Henry Ford recounts his life and the business philosophy which helped him create one of the most innovative and dominant companies of all time. “The essence of my idea is that waste and greed block the delivery of true service. Both waste and greed are unnecessary. Waste is due largely to not understanding what one does, or being careless in doing of it. Greed is merely a species of nearsightedness. I have striven toward manufacturing with a minimum of waste, both of materials and of human effort, and then toward distribution at a minimum profit, depending for the total profit upon the volume of distribution. In the process of manufacturing I want to distribute the maximum of wage – that is, the maximum of buying power. Since also this makes for a minimum cost and we sell at a minimum profit, we can distribute a product in consonance with buying power. Thus everyone who is connected with us – either as a manager, worker or purchaser – is the better for our existence. The institution that we have erected is performing a service. That is the only reason I have for talking about it. The principles of that service are these:
An absence of fear of the future and of veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunity more intelligently to begin again. There is no disgrace in honest failure; there is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress.
A disregard of competition. Whoever does a thing best ought to be the one to do it. It is criminal to try to get business away from another man – criminal because one is then trying to lower for personal gain the condition of one’s fellow man – to rule by force instead of by intelligence.
The putting of service before profit. Without a profit, business cannot extend. There is nothing inherently wrong about making a profit. Well–conducted business enterprise cannot fail to return a profit, but profit must and inevitably will come as a reward for good service. It cannot be the basis – it must be the result of service.
Manufacturing is not buying low and selling high. It is the process of buying materials fairly and, with the smallest possible addition of cost, transforming those materials into a consumable product and giving it to the consumer. Gambling, speculating, and sharp dealing, tend only to clog this progression.”
Business exists for service but the present system does not permit of the best service because it encourages every type of waste. It keeps many men from getting the full return from service
The natural thing to do is work – to recognize that prosperity and happiness can be obtained only through honest effort. Human ills flow largely from attempting to escape from this natural course. I have no suggestion which goes beyond accepting in its fullest this principle of nature. I take it for granted that we must work. All that we have done comes as the result of a certain insistence that since we must work it is better to work intelligently and forehandedly; that the better we do our work the better off we shall be. All of which I conceive to be merely elemental common sense.
As we serve our job we serve the world – Do your job! As you do anything, is how you do everything
Business is never as healthy as when, like a chicken, a certain amount of scratching has to be done. Things cannot come too easily
It is what a thing does, not what it is meant to do, that matters. For anyone to be required to use more force than is absolutely necessary for the job on hand is waste
The principal part of the chisel is the cutting edge.
Above all else, first find a good idea. Given a good idea to start with, it is better to concentrate on perfecting it than to hunt around for a new idea. One idea at a time is about as much as anyone can handle
The way I have always worked is to draw out a plan and work out every detail of the plan before starting to build. Many inventors fail because they do not distinguish between planning and experimenting
There was no way the Model T could not be successful for it was not made in a day. Every detail had been fully tested in practice
There is an immense amount to be learned simply by tinkering with things. It is not possible solely to learn from books. Can get ideas from them but must use one’s brains to apply them
I loved watching and almost went into the business but did not because I figured out that watches are not universal necessities and people generally would not buy them. Even then I wanted to produce something in quantity
I read everything I could find, but the greatest knowledge came from the work
No work with interest is ever hard
It does not pay to hurry
There was no demand for automobiles when I first started. There never is for new articles
Early on, the general population only cared for speed. Although Ford thought that raw speed was a poor metric to optimize for, he knew his consumers and what they wanted. So, he built a car to beat the world’s fastest drivers and got press that way. He balanced what the consumers wanted while also keeping in mind and knowing what the consumer did not know they wanted.
The most surprising thing I found about business was the large concern for finance and low concern for service
Time spent fighting the competition is wasted – it had better be spent doing the work
The man who has the largest capacity for work and thought is bound to succeed
The whole progress of the company had always been financed out of earnings. Everything is being done out of earnings. That is our policy
No stunt and no advertising will sell any article for any length of time
Money is only worth what it will help you produce or buy. No more
Worst of all advertisements is a dissatisfied customer
The refinement and use of vanadium made the universal car possible as it was light and strong and it had to have these attributes:
Quality in material to give service in use. Vanadium steel is the strongest, toughest, and most lasting of steels. It forms the foundation and super–structure of the cars. It is the highest quality steel in this respect in the world, regardless of price
Simplicity in operation – because the masses are not mechanics
I believed then, although I said very little about it because of the novelty of the idea, that it ought to be possible to have parts so simple and so inexpensive that the menace of expensive hand repair work would be entirely eliminated. The parts could be made so cheaply that it would be less expensive to buy new ones than to have old ones repaired. They could be carried in hardware shops just as nails or bolts are carried. I thought that it was up to me as the designer to make the car so completely simple that no one could fail to understand it.
That works both ways and applies to everything. The less complex an article, the easier it is to make, the cheaper it may be sold, and therefore the greater number may be sold
Power in sufficient quantity
Absolute reliability – because of the varied uses to which the cars would be put and the variety of roads over which they would travel
Lightness. With the Ford there are only 7.95 pounds to be carried by each cubic inch of piston displacement. This is one of the reasons why Ford cars are “always going,” wherever and whenever you see them – through sand and mud, through slush, snow, and water, up hills, across fields and road less plains
Control – to hold its speed always in hand, calmly and safely meeting every emergency and contingency either in the crowded streets of the city or on dangerous roads. The planetary transmission of the Ford gave this control and anybody could work it. That is the “why” of the saying: “Anybody can drive a Ford.” It can turn around almost anywhere
The more a motor car weights, naturally the more fuel and lubricants are used in the driving; the lighter the weight, the lighter the expense of operation. The light weight of the Ford car in its early years was used as an argument against it. Now that is all changed
Any customer can have a car painted any color he wants so long that it is black
Principles of assembly:
Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finishing
Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place – which place must always be the most convenient place to his hand – and if possible have gravity carry the part to the next workman for his operation
Use sliding assembling lines by which the parts to be assembled are delivered at convenient distances
The net result of the application of these principles is the reduction of the necessity for thought on the part of the worker and the reduction of his movements to a minimum
The laws of business are like the laws of gravity and the man who opposes them feels their power
Very worst time to try to raise money is when bankers think you need it. And that is the danger of having bankers in business. They think solely in terms of money. They think of a factory as making money, not goods. They want to watch the money, not the efficiency of production. They cannot comprehend that a business never stands still, it must go forward or go back. They regard a reduction in prices as a throwing away of profit instead of as a building of business
Adhering and honoring the power of the Red Queen Effect. If you are not moving forward, you are moving backward. As your ecosystem is continuously moving forward, if you’re simply standing still it is the same as falling behind
This season demonstrated conclusively to me that it was time to put the new policy in force. The salesman, before I had announced the policy, were spurred by the great sales to think that even greater sales might be had only if we had more models. It is strange how, just as soon as an article becomes successful, somebody starts to think that it would be more successful if only it were different. There is a tendency to keep monkeying with styles and to spoil a good thing by changing it. The salesmen were insistent on increasing the line. They listened to the 5%, the special customers who could say what they wanted, and forgot about the 95% who just bought without making a fuss. No business can improve unless it pays the closets possible attention to complaints and suggestions. If there is any defect in serve then that must be instantly and rigorously investigated, but when the suggestion is only as to style, one has to make sure whether it is not merely a personal whim that is being voiced. Salesman always want to cater to whims instead of acquiring sufficient knowledge of their product to be able to explain to the customer the whim that what they have will satisfy his every requirement – that is, of course, provided what they have does satisfy these requirements.
Everything can always be done better than it is being done
With the tractor we followed the exact same course as with the automobile. Each part had to be as strong as it was possible to make, the parts had to be few in number, and the whole had to admit of quantity production
Ford bought the Detroit, Toledo and Ironton Railway in 1921 and applied “industry principles” – turned a terribly performing, unreliable line into a powerhouse. The railroads in general have broken down, and if the former conduct of the DTI is any criterion of management in general there is no reason in the world why they should not have broken down. Too many railroads are run, not from the offices of practical men, but from banking offices, and the principles of procedure, the whole outlook, are financial – not transportational, but financial. There has been a breakdown simply because more attention has been paid to railroads as factors in the stock market than as servants of the people. Outworn ideas have been retained, development has been practically stopped, and railroad men with vision have not been set free to grow. Will a billion dollars solve that sort of trouble? No, a billion dollars will only make the difficulty one billion dollars worse. The purpose of the billion is simply to continue the present methods of railroad management, and it is because of the present methods that we have any railroad difficulties at all.
It is one of nature’s compensations to withdraw prosperity from the business which does not serve
Being greedy for money is the surest way not to get it, but when one serves for the sake of service – for the satisfaction of doing that which one believes to be right – then the money abundantly takes care of itself. Money comes naturally as the result of service. And it is absolutely necessary to have money. But we do not want to forget that the end of money is not ease but the opportunity to perform more service. In my mind nothing is more abhorrent than a life of ease. None of us has any right to ease. There is no place in civilization for the idler
I disagree slightly on his point about the idler. Some idle and leisure time has been a sure sign of progress and civilization throughout history. This “down” time is necessary for thought, innovation, breakthroughs, to gain perspective and see things differently. This cannot be the state of the whole population but it must exist for a select few.
He is a wise merchant who would rather take less profit and keep business moving than keep his stock at high prices and bar the progress of his community. A man like that is an asset to a town. He has a clear head. He is better able to swing the adjustment through his inventory than through cutting down the wages of his delivery men – through cutting down their ability to buy
I have heard it said, in fact I believe it is quite a current thought, that we have taken skill out of work. We have not. We have put in skill. We have put a higher skill into planning, management, and tool building, and the results of that skill are enjoyed by the man who is not skilled
The factory keeps no record of experiments. The foremen and superintendents remember what has been done. If a certain method has formerly been tried and failed, somebody will remember it – but I am not particularly anxious for the men to remember what someone else has tried to do in the past, for then we might quickly accumulate far too many things that could not be done. That is one of the troubles with extensive records. If you keep on recording all of your failures you will shortly have a list showing that there is nothing left for you to try – whereas it by no means follows because one man has failed in a certain method that another man will not succeed. We get some of our best results from letting fools rush in where angels fear to tread. None of our men are “experts.” We have most unfortunately found it necessary to get rid of a man as soon as he thinks himself an expert – because no one ever considers himself expert if he really knows his job. A man who knows a job sees so much more to be done than he has done, that he is always pressing forward and never gives up an instant of thought to how good and how efficient he is. Thinking always ahead, thinking always of trying more, brings a state of mind in which nothing is impossible. The moment one gets into the “expert” state of mind a great number of things become impossible
That which one has to fight hardest against in bringing together a large number of people to do work is excess organization and consequent red tape. To my mind there is no bent of mind more dangerous than that which is sometimes described as the “genius for organization.” This usually results in the birth of a great big chart showing, after the fashion of a family tree, how authority ramifies. The tree is heavy with nice round berries, each of which bears the name of a man or of an office. Every man has a title and certain duties which are strictly limited by the circumference of his berry. Now a business, in my way of thinking, is not a machine. It is a collection of people who are brought together to do work and not to write letters to one another. It is not necessary for any one department to know what any other department is doing. If a man is doing his work he will not have time to take up any other work. It is the business of those who plan the entire work to see that all of the departments are working properly toward the same end. It is not necessary to have meetings to establish good feeling between individuals or departments. It is not necessary for people to love each other in order to work together. Too much good fellowship may indeed be a very bad thing, for it may lead to one man trying to cover up the faults of another. That is bad for both men.
We make the individual responsibility complete. The workman is absolutely responsible for his work. The straw boss is responsible for the workmen under him. The foreman is responsible for his group. The department head is responsible for the department. The general superintendent is responsible for the whole factory. Every man has to know what is going on in his sphere
The habit of acting shortsightedly is a hard one to break. What can be done? Nothing. No rules or laws will affect the changes. But enlightened self–interest will. It takes a little while for enlightenment to spread. But spread it must, for the concern in which both employer and employees work to the same end of service is bound to forge ahead in business
Waste is prevented by far-sighted not by short-sighted men. Short-sighted men think first of money. They cannot see waste. They think of service as altruistic instead of as the most practical thing in the world. They cannot get far enough away from the little things to see the big things – to see the biggest thing of all, which is that opportunist production from a purely money standpoint is the least profitable. Service can be based upon altruism, but that sort of service is not usually the best. The sentimental trips up the practical.
Capital that is not constantly making conditions of daily labor better and the reward of daily labor more just, is not fulfilling its highest function. The highest use of capital is not to make more money, but to make money do more service for the betterment of life. Unless we in our industries are helping to solve the social problem, we are not doing our principal work. We are not fully serving.
More men are beaten than fail. It is not wisdom they need or money, or brilliance or “pull,” but just plain gristle and bone. This rude, simple, primitive power which we call “stick-to-it-iveness” is the uncrowded king of the world of endeavor. People are utterly wrong in their slant upon things. They see the success that men have made and somehow they appear to be easy. But that is a world away from the facts. It is failure that is easy. Success is always hard. A man can fail in ease; he can succeed only by paying out all that he has and is. It is this which makes success so pitiable a thing if it be in lines that are not useful and uplifting.
Business should be on the side of peace, because peace is business’ best asset
France has something to give the world of which no competition can cheat her. So has Italy. So has Russia. So have the countries of South America. So has Japan. So has Britain. So has the United States. The sooner we get back to a basis of natural specialties and drop this free–for–all system of grab, the sooner we shall be sure of international self-respect – and international peace. Trying to take the trade of the world can promote war. It cannot promote prosperity. Someday even the international bankers will learn this.
You can hardly have too much harmony in business. But you can go too far in picking men because they harmonize. You can have so much harmony that there will not be enough of the thrust and counter thrust which is life – enough of the competition which means effort and progress. It is one thing for an organization to be working harmoniously toward one object, but it is another thing for an organization to work harmoniously with each individual unit of itself. Some organizations use up so much energy and time maintaining a feeling of harmony that they have no force left to work for the object for which the organization was created. The organization is secondary to the object. The only harmonious organization that is worth anything is an organization in which all the members are bent on the one main purpose – to get along toward the objective. A common purpose, honestly believed in, sincerely desired – that is the great harmonizing principle.
I pity the poor fellow who is so soft and flabby that he must always have “an atmosphere of good feeling” around him before he can do his work. There are such men. And in this end, unless they obtain enough mental and moral hardiness to lift them out of their soft reliance on “Feeling,” they are failures. Not only are they business failures; they are character failures also; it is as if their bones never attained a sufficient degree of hardness to enable them to stand on their own feet. There is altogether too much reliance on good feeling in our business organizations. People have too great a fondness for working with the people they like. In the end it spoils a good many valuable qualities.
We began to manufacture according to a creed – a creed which was at that time unknown in business. The new is always thought odd, and some of us are so constituted that we can never get over thinking that anything which is new must be odd and probably queer. The mechanical working out of our creed is constantly changing. We are continually finding new and better ways of putting it into practice, but we have not found it necessary to alter the principles, and I cannot imagine how it might ever be necessary to alter them, because I hold that they are absolutely universal and must lead to a better and wider life for all. If I did not think so I would not keep working – for the money that I make is in consequent. Money is useful only as it serves to forward by practical example the principle that business is justified only as it serves, that it must always give more to the community than it takes away, and that unless everybody benefits by the existence of a business then that business should not exist.
Progress comes from a generous form of rivalry. Bad competition is personal. It works for the aggrandizement of some individual or group. It is a sort of warfare. It is inspired by a desire to “get” someone. It is wholly selfish. That is to say, its motive is not pride in the product, nor a desire to excel in service, nor yet a wholesome ambition to approach to scientific methods of production. It is moved simply by the desire to crowd out others and monopolize the market for the sake of the money returns. That being accomplished, it always substitutes a product of inferior quality.
All the wise people demonstrated conclusively that the engine could not compete with steam. They never thought that it might carve out a career for itself. That is the way with wise people – they are so wise and practical that they always know to a dot just why something cannot be done; they always know the limitations. That is why I never employ an expert in full bloom. If I ever wanted to kill opposition by unfair means I would endow the opposition with experts. They would have so much good advice that I could be sure they would do little work.
My idea was then and still is that if a man did his work well, the price he would get for that work, the profits and all financial matters, would care for themselves and that a business ought to start small and build itself up and out of its earnings. If there are no earnings then that is a signal to the owner that he is wasting his time and does not belong in that business
And I also noticed a tendency among many men in business to feel that their lot was hard – they worked against a day when they might retire and live on an income – get out of the strife. Life to them was a battle to be ended as soon as possible. That was another point I could not understand, for as I reasoned, life is not a battle except with our own tendency to sag with the down pull of “getting settled.” If to petrify is success all one has to do is to humor the lazy side of the mind but if to grow is success, then one must wake up anew every morning and keep awake all day. I saw great businesses become but the ghost of a name because someone thought they could be managed just as they were always managed, and though the management may have been most excellent in its day, its excellence consisted in its alertness to this day, and not in slavish following of its yesterdays. Life, as I see it, is not a location, but a journey. Even the man who most feels himself “settled” is not settled – he is probably sagging back. Everything is in flux, and was meant to be. Life flows. We may live at the same number of the street, but it is never the same man who lives there
The public is wary. It thinks that the price cut is a fake and it sits around waiting for a real cut. We saw much of that last year. If, on the contrary, the economies of making are transferred at once to the price and if it is well known that such is the policy of the manufacturer, the public will have confidence in him and will respond. They will trust him to give honest value. So standardization may seem bad business unless it carries with it the plan of constantly reducing the price at which the article is sold. And the price has to be reduced (this is very important) because of the manufacturing economies that have come about and not because the falling demand by the public indicates that it is not satisfied with the price. The public should always be wondering how it is possible to give so much for the money. Standardization (to use the word as I understand it) is not just taking one’s best–selling article and concentrating on it. It is planning day and night and probably for years, first on something which will best suit the public and on how it should be made. The exact processes of manufacturing will develop of themselves. Then, if we shift the manufacturing from the profit to the service basis, we shall have a real business in which the profits will be all that anyone could desire.
My associates were not convinced that it was possible to restrict our cars to a single model. The automobile trade was following the old bicycle trade, in which every manufacturer thought it necessary to bring out a new model each year and to make it so unlike all previous models that those who had bought the former models would want to get rid of the old and buy the new. That was supposed to be good business. It is the same idea that women submit to in their clothing and hats. That is not service – it seeks only to provide something new, not something better. It is extraordinary how firmly rooted is the notion that business – continuous selling – depends not on satisfying the customer once and for all, but on first getting his money for one article and then persuading him he ought to buy a new and different one. The plan which I then had in the back of my head but to which we were not then sufficiently advanced to give expression, was that, when a model was settled upon then every improvement on that model should be interchangeable with the old model, so that a car should never get out of date. It is my ambition to have every piece of machinery, or other non–consumable product that I turn out, so strong and so well made that no one ought ever to have to buy a second one. A good machine of any kind ought to last as long as a good watch.
“How soon will Ford blow up?” Nobody knows how many thousand times it has been asked since. It is asked only because of the failure to grasp that a principle rather than an individual at work, and the principle is so simple it seems almost mysterious. Modern methods applied in a big way have not only brought the cost of axe handles down to a fraction of their former cost – but they have immensely improved the product. It was the application of these same methods to the making of the Ford car that at the very start lowered the price and heightened the quality. We just developed an idea. The nucleus of a business may be an idea. That is, an inventor or a thoughtful workman works out a new and better way to serve some established human need; the idea commends itself, and people want to avail themselves of it. In this way a single individual may prove, through his idea or discovery, the nucleus of a business. But the creation of the body and bulk of that business is shared by everyone who has anything to do with it. No manufacturer can say: “I built this business” – if he has required the help of thousands of men in building it. It is a joint production. Everyone employed in it has contributed something to it. By working and producing they make it possible for the purchasing world to keep coming to that business for the type of service it provides, and thus they help establish a custom, a trade, a habit which supplies them with a livelihood. That is the way our company grew.
My effort is in the direction of simplicity. Real simplicity means that which gives the best service and is the most convenient in use. Start with an article that suits and then study to find some way of eliminating all the useless parts. This applies to everything – a shoe, a dress, a house, a piece of machinery, a railroad, a steamship, an airplane. As we cut out useless parts and simplify necessary ones we also cut down the cost of making. This is simple logic, but oddly enough the ordinary process starts with a cheapening of the manufacturing instead of with a simplifying of the article. The start ought to be with the article. First we ought to find whether it is as well made as it should be – does it give the best possible service? Then – are the materials the best or merely the most expensive? Then – can its complexity and weight be cut down? And so on.
Do not scatter energies over collateral objects
Don’t make the marginal the core, nor the core marginal
On Hiring & Training
Men of a more mechanical turn of mind, but with no desire for responsibility, go into the tool–making departments where they receive considerably more pay than in production proper. But the vast majority of men want to stay put. They want to be led. They want to have everything done for them and to have no responsibility. Therefore, in spite of the great mass of men, the difficult is not to discover men to advance, but men who are willing to be advanced.
Whatever expertness in fabrication that has been developed has been due to men. I think that if men are unhampered and they know that they are serving, they will always put all of mind and will into even the most trivial of tasks
Can only learn and accomplish certain things when everyone is all–in
To produce, produce; to get a system that will reduce production to a fine art; to put production on such a basis as will provide means for expansion and the building of still more shops, the production of still more thousands of useful things – that is the real industrial idea. The negation of the industrial idea is the effort to make a profit out of speculation instead of out of work. There are short–sighted men who cannot see that business is bigger than any one man’s interests. Business is a process of give and take, live and let live. It is cooperation among many forces and interests. Whenever you find a man who believes that business is a river whose beneficial flow ought to stop as soon as it reaches him you find a man who thinks he can keep business alive by stopping its circulation. He would produce wealth by this stopping of the produce of wealth
Not only is a title injurious to the wearer, it often has ill effects on others as well. There is perhaps no greater single source of personal dissatisfaction among men than the fact that the title-bearers are not always the real leaders. Everybody acknowledges a real leader – a man who is fit to plan and command. And when you find a real leader who bears a title, you will have to inquire of someone else what his title is. He doesn’t boast about it
People will eventually flow towards talent rather than title. It is injurious when these two don’t align
The health of every organization depends on every member – whatever his place – feeling that everything that happens to come to his notice relating the welfare of the business is his own job. Railroads have gone to the devil under the eyes of the departments that say: “Oh, that doesn’t come under our department. Department X, 100 miles away, has that in charge.”
We do not hire a man’s history, all that he needs is the desire to work
We do not, to repeat, care what a man has been. If he has gone to college he ought to be able to go ahead faster, but he has to start at the bottom and prove his ability. Every man’s future rests solely with himself. There is far too much loose talk about men being unable to obtain recognition. With us every man is fairly certain to get the exact recognition he deserves
The will to be skilled is not general and even if it were, the courage to follow through with the training is not.
Men tend to not like changes that they themselves do not suggest
Against popular opinion, people tend to be fine with change if there is no prospect for loss. People never seem to mind change if it involves a promotion…
I did a thorough investigation into every job at the plant to determine which could be done by the disabled. These bedridden or disabled men were often able to do just as well as the men in the shop and, in fact, their production was about 20%, I believe, above the usual shop production
Suggestions for improvement can come from anywhere
No man is independent as long as he has to depend on another man to help him. It is a reciprocal relation – the boss is the partner of his worker, the worker is partner of his boss. And such being the case, it is useless for one group or the other to assume that it is the one indispensable unit
There is nothing to running a business by custom – to saying: “I pay the going rate of wages.” The same man would not so easily say: “I have nothing better or cheaper to sell than any one has.” No manufacturer in his right mind would contend that buying only the cheapest materials is the way to make certain of manufacturing the best article. Then why do we hear so much talk about the “liquidation of labor” and the benefits that will flow to the country from cutting wages – which means only the cutting of buying power and the curtailing of the home market? What good is industry if it be so unskillfully managed as not to return a living to everyone concerned? No question is more important than that of wages – most of the people in the country live on wages. The scale of their living – the rate of their wages – determines the prosperity of the country
If they see the fruits of hard work in their pay envelope – proof that harder work means higher pay – then also they begin to learn that they are a part of the business, and that its success depends on them and their success depends on it. The business limits the wages, but does anything limit the business The business limits itself by following bad precedents
There will never be a system invented which will do away with the necessity of work. Nature has seen to that. Idle hands and minds were never intended for any one of us. Work is our sanity, our self–respect, our salvation. So far from being a curse, work is the greatest blessing. Each social justice flows only out of honest work. The man who contributes much should take away much. Therefore no element of charity is present in the paying of wages. The kind of workman who gives the business the best that is in him is the best kind of workman a business can have. And he cannot be expected to do this indefinitely without proper recognition of his contribution The man who comes to the day’s job feeling that no matter how much he may give, it will not yield him enough of a return to keep him beyond want, is not in shape to do his day’s work. He is anxious and worried, and it all reacts to the detriment of his work. But if a man feels that his day’s work is not only supplying his basic need, but is also giving him a margin of comfort and enabling him to give his boys and girls their opportunity and his wife some pleasure in life, then his job looks good to him and he is free to give it of his best. This is a good thing for him and a good thing for the business. The man who does not get a certain satisfaction out of his day’s work is losing the best part of his pay. When we are all in this business together, we all ought to have some share in the profits – by way of a good wage, or salary, or added compensation. And that is beginning now quite generally to be recognized.
Such are the fundamental truth of wages. They are partnership distributions
When can a wage be considered adequate? How much of a living is reasonably expected from work? Have you ever considered what a wage ought to do? To say that it should pay the cost of living is to say almost nothing. The cost of living depends largely upon the efficiency of production and transportation; and the efficiency of these is the sum of the efficiencies of the management and the workers. Good work, well managed, ought to result in high wages and low living costs. If we attempt to regulate wages on living costs, we get nowhere. The cost of living is a result and we cannot expect to keep a result constant if we keep altering the factors which produce the result. When we try to regulate wages according to the cost of living, we are imitating a dog chasing his tail. And, anyhow, who is competent to say just what kind of living we shall base the costs on? Let us broaden our view and see what a wage is to the workmen – and what it ought to be.
Employees must have stability, a path to the dream, financial and non–financial recognition as well as a calm, secure, safe environment. Without these core attributes, they will never settle down and be able to focus fully on their job. There will be scarcity in the air and they will hoard their time, abilities, focus and more. There are certain things that can only be accomplished when people are all-in.
Pay enough so a parent can potentially stay at home with their kids if they want. This can have knock on effects of better-raised children who become better contributors which can lead to a better society
If we can distribute high wages, then that money is going to be spent and it will serve to make storekeepers and distributors and manufacturers and workers in other lines more prosperous and their prosperity will be reflected in our sales. Country-wide high wages spell country-wide prosperity, provided, however, the higher wages are paid for higher production. Paying high wages and lowering production is starting down the incline toward dull business
The objection to a plan which pays out yearly profit sharing is that a man did not get his share until long after his work was done and then it came to him almost in the way of a present. It is always unfortunate to have wages tinged with charity
Must respect the goal-gradient effect. Monthly incentive payments rather than yearly so that people are continuously motivated. People will have clear physiological changes when a goal is near and in sight. Marathoners can even begin to sprint at the sight of a finish line!
We wanted to pay these high wages so that the business would be on a lasting foundation. We were not distributing anything – we were building for the future. A low wage business is always insecure
If you expect a man to give his time and energy, fix his wages so that he will have no financial worries. It pays. Our profits after paying good wages and a bonus – which bonus used to run around ten millions a year before we changed the system – show that paying good wages is the most profitable way of doing business.
These kind of policies, though easily classified as “expensive,” don’t cost, but pay.
The people, once paid enough and incented in the right way, make supervision unnecessary
Once the employees become self-policing, you unleash an incredible amount of energy, time, industriousness, ingenuity, creativity that before was spent “managing” people, “politicking” and making sure others were doing their job. Now, you can hardly stop them from working because their self-interest is tied to the success of the company.
Where does the money to make the wheels go round come from? From the consumer, of course. And success in manufacturing is based solely upon an ability to serve that consumer to his liking. He may be served by quality or he may be served by price. He is best served by the highest quality at the lowest price, and any man who can give to the consumer the highest quality at the lowest price is bound to be a leader in business, whatever the kind of article he makes. There is no getting away from this
On Poverty & Privilege
Poverty springs from a number of sources, the more important of which are controllable. So does special privilege. I think it is entirely feasible to abolish both poverty and special privilege – and there can be no question but that their abolition is desirable. Both are unnatural, but it is work, not law, to which we must look for results.
Any plan which starts with the assumption that men are or ought to be equal is unnatural and therefore unworkable. There can be no feasible or desirable process of leveling down. Such a course only promotes poverty by making it universal instead of exceptional
The cure of poverty is not in personal economy but in better production. The “thrift” and “economy” ideas have been overworked. The word “economy” represents a fear. The great and tragic fact of waste is impressed on a mind by some circumstance, usually of a most materialistic kind. There comes a violent reaction against extravagance – the mind catches hold of the idea of “economy.” But it only flies from a greater to a lesser evil; it does not make the full journey from error to truth. Economy is the rule of half-alive minds. There can be no doubt that it is better than waste neither can be any doubt that is not as good as use. People who pride themselves on their economy take it as a virtue. But what is more pitiable than a poor, pinched mind spending the rich days and years clutching a few bits of metal? What can be fine about paring the necessities of life to the very quick? We all know “economical people” who seem to be niggardly even about the amount of air they breathe and the amount of appreciation they will allow themselves to give to anything. They shrivel – body and soul. Economy is waste: it is waste of the juices of life, the sap of living. For there are two kinds of waste – that of the prodigal who throws his substance away in riotous living, and that of the sluggard who allows his substance to rot from non-use. The rigid economizer is in danger of being classed with the sluggard. Extravagance is usually a reaction from suppression of expenditure. Economy is likely to be a reaction from extravagance.
Most men who are laboriously saving a few dollars would do better to invest those few dollars – first in themselves and then in some useful work. Eventually they would have more to save. Young men ought to invest rather than save. They ought to invest in themselves to increase creative value; after they have taken themselves to the peak of usefulness, then will be time enough to think of laying aside, as a fixed policy, a certain substantial share of income. You are not “saving” when you prevent yourself from becoming more productive. You are really taking away from your ultimate capital; you are reducing the value of one of nature’s investments. The principle of use is the true guide. Use is positive, active, life-giving. Use is alive. Use adds to the sum of good.
The difficulty seems to be in getting to look beyond to the causes. More people can be moved to help a poor family than can be moved to give their minds toward the removal of poverty altogether.
I have no patience with professional charity, or with any sort of commercialized humanitarianism. The moment human helpfulness is systematized organized, commercialized and professionalized, the heart of it is extinguished, and it becomes a cold and clammy thing. Professional charity is not only cold but it hurts more than it helps. It degrades the recipients and drugs their self–respect. Worse than this encouragement of childish wistfulness, instead of training for self–reliance and self–sufficiency, was the creation of a feeling of resentment which nearly always overtakes the objects of charity. People often complain of the “ingratitude” of those whom they help. Nothing is more natural. In the first place, precious little of our so-called charity is ever real charity, offered out of a heart full of interest and sympathy. In the second place, no person ever relishes being in a position where he is forced to take favors.
Industry organized for service removes the need for philanthropy. Philanthropy, no matter how noble its motive, does not make for self-reliance. We must have self-reliance. A community is the better for being discontented, for being dissatisfied with what it has. I do not mean the petty, daily, nagging, gnawing sort of discontent, but a broad, courageous sort of discontent which believes that everything which is done can and ought to be eventually done better. Industry organized for service – and the workingman as well as the leader must serve – can pay wages sufficiently large to permit every family to be both self-reliant and self-supporting. A philanthropy that spends its time and money in helping the world to do more for itself is far better than the sort which merely gives and thus encourages idleness. Philanthropy, like everything else, ought to be productive, and I believe that it can be.
In clearing out the need for charity we must keep in mind not only the economic facts of existence, but also that lack of knowledge of these facts encourages fear. Banish fear and we can have self-reliance. Charity is not present where self-reliance dwells. Fear is the offspring of a reliance placed on something outside – on a foreman’s goodwill, perhaps, on a shop’s prosperity, on a market’s steadiness. That is just another way of saying that fear is the portion of the man who acknowledges his career to be in the keeping of earthly circumstances. Fear is the result of the body assuming ascendancy over the soul. The habit of failure is purely mental and is the mother of fear. This habit gets itself fixed on men because they lack vision. They start out to do something that reaches from A to Z. At A they fail, at B they stumble, and at C they meet with what seems to be an insuperable difficulty. They then cry “beaten” and throw the whole task down. They have not even given themselves a chance really to fail; they have not given their vision a chance to be proved or disproved. They have simply let themselves be beaten by the natural difficulties that attend every kind of effort.
There is no security outside of himself. There is no wealth outside of himself. The elimination of fear is the bringing in of security and supply. Let every American become steeled against coddling. Americans ought to resent coddling. It is a drug. Stand up and stand out; let weaklings take charity
On Thomas Edison
No man exceeds Thomas A. Edison in broad vision and understanding. One time I managed to catch him alone for a moment and told him what I was working on. He was immediately interested. He is interested in every search for new knowledge. And then I asked him if he thought that there was a future in the internal combustion engine. He answered something in this fashion: “Yes, there is a big future for any light-weight engine that can develop a high horsepower and be self-contained. No one kind of motive power is ever going to do all the work of the country. We do not know what electricity can do, but I take for granted that it cannot do everything. Keep on with your engine. If you can get what you are after, I can see a great future.” That is characteristic of Edison. He was the central figure in the electrical industry, which was then young and enthusiastic. The rank and file of the electrical men could see nothing ahead but electricity, but their leader could see with crystal clearness that no one power could do all the work of the country. I suppose that is why he was the leader.
Edison believes all things are possible. At the same time he keeps his feet on the ground. He goes forward step by step. He regards “impossible” as a description for that which we have not at the moment the knowledge to achieve. He knows that as we amass knowledge we build the power to overcome the impossible.
Edison is easily the world’s greatest scientist. I am not sure that he is not also the world’s worst business man. He knows almost nothing of business.
On John Burroughs
Poverty springs from a number of sources, the more important of which are controllable. So does special privilege. I think it is entirely feasible to abolish both poverty and special privilege – and there can be no question but that their abolition is desirable. Both are unnatural, but it is work, not law, to which we must look for results.
This was part of John Burroughs’ sanity – he was not afraid to change his views. He was a lover of Nature, not her dupe. In the course of time he came to value and approve modern devices, and though this by itself is an interesting fact, it is not so interesting as the fact that he made this change after he was seventy years old. John Burroughs was never too old to change. He kept growing to the last. The man who is too set to change is already dead. The funeral a mere detail.
If he talked more of one person than another, it was Emerson. Not only did he know Emerson by heart as an author, but he knew him by heart as a spirit. He taught me to know Emerson. He had so saturated himself with Emerson that at one time he thought as he did and even fell into his mode of expression. But afterward he found his own way – which for him was better.
Has moved beyond the ignorance paradox and gained deep fluency but gained mastery once he developed his own style
On Thinking & Education
An able man is a man who can do things, and his ability to do things is dependent on what he has in him. What he has in him depends on what he started with and what he has done to increase and discipline it. An educated man is not one whose memory is trained to carry a few dates in history – he is one who can accomplish things. A man who cannot think is not an educated man, however many college degrees he may have acquired. Thinking is the hardest work any one can do – which is probably the reason why we have so few thinkers. There are two extremes to be avoided: one is the attitude of contempt toward education, the other is the tragic snobbery of assuming that marching through an educational system is a sure cure for ignorance and mediocrity.
The best education can do for a man is to put him in possession of his powers, give him control of the tools with which destiny has endowed him, and teach him how to think. The college renders its best service as an intellectual gymnasium, in which mental muscle is developed and the student strengthened to do what he can. To say, however, that mental gymnastics can be had only in college is not true, as every educator knows. A man’s real education begins after he has left school. True education is gained through the discipline of life
The only reason why every man does not know everything that the human mind has ever learned is that no one has ever yet found it worthwhile to know that much. Men satisfy their minds more by finding out things for themselves than by heaping together the things which somebody else has found out. You can go out and gather knowledge all your life, and with all your gathering you will not catch up even with your own times. You may fill your head with all the “facts” of all the ages, and your head may be just an overloaded fact–box when you get through. The point is this: great piles of knowledge in the head are not the same as mental activity. A man may be very learned and very useless. And then again, a man may be unlearned and very useful
The object of education is not to fill a man’s mind with facts; it is to teach him how to use his mind in thinking. And it often happens that a man can think better if he is not hampered by the knowledge of the past
One good way to hinder progress is to fill a man’s head with all the learning of the past; it makes him feel that because his head is full, there is nothing more to learn Merely gathering knowledge may become the most useless work a man can do. What can you do to help and heal the world? That is the educational test. If a man can hold up his own end, he counts for one. If he can help ten or a hundred or a thousand other men hold up their ends, he counts for more. When a man is master of his own sphere, whatever it may be, he has also won his degree – he has entered the realm of wisdom
What we accumulate by way of useless surplus does us no honor
There are two fools in this world. One is the millionaire who thinks that by hoarding money he can somehow accumulate real power, and the other is the penniless reformer who thinks that if only he can take the money from one class and give it to another, all the world’s ills will be cured. They are both on the wrong track. They might as well try to corner all the checkers or all the dominoes of the world under the delusion that they are thereby cornering great quantities of skill. Some of the most successful money-makers of our times have never added one pennyworth to the wealth of men. Does a card player add to the wealth of the world?
I am not a reformer. I think there is entirely too much attempt at reforming in the world and that we pay too much attention to reformers. We have two kinds of reformers. Both are nuisances. The man who calls himself a reformer wants to smash things. He is the sort of man who would tear up a whole shirt because the collar button did not fit the buttonhole. It would never occur to him to enlarge the buttonhole. This sort of reformer never under any circumstances knows what he is doing. Experience and reform do not go together. A reformer cannot keep his zeal at white heat in the presence of fact. He must discard all facts.
Our only advantage was lack of precedent
We are often too wrapped up in the things we are doing – we are not enough concerned with the reasons why we do them. Our whole competitive system, our whole creative expression all the play of our faculties seem to be centered around material production and its by–products of success and wealth
It is not true that opportunity has been lost in organization. If the young man will liberate himself from these ideas and regard the system as it is, he will find that what he thought was a barrier is really an aid
Our help does not come from Washington but from ourselves
Business and government are necessary as servants, like water and grain; as masters they overturn the natural order
There can be no greater absurdity and no greater disservice to humanity in general than to insist all men are equal. Most certainly all men are not equal and any democratic conception which strives to make men equal is only an effort to block progress. Men cannot be of equal service. The men of larger ability are less numerous than men of smaller ability; it is possible for a mass of the smaller men to pull the larger ones down – but in so doing they pull themselves down. It is the larger men who give the leadership to the community and enable the smaller men to live with less effort.
Lack of knowledge is what is going on and lack of knowledge of what the job really is and the best way of doing it are the reasons why farming is thought not to pay. Nothing could pay the way farming is conducted. The farmer follows luck and his forefathers. He does not know how economically to produce, and he does not know how to market. A manufacturer who knew how neither to produce nor to market would not long stay in business. That the farmer can stay on shows how wonderfully profitable farming can be. The way to attain low priced and high volume production means plenty for everyone – is quite simple. The trouble is that the general tendency is to complicate very simple affairs. Take for instance, an “improvement.” When we talk about improvements we have in mind some change in a product. An “improved” product is one that has been changed. That is. It my idea. I do not believe in starting to make until I have discovered the best possible thing. This, of course, does not mean that a product should never be changed, but I think that it will be found more economical in the end not even to try to produce an article until you have fully satisfied yourself that utility, design, and material are the best. If your researches do not give you that confidence, then keep right on searching until you find confidence. The place to start manufacturing is with the article. The factory, the organization, the selling and the financial plans will shape themselves to the article. You will have a cutting edge on your business chisel and in the end you will save time. Rushing into manufacturing without being certain of the product is the unrecognized cause of many business failures. People seem to think that the big thing is the factory or the store or the financial backing or the management. The big thing is the product, and any hurry in getting into fabrication before designs are completed is just so much wasted time. I spent twelve years before I had a Model T – which is what is known today as the Ford car – that suited me. We did not attempt to go into real production until we had a real product. That product has not been essentially changed. We are constantly experimenting with new ideas. If you travel the roads in the neighborhood of Dearborn you can find all sorts of models of Ford cars. They are experimental cars – they are not new models. I do not believe in letting any good idea get by me, but I will not quickly decide whether an idea is good or bad. If an idea seems good or seems even to have possibilities, I believe in doing whatever is necessary to test out the idea from every angle. But testing out the idea is something very different from making a change in the car. Where most manufacturers find themselves quicker to make a change in the product than in the method of manufacturing – we follow exactly the opposite course. Our big changes have been in methods of manufacturing. They never stand still. I believe there is hardly a single operation in the making of our car that is the same as when we made our first car of the present model. That is why we make them so cheaply. The few changes that have been made in the car have been in the direction of convenience in use or where we found that a change in design might give added strength. The materials in the car change as we learn more and more about materials. Also we do not want to be held up in production or have the expense of production increased by any possible shortage in a particular material, so we have for most parts worked out substitute materials. Vanadium steel, for instance, is our principal steel. With it we can get the greatest strength with the least weight, but it would not be good business to let our whole future depend upon being able to get vanadium steel. We have worked out a substitute. All our steels are special, but for every one of them we have at least one, and sometimes several, fully proved and tested substitutes. And so on through all of our materials and likewise with our parts. In the beginning we made very few of our parts and none of our motors. Now we make all our motors and most of our parts because we find it cheaper to do so. But also we aim to make some of every part so that we cannot be caught in any market emergency or be crippled by some outside manufacturer being unable to fill his orders.
It could almost be written down as a formula that when a man begins to think that he has at last found his method he had better begin a most searching examination of himself to see whether some part of his brain has not gone to sleep. There is a subtle danger in a man thinking that he is “fixed” for life. It indicates that the next jolt of the wheel of progress is going to fling him off. There is also the great fear of being thought a fool. So many men are afraid of being considered fools. I grant that public opinion is a powerful police influence for those who need it. Perhaps it is true that the majority of men need the restraint of public opinion. Public opinion may keep a man better than he would otherwise be – if not better morally, at least better as far as his social desirability is concerned. But it is not a bad thing to be a fool for righteousness’ sake. The best of it is that such fools usually live long enough to prove that they were not fools – or the work they have begun lives long enough to prove they were not foolish.
The temptation to stop and hang on to what one has is quite natural. I can entirely sympathize with the desire to quite a life of activity and retire to a life of ease. I have never felt the urge myself but I can comprehend what it is – although I think that a man who retires ought entirely to get out of business. There is a disposition to retire and retain control. It was, however, no part of my plan to do anything of that sort. I regarded our progress merely as an invitation to do more – as an indication that we had reached a place where we might begin to perform a real service. I had been planning every day through these years toward a universal car. The public had given its reactions to the various models. The cars in service, the racing, and the road tests gave excellent guides as to the changes that ought to be made, and even by 1905 I lacked the material to give strength without weight. I came across that material almost by accident
Nothing is more foolish than for any class to assume that progress is an attack upon it. Progress is only a call made upon it to lend its experience for the general advancement. It is only those who are unwise who will attempt to obstruct progress and thereby become its victims. All of us are here together, all of us must go forward together; it is perfectly sill for any man or class to take umbrage at the stirring of progress. If financiers feel that progress is only the restlessness of the weak–minded persons, if they regard all suggestions of betterment as a personal slap, then they are taking the part which proves more than anything else could their unfitness to continue in their leadership
I have no quarrel with the general attitude of scoffing at new ideas. It is better to be skeptical of all new ideas and to insist upon being shown rather than to rush around in a continuous brainstorm after every new idea. Skepticism, if by that we mean cautiousness, is the balance wheel of civilization. Most of the present acute troubles of the world arise out of taking on new ideas without first carefully investigating to discover if they are good ideas. An idea is not necessarily good because it is old, or necessarily bad because it is new, but if an old idea works, then the weight of the evidence is all in its favor. Ideas are of themselves extraordinarily valuable, but an idea is just an idea. Almost anyone can think up an idea. The thing that counts is developing it into a practical product.
“Out of very hundred new ideas ninety-nine or more will probably be inferior to the traditional responses which they propose to replace. So the conservative who resists change is as valuable as the radical who proposes it—perhaps as much more valuable as roots are more vital than grafts. It is good that new ideas be heard, but it is also good that new ideas be compelled to go through the mill of objection, opposition, and contumely; this is the trial heat which innovations must survive before being allowed to enter the human race. Out of this tension comes a creative tensile strength, a stimulated development, a secret and basic unity and movement of the whole.’’ – Will Durant
Freedom is the right to work a decent length of time and to get a decent living for doing so; to be able to arrange the little personal details of one’s own life. It is the aggregate of these and many other items of freedom which makes up the great idealistic Freedom. The minor forms of Freedom lubricate the everyday life of all of us.
The very young critic is much imbalanced
Nature has vetoed the whole Soviet Republic for it sought to deny nature. It denied above all else the right to fruits of labor.
Our help does not come from others but from ourselves
No two things in nature are exactly alike
Law of diminishing returns begins to operate at the point where strength becomes weight. Weight may be desirable in a steam roller but nowhere else. Strength has nothing to do with weight. The mentality of the man who does things in the world is agile, light, and strong. The most beautiful things in the world are those from which all excess weight has been eliminated. Strength is never just weight – either in men or in things. Whenever anyone suggests to me that I might increase weight or add a part, I took into decreasing weight and eliminating a part! The car that I have designed was lighter than any car that had yet been made. It would have been lighter if I had known how to make it so – later I got the materials to make the lighter car.
I only want to know whether the greatest good is rendered to the greatest number
Any successful system must check human nature; not depend on it
What is desirable and right is never impossible
You can never develop Mexico until you develop the Mexican
A country becomes great when, by the wise development of its resources and the skill of its people, property is widely and fairly distributed
It is the right act sincerely done that counts
Those who shout loudest about democracy I think, as a rule, want it least
What I got out of it
One of my favorite biographies and business books of all time. Extremely clear thinker, does what works rather than what others think is right, never accepted anything as true and questioned everything, sought simplicity in all that he did, was never “done”. He of course had some great flaws such which we should be weary of but we can absorb and incorporate his teachings while recognizing his faults.
An in depth analysis of The Great Atlantic & Pacific – one of the largest and most dominant retail chains of all time which changed how Americans shopped, ate and expected from their retail experience
George and John Hartford were the men who made the Great Atlantic and Pacific Tea Company, later the Great A&P, into the behemoth it became but it was George Gilman who originally founded it. They became so powerful that they were charged with breaking the Sherman Antitrust Act as they had gained such scale and were able to lower the prices of their goods to the point that other, smaller and often independent owners couldn’t complete.
George was very conservative about how to run the business whereas John was more aggressive and open to new ideas. John traveled often, met with the stores and their competitors in order to bring in and act on new ideas.
A&P was the first to successfully and adamantly aim to lower prices as much as possible and to make the profits by volume rather than trying to get the most profit per item.
They were the first to reach $1 billion in sales in the 1920s and in the 1930s they were the first to shift from grocery stores to supermarkets.
They were often the country’s and sometimes the world’s largest importer of many goods and their sales were twice that of the second leading retailer
The size, scale and influence of the A&P was novel and they helped revolutionize food safety, supply chain management techniques and more. They drove many smaller scale grocers and retailers out of business but this also freed up vast amounts of labor to help the economy grow in other areas
George Gilman’s early retail stores were found to be very cheap but quality was low. As they grew, Gilman wanted to portray the image of a great, reliable and quality store to suppliers and customers in order to attract large merchants, espcecially tea, he spread rumors and fabricated shipping statements to appear they were larger than they really were
Gilman, one never to miss a chance to market his company, sought to profit off the new coast to coast railroad. He thus began The Great Atlantic and Pacific Tea Company – it was more of a front however than a legitimate business venture as he was trying to fend off competitors and lure in customers and suppliers. This “front” was destined to become the world’s largest retailer
They went after the growing tea market and startled their competitors by starting their own private label brand name tea – TheaNectar. Shortly after the government passed patent protection laws and their tea was protected, becoming a household brand.
Gilman was a genius marketer. He created beautiful pictures people wanted and this transformed into coupons and later into trading stamps, becoming a marketing staple for the entire industry. This drove customers into the store and to spend more than they otherwise would
After the Great Chicago Fire, Gilman and Hartford sent a lot of food and support to the victims and also bought key land and set up their first store outside New York. When they opened, they had unmeetable demand. The success was so great that they decided to expand aggressively and 4 years later had 16 stores in many cities. They became the first retailer with that kind of broad, national presence and became widely known. Gilman was the marketer and innovator and George Hartford was the managerial genius – yin/yang power combo
The Great A&P became a temple for coffee and tea and were exceedingly lavish in order to appeal to new customer’s increasing focus on status
The Great A&P was very successful but they have one big issue and that they were really reliant on coffee and tea and once prices on these commodities fell, their sales and profit did accordingly. George Hartford reacted in a sensible way and sought to broaden his product line. They started out with other commodities such as sugar but then moved to baking powder which was expensive at the time but made of cheap materials. They took the innovative step and created their first private label baking powder with the A&P brand. This soon became a national, powerhouse brand. The idea of a brand was new at the time and allowed consumers to know they’re getting a consistent and quality product, although for a higher price and allowed retailers to segment the market and eventually reach economies of scale never before reached.
Cardboard boxes, a mistake invention, and the tin can were inventions which allowed retail brands to proliferate. The A&P’s shift from tea company to grocer was underway but two things were constant: lavish use of marketing and premiums
They tapped into the power of women through their coupons. At the time, women had little authority over the family budget except for food and through the collection and use of coupons, they were able to buy items which otherwise their husbands would have resisted
After Gilman died, ownership was split between Gilman’s family and George Hartford. Hartford made his sons George and John officers. John was the most outgoing of the bunch, often traveling and visiting the stores and meeting suppliers, Edward was disinterested and George Jr was the conservative numbers man
Good story working smarter not harder – In 1907 there was a run on the banks and the bank which held the store’s money was rumored to be going out of business. John waited in line overnight but then decided to go to the front of the line, asked the man at the front how much he had with the bank, gave him more money than he was waiting for and took his spot in line. He got all the store’s money out of the bank and the man at the front was happy too
Edward, George senior’s third son, never formally worked for the company but was secretary for some time. He was however very accomplished in his own right, inventing the shock absorber and jacks which became ubiquitous on nearly every car in the world
John exposed himself to new ideas in the industry and helped his more conservative father and brother move forward. The Hartfords were not innovators but what they were great at taking great ideas and understanding how to make them profitable – grocery stores, economy stores, supermarkets, lower price to raise volume…
The competitive advantage for wholesalers was credit, not price
They took advantage of the situation after WWII to buy coffee roasters, canneries and other manufacturing facilities and started to become vertically integrated. They received such scale that they were one of the few to have the size to negotiate cheaper rates with the railroads and their suppliers (which later got them in trouble with Congress for potentially violating the Sherman Anti-Trust Act)
As they grew, they were forced to decentralize and they pushed sales, purchasing and as many other responsibilities down the food chain as possible because those people had firsthand knowledge of the situation. This lead to better decisions and more buy-in from these people since they were getting the chance to grow, take responsibility and make their own decisions
Because of their scale, they were able to get slightly lower prices for nearly all their goods and they eventually gained greater efficiency, influence and customer data than any other firm before them.
The genius of A&P is that they sought to reduce the price and margin on every good in order to increase volume. They did this by reducing costs in never before thought of ways
By the late 1920s, A&P had more stores than the rest of the top 5 largest chains combined
In the mid 1930’s, The Robinson-Patman Act sought to change legislation and break apart large scale retail chains because it hurt so many independent shop owners
The Hartford’s brilliant insight was that too high profits were a warning sign and bad for the long run prospects of the company. They thought that this was a bad indicator because this meant they were charging more than they had to and this would lead to decreased volume as shoppers would go to their stores less, leading to the same fixed cost being spread over fewer customers, forcing them to raise prices again and on in a vicious cycle
One could argue that few organizations have done more to raise the quality of life for the average consumer than A&P. Their obsession with lowering prices and innovating everything from supply chain to pre packaged carrots opened up new products and frontiers for mid America
Once John Hartford died they had a succession plan in place but Mr. Ballinger died as well soon after. So, Ralph Burger who was seen throughout the company more of as an assistant to John then as a leader, got thrown into the leadership position
As shopping centers became more common throughout the US, A&P became too conservative without John and were unwilling to sign long-term leases or own real estate and soon got locked out of the most premier locations. Their conservatism brought disaster as their competitors were adding high margin desirable product lines, had big stores in good locations with fast growing populations while A&P was relying on the legacy of their past. Today’s ship cannot sail with yesterday’s wind
The A&P went public and their secrecy and lack of detailed information made investors and Wall Street nervous. Their decline was incredible as they were unable to innovate and keep up with new trends and customer demands
They were eventually bought by a German company called Tenglemann, not knowing how dire their situation eventually was. After two Chapter 11 bankruptcies, The Great A&P, who was once the largest and most dominant retail chain in the US and maybe the world, officially shut their doors in 2015
What I got out of it
They laid the framework, game plan and precedent for many of today’s largest firms such as Walmart and Amazon. Their two leaders, George and John Hartford, played off each other’s skills of conservatism and innovation/risk taking to create a behemoth. However, once they were no longer in charge, conservatism and inability to adapt took hold and A&P’s dominance was quickly eroded by faster moving, more innovative companies such as Walmart. Through their focus on lower prices and higher volumes, they were able to get more and more nutritious food to the average American, changed the country’s shopping habits and helped innovate the nationwide store, brand, supply chain and everything else that goes with that
Sam Walton recounts his background and Walmart’s path to retail dominance
Sam’s Rules for Building a Business
Commit to your business. Believe in it more than anybody else. I think I overcame every single one of my personal shortcomings by the sheer passion I brought to my work. I don’t know if you’re born with this kind of passion or if you learn it. But I do know you need it. If you love your work, you’ll be out there every day trying to do it the best you possibly can and pretty soon everybody around will catch the passion from you – like a fever
Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner and together you will perform beyond your wildest expectations. Behave as a servant leader in a partnership. Encourage your associates to hold a stake in the company. Offer discounted stock, and grant them stock for their retirement. It’s the single best thing we ever did
Motivate your partners. Money and ownership alone aren’t enough. Constantly, day by day, think of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage competition, and then keep score. Make bets with outrageous payoffs. If things get stale, cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing as to what your next trick is going to be. Don’t become too predictable
Communicate everything you possibly can to your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. If you don’t trust our associates to know what’s going on, they’ll know you don’t really consider them partners. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors
Appreciate everything your associates do for the business A paycheck and a stock option will buy one kind of loyalty. But all of us like to be told how much somebody appreciates what we do for them. We like to hear it often and especially when we have done something we’re really proud of. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free – and worth a fortune
Celebrate your success. Find some humor in your failures. Don’t take yourself too seriously. Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm – always. When all else fails, put on a costume and sing a silly song. Then make everybody else sing with you. Don’t do a hula on Wall Street. It’s been done. Think up your own stunt. All of this is more important, and more fun, than you think, and it really fools the competition. “Why should we take those cornballs at Walmart seriously?”
Listen to everyone in your company. And figure out ways to get them talking. The folks on the front lines – the ones who actually talk to the customer – are the only ones who really know what’s going on out there. You’d better find out what they know. This really is what total quality is all about. To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.
Exceed your customers’ expectations. If you do, they’ll come back over and over. Give them what they want – and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses – apologize. Stand behind everything you do. The two most important words I ever wrote were on the first Walmart sign: “satisfaction guaranteed.” They’re still up there, and they have made all the difference
Control your expenses better than your competition. This is where you can always find the competitive advantage. For 25 years running – long before Walmart was known as the nation’s largest retailer – we ranked number one in our industry for the lowest ratio of expenses to sales. 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
Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find your niche by going exactly the opposite direction. But be prepared for a lot of folks to wave you down and tell you you’re headed the wrong way. I guess in all my years, what I heard more often than anything was: a town of less than 50,000 population cannot support a discount store for very long
I can tell you this, though: after a lifetime of swimming upstream, I am convinced that one of the real secrets to Walmart’s phenomenal success has been that very tendency. Many of our best opportunities were created out of necessity. The things that we were forced to learn and do, because we started out underfinanced and undercapitalized in these remote, small communities, contributed mightily to the way we’ve grown as a company. Had we been capitalized, or had we been the offshoot of a large corporation the way I wanted to be, we might not ever have tried the Harrisons or the Rogers or the Springdales and all those other little towns we went into in the early days. It turned out that the first big lesson we learned was that there was much, much more business out there in small-town America than anybody, including me, had ever dreamed of
That method was to saturate a market area by spreading out, then filling in. In the early growth years of discounting, a lot of national companies with distribution systems already in place – Kmart for example – were growing by sticking stores all over the country. Obviously, we couldn’t support anything like that. But while the big guys were leapfrogging from large city to large city, they became so spread out and so involved in real estate and zoning laws and city politics that they left huge pockets of business out there for us. Our growth strategy was born out of necessity, but at least we recognized it as a strategy pretty early on. We figured we had to build our stores so that our distribution centers, or warehouses, could take care of them, but also so those stores could be controlled. We wanted them within reach of our district managers, and of ourselves here in Bentonville so we could get out there and look after them. Each store had to be within a day’s drive of a distribution center. So we could go as far as we could from a warehouse and put in a store. Then we would fill in the map of that territory, state by state, county seat by county seat, until we had saturated that market area
We never planned on actually going into the cities. What we did instead was build our stores in a ring around a city – pretty far out – and wait for the growth to come to us. That strategy worked practically everywhere
There’s no question whatsoever that we could not have done what we did back then if I hadn’t had my airplanes. I bought that first plane for business, to travel between the stores and keep in touch with what was going on. But once we started really rolling out stores, the airplane turned into a great tool for scouting real estate. We were probably 10 years ahead of most other retailers in scouting locations from the air, and we got a lot of great ones that way. From up in the air we could check out traffic flows, see which way cities and towns were growing, and evaluate the location of the competition – if there was any. Then we would develop our real estate strategy for that market. I loved doing all this myself
A key transition point was moving from variety store to discount store
2 cornerstones of Walmart’s philosophy – we sell for less and satisfaction guaranteed The idea was simple: when customers thought of Walmart, they should think of low prices and satisfaction guaranteed. They could be pretty sure they wouldn’t find it cheaper anywhere else, and if they didn’t like it, they could bring it back. No matter what you pay for it, if we get a great deal, pass it on to the customer. And of course that’s what we did
Building this consistent customer trust is vital, think it also applies to Costco and Amazon in certain ways
As much as we love to talk about all the elements that have gone into Walmart’s success – merchandising, distribution, technology, market saturation, real estate strategy – the truth is that none of that is the real secret to our unbelievable prosperity. What has carried this company so far so fast is the relationship that we, the managers, have been able to enjoy with our associates.
We didn’t pay our associates much in the beginning. It wasn’t that I intentionally was heartless. I wanted everybody to do well for themselves. It’s just that in my very early days in the business, I was so doggoned competitive, and so determined to do well, that I was blinded to the most basic truth, really the principle that later became the foundation of Walmart’s success. You see, no matter how you slice it in the retail business payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profit margin. That was true then and it’s still true today. Back then, though I was so obsessed with turning in a profit of 6% or higher that I ignored some of the basic needs of our people and I feel bad about it. The larger truth that I failed to see turned out to be another of those paradoxes – like the discounters’ principle of the less you charge the more you’ll earn. And here it is: the more you share profits with your associates – whether it’s in salaries or incentives or bonuses or stock discounts – the more profit will accrue to the company. Why? Because the way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies, not in trying to drag strangers into your stores for one-time purchases based on splashy sales or expensive advertising. Satisfied, loyal, repeat customers are at the heart of Walmart’s spectacular profit margins, and those customers are loyal to us because our associates treat them better than salespeople in other stores do. So, in the whole Walmart scheme of things, the most important contact ever made is between the associate in the store and the customer
The idea for sharing profits and benefits had come up even before we went public, not from me, but from Helen. The decision we reached around that time, to commit ourselves to giving the associates more equitable treatment in the company, was without a doubt the single smartest move we ever made at Walmart.
One of the most successful bonuses has been our shrink incentive plan, which demonstrates the partnership principle as well as any I know beyond just straight profit sharing. As you may know, shrinkage, or unaccounted-for inventory loss – theft, in other words – is one of the biggest enemies of profitability in the retail business. So in 1980, we decided the best way to control the problem was to share with the associates any profitability gained by reducing it. If a store holds shrinkage below the company’s goal, every associate in that store gets a bonus that could be as much as $200. This is sort of competitive information, but I can tell you that our shrinkage percentage is about half the industry average. Not only that, it helps our associates feel better about each other, and themselves. Most people don’t enjoy stealing, even the ones who will do it if given the opportunity. So under a plan like this, where you’re directly rewarded for honesty there’s a real incentive to keep from ignoring any customers who might want to walk off with something, or worse, to allow any of your fellow associates to fall into that trap. Everybody working in that store becomes a partner in trying to stop shrinkage, and when they succeed, they – along with the company in which they already hold stock – share in the reward.
Use human nature to work for you – in this case he was able to align incentives to get people all-in and to become self-policing
Keeping so many people motivated to do the best job possible involves a lot of the different programs and approaches we’ve developed at Walmart over the years, but none of them would work at all without one simple thing that puts it all together: appreciation. All of us like praise. So what we try to practice in our company is to look for things to praise. Look for things that are going right. We want to let our folks know when they are doing something outstanding, and let them know they are important to us. You can’t praise something that’s not done well. You can’t be insincere. You have to follow up on things that aren’t done well. There is no substitute for being honest with someone and letting them know they didn’t do a good job. All of us profit from being corrected – if we’re corrected in a positive way. But there’s no better way to keep someone doing things the right way than by letting him or her know how much you appreciate their performance. If you do that one simple thing, human nature will take it from there
What the pupil must learn, if he learns anything, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and identifying with those realities. – Joseph Tussman
“When I started working at Walmart in West Texas, we could anticipate a store visit by the chairman with the same sense you get when you’re going to meet a great athlete, or a movie star, or a head of state. But once he comes in the store, that feeling of awe is overcome by a sort of kinship. He is a master of erasing that ‘larger-than-life’ feeling that people have for him. How many heads of state always start the conversation by wanting to know what you think? What’s on your mind?
It is great to be great, but it is even better to be human. – Will Rodgers
Walt Disney also had this capacity to put people at ease – if he wanted to…
And, as I’ve said, we’ve certainly borrowed every good idea we’ve come across. Helen and I picked up several ideas on a trip we took to Korea and Japan in 1975. A lot of the things they do over there are very easy to apply to doing business over here. Culturally, things seem so different – like sitting on the floor eating eels and snails – but people are people, and what motivates one group generally will motivate another
A strong corporate culture with its own unique personality, on top of the profit-sharing partnership we’ve created, gives us a pretty sharp competitive edge. But a culture like ours can create some problems of its own too. The main one that comes to mind is a resistance to change. When folks buy into a way of doing things, and really believe it’s the best way, they develop a tendency to think that’s exactly the way things should always be done. So I’ve made it my own personal mission to ensure that constant change is a vital part of the Walmart culture itself. I’ve forced change – sometimes for changes sake a lone – at every turn in our company’s development. In fact, I think one of the greatest strengths of Walmart’s ingrained culture is its ability to drop everything and turn on a dime…Part of this constant change helps keep people and competitors a little off balance
Small merchants need to avoid coming at us head-on and do their own thing better than we do ours. It doesn’t make sense to try to underprice Walmart on something like toothpaste. That’s not what the customer is looking to a small store for anyway. Most independents are best off, I think, doing what I prided myself on doing for so many years as a storekeeper: getting out on the floor and meeting every one of the customers. Let them know how much you appreciate them, and ring that cash register yourself. That little personal touch is so important for an independent merchant because no matter how hard Walmart tries to duplicate it – and we try awfully hard – we can’t really do it
Like Paul Graham advises, attack incumbents orthogonally. Start small, start cheap, start obscure, start with actions that might not scale, in areas which are looked down upon. You’ll build such a loyal customer base that before your competitors know it, you’re on their heels
I loved it. So many times we overcomplicate this business. You can take computer reports, velocity reports, any kind of reports you want to and go lay out your counters by computer. But if you simply think like a customer, you will do a better job of merchandise presentation and selection than any other way. It’s not always easy. To think like a customer, you have to think about details. Whoever said ‘retail is detail’ is absolutely 100% right. On the other hand it’s simple. If the customers are the bosses, all you have to do is please them.
Distribution and transportation have been so successful at Walmart because senior management views this part of the company as a competitive advantage, not as some afterthought or necessary evil. And they support it with capital investment. A lot of companies don’t want to spend any money on distribution unless they have to. Ours spends because we continually demonstrate that it lowers our costs. This is a very important strategic point in understanding Walmart – Joe Hardin
I would go so far as to say, in fact, that the efficiencies and economies of scale we realize from our distribution system give us one of our greatest competitive advantages
For a long time Sam would show up regularly in the drivers’ break room at 4AM with a bunch of donuts and just sit there for a couple of hours talking to them. He grilled them. What are you seeing at the stores? Have you been to that store lately? How do the people act there? Is it getting better? It makes sense. The drivers see more stores every week than anybody else in this company. And I think what Sam likes about them is that they’re not like a lot of managers. They don’t care who you are. They’ll tell you what they really think.
Being big poses some real dangers. It has ruined many a fine company – including some giant retailers – who started out strong and got bloated or out of touch or were slow to react to the needs of their customers. Here’s the point: the bigger Walmart gets, the more essential it is that we think small. Because that’s exactly how we have become a huge corporation- by not acting like one. Above all, we are small-town merchants, and I can’t tell you how important it is for us to remember – when we puff up our chests and brag about all those huge sales and profits – that they were all made one day at a time, one store at a time, mostly by the hard work, good attitude and teamwork of all those hourly associates and their store managers, as well as by all those folks in the distribution centers.
So we know what we have to do: keep lowering our price, keep improving our service, and keep making things better for the folks who shop in our stores. That is not something we can simply do in some general way. It isn’t something we can command from the executive offices because we want it to happen. We have to do it store by store, department by department, customer by customer, associate by associate
Push responsibility down to those touching the medium – That makes it management’s job to listen to those merchandisers out in the stores. We have these buyers here in Bentonville – 218 of them – and we have to remind them all the time that their real job is to support the merchants in the stores. Otherwise, you have a headquarters-driven system that’s out of touch with the customers of each particular store, and you end up with a bunch of unsold workboots overalls and hunting rifles at the Panama City Beach store, where folks are begging for water guns and fishing rods and pails and shovels; and at the Panama City store in town you’ve got a bunch of unsold beach gear stacked up gathering dust. So when we sit down at our Saturday morning meetings to talk about our business, we like to spend time focusing on a single store, and how that store is doing against a single competitor in that particular market. We talk about what that store is doing right, and we look at what it’s doing wrong
We believe that we have to talk about and examine this company in minute detail. I don’t know any other large retail company – Kmart, Sears, Penney’s – that discusses their sales at the end of the week in any smaller breakdown than by region. We talk about individual stores. Which means that if we’re talking about the store in Dothan Alabama or Harrisburg, Illinois, everybody here is expected to know something about that store – how to measure its performance, whether a 20% increase is good or bad, what the payroll is running, who the competitors are, and how we’re doing. We keep the company’s orientation small by zeroing in on the smallest operating unit we have. No other company does that. – David Glass
If you had to boil down the Walmart system to one single idea it would probably be communication, because it is one of the real keys to our success. We do it in so many ways, from the Saturday morning meeting to the very simple phone call, to our satellite system. The necessity for good communication in a big company like this is so vital it can’t be overstated.
Sam does not consider himself reflective or one to dwell on the past
His passion to compete is what sets him apart
His father was totally honest and the best negotiator he had ever seen – him and the counterparty always parted as friends
Had several hard jobs as a kid during the Great Depression. Like Disney and many others, was a paper boy which taught him the value of a dollar and this became part of the Walmart culture
Supremely competitive with a great bias for action but his best talent was as a motivator.
“Exercising your ego in public is definitely not the way to build an effective organization. One person seeking glory doesn’t accomplish much; at Walmart, everything we’ve done has been the result of people pulling together to meet one common goal – teamwork – something I also picked up at an early age”
Thinking you have the right to win often turns into a self-fulfilling prophecy
Sam was one of the masters of “going positive and going first”
I learned early on that one of the secrets to campus leadership was the simplest thing of all: speak to people coming down the sidewalk before they speak to you. I did that in college. I did it when I carried my papers. I would always look ahead and speak to the person coming toward me. If I knew them, I would call them by name, but even if I didn’t I would still speak to them. Before long, I probably knew more students than anybody in the university, and they recognized me and considered me their friend
“I guess Mr. Walton just had a personality that drew people in. He would yell at you from a block away, you know. He would just yell at everybody he saw, and that’s the reason so many liked him and did business in the store. It was like he brought in business by his being so friendly
Somehow over the years, folks have gotten the impression that Walmart was something I dreamed up out of the blue as a middle-aged man, and it was just this great idea that turned into an overnight success. It’s true that I was forty four when we opened our first Walmart in 1962, but the store was totally an outgrowth of everything we’d been doing since Newport – another case of me being unable to leave well enough alone, another experiment. And like most other overnight successes, it was about twenty years in the making. Of course I needed somebody to run my new store, and I didn’t have much money, so I did something I would do for the rest of my run in the retail business without any shame or embarrassment whatsoever: nose around other people’s stores searching for good talent. One way he lured the best people in, especially early on, was to give away a percentage of the profits
Early goal was to be the best, most profitable variety store in Arkansas within 5 years. That happened
Early lesson: you can learn from anybody, especially competitors
Was always iterating and experimenting – this may be Sam’s most important contribution. “Every crazy thing we tried hadn’t turned out as well as the ice cream machine, of course, but we hadn’t made any mistakes that we couldn’t correct quickly, none so big that they threatened the business
What Walmart realized more clearly than anyone else and what they built around and exploited is that you can lower the mark-up and margin so that the volume makes up for less profit per item
Always sought out competition – “Bentonville was the smallest of the towns we considered, and it already had three variety stores, when one would have been enough. Still, I love competition, and it just struck me as the right place to provide I could do it all over again
Was a keen observer
“As soon as Sam moved the store from Newport to Bentonville, he had a nice big sale, and we put barrels full of stuff all around the floor. Those elderly ladies would come in and bend way down over into those barrels. I’ll never forget this. Sam takes a look, frowns, and says: ‘One thing we gotta do, Charlie. We gotta be real strong in lingerie.’ Times had been hard, and some of those underthings were pretty ragged.” – Charlie Baum
“I remember him saying over and over again: go in and check our competition. Check everyone who is our competition. And don’t look for the bad. Look for the good. If you get one good idea, that’s one more than you went into the store with, and we must try to incorporate it into our company. We’re really not concerned with what they’re doing wrong, we’re concerned with what they’re doing right, and everyone is doing something right.” – Charlie Cate
I guess we had very little capacity for embarrassment back in those days. We paid absolutely no attention whatsoever to the way things were supposed to be done, you know, the way the rules of retail said it had to be done
“Two things about Sam Walton distinguish him from almost everyone else I know. First, he gets up every day bound and determined to improve something. Second, he is less afraid of being wrong than anyone I’ve ever known. And once he sees he’s wrong, he just shakes it off and heads in another direction”
After a tornado tore down a key store – “We just rebuilt it and got back at it.” No feeling sorry for oneself. Just facing what reality hands you and making the most of it
Distribution was an absolute key to Walmart’s success
I guess I’ve stolen – I actually prefer the word “borrowed” – as many ideas from Sol Price as from anybody else in the business. For example, it’s true that Bob Bogle came up with the name Walmart in the airplane that day, but the reason I went for it right away wasn’t that the sign was cheaper. I really liked Sol’s Fed-Mart name so I latched right on to Walmart.
Many of these larger stores were bright stars for a moment, and then they faded. I started thinking about what really brought them down, and why we kept going. It all boils down to not taking care of their customers, not minding their stores, not having folks in their stores with good attitudes, and that was because they never really even tried to take care of their own people. If you want the people in the stores to take care of the customers, you have to make sure you’re taking care of the people in the stores. That’s the most important single ingredient of Walmart’s success
Academy Men vs. NCOs (non-commissioned officers) – the early fellows didn’t want me hiring any college men. They had the idea that college graduates wouldn’t get down and scrub floors and wash windows. The classic training in those days was to put a two-wheeler – you know, a cart that you carry merchandise on – into a guy’s hands within the first thirty minutes he came to work and get him pushing freight out of the back room. They all came out of these variety stores with the same background and the same kind of philosophy and education. And we looked for the action-oriented, do-it-now, go type of folks
I can name you a lot of retailers who were originally merchandise driven, but somehow lost it over the years. In retail, you are either operations driven – where your main thrust is toward reducing expenses and improving efficiency – or you are merchandise driven. The ones that are truly merchandise driven can always work on improving operations. But the ones that are operations driven tend to level off and begin to deteriorate. So Sam’s item promotion mania is a great game and we all have a lot of fun with it, but it is also at the heart of what creates our extraordinary high sales per square foot, which enable us to dominate our competition
Sam was never one to scoff at change if it was correct. He began as a dime store man so at first he wanted to make a certain percentage of profit on everything. But he came around to the idea that a real hot item would really bring customers in the store so we finally started running things like toothpaste for 16 cents a tube. Then we’d have to worry about getting enough of it in stock
Thrived on change and no decision was ever sacred
One thing I never did – which I’m really proud of – was to push any of my kids too hard. I knew I was a fairly overactive fellow and I didn’t expect them to try to be just like me. Also, I let them know they were welcome to come into our business, but that they would have to work as hard as I did – they would have to commit to being merchants.
One reason he fell in love with his wife Helen is that she was always her own woman, forming her own opinions and making her own decisions
I have always had the soul of an operator, somebody who wants to make things work well, then better, then the best they possibly can
Some folks no doubt figured we were a little fly-by-night – you know, in the discount business today but out selling cars or swampland tomorrow. I think that misunderstanding worked to our advantage for a long time, and enabled Walmart to fly under everybody’s radar until we were too far along to catch
Anybody who has ever known anything about me knows I was never in anything for the short haul
I always had great curiosity and would openly ask competitors how they operated and thought about their business. I always questioned everything
I think it must be human nature that when somebody homegrown gets on to something, the folks around them sometimes are the last to recognize it
I guess what’s annoying to executives – to anybody who tries to spend their time managing a company as big as this – is these money managers who’re always churning their investors’ accounts. You know, the stock will go from $40 to $42 and they’ll rush in there and say, “Hey, let’s sell this thing because it’s just too high. It’s an overvalued stock.” Well, to my mind, that doesn’t make much sense. As long as we’re managing our company well, as long as we take care of our people and our customers, keep our eye on those fundamentals, we are going to be successful. Of course, it takes an observing, discerning person to judge those fundamentals for himself. If I were a stockholder of Walmart, or considering becoming one, I’d go into ten Walmart stores and ask the folks working there, “How do you feel? How’s the company treating you?” Their answers would tell me much of what I need to know
The point is, all those analysts may have had perfectly logical theories about why a 20% increase would be a disaster for us. But they failed to see that in a big economic downturn, when everybody is suffering, Walmart’s fundamental strengths would keep us going strong. And we would look great compared to everybody else
What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates. I was also worried that we might lose the team concept, or fail to keep the family concept viable and realistic and meaningful to our folks as we grow. Those challenges are more real than somebody’s theory that we’re headed down the wrong path
If you asked me am I an organized person, I would have to say flat out no, not at all. Being organized would really slow me down. In fact, it would probably render me helpless I try to keep track of what I’m supposed to do, and where I’m supposed to be, but it’s true I don’t keep much of a schedule. Except for reading my numbers on Saturday morning and going to our regular meetings, I don’t have much of a routine for anything else. I always carry my little tape recorder on trips, to record ideas that come up in my conversations with the associates. I usually have my yellow legal pad with me, with a list of ten or fifteen things we need to be working on as a company. My list drives the executives around here crazy, but it’s probably one of my more important contributions
“When Sam feels a certain way, he is relentless. He will just wear you out. He will bring up an idea, we’ll all discuss it and then decide maybe that it’s not something we should be doing right now – or ever. Fine. Case closed. But as long as he is convinced that it is the right thing, it just keeps coming up – week after week – until finally everybody capitulates and says, well, it’s easier to do it than to keep fighting this fight. I guess it could be called management by wearing down.” – David Glass
One way I’ve managed to keep up with everything on my plate is by coming in to the office really early almost every day. 4:30am wouldn’t be all that unusual a time for me to get started down at the office. The early morning time is tremendously valuable: it’s uninterrupted time when I think and plan and sort things out
“I think one of Sam’s greatest strengths is that he is totally unpredictable. He is always his own person, totally independent in his thinking. As a result, he is not a rubber-stamp manager. He never rubber-stamps anything for anyone”
As famous as Sam is for being a great motivator – and he deserves even more credit than he’s gotten for that – he is equally good at checking on the people he has motivated. You might call his style: management by looking over your shoulder
I’m always asked if there ever came a point, once we got rolling, when I knew what lay ahead. I don’t think that I did. All I knew was that we were rolling and that we were successful. We enjoyed it, and it looked like something we could continue. We had found a concept, certainly, that the customers liked. Even back then, I always said at the first sign of it getting out of control, the first time our numbers don’t come through as they should, we will pull in and put our arms around what we’ve built. Up to this point, of course, we haven’t had to do it
We keep our prices as low as possible by keeping our costs as low as possible
Incumbents of a new model almost always drive out or are acquired by the old guard. What happened was that they (KMart, etc.) didn’t really commit to discounting
I have played to my strengths and relied on others to make up for my weaknesses
Sam and top executives always had and encouraged a ‘bias for action’
Most of us were too busy in the stores to even think about where it was all leading
Have to give people responsibility, trust them and then check on and help them
Sharing information and responsibility is key to any partnership.
Scarcity of any kind leads to “hoarding” where people will not feel secure in their environment and will not be all-in
Submerge your own ambitions and help whoever you can in the company
Everybody likes praise and we look for every chance to heap it on them
The secret to successful retailing is to give your customers what they want
Customers (eventually) vote with their feet
Decision process – On something like the Kuhn’s decision, I try to play a “what-if” game with the numbers – but it’s generally my gut that makes the final decision. If it feels right, I tend to go for it, and if it doesn’t, I back off
Once I decide I’m wrong, I’m ready to move onto something else
I’ve always been a delegator – trying to hire the best people for our stores
Sam’s ‘Beat Yesterday” Ledger book – Sam kept a ledger book to monitor and compare their performance to earlier versions of themselves during the early years of Walmart
Is there a way to transfer this ‘Beat Yesterday’ ledger book to compare current self to younger self? Journal, decision book, mistakes made, what you’ve learned, how you would’ve handled a situation differently?…
We’ve been able to help our associates to a greater degree than most companies because of what you’d have to call enlightened self-interest; we were selfish enough to see in the beginning the value to the company of letting them share the profits
You may have trouble believing it, but every time we’ve tested the old saying, it has paid off for us in spades: the more you give, the more you get.
Win/Lose – the Japanese are right on this point: you can’t create a team spirit when the situation is so one-sided, when management gets so much and workers get so little of the pie
Great ideas come from everywhere if you just listen and look for them. You never know who’s going to have a great idea
One of the most powerful forces in human nature is the resistance to change. To succeed in this world, you have to change all the time
A lot of folks ask if a Walmart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now there’s someone – probably hundreds of thousands of someones – with good enough ideas to go all the way. It will be done again, over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business
What I got out of it
One of my favorite business books of all time. Absolute focus on the customer, willingness to change, profit sharing with associates, gestures of appreciation, enlightened self-interest, willing to be different, going positive and going first. Will reread immediately
Katz describes the rise and fall of Sears and the men who helped revolutionize it when it was on the brink of disaster
Ed Telling had to work through college to pay for tuition but he did it and ended up marrying the love of his life, Nancy
Ed worked his way up through the Sears organization and quickly became Dead set against the decentralization process where HQ made decisions from afar without knowing the true situation. They knew the map but not the terrain
There is no correlation between time spent on something and it’s productiveness. My most productive meetings are spent roaming the halls
You can’t structure around a problem
Ed got rid of the head of the Midwest and sought to bring someone from outside the company, outside the system, who had fresh eyes and could serve as an agent for change
Moran became de facto head of merchandising and could draw on his deep knowledge of eastern culture to effectively deal with Telling. Telling rarely gave a direct order but hinted and suggested at what he wanted
In the mid 1970s, Sears lost its way due to the sin of arrogance. They were not effectively serving customers and were wholly focused on hitting their quarterly numbers
For some time, the interest rates charged to Sears were 11%, making every sale a loss and forcing them to borrow up to $400m per day
Telling was a very forceful, vocal and harsh boss. He often shifted people around through seeming promotions but in fact was just moving them aside. By the time he realized his harsh and “management by mystery” tactics weren’t working, it was too late. He had alienated too many people and was all alone
Changed certain metrics to get the changes they wanted as it allowed people to “kill sacred cows” and act in previously unacceptable ways due to tradition. By focusing on hours rather than number of salesman, They were able to get rid of underperforming but politically savvy salesmen
Much dispute between the “Sears is one big store” mentality and the “each one is its local community’s store.” Centralization and consistency vs pleasing local tastes
The Sears leadership put a huge focus on efficiency and technology. Their scale meant that every penny or minute saved would lead to millions of dollars and thousands of hours when extrapolated company-wide
Funny recounting of how every level of management put the blame on “them” but one manager eventually found out there is no “they.” They are us. There was no ownership
Telling began thinking of how Sears could begin operating more like a bank as they were already one of the largest financial institutions in the US due to loans and insurance. Focus groups indicated that hundreds of thousands of people may open brokerage accounts if it was associated with a trustworthy brand like Sears. Sears soon acquired Coldwell Banker. The vision was for Sears to become the “chassis for the American consumer’s material life” – becoming central to every purchase and transaction they were making, from hardware to mortgage to securities to credit cards
Don’t “study things to death.” Be action oriented. They decided to spend millions experimenting with new stores and display concepts. They sought to make the most modern one shopping store in the world. No more haggling with dozens of different stores.
Edward Brennan eventually became CEO and where Telling was quick and offered no explanations for how he acted, Brennan was slow, deliberate and methodical.
Purcell believed that every great empire builder tried to tear down what they’ve built before they died or were forced out
The main source of demoralization within Sears was the pace. People cannot endure for long the tenor of revolutionary tasks. People eventually lose the ardor they feel for a cause once the charismatic leader steps away
The company Bill Bass inherited from Brennan was just exhausted. “We’ve just been working them too hard. The people will be able to talk freely with me and know they have the freedom to talk. It’s not really about how hard you work people which is making them exhausted, but the lack of recognition.” Bass had morale whereas Brennan did not, he had a destiny
“Don’t worry,” Brennan said, “no one person can ruin Sears. We’ve all tried, and we’ve all failed.”
What I got out of it
Good summary of Sears’ history, rise, fall and revolution. Older book so doesn’t have the most up to date info but good background
Today you must be your own CEO and take responsibility for your own growth
Success tends to come to those who know themselves – strengths, weaknesses, how you work with others, your values and where you can make the greatest contribution
You must be working from your strengths in order to make your greatest contribution
People are often wrong in what they think their strengths and weaknesses are. Must discover strengths through feedback analysis. Write down what you think will happen in a given situation and revisit 9-12 months later and compare the two. It will clearly show you your strengths and weaknesses and then put yourself in situations where you can focus on and improve your strengths. Recognize where the gaps in your knowledge are and where your intellectual arrogance is causing disabling ignorance and overcome it.
Being bright is not a substitute for knowledge
Ideas do not move mountains. Plans and actions do
Manners are the lubricating oil of organizations
Civility costs nothing and buys everything – Mary Montagu
Important to know whether you and others are readers or listeners
Vital to know how you learn. There is no one right way to learn but must know if you’re a writer, by taking copious notes, by doing, by hearing yourself talk, do I work well with people or am I a loner, are you a leader or do you learn best as a subordinate, do you perform well under stress, with little or much stress, do you like structure from a big organization. Whatever it is, don’t try to change yourself but work on improving your strengths
It is often not very helpful and too often hurtful to try to plan too far ahead
The secret of managing up is knowing how those above you work, learn, what their strengths and weaknesses are, etc.
The secret to effectiveness is understanding the people you work with and depend on, both above and below you, and adapting yourself to their individual styles
False duality of whether you should manage up or manage down. Must do both!
What I got out of it
Some good advice on how to get to know how one thinks, learns, operates and why that is important
All leaders face a challenge of leadership. The old models and paradigms no longer work. How leaders develop, and live a new model of leadership, is and will be the critical success factor for most every business. What leaders really want in the organization is a group of responsible, interdependent workers, similar to a flock of geese. I could see the geese flying in their “V” formation, the leadership changing frequently, with different geese taking the lead. I saw every goose being responsible for getting itself to wherever the gaggle was going, changing roles whenever necessary, alternating as a leader, a follower, or a scout. And when the task changed, the geese would be responsible for changing the structure of the group to accommodate, similar to the geese that fly in a “V” but land in waves. I could see each goose being a leader. Crafted in the crucible of realtime leadership experience, that paradigm is built around the following leadership principles: • Leaders transfer ownership for work to those who execute the work. • Leaders create the environment for ownership where each person wants to be responsible. • Leaders coach the development of personal capabilities. • Leaders learn fast themselves and encourage others also to learn quickly.
PS – a lot of kindle highlights here but there are a lot of gems. Worth reading the book in its entirety
“They don’t care how much you know, until they know how much you care about them.”
I learned that how you say things is often as important as what you say.
Ken Blanchard, who taught me to concentrate on making the pie bigger not on how to get the biggest slice.
I discovered that I as the leader had to change first, before I could get anyone else to change.
Partnerships require advance thought about the impact of any action on the other person. That’s difficult, particularly if you guess wrong.
I had to learn how to listen and really hear. I had to learn to work with others and trust them. I had to learn to appreciate their contributions as much as or more than my own. I had to learn the value of learning and how to systematically accomplish it.
I know it is easy to talk about being different. It is a lot harder to be different.
“In most situations I am the problem.” My mentalities, my pictures, my expectations, form the biggest obstacle to my company’s success. Understanding that I am the problem allowed me to learn how to become the solution.
Again and again I came back to the following insights:
In most instances “I am the problem.” My desire to be the head buffalo, my wanting to rescue people, my previous success, all got in the way of successfully handling the current situation. Nothing constructive happened until I recognized me as the obstacle and changed my behavior.
The customer is the boss, not the internal organizational boss. For too long I insisted that the person in the corner office had to be served first, with data, with deference, with swift response to requests. We didn’t make the progress I knew we had to make until we started serving the customer first.
Think strategically. I used to begin with what we could be and then manage forward. We struggled to make inches of progress and usually finished out of the money. It wasn’t until I began with what we must be for customers and managed backward from that, that we won gold medals.
Practice the intellectual capitalism leadership style. Create the conditions where the intellectual capital holders assume responsibility for delighting their customers. Everyone must be a leader before there’s effective leadership in the new organization.
Leading is learning. I languished until I realized that learning faster was the key to my survival. Maximizing everyone’s learning is the key to my organization’s success. My organization didn’t soar until everyone became an avid learner.
What do I know that just isn’t so?
The awful truth about leadership—each person must write his or her own personal cookbook.
Management’s job was to establish the conditions under which performance served both the company’s and the individual’s best interests.
This became a self-fulfilling prophecy—the less I expected of my people, the less they delivered.
Now I know that I must empower people for the new level of performance—not order it. The best way to empower people is to ask: What am I doing or not doing, as a leader, that prevents them from assuming responsibility and performing at the new level?
Don’t stop with vision. Vision alone is no solution. Everything is execution.
I also came to realize that my first reaction is usually wrong.
People Rise to the Challenge—When It Is Their Challenge
NOTE: Must make your idea their idea
Being a leader requires continual learning.
See leadership as a personal, emotional journey. Understand it happens in your gut before it happens in your or anybody else’s head.
Leaders Add Value by Helping People Feel Powerful Rather than Helpless The leader is powerful when he/she figures out how to achieve what needs to be done. People are very different in organizations led by leaders who feel they know how to do what needs to be done. They feel powerful in having the control and influence necessary to do whatever it takes to get the job done. They see themselves as the instruments of their own destiny. They are connected to the organization’s success and failures because they know they are responsible for it. They are all working to achieve a common vision.
I learned to change from being a victim to being responsible by asking myself, “What am I doing or not doing that causes the situation I don’t like?” Restating the problem into factors that I control helps me feel, and be, powerful.
It is easier to complain about what we don’t have than to give up what we do have.
When I asked him why he hadn’t mentioned his need to me several years earlier, his answer was classic. “You never asked what we needed. You were so busy selling your solution that you didn’t hear what we wanted.”
The principal tools of production today are not machinery and equipment. Neither is it solely the brainpower of the managerial leadership. Rather, the tools of production are the ideas and talents (the intellectual capital) of the scientist, the machinist, and the programmer. Therefore, the possessors of the intellectual tools of production, the people, will come to exercise effective power.
We’ve all grown up learning to follow authority: first our parents, then our teachers, and then our bosses. The first and probably most often reinforced lesson we learn is “Do as you are told by the person in charge.” Now, however, the “person in charge” is the person who formally reports to you. In this topsy-turvy world, as a leader you actually work for the people who work for you. In the past, as leaders we planned products, budgets, facilities—the concrete financial aspects of the business. The assumption was that the people would go along with the plan. I learned the hard way that assumption was no longer safe. In addition, I must plan for the mind-sets and mentalities of the people, if I want the financial plan to work. Our leadership tools haven’t changed significantly, but the focus of their use has. The primary purpose of strategic planning is not to strategically plan for the future, although that’s an important purpose of the exercise. It is primarily to develop the strategic management mind-set in each and every individual in the organization. The purpose of the process is not only to produce a plan. It is to produce a plan that will be owned and understood by the people who have to execute it. I discovered that the leader has a new set of responsibilities. The leader, at every level in the organization, must strive to implement these four principles: 1. Transfer ownership for work to those who execute the work. 2. Create the environment for ownership where each person wants to be responsible for his/her own performance. a. Paint a clear picture of great performance for the organization and each person. b. Focus individuals on the few factors that create great performance. c. Develop the desire for each person to own—be responsible for—his/her own great performance. d. Align organization systems and structures that send a clear message as to what is necessary for great performance for the individual and the organization. e. Engage individuals—their hearts and minds, as well as their hands—in the business of the business. f. Energize individuals around the focus of the business. 3. Coach the development of individual capability and competence. 4. Learn faster. a. Learn themselves. b. Create the conditions under which every person in the organization is challenged to continually learn faster.
I’ve learned that my job is to work hard to understand what it takes to (1) win today and (2) create the circumstances where I can win tomorrow.
QUESTION: What do I have to learn to lead in this new age? LEADERSHIP SOLUTION: Learn the new paradigm today—and get ready to learn a new one tomorrow.
Helping people regain their own authority and power to respond appropriately in work and life is a leadership skill of the highest order.
The Person Doing the Work Must Own the Responsibility
For people to want to own the responsibility, and stop being victims, I had to change my behavior. I loved rescuing people. I loved solving problems. The result? People were lined up waiting to be rescued. People kept bringing me problems to solve. My people did just what I wanted them to do. If I wanted to play head buffalo, they were more than willing to play buffalo herd member. When I realized that rescuing people and solving problems is a permanent job, I understood the error of my thinking. People would never learn to take care of themselves because I was always there to take care of them. People would never learn to solve their own problems because I was there to solve them for them. I’d take this job with me to the grave. Suddenly, the overwhelming task didn’t seem as attractive as it once had. As Rosa Parks was too tired to move to the back of the Birmingham bus and thus started a revolution, so did my weariness start a revolution in my company. If I was going to have a gaggle of geese, I realized, then I’d have to stop playing head buffalo.
QUESTION: How can I get people to do it right the first time? LEADERSHIP SOLUTION: The person who does the job must own the responsibility for doing it correctly.
As the leader of my organization I am responsible for creating the environment that enables each person to assume responsibility for his or her own performance. The people own the responsibility for delivering great performance. I am responsible for creating the environment where this ownership takes place.
If You Want Ownership Behavior, Pay for It
All of my leadership efforts directed toward transferring the ownership paid off. Despite the external chaos, the people were able to keep focused on delivering great performance for their customers.
QUESTION: Am I creating owners or dependents? LEADERSHIP SOLUTION: If you want them to act like it’s their business, make it their business.
I’ve learned that coaching is about providing support and guidance. Coaching is very person-centered. Great coaches know that teams with the best skills and competencies have the highest winning percentages. The primary purpose of coaching is to develop the individual’s skills and competencies. A coach helps you do what you know you must do!
My football coach put it best. He told me, “You didn’t come to this university to learn how to play football. You came here to learn how to be a better person. So this season you’ll learn to be a better person by learning how to be a better football player.”
I learned that great coaches did more than ask questions and not give answers. Great coaches had to provide guidance so people could find the “right” answer. So I sought to provide more guidance.
One day it finally hit me: The real expert in great performance is the customer. Everything begins with delighting the customer. That’s why every one of our job descriptions begins with this statement: “The things I do to get and keep customers are …” Things really improved when I modified my focus to ask, “From the customer’s point of view, what is great performance?” The coachees finally had a way to get their questions answered from the true expert in what they had to do. They felt more focused and secure.
In the best of all worlds, what is great performance for your customers?
What do you want to achieve in the next two to three years?
How will you measure your performance?
Measurement is the motivator for improvement. Resist the temptation to define the measurements for the person. Make certain that he or she owns that responsibility. Wrestling with the “How will I know when I do it?” question helps the individual learn about what he or she really wants to accomplish. It is not uncommon to find that clarifying measurements often changes the objective. The expert in answering this question is often not the individual alone, but the individual in conjunction with his/her customer. Again, this drives the individual back to discussions with the customer.
What things do you need to learn in order to reach your goals?
What work experiences do you need to help you learn what you need to achieve your goals?
Learning is something you do, not something you are told. People don’t learn chess by watching. They need to begin playing in order to learn the game. As a coach you need to be able to see all the decisions, problems, and actions that need to be done as opportunities for yourself and others to learn and grow.
QUESTION: Is the person becoming more capable? LEADERSHIP SOLUTION: Focus on developing the person, not the scoreboard.
I learned the hard way that leaders learn fast—or they don’t complete the journey. Leaders need to keep on learning. The world changes so fast that we need to keep learning new things so we can cope. The rapid pace of change drives the need for continual learning.
Speed is essential. The gold medal goes to the swiftest. Rapid change requires rapid learning. Success has always depended upon learning, but in the past the change was slower, so we could take longer to learn. As the pace of change quickens, the race belongs to the swiftest learner.
Success is a valuable teacher, providing you don’t get lulled into complacency by her succulent fruits. I’ve learned that what got me to where I am will not get me to where I need to go.
QUESTION: Am I learning fast enough? LEADERSHIP SOLUTION: It’s never fast enough.
The Leading the Journey model is based on four leadership activities: 1. Determining focus and direction 2. Removing the obstacles 3. Developing ownership 4. Stimulating self-directed action
There are two kinds of obstacles: those that are found in the systems, structures, and practices, and those that are found in the mind-sets of the people.
I learned that system/structure factors produced these troubling mind-sets. I learned to focus my efforts on the context obstacles, so I can affect the powerful determinants of behavior.
Newton discovered the law of gravity. He was correct, except in one situation. Everything does flow downhill. Except in an organization, where ownership flows uphill. We call it upward delegation. The result? Managers own all the wrong problems.
NOTE: except if you invert the hierarchy pyramid as it should be with the leadership on the bottom acting as servants
Vision is the beginning point for leading the journey. Vision focuses. Vision inspires. Without a vision, the people perish. Vision is our alarm clock in the morning, our caffeine in the evening. Vision touches the heart. It becomes the criterion against which all behavior is measured. Vision becomes the glasses that tightly focus all of our sights and actions on that which we want to be tomorrow—not
Vision is the most sought-after executive characteristic.
More important, vision paints a picture of what your organization must be if it is to survive. The essence of executive vision is saying, “Here’s where we have to go, and here’s a general road map for how we will get there.”
We must manage backward from the future, rather than forward from the present.
Vision flows from extensive contact with customers and suppliers. It does not flow from some mystical insight into the future gained by consulting one’s gut (no matter how golden) or one’s astrologer. There’s no substitute for direct feedback from the people who make the marketplace.
“In the best of all worlds, from the customer’s perspective, what is great performance?”
“Wealth, like happiness, is never attained when sought after directly. It always comes as a by-product of providing a useful service.”
Clarity is power. Clarity motivates people to use the vision as a criterion to evaluate their actions. People ask, “Does my action support the vision?” The answer must be clear. Vision provides the tight focus on thinking strategically. It insists that everyone direct his or her energies toward creating the tomorrow we want. Brevity helps. Use a short, simple, easy-to-understand statement of your vision to gain clarity and empower its use as a decisional criterion.
People need to see the personal benefit from their vision of great performance.
Actions must reflect the vision. I learned that the leader must live the vision, or no one else will. People watch what we do as leaders and follow. They notice most what we do, not what we say. They follow most what we do, not what we say.
of our definitions of leadership is to “get people to do the right things.” The right things are everything that must be done to deliver great performance from the customer’s point of view.
Focus everyone in your company on owning the responsibility to find out what his or her customers want and then on consistently delivering that great performance.
The question asks about the product from the supplier’s point of view. What a waste! It doesn’t matter what the supplier thinks he’s selling. It only matters what the customer believes he’s buying.
In Leading the Journey we need a destination, and there’s no better destination than the customer’s location.
Location is more than just a geographic spot. I learned the hard way that it is also a state of mind.
The easiest and most direct way to find out where the customers’ heads are is to find out from the customers themselves.
Leaders Design Systems and Structures That Help Keep the Focus on the Location
Notice the partnership approach. Notice the shift in emphasis from what I have in my bag (or can get from my factory) to what the customer needs. My job now is not to sell my products. It’s to help the customer achieve his/her goals.
What happens before a customer call will often determine what happens during the call and after that call. We’ve learned to prepare the ground before we attempt to plant the seed. We take three significant preparation steps before every partnership interview. First, we search the data bank of the information service to which we subscribe for significant trends, developments, and issues in the industry and the company. We identify a few significant issues to serve as a launching pad for discussion and the tangible demonstration of our interest in and knowledge about their business. We know we’ve succeeded when we hear such statements as “We didn’t know that.” Or “How did you find that out?” We intend to bring substantive and, we hope, new information to the interview. Second, we plumb our own internal data base to identify the personal interests and issues of the people with whom we’ll be talking. We gather and track personal information about all customers. Our data base contains such important data as birthdays, anniversaries, names of family members, favorite sports, colors, vacation spots, and other personal information. We shape what we present and how we present it to meet the personal preferences of the listener. Third, we call in advance to review the purpose and agenda for the meeting. We ask customers what they want to accomplish in the meeting and how they will know when they’ve achieved it. We inquire about their preparation and what preparation they expect from us. We clarify expectations and get on the same wavelength. No surprises or blindsides.
We begin by working to understand the customer’s business. We pose a version of the following general directive: • Tell me about your activity. We follow up with these more specific questions: • What are the few keys to success in your unit? • What is your unit’s advantage in the marketplace (why do customers buy from you?), and how do you contribute to that advantage? • What is great ICBIH (I can’t believe it’s happening) performance for your unit, and for yourself, for the coming year?
What current/future developments will change the way you and your unit do business? We follow with a subset of more specific questions, such as: • What developments are impacting both your department’s activities and the company’s? • What do you see coming in the future that will change the way you and your company do business? • What do you and your unit plan to do to prepare for these coming events so you are ready before they occur?
What are the biggest problems you face? We follow with a specific question: • What prevents you from being a great performer?
How can we help you? We follow up with the more specific questions: • How can we help you be a great performer today? • How can we help you remove the obstacles that prevent you from being a great performer today? • How can we help you prepare to be a great performer in the future?
Based on the above, how would you define great performance for me in the coming year that will best contribute to your great performance?
What would I have to do this week to earn a rating from you of 10 out of 10 for perfect contribution to your great performance?
QUESTION: Are you a supplier or a partner? LEADERSHIP SOLUTION: Sit with the customer, or don’t get in the door.
Anticipate Problems Rather than Solve Them
What will it take to have a profitable textile business? 2. What will it take to never be surprised again?
most new developments occur from outside an industry.
I need to help people look for developments outside our current fields, in parallel fields that pose both threats and opportunities to the areas in which we currently function.
I established a system called scan, clip, and review. We borrowed it from John Naisbitt and from the CIA. In academic circles it’s called content analysis. It’s simple and works like this: Everyone in the company scans ten periodicals he or she does not normally read each month. These range from highly technical journals to such popular periodicals as Prevention, Rolling Stone, andMother Jones Good Earth Journal. Each person clips all articles he or she thinks are interesting regarding future trends and puts them in a file folder. People clip advertisements, articles, opinion letters, anything they think will have any potential impact on the business in the future, no matter how farfetched it may seem at the time. The entire company is divided into seven-person interdisciplinary, interdepartmental “review cells.” Monthly, people circulate their file folders of clipped articles to the other members of their review cell, so that everyone reviews the clippings in all seven file folders. Quarterly, the seven members of the review cell meet and discuss the important trends they noticed in the clipped material they reviewed. The discussion is built around three questions: 1. What is the future event that will have the greatest impact on our business? 2. What will happen when that event happens? 3. What can we do now to prepare for that event? We use a process called a future wheel, which is shared throughout the company. Every six months, the trends are reviewed and appropriate changes in strategy are made.
NOTE: fascinating. something similar at glenair?
We get lots of ideas. Imagine having seven hundred people all scanning, clipping, and reviewing! We don’t get blindsided anymore. We hear the footsteps. Our customers come to us to find out what’s coming. We get lots of discussion about appropriate actions. And we get lots of commitment to a future course of action once the discussions are done.
I learned that successful leaders ask the following thinking-strategically questions: • What do we really want to create for our customers? • What will it take to create what we want?
Thinking incrementally is an American disease. We learned it early in life. Our parents were always admonishing us, “Try a little harder. You’re almost there. Just a little bit more.” The mentality was reinforced in the classroom: “Eighty-eight percent is almost an A. Study just a little bit more and I’m certain that you can get it.”
It’s not that thinking incrementally is bad. It’s just that in that thought process you begin from where you are now and add a little more to it. The view from your current position includes the limitations of all of your current assumptions, your current paradigms, your current prejudices. All of that baggage clouds your vision of what’s possible in the future.
Thinking Strategically Manages Backward from the Future
Leaders who engage in thinking strategically begin with where they want to go. Then they look backward from the future and ask, “What will it take to create that new tomorrow?” It’s the looking back from tomorrow that gives thinking strategically its power, because that perspective helps you escape the limitations of today’s situation.
Begin with the End in Mind—the Federal Express Example Federal Express knows the importance of thinking strategically. They begin from the end state they want to create: “Absolutely, positively, it has to be there on time.” With that end state firmly in mind they ask the strategic-thinking question “What will it take to get it absolutely, positively there on time?”
QUESTION: What will it take to create what I really want? LEADERSHIP SOLUTION: Ask for enough or you will get less than you need.
I have found that too many people “settle” instead of reach. I’ve learned how expensive that can be. I also learned that my task in Leading the Journey is to help people focus high enough. I need to encourage individuals to “reach” for great performance for their customers, rather than “settle” for acceptable performance. Part of providing focus and direction to my organizations is to keep all the noses pointed straight up.
Leaders must keep helping people prepare for the next match, rather than savoring the win from the last match.
Dealing with customers provides a bear hug on reality.
Getting better at delivering great performance for your customers is the only answer to the “How high is up?” question.
Here are a few measures I’ve discovered are essential to any business. Without drowning in accounting details, get the following figures. Monitor them as vital signs of your organization’s financial health: 1. Track on a frequent (weekly and monthly) basis: • Cash on Hand and Projected Cash Flow. There are three essentials in any business: cash, cash, cash. All businesses are cash businesses. There are two ways to track cash. The first is using a funds flow analysis. There are many good ones available.
ExpensesOrders. Increasing expenses often go hand in hand with increasing orders. But often, expenses continue to increase after sales level out. Monitoring this ratio of current expenses to current orders (which will be future sales) will ring an early-warning bell and help you prevent expense inflation and profit deterioration. The ratio also tells you when you can expect future cash problems.
Receivables. Nothing is more insidious than not collecting the cash that customers owe you.
Sales ÷ Working Capital. This critical ratio shows the stretch in your working capital. (Working capital is current assets—cash and accounts receivable—minus current liabilities.) Working capital supports sales. With too little working capital, you grow yourself to bankruptcy. Typically, each dollar in working capital supports eight dollars in sales. When your ratio is below 5:1, you are likely not using your cash well and are not earning good enough margins. When your ratio exceeds 15:1, you may be technically bankrupt.
Track on a less frequent (semiannual/annual) basis (primarily for the banker): • Current Ratio (Current assets ÷ current liabilities). This short-term solvency ratio tells you (and your banker) whether you have the short-term funds to pay your short-term liabilities. Ratios of 2:1 are considered good. That means there are two dollars in current assets for every one dollar of current liabilities. When the ratio falls below 1.5:1, the bankers get nervous. When it falls below 1:1, they start looking at pulling the line.
You need to really know your costs. How? Use a real-time direct costing system. Assign every penny you spend to a product, a customer, a function.
One of the biggest fallacies going around is that customer service doesn’t cost, it pays. The cost of serving some customers can pay you right to the bankruptcy court.
The key to financial health is getting everyone to make financial decisions as if they were spending their own money out of their own checkbook. Too many people spend a “budget” of someone else’s money. Witness the spending sprees at the end of each year.
Love your enemy as your best friend. Enemies are very valuable. They help you organize and focus on what must be done. Part of the leader’s job is to use competitors’ actions as a way to focus individuals on great performance for their customers.
Competitors easily become the greater enemy against which we can all rally. Why fight with the person in the next office when there’s someone outside the gates looking to destroy us all? In most organizations, the people may not agree on much among themselves except that they all dislike the competitor. I learned to use my competitors as a weapon to keep everyone in my organization, including myself, from getting complacent. I learned to use the competitor as a rallying point to focus everyone on great performance, and continuously raise the standards. One of the leader’s best friends, therefore, is the competitor who’s planning to steal your lunch.
You can find out about your competitors without resorting to unethical or illegal means. Competitors will tell you if you just ask. Competitors’ salespeople love to brag about “conquests.” Let them, and pay attention when they do. Clipping services can collect trade and other news. Often research and technical journals tip off a competitor’s plans long before any specific product announcement. Many companies “test” customer response to proposed products. Often your current customers, who are their potential customers, are included. Stay in touch with them to find out what competitors are planning.
As the leader I work to keep the competitor clearly in the forefront of everyone’s thinking.
Watch Your Neighbors. Customers and Suppliers Can Become Competitors. Beware of Left Field
Analyze your position vis-á-vis your competitors. Every marketplace player—you and your competitors—has strengths and weaknesses. Identify your strengths and weaknesses compared with your competitors. Understand your current market situation, and you improve the chances of your success.
Examine your principal competitors and their current strategies. Identify your standing vis-à-vis those competitors from your customers’ perspective in terms of: 1. Cost structure: Do you have higher or lower costs than your competitors? Check out such things as comparable salaries, locations, cars, number of employees, competing bids. 2. Differentiated value of the product/service you provide: How do your customers see the value of the product/service you provide in comparison with your competitors? How would your competitors’ customers answer this question? 3. Price: How do you compare with your competition on price? Are you lower priced, about the same, or higher priced than your competition? 4. Delivery: Do you deliver on time more or less frequently than your competitors do? What would your customers answer? What would your competitors’ customers answer? 5. Quality: How does your quality compare with your competitors’? How would your customers answer this question? How would your competitors’ customers answer this question? 6. After-sales support: How good are you at being there to solve customer problems after you’ve made the sale? How would your customers answer this question? How would your competitors’ customers answer this question about them?
Most firms practice the cruelest form of deception—self-delusion. They continue to tell themselves that everything is all right, right up the steps of the bankruptcy court. The inward focus is responsible for more business failures than anything else. Above all, this is a leadership failure.
See it from the customer’s point of view. Great products are great only when customers buy them.
The report would be shared with everyone, answering four questions: 1. What are we doing right that we should continue? 2. What are we doing wrong that we should either stop or improve? 3. Who is our chief competitor for that customer’s business? 4. What do we have to do to win the customer’s business?
I learned that building close relationships with customers is a tonic for arrogance.
We won in the marketplace because we were willing to go the extra mile for our customers (witness the survey), and we had the guarantee.
“How can I maximize both value for my customers and profit for myself?” The answer? Create value. Customers don’t buy price; they buy value. What is value? Like beauty, it is in the eye of the beholder. So I learned to ask my customers to tell me what value was for them. And guess what? They told me with clarity.
“You never asked,” he said. “Your people were so busy selling me that they had no time left over to listen.” So much for being smarter than the customer. Without knowing what value is for customers, it’s impossible to deliver it consistently.
Value Is Solving the Customer’s Problems
Value Is Doing It Better than Anybody Else
Choose the right customer problem on which to focus. What is the right problem? The right one is the one that drives the customer’s buying decision. Inevitably, there’s one overriding problem, the solution to which will encourage your customer to buy from you and not your competitor.
QUESTION: Do our products and services stand out head and shoulders above our competition? LEADERSHIP SOLUTION: Stay tuned in to customers and do whatever it takes to create value for them.
One of the most powerful value-added strategies I’ve discovered is to identify the most profitable niche we can successfully serve, and then dominate that niche.
Find Niche Applications for Commodity Products Find the crack—the crevice—that piece of unfulfilled demand. That’s what successful niche players do.
Using locals, who understand and can relate to the customers, is one way to ensure the customer focus to identify value-added strategies.
Minimize Your Dependence on Any One Customer or Product
I learned that niche players usually survive by following the “avoid the big guys” strategy.
How do we do that in the face of such awesome foreign competition? It’s obvious! Pick a niche in which low-cost labor doesn’t count and where we can move faster than our competition.
a niche player in a tough industry, we survive by avoiding competition. That’s good advice in any industry.
customers once lost are hard to get back.
The basic niche player’s strategies: • Avoid the big boys. • Be flexible. • Find upscale applications for commodity products. • Stay close to your customer. • Avoid dependence upon a few products and/or customers. Focus your people on these value-added strategies. That’s the way you Lead the Journey using the intellectual capitalism paradigm. QUESTION: What do my customers want that they are not now getting? LEADERSHIP SOLUTION: Niches are gold mines. Find them and start digging.
Price competition almost always means that customers don’t see enough differentiation among products, so price is the only way to distinguish.
Pictures Create Feelings—and That’s What Customers Really Buy
The Product Name Must Paint the Picture
Everything must contribute to creating the picture. Everything. The operant question must be “How does this activity or action contribute to the picture we want customers to have of our organization?” Each person needs to think strategically and then own the responsibility to do whatever it takes to please customers.
If You Don’t Lose 20 Percent of Your Business on Price, Your Prices Aren’t High Enough
He told me, “I learned years ago that the secret to success in my business was not winning most of the bids, but losing the ‘right ones. I only want to win the ones that I know I will do well on. I’m willing to walk away from business that is marginally profitable. I don’t need marginal business. I need the profit. I’ve learned that being the high bidder is the way to succeed.”
Successful companies differentiate themselves by adding real value for their customers. Helping customers see the real value you bring marks the difference between high and low profits. The question is “What is real value from the customer’s perspective?”
Our measurement of great performance was to have the highest selling price and the highest market share.
The professor used the case to illustrate his point that price was an important determiner of value. Selling a Cadillac at Chevrolet prices would probably sell fewer Cadillacs, he said.
QUESTION: Do your prices reflect your great performance? LEADERSHIP SOLUTION: What your customers are willing to pay tells you what they—and you—think about your products.
The new way to add value is through business partnerships.
The New World Order: Partnership, Not Domination The giants have learned that it takes both size and flexibility to meet rapidly changing customer demands. Healthy smaller firms, surrounding the giant, provide the flexibility to focus and capitalize on the giant’s size.
learned that unless both parties work as hard for the partner as they work for themselves, they are both doomed to fail.
The win/win game not only involves finding partners “out there.” It also involves building win/win partnerships within the organization.
Focus and direction allow your people to deliver great performance for your customers. Knowing the “right” direction is the first step. The second step is to identify and remove the obstacles that prevent you from achieving great performance.
Focus on Those Obstacles You Control or Directly Influence
Obstacles Come in Two Areas: Systems and Mind-sets While most of us are drawn to the mind-set obstacles of motivation, communication, and teamwork issues, the biggest obstacles are organizational obstacles, like the systems and structures. I’ve found that the systems and structures dramatically affect the mind-sets of everyone else.
QUESTION: How can I identify and remove those obstacles that prevent great performance? LEADERSHIP SOLUTION: Ask your people what prevents their great performance. Get to work on those obstacles.
Systems are the most powerful drivers of performance.
Attitudes are shaped by the environment within which people function. The environment is made up of the systems and structures in the organization. Although I could not change attitudes directly, I could change them by changing the environment. I learned that incorrect attitudes are a symptom of incorrect systems, structures, and practices.
Performance Management System How are the standards of performance determined in your organization? How does your current system compare to the following model? 1.Manager determines the overall parameters/objectives. Define the playing field.
You as the leader establish the parameters, the overall objective, the vision. You need to articulate great performance standards for the overall organization. You need to be certain that everyone’s nose is pointed in the same direction. 2.Set standards between performers and customers. We need to ensure that standards are set between performers and their customers. Each performer must meet frequently (weekly) with his or her customers to agree on standards of great performance. Then the performer must meet with other performers to coordinate activities with them. The leadership job is to make certain that this standard setting and coordination take place on a regular basis. 3.Reduce the expectation to a specific, measurable number. What gets measured gets produced. For a long while I measured sales and wondered why there was so little profit. Everyone’s attention was focused on getting that order. Delivering it profitably, or selling it at a price that would make money, was always an afterthought. People love to be measured. But measure the “right” stuff. The right stuff is that which creates great performance for customers. The right stuff is what helps you keep learning. The right stuff is what helps you continuously improve. Do you have a performance management system where performers define, with customers, specific numeric standards of performance? Every machine operator, every janitor, every secretary, must know exactly what great performance is for their jobs. If your current system does not do that, you have a serious obstacle.
Information System Does every person in your unit know how he or she is performing? At the end of every day? Every week? If people don’t know how well they are doing relative to some target, you can’t ever expect them to do it well. To back up your performance management system, you need an information system that tells every performer frequently how well he or she is doing in creating great performance for his/her customers.
Makes performance visible to every…
Real data in real time. The data must be real data. Not sanitized accounting/financial data. And it needs to be in real time. Real time means “Now!” We need an information system similar to that in the game of golf. How long…
Based on continuing conversations between performers and customers. Customers are the best source of feedback on performance. The best information system structures-in continuing conversations between performers and customers. These two systems form a loop—the performance management system and the information system. Both rely upon a stream of performance-based conversations between…
Reward System Unfortunately, I succumbed to the folly of rewarding “A” while hoping for “B.” In the past, my reward system focused on attendance. I paid people to show up and then worried why they didn’t perform. I learned that if I wanted quality, I had to reward quality. If I wanted service, I had to reward service. The performer is the best person to determine what needs to be rewarded, and what is an effective reward. Begin with the performer-customer established standards of great performance, the performer-customer established feedback mechanisms, and…
Assure the consequences of behavior. Performance must have consequences. Performance must matter. It must be clear that “them that does it, get it, and them that don’t do it, don’t get it” or get a…
Pay for results, not…
Too many people are rewarded for working hard, rather then getting the “…
Blend monetary rewards (such as gain sharing, profit sharing, onetime bonuses, merit increases) and nonmonetary rewards (such as recognition, promotion, job assignments, autonomy). We can find as many ways to reward people as there are people. We don’t suffer from a lack of ways to reward. We suffer from a lack of imagination in identifying what turns people on, and in ways to distribute rewards fairly and equitably. Many leaders wrestle with “equity” issues: “Is this reward system fair?” They also struggle with “motivation” concerns: “Will these rewards motivate the behavior we need?” Both of these concerns can be dealt with by involving performers in designing the reward systems. As long as leaders own the responsibility for designing reward systems, they will also own the responsibility for making them “fair” and “…
Once a month money will be paid out to all that have achieved their Great Performance weekly goals.
NOTE: goal gradient effect respected
If you don’t expect, measure, and reward great performance, you’ll never get great performance. In short: • Does every person know at the start of every day what great performance is for him/her? • Does every person know at the end of every day if he/she has been a great performer? • During the day is everyone motivated to do whatever it takes to be a great performer because he/she knows that he/she will be rewarded on the basis of performance?
Systems are powerful message carriers that too often prevent the achievement you want. Structures do also.
Does your organization structure meet the following model? If not, you have structural obstacles that prevent your achieving great performance. 1. Decentralize decision making to the point of customer contact. Those closest to the customer should make the decisions about servicing that customer. When that isn’t the case, you get organizational “handoffs,” a major obstacle.
Multidiscipline teams where everyone is present. Parkinson’s law was written based upon the absence of teams.
Simplification of processes and procedures. The only things that grow automatically seem to be weeds—and administrative procedures. Stem administrative procedure growth by emphasizing continual simplification of processes and procedures. One organization eliminates every policy and procedure every year. Anyone wishing to continue a policy or procedure must reapply for it de nouveau. They call it zero-based administration. 4. Focus on one customer, one product, one product/market combination. Structure focuses people on serving a homogeneous collection of customers. This focus develops expertise in what customers want/need and facilitates a customer focus throughout the organization.
Does your structure encourage the decentralization of decision making to the level of direct customer contact? Does it facilitate the use of multidiscipline teams to solve customer problems? Does it force continual simplification and focus?
Measurement becomes one more way in which leaders focus the organization in the “right” direction, consistently providing great performance for customers. Measurement is a powerful leadership tool when the performers and customers establish the measures.
People Who Know How Well They Are Doing Will Do Well People need measurements to excel.
People want so much to measure their performance that if they aren’t given a way to do that, they will develop their own.
Your operators must be the experts on your process, because they are the only ones who can control it.
The only people who could ever produce great products were those who actually made them.
NOTE: touching the medium
Here is the plan they developed: The people write down every customer-driven change they make. They count the aggregate number and then categorize them to spot trends. When they see trends, they review the internal systems and structure to see if they are aligned with where the market is going. They discuss among themselves what it will take to do better. They measure how long it takes to make the improvements and spot the trends. They track it against past performance. Their plan works. We seem to be one or two jumps ahead of our competitors. Sure it’s difficult. But isn’t it worth it? What’s the alternative?
GREAT PERFORMANCE FOR THE PRESIDENT 1. Coach of strategic thinking Measure: Number of helpful contributions I make to the strategic thinking of others. Indicated by member/customer evaluations of the president in the monthly surveys. A rating of 10 is expected. 2. Learning and growth Measure: Attainment of 100 percent of the president’s educational goals. 3. 100 percent of the people believe they own the right problem and are capable of handling it. Measure: As indicated by ownership comments on the weekly reports. 4. Coach of personal development. Facilitator of learning for everyone in the company. Measure: 100 percent of direct reports attain 100 percent of their educational goals and report complete satisfaction with their development. 100 percent of all employee-partners attain 100 percent of their educational goals and report complete satisfaction with their development. 5. Ensure that all transactions are characterized by caring and integrity. Measure: Measured by employee responses of being important, respected, valued, and cared about personally on the quarterly all-employee survey. Other indicators are number of personal messages exchanged, number of personal celebrations acknowledged.
I discovered that when people perform better, they are happier. My experience is that everyone wants to excel. Everyone enjoys winning. Everyone loves being part of a winning team. Winning reinforces itself. Everyone takes pride in his/her accomplishments. That is why most everyone loves sports. Sports give instant feedback on performance. We all share a deep desire for feedback on our performance.
QUESTION: Do all the people in your company know how well they’ve done before they go home every night? LEADERSHIP SOLUTION: People perform what they measure—help the performers to measure the “right” stuff.
It sounds so simple. Get the information to the people who use it. It’s common sense. Unfortunately, it’s not common practice.
NOTE: touching the medium
One of my biggest leadership tasks is to remove the obstacles to great performance. One of the biggest obstacles I encountered was this misdirection of information. The company dramatically improved when I clarified who needed what information.
The past can’t be managed. It is already gone. I saw that I needed to help people manage the work they did today, not yesterday.
the leader’s job isn’t to develop the information. Rather, the leader’s task is to focus the people who use the information, and help them develop the system to get them the information they need.
Leading the Journey requires that I remove the obstacle of the misdirection of information. Inevitably, that means that the performers get more of the information they need to control and direct the organization in both the present and the future.
QUESTION: Are you managing the past, the present, or the future? LEADERSHIP SOLUTION: Help the right people get the right information and they will do the right things.
People obstacles are most often symptoms, not causes. Like Odysseus, we are pulled right to the rocks as we struggle to answer the siren song of people issues.
The Best Way to Get Teamwork Is to Give the Team Work
If I’ve learned anything in the last twelve years, it is that “I” can’t fix “them” until “I” fix “me” first. Then I must change the systems and structures to require teamwork. The obstacle isn’t simply a lack of teamwork. The obstacle is my leadership mentality, the actions that flow from it, and the systems and structures that prevent the teamwork.
The president immediately got his executives together and they designed the “Improvement Audit” program. Three years later the program is going strong. Every division is visited twice a year by teams drawn from the other divisions. There’s been a direct savings of more than 21 percent, and the president told me, “I’ve never seen such teamwork.” Changing the audit and reward systems changed the mindsets, which changed the behavior.
QUESTION: What systems are causing my people problems? LEADERSHIP SOLUTION: Change the systems to change the people.
Until great performance is everyone’s responsibility, it will be no one’s.
In today’s intellectual capitalism world, the performers must be responsible for their own performance. The success or failure of the business must rest with the individuals who possess the critical capital. The leader’s job is to determine the direction, remove the obstacles that prevent focus, and then get the intellectual capital holders to develop ownership for moving in that direction. From firsthand experience, I know how tough it is to achieve this mentality. I also know how necessary it is.
QUESTION: Who’s in the best position to be responsible? LEADERSHIP SOLUTION: Get the right people to own the right responsibility.
Again I found that the more I solved other people’s problems, the more problems they’d bring to me. I had worked myself into a fulltime “solve other people’s problems” job.
My experience has taught me that the key to organizational success today is in getting the people to want to own the responsibility for their own performance.
What is the problem? I ask because how you define the problem will largely determine how you go about solving it.
Keep the two levels of ownership separate. Keep the responsibility for performance with the performer, and the responsibility for empowering with the leader.
Empowerers proactively empower: asking questions, organizing data to confront people with reality, bringing customers and performers together to discuss standards of great performance and feedback on actual performance against those standards.
Being the cold shower of reality, drawing the line in the sand that I did by calling the emergency meeting, is not enough. Nor is insisting upon tough standards, which I did in reminding everyone of our responsibilities for all those lives. In addition to those actions, and asking questions as I did at the beginning of the meeting, a leader’s proactive empowering responsibilities go beyond all of those. Freddie helped me learn that leaders also have to support the people in their needs and be ready to coach them, to help them, when they are ready to accept and execute their responsibilities.
Leaders continue to coach and support because they are genuinely interested in that individual’s success.
Freddie also helped me learn that ownership and responsibility are not zero sum games. I can transfer ownership and get other people to assume responsibility without diminishing my own ownership and responsibility in the situation.
Ownership is not a fixed pie. In fact, it is an expanding pie. The more I transfer ownership to others, the more ownership I possess myself.
Conversations are the vehicles leaders use to develop ownership. Use all instances, even seemingly insignificant cases, to precipitate discussion and learning about great performance.
The leader’s main task concerning this ownership issue can be summarized in four letters, FCLP. F is for focus. C is for conversation. L is for learning. P is for performance.
In every possible situation, Focus Conversations on Learning about Performance.
When the leaders stop conferring benefits, people assume responsibility for delivering great performance for their customers.
QUESTION: Do your people want to own the right responsibility and be great performers? LEADERSHIP SOLUTION: The desire for owning the responsibility for great performance comes from within.
Leadership isn’t processing papers. It’s about making things happen.
Great Leaders Prevent Problems, Not Solve Them
Stop rewarding people for bringing me problems and start rewarding them for solving their own problems. To accomplish that, I changed a number of systems and structures. Saying what needs to be done is simple. Doing it is anything but simple.
We need substantially different actions to get us substantially different results.
The “right” actions are those that meet the following criteria: 1. Deliverable: some specific, concrete, and tangible action. A meeting. A plan. A program. Answers the question ‘What will be done?” 2. Measurement: an indicator that helps you know when you have accomplished what you set out to do. Answers the question “How will we know when we have done it?” 3. Date: It must have a date by when it will be done. Answers the question “By when will it be done?” 4. Person responsible: Names the person who is going to be responsible for getting it done. Answers the question “Who will do it?”
Your continuing leadership task: Help everyone in your organization identify what’s crucial and not crucial, and be dispassionate in dumping the noncontributors. Eliminate the “fat.”
Another way to eliminate nonessentials is to think about your business as a raider would. Challenge yourself and your people: “Does this activity contribute at least 20 percent to the bottom line—or growing fast enough that it will in a few years?” If the answer is no, then get rid of it.
Simplifying operations is another way to save costs. In an effort to solve problems, it’s easy to get caught up in drafting procedures. The procedure lasts long after the problem has been solved, outlives its usefulness, and becomes part of a growing bureaucracy. I empower my people regularly to attack their own procedures. They do this in two structured ways. First, we declare all systems null and void every year.
Second, every week everyone writes a “5/15” report, no longer than one page, which takes fifteen minutes to write and five minutes to read. That report answers three questions: “What did I accomplish this week?” “What remains to be done next week?” “What needs to be fixed/changed/eliminated?” Anything that needs fixing/changing/ eliminating must be handled before the end of the next week.
The people track the following data every month. Use these figures, or others of your own choosing, regularly, and you will run your business rather than your business running you. • Cash on hand and projected cash • Sales calls made to targeted customers • Customer moves through the sales cycle • Customer service rating for each person • Sales/orders • Quality levels • Weekly goal accomplishments
The standard of performance is set by the poorest performer, not the best. People look to the leader for clues and a model of great performance. The leader sets the standard for performance by what he/she will and won’t accept.
I learned that others would do much more if I expected more and accepted less.
QUESTION: Do you like what you see in the mirror? LEADERSHIP SOLUTION: Your organization is a reflection of what you accept.
Why don’t people “just do it”? Because the systems and structures usually prevent them by building in long approval cycles and multiple approvals. If it takes several months of meeting and nine different signatures to get anything done, it’s much easier to decide not to do anything.
In my organization I make certain that risk-taking is part of the standards of great performance for each individual and that taking risks is rewarded, even the risks that don’t succeed. Ensure that systems empower the “just do it” mentality.
Speed gave them focus. Henry learned in this hare and tortoise race, it is speed on the track that wins.
Do What You Do Best-Give Away the Rest to Someone Else
The old story is forever new in its relevance and unfolds in varying experiences. Challenges lead to actions, which lead to learning, which uncovers more challenges. What is new becomes old. What we thought was the same has changed and is different. These endless challenges and changes make getting up in the morning worthwhile.
Begin by Asking the Thinking-Strategically Questions • What skills, attitudes, and behaviors of people are required to deliver great performance? • What positions give me the maximum leverage to infuse these skills, attitudes, and behaviors throughout the organization?
Choose carefully. Don’t compromise. Here are some techniques I’ve found that work for me: 1. Preparation is vital. Review your profile before you talk to anyone. 2. Ask open-ended questions, such as: • What would you redesign about your last job, and why? • How would your references answer the following question … ? 3. Take good notes. You’ll likely forget otherwise—count on it. 4. Ask tough questions like: • What are your weaknesses and how do they show up in performance? • What would you do differently now, in light of what you’ve learned? 5. Hold multiple interviews and get independent judgments from each interviewer. 6. Involve everyone who’s going to be involved with that person: customers, suppliers, peers, employees.
Organization structure eliminates people’s weaknesses. So organize around people’s weaknesses. As people grow and develop new strengths, and weaknesses emerge, reshuffle the boxes. That’s why organizing is really a process of constantly reorganizing.
I Never Heard of Anyone Lying on His Deathbed Who Said, “I Fired That Person Too Soon”
The premium is on learning fast enough to cope and to stay ahead of the pack. Learning is the key. Faster is the pace.
I became a student of everyone and a follower of no one.
Most of us overestimate the value of what we currently have, and have to give up, and underestimate the value of what we may gain.
Learning New Leadership Patterns Isn’t What You Know, It’s What You Do
Mostly, I learned that I learned a lot more by doing than I did by reading or listening to lectures. Doing presents me with the opportunity to learn. Get on with the doing. The more you do, the more you have the opportunity to learn. Widen the scope of doing. Go up in hot-air balloons. Go down in submarines. Take the risk to speak up and stand out.
The worst mistake may be the best learning opportunity.
Knowledge is nothing without action. Nothing changes until you do something. What you do will directly determine what you learn.
Anything Worth Doing Is Worth Doing Poorly—At Least in the Beginning
Doing it just right is not what’s important. Starting is. You can’t start getting better until you start.
Since the greater risk is in doing nothing, you can minimize the risk by starting.
Mistakes tell us that whatever we’re doing is not working. They tell us something is wrong. Most of the time we look for “something” other than ourselves. The lengths to which I’ve gone to avoid making a mistake or own up to one I made illustrate my propensity to avoid feedback.
I learned two important leadership lessons from this mistake. First, focus on the skills required to do the job that needs to be done. Background is secondary and relevant only as it supports performance in this job.
Even though fear and excitement trigger very similar physiological phenomena, we perceive fear negatively and excitement positively. When we permit the negative emotional feelings of fear to overcome us, we miss out on great learning opportunities which excitement presents us.
What’s the Worst Thing That Could Happen to Me-and What Can I Do About It if It Does?
NOTE: fear setting
I most often discover that the worst that can happen isn’t nearly as terrible as I initially feared, and I can do much to cope successfully with it if it does.
Examining the worst possible scenario and seeing that there are creative ways to deal with it successfully helps to reduce the fear of the new and the different.
Sharing my fear helped to both disarm any opposition and to avoid cover-up behavior.
Use Fear to Increase Performance Fear is a wonderful stimulant. It quickens the mind, sharpens the senses, heightens performance. I’ve learned to focus the stimulant on doing better, rather than worrying about doing worse.
When fear runs through my system, I ask myself, “What can I do to remove the potential causes of failure?” “What can I do to ensure* success?” I’ve evolved rituals to answer these questions constructively.
QUESTION: What’s the worst thing that can happen and how can I handle it? LEADERSHIP SOLUTION: Use your fear to mobilize your resources and stimulate your performance.
Why do I get angry with that person, that topic, that situation? The answer to those questions tells me about myself, my best contributions to my organizations, and what I need to learn to Lead the Journey. One of my greatest teachers is my own anger, because it helps me learn more about myself as a leader. What I get angry about is what I need to learn more about. As tough as that insight is to swallow and digest, it is very valuable to my learning.
What About You Reminds Me of What I Don’t Like About Me?
In an effort to kill two birds with one stone, or more precisely, tone down two loud braggarts at the same time, I enlisted Ben to help me accomplish my changes. I asked him to watch me for loud bragging and self-centered kinds of behaviors. I arranged a signal for him to tip me off when I was slipping into the unwanted behaviors.
Elicit the Right Help in Changing— Some Help Is No Help at All
Focus on Performance to Overcome Anger
Most of the time I discovered that open confrontation and discussion of the issues resulted in swift improvement.
Anger tells a leader that he/she is shirking responsibilities. He/she is avoiding facing up to key performance issues. Anger is the red warning light that says, “Engine needs service.”
“What is causing my anger in this situation?” I think it’s my impatience. I see, or I think I see, what needs to be done and I want to move on to the action phase. While others seem not to be ready yet, I sit and stew, and stew, and stew in frustration.
NOTE: reminds me of me
At its root, I discovered, anger is fear in another disguise. Why was I angry at Ben? I was afraid that he would ruin my business. Why was I angry during the selection process? I was afraid that I would waste too much time and not get to the “important” items I felt I had to do. I was also afraid that without me the best person wouldn’t get chosen. The fear, a.k.a. anger, showed me my lack of faith in both the process and the people. Anger was revealing my fears and raising them to an action level.
QUESTION: What is my anger telling me that I need to learn about myself and what I’m doing? LEADERSHIP SOLUTION: Listen to your anger and learn from it.
Stubbornness often signals to me that I may be disguising my real concerns.
There’s another cause that’s worthy of a leader’s stubbornness: great performance. In too many instances, people are willing to “settle” for average, okay, or good performance. They want to avoid the stress and strain and unknown of “great” performance.
The first step in handling a divorce is to gather up the courage to act. In AA terms, this is called “hitting bottom.” I’ve learned some ways to “raise the bottom” so the fall isn’t quite so far.
Keep the responsibility for performance with the performer.
Getting customers to say, “I want this. I don’t accept that,” is an excellent way to introduce reality and authority into performance discussions.
the stream of continuing conversations about great performance serves as an early-warning signal to potential causes of divorce.
I learned in the customer case discussed just above that how you handle the divorce is as important as the completion itself.
Business reflects, and is a reflection of, life. How we handle business is how we handle life. Business is life.
I had learned from business that you can’t “give” people things and have them value the things they get. They only value the things they earn.
The great teachers in this classroom of business are mistakes, divorce, fear, anger, and stubbornness. In every business setting, these great teachers are present and ready to teach me. Sometimes I am not ready to learn.
The dominant theme in my life now is learning. Learning more and faster is the only true competitive advantage. I work to instill that love of learning throughout my organization, and my life.
We have several systems that foster that love of learning. We set aside a sum of money for each person to spend any way they wish on their learning. We pay for scuba diving lessons as well as calculus instruction. Learning is learning. Learning the discipline to master scuba diving carries over into mastering the discipline of making better sausage and writing better computer code.
People in organizations obsessed with learning will succeed.
As a thirsty person seeks out a water fountain, I’ve learned to seek out experiences. I deliberately put myself in new situations.
Tomorrow Belongs to Those Who Prepare for It Today
While action matters, it’s the right action that matters most.
There are always a thousand reasons not to do what ought to be done. There is only one reason to do it: because it is the right thing to do. The right thing to do always means choosing the morally correct alternative. Ask yourself, “Could I explain my actions on 60 Minutes and be believed?” Only take those actions that could be defended and believed under harsh public scrutiny. The success of any organization depends upon what its people are willing to do. Mobilize this incredible people power by doing what’s morally right.
Don’t confuse the risk of failure with the fear of failure. Fear is a great teacher. Use that teacher to learn what you must learn. Do not be like Hamlet, who was immobilized by his fears. Learn to go through your fears as a runner goes through the wall of pain.
Effective leaders let their actions speak so clearly that you don’t have to hear their words.
Reflect on the content of this book. It defines my morality. It is about learning, focus, and customers. It’s about accepting responsibility. And it is especially about great performance. I believe that we all have a moral imperative to strive to become as great a performer as we can possibly be.
What I got out of it
A great business and management book. Your people have to know you care, give away ownership and responsibility, push down decision making as far as possible to those who know it best, create win/win scenarios, establish a culture of trust
Trump’s philosophy on negotiation, business and more as well as some of his background and early life
Deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That’s how I get my kicks
Most people are surprised by the way I work. I play it very loose. I don’t carry a briefcase. I try not to schedule too many meetings. I leave my door open. You can’t be too imaginative or entrepreneurial jd you’ve got too much structure. I prefer to come to work each day and just see what develops
It never stops and I wouldn’t have it any other way. I try to learn from the past, but I plan for the future by focusing exclusively on the pr sent. That’s where the fun it. And if it can’t be fun, what’s the point?
Sometimes it pays to be a little wild
I don’t hold it against people that have opposed me. I’m just looking to hire the best talent, whenever I can find it
I hate la suits and depositions but the fact is that if you’re right, you’ve got to take a stand, or people will walk all over you
Sometimes – not often, but sometimes – less is more
I always take calls from my kids, no matter what I’m doing
I understand the game and while I don’t like to play it, there is no graceful way out
I’m not too big on parties because I can’t stand small talk. Unfortunately they’re a part of doing business so I find myself going to more than I’d like and then trying hard to leave early
I like to keep as many options open as I can
Ivana is one of the most organized people I know…she’s almost as competitive as I am…I wouldn’t bet against her
I’m loyal to people who’ve done good work for me
It just goes to show that it pays to move quickly and decisively when the time is right
That experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make
My philosophy is to always hire the best from the best
If the city won’t approve something I think makes sense economically, I’ll just wait for the next administration and try again
Small details make all the difference in the look and ambiance of a building
My style of deal making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after. Sometimes I settle for less than I sought but in most cases I still end up with what I want
More than anything else, I think Deal making is an ability you’re born with. It’s in the genes. I don’t say that egotistically. It’s not about being brilliant. It does take a certain intelligence, but mostly it’s about instincts. Most people who do have the instincts will never recognize that they do because they don’t have the courage or good fortune to discover their potential
Trump Cards – deal making tips
Think big – most people think small because most people are afraid of Success, afraid of making decisions, afraid of winning. And that gives people like me a great advantage. One of the keys to thinking big is total focus. I think of it almost as a controlled neurosis, which is a quality I’ve noticed in many highly successful entrepreneurs. They’re obsessive, they’re driven, they’re single minded and sometimes they’re almost maniacal, but it’s all channeled into their work. Where other people are paralyzed by neurosis, the people in talking about are actually helped by it. I don’t say this trait leads to a happier life, or a better life, but it’s great when it comes to getting what you want
Protect the downside and the upside will take care of itself – people think I’m a gambler. I’ve never gambled in my life. I happen to be very conservative in business I always go into the deal anticipating the worst. If you plan for the worst – if you can live with the worst – the good will always take care of itself. You can’t be too greedy
Maximize your options – never get too attached to one deal or one approach. Even if deals are made, I always come up with at least half a dozen approaches to making it work because anything can happen
Know your market – I do my own surveys and draw my own conclusions. I don’t hurt many number crunchers. I’m a great believer in asking everyone for an opinion before I make a decision. I ask and I ask and I ask until I begin to get a gut feeling about something. And that’s when I make a decision. Another group I don’t trust is critics as very few of them have any feeling for what the public wants
Use your leverage – the worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood and then you’re dead. The best thing you can do is deal from strength and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can’t do without. It often takes salesmanship and imagination to come up with leverage
Enhance your location – more than purely location, a great deal enhanced by promotion and marketing is the key
Get the word out – hiring outside consultants is never as good as doing it yourself. Be straight with reporters, have bravado and play to peoples fantasies
Fight back – if you believe in something deeply and people are obstructing you unjustly, fight back
Deliver the goods – you can’t con people, at least not for long. At some point you must deliver the goods
Contain the costs – every dollar counts
Father was a real estate developer as well and built low income and rent controlled housing in NY
Almost boasts about the fact that he gave a teacher a black eye when he was in the second grade
Learned to “finesse and manage” the drill instructor at the military academy
Maybe shows some of the early innate manipulation or as Scott Adams says, hypnotic, powers that Trumpe exhibits
His father was a great negotiator because he knew the price of everything and was always fair and reliable
Clean and well maintained apartments are always worth the investment
Finds ways to cleverly deal with people and situations – manager Irving great but stole so paid him a low salary and expected him to steal
Seems like a temporary strategy which will only destroy cukture and hurt in the end
You can’t show fear. You have to stand your ground and whatever happens happens
The simplest approach is often the most effective
Early on I didn’t have much but what I did have was the willingness to go after things that people even in a better position wouldn’t consider seeking. I also couldn’t sell people early on on my experience or accomplishments so I sold them on my energy and enthusiasm
In the end, we won by wearing everyone else down. We never gave up and the opposition slowly began to melt away
The city’s desperate circumstances became my biggest weapon. I could act when others weren’t willing and help the city get back on its feet
If you’re going to make a deal of any significance, you have to go to the top
New manager at Grand Hyatt got Trump and his wife to leave them alone by being overly friendly and solicitous, asking for their opinion on every mundane decision
Much more often than you’d think, sheer persistence is the difference between success and failure
Regardless of industry, you want your customers to feel special
I understand now that certain events can take on symbolic importance
When you set the highest standards, they’re expensive to maintain
Good way to end a partnership on a classy note – “as with most things in life, time calls for change and it jd best to accept that fact. Nevertheless, I shall always be proud of my involvement in the creation of Trump Tower and finely remember how we worked to bring it about.”
I think it better to pay more for a sure thing
There is always a buyer for the best
I have a very simple rule when it comes to management: hire the best people from your competitors, pay them more than they were earning and give them bonuses and incentives based on their performance. That’s how you build a first class operation
You don’t act on an impulse, even a charitable one, without considering the downside
In any partnership, you’re only as strong as your weakest link
Committees and high priced consultants can’t hold a candle to a group of guys with reasonable amount of common sense and their own money on the line
My attitude is that you do your best and if it doesn’t work, you move onto the next thing
You’re not measured by how much you undertake but by what you finally accomplish
What I admire most are people who put themselves directly on the line
What I got out of it
Some revealing insights from Trump how he thinks about business, life, competition. Some I thought were helpful but the vast majority show what I think is a “win/lose mindset” which isn’t sustainable
There are 17 major principles of success and one must first be aware of them, then embody them and then act and live by them to achieve success in any field and area of life – the principles of definiteness of purpose
All success begins with a definiteness of purpose. Develop a definiteness of purpose which arouses a burning desire in you, one which never leaves your thoughts, one which you can devote your life to. A burning desire backed by a solid and actionable plan which excites and brings in other great minds (a mastermind group). A group of disciplined and sharp minded people can achieve multiples more than an individual ever could
The first step from poverty to riches is the most difficult
Every great endeavor and road to riches begins with a clear vision of what one seeks and when it evolves into an obsession, the subconscious mind works on it until it is realized. A positive mental attitude is what gives power to ones thoughts and plans
There is a definite law between giving and getting and not understanding or appreciating this has disappointed and ruined many men and endeavors
A burning desire is not enough if you do not bring forth a useful product or service rendered in the spirit of harmony
The very best way to distribute wealth is to disturbe the means by which to achieve it. Money earned is far more powerful than money given
Carnegie’s definition of success – the power with which to acquire whatever one demands of life without violating the rights of others
Personal power is achieved through a combination por personal traits and habits. The 10 point rule of personal power
The habit of definiteness of purpose
Promptness of decision
Soundness of character – intentional honesty
Strict discipline over one’s emotions
Obsessional desire to render useful service
Thorough knowledge of one’s occupation
Tolerance of all subjects
Loyalty to one’s personal associates and faith in a supreme being
Enduring thirst for knowledge
Alertness of imagination
Mastermind Group – an alliance of two or more minds working together in the spirit of perfect harmony for the attainment of a definite purpose
Seems like a worthy mission statement for any organization
The 9 key human motives (top 3 most powerful and should be in harmony for a successful mastermind group)
The emotion of love – the gateway to one’s spiritual power
The emotion of sex
Desire for financial gain
Desire for self preservation
Desire for freedom of body and mind
Desire for self expression leading to fame and recognition
Desire for perpetuation of life after death
The emotion of anger – often expressed as envy or jealousy
The emotion of fear
Mental attitude of the mastermind group, like for every other group or organization, is the most important characteristic which determines the success of the group
One of the most beauitful sights on earth and one of the most inspiring is that of a group of men that work together in a spirit of perfect harmony. Each man only thinking in terms of what he can do for the group
The relationship between the men in the mastermind group should be confidential. The alliance should never be discussed outside the ranks of the members
A marriage may be the most important mastermind group you will ever form
Who we surround ourselves with on a daily and intimate basis is therefore so important for our happiness, development and future achievement
An educational alliance is also always important to have as continuous learning is key, especially when it comes to acquiring specialized knowledge. What we read and learn should be as carefully consumed as the food we eat. Public libraries, one’s associates, groups and clubs and other contacts which have exoertise relevant to your definite purpose are some of the greatest resources
Attractive personality traits – positive mental attitude, flexibility, sincerity of purpose, promptness of decision, courtesy, tone of voice, smiling, expression of the face, tactfulness, tolerance, frankness of manner and speech, a keen sense of humor, faith in infinite intelligence, appropriateness of words, emotional control, alertness and presence, effective speech, versatility, genuine fondness of people, good showmanship, clean sportsmanship, personal magnetism (sex energy)
Applied faith is of utmost importance and a prerequisite for any major undertaking
Every failure has in it the seeds of a similar advantage. Is there is such thing as permanent failure until you accept it
Adopting a definite plan and a burning desire to achieve it is the beginning of all success
Mans arch enemy is fear – fear or poverty, ill health, criticism, loss of love, old age, loss of liberty, death; failure. Build faith by ridding the mind of these thoughts of fear
The habit of going he extra mile – rendering more service and better service than is expected from you and that you are paid for
Goodwill and confidence are necessary in every walk of life and going the extra mile is the best way to achieve both. The law of compensation is such that no many can truly do more work than he is paid for for he will eventually reap the rewards of his effort
Use organized individual effort – planned action. initiative and action, never procrastination, is found in all successful men
Found in all successful leaders – definite purpose, definite motive, mastermind alliance, self reliance, self discipline over head and heart, persistence, a well developed faculty of imagination, definite and prompt decisions, opinions made on fact and not hearsay, capacity to create enthusiasm at will and direct it, keen sense of fairness and justice, tolerance and open mind, going the extra mile, tactfulness and a keen sense of diplomacy, listening much and talking little, an observing nature, determination, capacity stand critisicm without resentment, temperance of appetites, loyalty to all who deserve it, frankness with those who have a right to it, familiarity of men’s desires (love, sex, other motives), attractive personality, effective salesmanship, concentrate full attention on one thing at a time, learning from ones own and others mistakes, willingness to take responsibility of ones subordinates, adequately recognizing merits of others, applying golden rule to all relationships, positive mental attitudes at all times, full responsibility for all take one undertakes, keen sense of values
Knowledge is of little use until it is put into some form of useful service
Creative and synthetic imagination
Turn definite of purpose into consistent and emotional user thought to tap into power of subconscious. The two key driving emotions are love and sex
9 based motives printed out and worked into DCA
Carbegues morive is to make men and not money
It is ibky through mans partnership with woman that he dan reach his highest potential
Ritualized positive thinking habits and strict use of time are key
Learning from defeat and realizing it is temporary is necessary for success
Causes of failure – the habit of drifting through life without a definite major purpose, unfavorable hereditary foundations (only cause of failure not subject to elimination and even this can be managed), habit of meddlesome curiosity in others affairs, inadequate preparation, lack of self discipline, indifference to opportunities towards self advancement, ill health, not aiming high enough, unfavorable environmental influences, habit of negative mental attitude, lack of emotional control, indecision and indefiniteness, succumbing to 7 basic fears, wrong selection of a mate, over caution, excess tendency towards chance, wrong choice of associates, wrong choice of vocation, lack of focus to main effort, indiscriminate spending, failure to budget and use time properly, lack of controlled enthusiasm, intolerance, failure to cooperate with others, desire for power not based on merit, lack of loyalty, egotism and vanity, exaggerated selfishness, opinions and plans not based on know facts, lack of vision and imagination, lack of a mastermind group, not aligning to forces of infinite intelligence, vanity of speech, speaking before thinking, covetousness, revenge, greed, procrastination, speaking slanderously of others, ignorance of the power of thought, lack of personal initiative, lack of self reliance, lack of a pleasing personality, lack of faith in oneself, of others and of God, insufficient power of will because of poor thought patterns
Conjuring up willpower and enthusiasm and inspiration is an important skill to have
Getting an outside perspective on self is always helpful
Splitting ones energy and attention takes away from ones superpowers
A well ordered life requires preparation, commitment and vision. They plan their life like they plan their business. 1/3 sleep, 1/3 work, 1/3 growth and healthy recreation – opportunity time
The golden rule may cause temporary losses but massive permanent long term gains
Conservative living and saving on a regular schedule is important for self discipline and any pote rial future issues
A healthy body is as important as a healthy mind and healthy thought patterns. Eat so that you’re not too full, eat balanced meals, enough fruits and veggies, slow eating, no snacking between meals, no liquor, supplement with lacking vitamins and minerals, mind must be conditioned and grateful for the meal (no stress or fighting while eating)
Relaxation by clearing the mind of all thoughts and stresses should be done for at least an hour per day
8 hours per sleep per night is required for a healthy body, mind, spirit and attitude
At least one hour per day for a recreational sport should be worked into one’s schedule
Hope inspires good health and good health inspires health
Frequent flushing and detoxifying of the sewer system is required through healthy eating, fasts and plenty of water
Avoid too many medicines and drugs. Listening to the body is often the best thing you can do
Cosmic habit force – the particular application of energy with which nature maintains the relationships between all atoms of matter. It is what gives power to our thoughts. We are ruled by our habits which are formed by thoughts and experience. We control our destinies by the amount we control our thoughts. This law translates our thoughts into their physical equivalent through the most efficient means if we are dedicated and open to the opportunities the universe presents. This gets man to focus intensely on every way to translate his thoughts into reality. The power of the cosmic habit force is multiplied by the mastermind group as multiple people are purely focused on the same goal
Everything worth having has its required price to pay. Nothing comes for nothing
What I got out of it
The combination of a burning definiteness of purpose and a harmonious mastermind group is the keystone to all success
If you’re purely copying someone, you haven’t truly learned from them. Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.
Today’s “best practices” lead to dead ends; the best paths are new and untried
The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, 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
Peter Thiel made the following question famous: What important truth do few people agree with you on?
A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x”
Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future
His own answer to the contrarian question is that most people think the future of the world will be defined by globalization (horizontal), but the truth is that technology matters more
If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth
Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble. The first step to thinking clearly is to question what we think we know about the past
When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work – going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things – going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. The single word for vertical, 0 to 1 progress is technology
Brilliant thinking is rare, but courage is in even shorter supply than genius
All virtue stems from courage
Startups understand you need to work with others to achieve great things but also need to stay small enough so that you actually can. A startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think. This is essential as this is what startups have to do, question received ideas and rethink businesses from scratch
4 lessons learned from the dot-com crash which still guide business thinking today
Make incremental advances – grand visions inflated the bubble, so they should not be indulged. Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward
Stay lean and flexible – all companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation
Improve on the competition – don’t try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors
Focus on product, not sales – if your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth
These lessons have become dogma in the startup world and yet the opposite principles are probably more correct: it is better to risk boldness than triviality, a bad plan is better than no plan, competitive markets destroy profits, sales matters just as much as product. The most contrarian thing of all is not to oppose the crowd but to think for yourself
What valuable company is nobody building? Must create and capture value
Capitalism and competition are in fact opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business
Monopolists and perfect competitors both incented to lie – monopolists exaggerate the power of their competitors or reframe the situation to appear less powerful and perfect competitors under-exaggerate competition
Only monopolies can transcend the brutal daily struggle for survival and put their focus where it really matters, pleasing the customer
If you lose sight of the competitive reality and focus on trivial differentiating factors, you are unlikely to survive
Monopolies are only bad in a static world but we have a dynamic one where companies are always innovating, competing and disrupting
Competition is not healthy but it is the ideology that pervades society and distorts thinking
Marx and Shakespeare provide two models for understanding almost every kind of conflict. People fight because they are different vs. fight but everyone is more or less alike. People lose sight of what really matters and become obsessed with their rivals. Rivalry causes us to overemphasize old opportunities and slavishly copy what worked in the past
If you can’t beat a rival, it may be better to merge. When you have to fight though, don’t hold anything back
For a company to be valuable it must grow and endure, but entrepreneurs tend to only focus on short-term growth. If you focus on the near-term above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.
Monopolistic characteristics – proprietary technology (must be at least 10x better than its closest substitute), network effects (standalone value from the very beginning), economies of scale, branding
Building a monopoly – start small and monopolize (small group of particular people concentrated together and served by few or no competitors), scaling up (once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets; sequencing markets correctly is underrated and it takes discipline to gradually expand), don’t disrupt (avoid competition as much as possible), the last will be first (moving first is a tactic, not a goal; aim to be the last mover)
Indefinite/Definite and Optimism/Pessimism Quadrant
Indefinite pessimists look out onto a bleak future, but he has no idea what to do about it
A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it
To a definite optimist, the future will be better than the present if he has plans and works to make it better
Pretty much every successful person falls into this camp
To an indefinite optimist, the future will be better but he doesn’t know how exactly, so he won’t make any specific plans
This seems inherently unsustainable: how can the future get better if no one plans for it?
Most people struggle to understand that we don’t live in a normal world, we live under a power law
The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. Even quite successful companies usually succeed on a more humble scale. This leads to rule number two: because rule number one is so restrictive, there can’t be any other rules
The power law means that differences between companies will dwarf differences in roles inside companies.
It matters what you do and you should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future
Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. There are two kinds of secrets: secrets about nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: what secrets is nature not telling you? What secrets are people not telling you
The more people believe in efficiency, the bigger the bubbles get
A founder’s first job is to get the foundation right. You can’t build a great company on a flawed foundation
Find the right co-founders and early hires, figure out ownership, possession, control, have a small board, right salary structure and bonuses, all people full-time rather than part time
Success of startups correlates with lower CEO pay – build value for the long-term rather than relying on paycheck
Must want to spend time with the people you work with outside the office or else the culture in this type of environment will deteriorate
Recruit by selling the mission and team (not prestige, equity stake, etc.)
Everyone on the team should be different in the same way
Just One Thing – on the inside, every individual should be sharply distinguished by her work. Make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I [Thiel] would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflicts. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism. More than that, internal peace is what enables startups to survive at all. When a startup fails, we often imagine it succumbing to predatory rivals in a competitive ecosystem. But every company is also its own ecosystem, and factional strife makes it vulnerable to outside threats. Internal conflict is like an autoimmune disease: the technical cause of death may be pneumonia, but the real cause remains hidden from plain view.
Sales and distribution tend to be undervalued by entrepreneurs who believe good product sells itself. It is best when one’s sales skill or the persuasion to buy is hidden as nobody likes being reminded they are being sold
Two metrics set the limits for effective distribution. The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost). In general, the higher the price of your product, the more you have to spend to make a sale – and the more it makes sense to spend it
Poor sales rather than bad product is the most common cause of failure
Most valuable businesses of the future will be those which empower people rather than those trying to replace them
Thiel believes that the worries about technology today are overblown. Computers are tools, not rivals and working with them will allow people to do things never before possible
7 Questions every business must answer
The Engineering Question – Can you create breakthrough technology instead of incremental improvements?
The Timing Question – is now the right time to start your particular business?
The Monopoly Question – are you starting with a big share of a small market?
The People Question – do you have the right team?
The Distribution Question – do you have a way to not just create but deliver your product?
The Durability Question – will your market position be defensible 10 and 20 years into the future?
The Secret Question – have you identified a unique opportunity that others don’t see?
Great companies have secrets – reasons for success that other people don’t see
Doing something different is what’s truly good for society – and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve
An entrepreneur can’t benefit from macro-scale insights unless his own plans begin at the micro-scale
The world needs founders to push the boundaries and the trade-off is that those who tend to push the boundaries are eccentric, unusual and extreme in their views and/or behaviors
What I got out of it
Really good in-depth view on what it takes to build startups and why they’re important to the world
Frederick Taylor Gates, the senior business and philanthropic advisor to John D. Rockefeller, recounts his life story and interaction with JDR
Gates grew up in a relatively poor household but his parents were hard working and were never for want. Gates became a Baptist minister after graduating from Rochester and practiced for about a decade. He came into contact with JDR during his fundraising process for a Baptist university in Chicago. JDR was impressed enough with his acumen and common sense that he brought him on board, eventually to become senior business advisor for JDR’s business and philanthropic decisions
While preaching in Minnesota, Mr. Pillsbury approached Gates on how to handle his will and was taken in by the suggestion that he required Gates to take a year off from being a pastor to spread the message of the importance of Baptist advancement in the state
Joined the Executive Board of the American Baptist Education Society and was central in communicating with Rockefeller on the importance of establishing a great Baptist university in central Chicago, what would later become the University of Chicago. Gates was named by Rockefeller to be one of the Trustees for the University of Chicago which he helped fund-raise for and then help lead.
Dr. Harper was the University of Chicago’s first president and had ambitious plans for the University. His expansion and spending put him at odds occasionally with Mr. Rockefeller but his vision helped make UChicago the incredible institution it is today
Gates soon after moved to New York to help with Rockefeller’s other benevolences and it was at this point that he turned away from the ministry. Gates helped to direct Rockefeller’s fund and then lead and manage these companies, trusts or philanthropic organizations. Gates steered Rockefeller’s donations towards the principles of scientific giving and eventually laying aside retail giving to individuals and local charities and fully entering wholesale philanthropy to approved public agencies. Gates had little business experience but Rockefeller trusted that he would learn and put him in that position because Gates had a “great store of common sense.” Gates responds by saying that, “his excuse is valid in its implication that common sense diligently applied is usually the best possible solvent of difficult business problems. Gates helped Rockefeller sell out of many poor investments which a “syndicate” of old friends and acquaintances had looped Rockefeller into but ended up being reckless
In his study of one of Rockefeller’s mining investments in Colorado – “My self-distrust proved my salvation. I would not rely at all on any examination of mine. If these consolidated gold properties were what they were represented to be, they would be well known. They ought to be well known throughout Colorado. There must be men in Denver itself who knew of them. I could and would find out what experienced and reliable men in Colorado knew of these mines.” He would come to find that Rockefeller’s investment was in a complete fraud with no gold by conversing with these fluent miners and engineers
This was too much for Rockefeller and it was then JDR invited Gates to be the independent agent in charge of both his philanthropic and personal investing decisions
On Children & Parenting
Never underestimate the impression something can have on a young child – the years of early childhood usually fix the character and destiny of the man
It is a mistake to think children need to be harshly rebuked. To raise gentlemen and women, one must treat them in childhood with courtesy
The parent can force an apparent but wholly deceptive victory by fear, for no victory is complete that does not carry the child’s reason, and conscience, the victory of intelligent voluntary repentance
Children should be taught to pray for what they crave and always in their own words or else the prayer rings hollow. Spent his entire adult life trying to erase his early religious training as he found it painful and stamped out his natural desire to do good. It is ideals lovingly cherished, not terrors, that educate the conscience and create character
My parents talked over all their troubles with entire freedom in the presence of their children. I know no better way than free discussion in the presence of the children of the daily problems of the family, including its relations with others, if children are to be trained in such worldly wisdom as their parents have, and in the practical conduct of life
I find that praise and encouragement work wonders and it gets students much more interested and self motivated
My mother told me to do everything I was told to do, be it high or low; shrink from no duty however difficult or distasteful, and do it, said she, just as well as you can. Do it better than others. Though you may not have as much talent as some, your labor in this way will always be in demand
Beyond mere physical protection of the very little children, we sought to train our children to govern themselves. We tried to make love only the atmosphere of our home. in this spirit it was not necessary to treat them as underlings , but as friends. We advised, persuaded, encouraged, commended, rewarded them, but we sought never to command or forbid. The last word of all counsel was: such is our advice and our wish, but make your own decision; do as you think best. More often than not they begged us to make the decision for them, for they found it easier to be governed than to govern themselves. But self-control can be attained only by the habitual practice of it
We did not spare expense at any point, because we thought that the taste for good music would be worth more – far more – to our children in later life than the inheritance of the money it cost
The mind of the child grows not by absorbing the contents of books, but by intense, spontaneous, self-directed, mental action, just as the body of the child grows by intense, spontaneous, self-directed physical action in his plays. The mind and body are inseparable. They share a common life. We supplemented the schools with twice as much self-directed work and play outside the school hours. We made it a rule to provide at home all the tools, and all the chemical, physical and electrical equipment, apparatus, and material that our children wanted…We had given a minor place only to the study of books but had kept our children busy sixteen hours per day in self-chosen, spontaneous activity, as intense as possible and furnished with all needed facilities and tools
On Business & Philanthropy
Every step a man takes in capacity to work, and to do better work will bring him into a higher plane – a plane in which there will be fewer competitors, greater demand and higher rewards
I knew of course that no man becomes fitted for a new position of importance and responsibility, except by months or years. Of experience in the position itself and that in the process of becoming fitted there must be errors, embarrassments and chagrins
Worked for a Mr. Smith who was Scrooge-like but Gates stood up for what he believed was right and earned this man’s trust. He learned the basics of banking and bookkeeping which would serve him well later in life
You need to be educated enough so that you can bring your ideas down to the point that common people can understand them
No man ever made such advancement in culture who did not early in life learn to save the minutes. Benjamin Franklin said “Time is Money.” To you time is more than money. It is mental culture; it is reputation. It is power over men; it is success.
Doing much in a little time, the impression is apt to wear away. Don’t hurry, take time
On fund raising – never tried to increase the subscription or even to get the last cent possible. We aimed to leave friends behind us, not enemies. It was up to them how much to donate and our job was to be grateful whether the donation was large or small
Medicine had become full of charlatans and had fallen behind many other sciences because it was not endowed at colleges and universities and the research had been left to itself and dependent on individual innovation. It became clear to Gates that medicine could not become a true science until medicine was endowed and qualified men were able to give themselves uninterrupted to the study and investigation of medical research. This was where Gates had an immense influence on Rockefeller. “This idea took possession of me. The more I thought of it, the more interested I became. I knew nothing of the cost of research; I did not realize its enormous difficulty; the only thing I saw was the overwhelming need and infinite promise, world-wide, universal, eternal.
On the Rockefeller Institute – The work of the Institute is as universal in its scope as the love of God. Other philanthropies are limited in their scope to individuals, to communities, to classes, to religions, to states, to countries, to nations. This philanthropy alone is as wide as the race. It knows no boundaries at all. Disease is universal and this is a healing ministration, to prevent or destroy disease…It goes to the fountains of life itself. It deals with what is innermost in every man. For what is health? Health is happiness; mere health itself is happiness…And while we think of the universality of its scope and its elemental character, let us remember its permanency. The work is not for today alone, but forever; not for this generation, but for every generation of humanity that shall come after us. Thus every success is multiplied by infinity
The Institute soon became a “benevolent black hole” for world philanthropies and received appeals daily from every sort of agency of human progress and well-being the world over
Gates was also responsible for pushing Rockefeller to give outside his Baptist denomination and outside his own country, to all worth religions and humanitarian agencies everywhere
Gates became worried about the ever increasing fortune of the Rockefeller’s and the potential social demoralization it could bring to descendants. So, he spoke to JDR and JDR Jr. about setting up great corporate philanthropies for forwarding civilization in all its elements in this land and all lands, limitless in time and amount, broad in scope and self-perpetuating. “I knew very well that Mr. Rockefeller’s mind would not work on mere abstract theories. He required concrete practical suggestions, and I set about framing them.” Suggested endowments to focus on higher education, medical research, fine arts, scientific agriculture, promotion of Christian ethics, promotion of intelligent citizenship and civic virtue and more
Rockefeller divorced himself from the philanthropic decisions in order to eliminate his biases and hopefully put the money to the best uses possible. “His satisfaction springs from deeper and more durable sources than human gratitude…His joy is the joy of achievement. He is after the end. He cannot sacrifice the end to the instrument, even when the instrument is himself.”
Gates thought that some of the best and most important work of the whole foundation was through the Sanitary Commission which initially was set up to help eradicate hookworms from the South and eventually the rest of the temperate regions of the world
It was not Mr. Rockefeller’s way to give words of praise to any of his subordinates. To others he sometimes spoke approvingly of me and of my work, and his words would reach me by round about channels. But to my face he never commended me…But just as I never consciously worked for salary, wealth, or position, so I worked not to secure but to deserve Mr. Rockefeller’s approval.
JDR was never a “bull” or a “bear.” He always followed the market, and never directed it. In every one of our great panics he did everything possible to sustain prices and was always a heavy loser in them. His optimism was incurable, and when panics were on and the credit of banks and individuals exhausted, he unlocked his vaults and loaned his securities without limit to banks and stressed debtors
Gates “combines business skill and philanthropic aptitude to a higher degree than any other man I have ever known.”
Gates was the right man for the job because he believed deeply and irrevocably in the perfectibility of man and especially in the advancement of knowledge as the best means for reaching perfection
Both Rockefeller and Gates agreed on the importance of finding the best men available and leaving them free to do the job in their own way
As stated become more and more preoccupied with equality and uniformity, pluralism and excellence may increasingly become the responsibility of the private sector
Never enjoyed or profited from school but he did come to find his love for natural wood and music in school. The art of teaching consists in following nature’s ways by study of the child
One cannot afford to read a book that is not with buying. Read with pen or pencil in hand and read only useful books
A man’s temptations lie mainly in the realm of his powers
Genius is tempted to be original at the expense of truth
Avoid friction. There is such a thing as moral and intellectual friction. Fretting, worry, envy, jealousy, disputes, quarrels – these are all in the nature of friction. Avoid them as so much waste. Make all your power tell, and waste as little as possible
Avoid the habit of omniscience. Take suggestions. Take criticism. The man who is always right is either omniscient or a fool.
The fact is I know less about the Bible today than I did 30 years ago. I thought I knew something about it then but I have learned that I knew very little about it
The idolatry of general concepts – people bow down and worship general concepts such as church, nation, state, democracy. Pick these words apart, gentlemen, and find out what is in them
I believe that the love and good-will exemplified in the Spirit of Jesus are the secret of human well-being and that in this Spirit lies the hope of the race
None of the precious things in life can be bought with money and money, past a certain point, was more a burden than a gain
Mr. Rockefeller’s habitual policy had been total silence under accusation
Humanity, as I said, must always live with Nature, with her forces and their reactions on mankind. For what is human progress? Ultimately it is this, just this, and nothing else – an ever closer approach to the facts, the laws, the forces of Nature, considered of course in its largest meaning. Nothing else is progress and nothing else will prove to be permanent among men
What I got out of it
Amazing wisdom – not only about business and philanthropic savvy, but on how to raise children, deal with people and lead a happy, fulfilling and successful life