else
Summary
  1. An excellent book with a ton of operational, business, and philosophical gems. You get a great feel for how deeply the founders care about their people and their customers and that formula has led to a culture which seems impossible to steal and duplicate