Tag Archives: Management

Junk to Gold: From Salvage to the World’s Largest Online Auto Auction by Willis Johnson

Summary
  1. This is a story of a man who believes in hard work and treating people right. Willis always says things like, “If you take care of the company, the company will take care of you,” and “Watch your pennies and your dollars will take care of themselves,” and “Don’t forget a lot of people are counting on us.” These values led to his desire to have no debt on his balance sheet, to go public on the NASDAQ Exchange, and to build a great company from the ground up.. “Barry, here’s the thing. I’m not just buying a can of soup for twenty-nine cents and selling it for forty-nine cents,” I explained. “I have ten different services that are growing all the time. Think of us like the local sewer system.” Well, that got his attention. “We’re a utility. Nothing can get rid of us—nothing. Two of the biggest businesses in the world are car manufacturers and insurance companies,” I went on. “If insurance companies don’t write insurance policies on cars, then they’re out of business. If manufacturers don’t make cars, then they’re out of business. They’re always gonna make cars, and they’re always gonna insure them. We’re the guy in between.” I looked him right in the eye and said, “As long as we’ve got the land in the right place to put the cars on, we can’t fail. We are like the septic tanks of the sewer system. You can’t have the system without us.” Barry told me later that after our meeting, he called his wife and told her he had just met the smartest man he’d ever met in business. I don’t know about that; I’d probably give my dad that title. But I do know that despite the fact Barry and I were so different and came from such different worlds, we still understood each other completely. Barry was slick, and I was unrefined. Barry was uptown; I was downtown. But he liked the way I approached business, and I liked his tenacity. We were gonna do business. And we were gonna make some money.”
Key Takeaways
  1. Embrace Adventure and Learn from Second Chances
  2. Don’t Feel Sorry for Yourself
  3. Know What You’re Paying For
  4. Be as Relentless as the Cows
  5. Everyone Is Created Equal, but They Aren’t Always Treated Equally
    1. While my dad taught me how to crunch numbers, build a business, and take chances, Mom played an important role in making me a leader. The most important lesson I learned from her was that no one was better than anyone else.
  6. Take Care of the Business, and the Business Will Take Care of You
    1. Both my dad and I also built reputations in the business world of always standing by our word and never doing business if a deal felt wrong. We both walked away from opportunities that may have helped our businesses but would have crossed a moral or ethical line. To us, the business world was black and white, and a deal you aren’t sure about isn’t really a deal at all. It never ceases to surprise me, though, when others cross that line without even a blink of an eye. I was raised to believe that cheating is the same whether you are taking ten cents or $10,000. And if you could do it once, there was a good chance you would do it again.
  7. Don’t Forget Where You Came From
    1. One of my favorite phrases is, “Sittin’ in high cotton.” It means everything is going well. The cotton’s high, which means the profits are too. But I’ve found you appreciate sittin’ in high cotton a lot more when you’ve had times you couldn’t even find the cotton. It’s those times that keep
  8. Find Something in Common to Unite Around
    1. It took me a long time to figure out what was really going on. That sergeant wasn’t all that concerned about the bed. He was just giving us something to unite around. That bed making brought us together. We all became buddies no matter where we had come from. It didn’t matter if we were jocks or hippies. It was us against that sergeant.
  9. Push through the Fear
    1. So the war taught me how to make the best decisions for the people around me, not just for myself. And the military taught me other lessons too. Having good leaders and a clear chain of command is important. And it taught me cleanliness and order. Keeping things lined up makes for efficiency.
  10. When Times Get Tough, Get Creative
    1. I also learned another important lesson that day. The reason we were able to make such a good deal was because we were the only guys who got dirty. We did our homework and knew exactly what we were buying. As a result, Dad was able to outbid the others, who didn’t know the true value of the yard or had underestimated what others knew about its value. It was also another example of why it’s important to take action and not procrastinate.
    2. All of us would take our lunch breaks in a room above the store. This was before stores commonly installed security cameras, so the room was also a great way to observe customers and catch them stealing. Boy, was that an eye opener. I found out just how dishonest people could really be sitting above that store. That little old lady that you never thought would steal was putting stuff in her purse when no one was looking, or the fat guy was putting pork ribs down his pants and walking out of the store. It made me really think of how theft can affect a business and how you can’t ignore it. Safeway also reinforced the need for order that was established earlier when I was in the army. The aisles had to be organized and clean for people to want to shop and so they could find what they were looking for. That meant paying attention to stock empty shelves, checking expiration dates, and holding specials for items that were overstocked.
  11. When You Make a Promise to Someone, Keep It
    1. Back home and back at the business I loved, I took all I had learned in the military and at Safeway and applied it to dismantling. I tripled the income at the yard by taking good care of customers and calling body shops and mechanics to tell them what inventory we had in stock.
    2. After Dad backed out of the promise he made me, I told myself I would never do that, even if it meant I would lose money. I never promised something to someone that I didn’t do, and I never made promises I couldn’t keep. My word is gold. You don’t have to get me to sign something for me to take my commitment seriously. That was a really good lesson to learn, even if there were better ways to learn it.
  12. You Need to Sacrifice to Build a Dream
  13. Ideas Can Come from Anywhere—Even John Wayne
    1. For those of you not in the business, a dismantling yard primarily deals in used auto parts and recycling scrap iron. I would buy cars—mostly the ones that weren’t drivable and had come to the end of their life—and pay thirty-five dollars to fifty dollars and then tow them to the yard. There, I’d pull all the parts off that I thought I could resell, drain the fluids out of the car (which is called “depolluting”), and then haul the shell to the smelter, where I’d get paid for the iron by the ton. If I had a motor that was cast iron, or any copper or aluminum, I got paid different rates for that as well. At first, when I didn’t have a lot of money, I relied on the scrap iron to make ends meet. As the business grew, I hoped to be able to buy better cars and build up the parts side of the business.
    2. Tammi says she and the other kids all learned how to work and about the value of work during that time. She also says I set a good example for them about how to work hard. But really, I was just doing what I had to do—working late nights and weekends to make the business work. I did make a point, however, of reserving Sundays for family.
    3. While I was building the company, that was our time because building a successful business means nothing if you don’t have your family or your faith.
    4. I did try to use the business to teach my kids some important lessons. Reba tells me I never expected anything from anyone that I wouldn’t do myself, and she’s right.
  14. The Sum of Parts Is Greater Than the Whole—at Least in Dismantling
    1. My dream to build up the parts side of the business was starting to come true. As I was able to buy better cars, Mather was able to stock more and better parts, including motors, transmissions, and rear ends. As this happened, the business relied less on scrap iron, which gradually went from the main revenue stream to a byproduct of the parts business. The better the cars I could buy, the better the parts, and the better the profits. We were also able to pay off all the money friends and family gave us to start the business.
      1. Virtuous cycles, leaping-emergent effects
    2. One other big boost was that I was the first in the industry to dismantle parts, not just cars. Typically, if someone came into a dismantling shop and asked for a 4.6 liter motor, the shop would pull the whole motor out of a wrecked car and sell the motor and everything hanging on it—including the alternator, starter, regulator, smog pumps, air breather, carburetor, and distributor. A fully dressed 318 Dodge engine with twenty-two thousand miles on it might have cost a customer about $400 back in the early ’70s and would have come with a warranty. But if the motor had been sitting for a while, the carburetor might be dried out—the water pump shot or other parts didn’t fit the car just right—meaning there was a good chance the dismantler would have to buy it back to honor the warranty. The customer might also already have a good alternator and not need another one. But they were forced to buy the whole package. That didn’t make sense to me. That’s why if the same customer went into Mather, he or she would find just the motor—steam cleaned and painted and looking brand-new. The additional parts would have been taken out as soon as the motor had arrived to the yard, restored, and sold separately so customers could buy only what they needed. I would sell them just the motor, undressed, for $275—a deal if that’s all they needed. Then I’d sell the other parts separately—the distributor for $50, the alternator for $25, the carburetor for $100. By the time I was done, I could get $700 for the same parts sold separately that were sold together by my competitor for $400. And the customer was happier. I also had fewer buy-backs because I didn’t have to guarantee all the parts on the motor. This caused my profit margins to far exceed that of my competitors.
      1. Making it easier for the customer, adding transparency/ease/velocity can have incredible returns
    3. Whatever made it look nice, we did. That way, when people walked in, it was like they were walking into a real retail store. It made it more personal. They could shop. I know that sounds crazy—shopping at a wrecking yard. But no matter what you are buying, you want it to be a good experience, and you want to find what you want easily. Up until then, people just thought of a wrecking yard as a bunch of wrecked cars in a field that you had to wander through to find what you wanted.
      1. Can use poor competition, low standards to stand out
    4. As I saw the effects Ray’s death had on his surviving wife and kids, it also made me think even harder about the real reason I wanted to be successful—so I could take care of my family.
    5. Even with the larger building to display parts, I knew that to really compete with other auto dismantlers in the Sacramento region, I would need to do something different. I just couldn’t realistically keep every make and model part stocked like the larger dismantlers with more money and space. But I knew of some dismantlers like Al Parker in Citrus Heights who was doing well specializing in only Rambler parts at a small two-acre yard. All the larger dismantlers sold their Rambler parts to him and sent Rambler customers his way because they preferred stocking only hot-selling items that had a high demand. Because Al was the only specialized Rambler dealer in the area, he could draw customers from a large geographical area.
      1. Don’t expect to get different results by doing the same things, you have to act differently
    6. I came back and told Curtis that if we were going to compete, we needed to specialize in a car the other dismantlers in town didn’t want to carry. At the time Chrysler, Dodge, and Plymouth were not cars dismantlers wanted to have because they weren’t hot-selling items. So we made a decision to specialize in Chrysler, Dodge, and Plymouth. All the other dismantlers thought I was crazy. But they were more than willing to sell us their Chrysler parts that weren’t moving and send business our way so they could continue to stock more-popular items. My friend and brother-in-law Mike James says I’m not afraid to break the mold and go where no one else has gone before. I guess I just don’t like people telling me I can’t do something. When people tell me, “Willis, you can’t do that,” it just pushes me to show them I can. It wasn’t that I thought I was better than anybody; I just always thought if you wanted something bad enough and worked hard enough for it, it would happen. And it did. Soon I was drawing on a large area of customers who needed Chrysler parts because other dismantlers didn’t have them. In any one area, there wasn’t a big demand for Chrysler parts, which is why most dismantlers didn’t want to carry them. But in the entire area including Sacramento, Stockton, Marysville, and Yuba City, there was a big demand. There were pockets of General Motors and Ford specialty yards but not Chrysler, so we were filling a need for a big area. It was also cheaper to stock Chrysler parts. At the time we were still partly in the scrap business, so we could buy all the junk Chrysler cars for thirty-five to forty dollars whereas we were paying seventy-five to one hundred dollars for General Motors junk cars. I could go to an auction and buy a wrecked Dodge Polara for twenty-five cents on a dollar compared to a Chevrolet. So I could buy parts cheaper, but the parts were just as valuable, especially since no one else carried them. Before we specialized, Curtis and I were running between $3,500 and $5,000 worth of parts a month at Mather. After specializing, we were running around $3,500 worth of parts a day.
      1. Specializing in a certain niche, even if seemingly unattractive on a standalone basis, can be very attractive when pooled and efficiencies are found – Willis found a 30x in a niche nobody wanted!
    7. Curtis remembers that other people thought I was crazy (or stupid—or maybe both) to spend so much money on a computer for a wrecking yard. But I was never afraid to spend money on technology if it could help us be more efficient. And it turned out that the whole industry would end up computerizing once they saw the benefits it gave people like me and Marv. As large and foreign as this machine seemed back then, it paid off because it gave me a complete picture of the business and the inventory, which in turn gave me more knowledge and control over the yard, which helped me make more money. For example, the computerized system could tell me in a few keystrokes not just how many of each type of make and model doors were in the yard but could also tell me how many right doors we had, how many left doors we had, and what color they all were. If we had a lot of side doors that were the same color, I would discount them to move the inventory. But if we had only one right green Volare door, for example, I could charge customers more because it was harder to find and I could justify the price, which they usually paid because it saved them time and money from having to paint it. This allowed us to move parts faster and maximize our profits. The computer also kept track of the hot-selling items. For example, after we computerized we learned that we sold a lot of right front fenders and left front doors—although I don’t know why. So I made sure we had those in stock. I also started dismantling the right front doors—which didn’t sell as frequently. That way, if a customer needed door glass or a door motor, which didn’t have to come from a specific side, I could sell them out of the doors that weren’t selling very often. This allowed us to still move these parts but not take away from other sales. The customers were happy because they didn’t have to pay for a whole door, and we were getting money for inventory that might have otherwise just sat there.
    8. I did other things that other dismantlers looked at me funny for too, although not for long. For example, all the wrecking yards around Sacramento had agreed to use the same size ad—a little tiny ad—in the yellow pages because it was really inexpensive. Well that didn’t make any sense to me, so I went and bought a half-page, color ad. Curtis jokes that all the other dismantlers were mad at me for a while because they had to do the same thing to compete. I went big—they went big. I wanted to take it to the next level, and the rest of the guys had to try to keep up.
    9. I’d also use the trip to mine other wrecking yards for ideas I could take home and implement at Mather. We’d suck in all their ideas, and they didn’t care if they told us because we weren’t direct competitors. So I would learn a lot about what they did that worked and what didn’t work, like how they were handling antifreeze and tires as environmental regulations weren’t yet developed. Their experiences helped make our company better.
    10. He taught me that you have to do your research and that if you don’t stay on top of reading about other people’s ideas, you never come up with ideas yourself. It’s good to learn from others.
    11. My sister Bonnie said she will never forget how excited Peter and I were. We were excited to buy a salvage auction and to be branching out from the wrecking business. It was a big step, one that would change my life forever. What made the U-Pull-It model unique was the high volume of cars it could turn around. I liken it to the Wal-Mart of dismantling. But it was also a little like the old days of Mather because there was a lot of scrap iron. To keep everything cheap and to be able to retain a high volume, U-Pull-It dealt mostly in end-of-life cars. It got its cars by running ads in the paper announcing, “We’ll buy your junk car.” How much we paid for that car depended on how far we had to tow it and how popular the parts on that make and model were. Popular makes and models would sit out for about thirty days while people pulled what they wanted from it. Less-popular cars would sit for sixty days. At the end of the allotted time, what was left was crushed, and fresh cars brought in with fresh parts. At $70 a ton you can get about $140 for a two-ton car. But if you can sell another $100 or $200 worth of parts out of it, you are doubling your money. Then you multiply that by one hundred cars a day, and that’s where the money comes in because it’s not about how good the parts are on it. If you have three hundred car doors that you would normally crush and you can sell some of them for $5 or $6 each, you’re that much further ahead. We could do this because the customers at a self-service yard like U-Pull-It were also different than customers at my other businesses. These were people who didn’t have a lot of money and were barely getting by. They needed to get their cars running as cheaply as possible to get to work the next day and oftentimes were fixing it themselves. By contrast, Mather dealt mostly with body shops and mechanics, people wanting late-model parts that were guaranteed and as perfect as possible. Most of the customers at U-Pull-It were driving cars just like the ones inside the gates. In some cases, customers would even sell their cars in exchange for one that was slightly better inside. They could buy a car there for $300, drive it until it barely worked, and bring it back a few months later and sell it for $50. Then they could buy another $300 one again. It was a cheap way to maintain transportation. U-Pull-It was also a popular stop for buyers from Mexico, who came with semitrucks and filled them with fenders, radiators, and other parts they would then take over the border and resell. We would give them a discount for buying more than $5,000 worth of parts. The model for U-Pull-It was simple. It didn’t matter what the condition of a part was; all parts of the same kind cost the same amount of money. That put the liability on the person buying it, not the person selling. It benefitted the customers to hunt for the best part they could because they were paying the same amount. In the end, U-Pull-It also had three revenue streams—the gate fee, the parts sales, and scrap iron. That was just three more reasons to like the business, as far as I was concerned. It also had another by-product of business. Because many of the cars were abandoned or forgotten, much of what was left inside had also been forgotten. We created a thrift store out of htese items – baby strollers, CD cases, clothing, and more. Our customers, always looking for a deal, loved the bargains,a nd it provided yet one more revenue stream to the mix.
    12. I was sittin’ in high cotton, running on all cylinders with the Mather Chrysler yard, the mini-truck yard, Today Radiator, Mather Auto Parts, and U-Pull-It. I had also decided to specialize yet again, opening up a foreign auto parts yard next to U-Pull-It under the now well-known Mather name. Foreign cars had become more popular, and I could ship in foreign parts from Taiwan for pennies on the dollar for Datsuns, Toyotas, and Fords. I also sold aftermarket sheet metal from the foreign parts yard. But I still wanted to increase business, especially at the specialized yards. I started a dismantling magazine so I could advertise and allowed all specialized yards in the Sacramento area to purchase full-page ads in it, which I then direct mailed to body shops, mechanics, and insurance companies. I didn’t start the magazine to make money but to be a tool that I, along with other specialized dismantlers, could use to get more business. At first, we just called the magazine Specialized Magazine, a boring name I didn’t care for. We needed to think of something better. Then I remembered from my days growing up on a farm how farmers would store their grain together in a co-op and how other businesses would form similar alliances for a mutual benefit. Since the magazine was a co-op of parts dealers using it for the mutual benefit of advertising, I decided to call it Copart instead.
    13. Instead of waiting for the DMV to find a better way, I went to them and proposed a solution. I would develop a way to create electronic forms and print them from a computer, thereby eliminating the need for the DMV to send out the books at all, saving them money and my business valuable time. I spent about $40,000 building the computerized system for the state of California. Now we could go to the computer and fill out all the paperwork needed and didn’t have to wait for books. It sped up the whole process and was an example of how it pays to fix something yourself instead of waiting for someone else to solve the problem for you.
    14. I got the inspiration to create new services within my companies from Disneyland. When I was younger and I went to Disneyland for the first time, Disneyland wasn’t just a theme park to me or a place to have fun. Disneyland to me was a model of how to build businesses within a business. I paid a fee just to get in the gate. And then when I went to a restaurant, I paid to eat and drink. Then I paid money at the gift shops. I paid for tickets to the rides. Everything I did was another business. I thought, Okay, I’ve got to find a business that has multiple revenue streams within it. Disneyland taught me about building other revenue streams. Every time you can add a revenue stream to the same pipeline, the profit margins change drastically. You are putting more through that pipe. That’s what I always tried to do in my businesses, and it is how we were successful.
    15. U-Pull-It grew up as my children also grew up. As each of them turned sixteen, I would find them a wrecked vehicle from one of the wrecking yards for them to fix up themselves and drive. The kids had to put up half the money—which Joyce and I would match.
    16. My work didn’t drain me; it energized me and drove me. Jay wanted to be like that.
    17. I’d tell him how much I liked a certain motor because it broke a lot. Jay didn’t understand that at first; why would a motor that broke all the time be so great? But I told him, “You’re never going to sell it if it doesn’t break. What are you going to do with a bunch of motors that never break?” It was a big learning curve.
  15. Be Your Customer’s Most Valuable Partner
    1. What if we could clean up those cars—take out the debris, vacuum them out, and make them look clean and new again (outside of the damage)? They would be more attractive to buyers and get more bids, driving the price higher, I thought. I knew I could get the insurance company more money if I cleaned these cars up, but I also knew I would have to charge the insurance companies for that service. That was a problem because insurance companies didn’t want to pay you to clean up a wrecked car. To them it was junk. I had to find another way. I proposed a deal to the Fireman’s Fund. Instead of charging fees, I would keep a percentage of the sale price for each car—20 percent on older, highly damaged cars; 10 percent on newer cars. That meant that the burned-out car I could only sell for twenty-five dollars would only get me five dollars. But I could more than make up for the losses on the badly damaged cars with the 10 percent I got off of the newer cars that could be more easily repaired—especially if we cleaned them up and drew top dollar. The Fireman’s Fund was thrilled because they no longer had upside-down cars and they were seeing their returns go up because the newer cars were getting more bids. And I was watching Copart’s profits go up with the returns. But maybe most importantly, PIP represented a significant shift in the industry. Now the salvage auction was a partner with the insurance company, with the goal of getting the best possible price for each car, eliminating any arguments over fees.
      1. Win/Win
    2. When you buy a business, you can inherit some great talent from that business. To let that talent go is bad business. I learned to really respect the people who came with the facilities we purchased, and many of them turned out to be great, long-term employees who really helped us grow and do well.
    3. Efficiency is what excites Jay. Looking at something and finding a better way to do it is his forte. And that’s something I not only valued but embraced. I’m not the kind of guy who says, “Look, kid, I’ve been doing this for twenty years, and I’m not interested in changing.” I never have a problem if someone tells me something is broken. I have always wanted to do things better and improve on the model.
  16. On Going Public
    1. I had never cared about the stock market. The stock page in the newspaper was as foreign to me as the sports page and about as useful. I hadn’t a clue about Wall Street. But when I heard that IAA was making big moves that could affect my business, I decided I should start to care. Marv sent me IAA’s prospectus, and I read it. Then I read it again. And again. I didn’t understand most of it at the time, but I did understand this: IAA had not been making the money I thought it should be to go public. They were in debt. Going public allowed them to raise a ton of money, and they didn’t even have to pay it back. On the other hand, we were making money, and we weren’t in debt. Even though I knew nothing about going public, I figured if they could do it, so could I. We had a better company.
    2. I know what I don’t know. I also think it’s a good idea to learn as much as you can.
    3. I went down to the library and tried to find a book to explain it all. When you don’t know what you’re looking for, it’s not easy to find it.
    4. Steve told me later that he admired my principles and the fact that failure wasn’t an option for me. But while I was driven, I was also willing to wait to do it the way I wanted, without cutting deals I shouldn’t or selling myself or the business short. John and Steve respected that, which I appreciated
    5. Sometimes people underestimated me because of the way I talked and because I looked more like an Okie farm boy than a polished city slicker. Those people usually lost out. It was a good way to weed out the jerks, though—the Wall Street types who would talk down to me, thinking I was less than them somehow. They didn’t know it, but as they were judging me, I was summing them up too—seeing if they were going to play honest or try to take advantage of me.
    6. I’ve been in business a long time, and if I don’t trust people from a conversation across a dinner table, I’m pretty sure I’m not going to trust them with my reputation or my money. And if I don’t trust them with my money, I’m sure not going to go making money for them. I told Barry, “They’re not good partners. I don’t want to deal with them.”
    7. We all met at a restaurant—which had become my favorite place for these things because deals just go better on a full stomach.
    8. I also knew Copart was mine again. At the time, I had three million shares, making me the biggest shareholder, with 40 percent ownership of the company. I could do one of two things—use my stock as currency to buy other companies or go back to Wall Street to raise more money. Now that Copart was public, raising more money would be easy.
    9. In the meantime, IAA was gobbling up facilities across the country as fast as they could. I knew from my dealings with Bob Spence that their plan was to acquire as many locations as they could and let the yards still run like they had been before they purchased them, even if that meant they ran on separate computer systems and used different business models. IAA figured they’d worry about converting them into one system later, when they had finished growing. My philosophy was much different. I felt Copart should grow slowly, acquiring strategic locations and then converting each one over to the Copart system and business model immediately. Jay had already become an expert at converting yards—taking the lead in changing things over in all the facilities I had acquired while getting ready to go public. I just didn’t want to grow to grow. I wanted to build a brand. I wanted anything with a Copart logo on it to run the same way—same computer system, same pricing, same way of treating our employees—so people started relating our name to a certain way of doing business. We spent time converting things over and converting employees over and teaching them our way of doing things because in many cases, the old way they were doing things hadn’t been working. That’s why they had to sell. That’s also why I think IAA’s approach to keeping newly acquired yards running the same way was wrong. They weren’t fixing what was broken in the first place.
    10. IAA was especially focused on big cities, so we looked at more rural areas. The good news about that is it is a lot cheaper and easier to run a yard in a rural area. There is also less competition. Copart’s board of directors didn’t agree with my approach. They wanted me to grow like IAA was growing—finding locations in big cities like Chicago. I decided what they didn’t know wouldn’t hurt them. I told the board I would look in Chicago, but then did what I wanted to do anyway.
      1. Doing things differently, courage to stand up for what you believe is right
  17. Look Beyond Balance Sheets
    1. IAA would show up wearing suits and riding in limos. I showed up wearing cowboy boots and driving a rental car. Some owners were wooed by the flash of IAA. Some were put off by it. For other owners, it came down to the bottom line—who would pay more? I had the advantage there. IAA bought companies the Wall Street way—based on pretax or after-tax earnings. I had my own method based on how many cars the auction sold and the value of the land. I knew what didn’t show up on the balance sheet of a private, family-owned company—that many of these business owners used a lot of their profits to buy personal cars or pay salaries and benefits to their family members. Many of the businesses were undervalued as a result. I paid a little more for these businesses, but I was also able to see their potential. With my operating systems and business model, I also knew we could increase profits almost instantly. The other philosophical difference between Copart and IAA was that IAA purchased the cars from the insurance companies while Copart charged fees to store, clean up, and sell the cars. The advantage of this was Copart could limit its liability and get a greater percent of earnings per investment, since they were putting out less cash. The downside was IAA could show more revenue on its books, which people on Wall Street saw as having more potential. I didn’t care though because I knew in the long run, it was about earnings. The bottom line is: what percentage are you making on your business? If we are pulling 30 to 40 percent to their 10 percent, we are a stronger company.
  18. Consistency Is the Key
  19. Look for Leaders Everywhere
    1. Loyalty was a trait I valued. Whenever I shake the hand or meet somebody, I really size them up. After that first meeting with Vinnie, I thought, If he’ll stay with the company, he’s going to be a big leader here. Vinnie told me that his impression of me on that first meeting was that of a simple, easygoing guy with a clear vision and who was quick to react. I was a guy who had a lot to get done in a hurry, and Vinnie knew that. In that, we found a common bond.
  20. Admit Your Mistakes
    1. It was just a bad idea, so we went back to the original model. But the good thing about Copart is even though sometimes we have bad ideas, we learn from them and correct them. That’s the advice I also passed on to Jay and Vinnie: Any time you make a mistake or bad news comes and you’re really upset about it, remember there’s a lesson in it. Just chalk it up as a lesson, and don’t let it happen again. When you lose a customer because you bid wrong, don’t get mad at the customer. Ask yourself, “What did we do wrong to not get that contract?” Just like with buying cars—it didn’t work, so we learned that lesson and moved forward.
    2. Even great entrepreneurs make mistakes, but they only make them once because they learn from them. Willis was never afraid to take a risk, but when it didn’t work, it was time to course correct. Making sure you learn from past mistakes was one of the best lessons I learned from Willis over the years.
  21. Keep Your Growth Sustainable
    1. Jim Grosfeld, who was on Copart’s board, gave me some sage advice: “Willis, Wall Street doesn’t care about ups and downs. They hate that. What they like is consistency. If you just make that earnings line just move up a little bit every quarter, every year, you’ll get paid a really good high multiple because then they can figure your company out.” From then on, I concentrated on steady growth, and when I thought about buying another location, I didn’t try to buy it just because I wanted to grow the company. I bought it because it was a good fit and was in a strategic area that helped fill in our network. I learned an important lesson, and that was not to grow too fast. You have to grow slow and steady, or Wall Street will make you pay for it. They always compare you to what you did last time. If you exceed what you did last time, you’re successful; if you come in under what you did last year, they don’t like you.
    2. At one point, I asked David when it would be done. We needed it now, and I wasn’t good at waiting. When David told me it would probably take another eight to ten months, I wasn’t happy. “Well, put more programmers on it—then we’ll get it done faster,” I told him. “Willis, I’m going to give you a lesson in life right now,” David replied. “One woman can have a baby in nine months. But nine women can’t have a baby in one month. The time doesn’t change. That’s the way it is.” CAS (Copart Auction Systems) ended up taking a year to build at a cost of $3 million—huge money at the time. Now he could see how many cars we picked up that day, how many cars we sold that day. It helped us manage our business better and bring it all together.
      1. Irreducible minimums are important to identify and understand
  22. Embrace New Ideas
    1. Jay talked to buyers himself about online bidding, trying to educate them about the new web-based technology. At this time, online bidding had descriptions of cars for sale but no pictures. All the buyers told Jay it was a dumb idea; no one would bid on a car they didn’t look at first, they said. Jay told them, “I’m not asking you to not see the car. I’m asking you to come look at the car the day before the sale, and for thirty-five dollars you can submit a bid on our website and not have to stand in the auction all day or pay a contract buyer one hundred and fifty dollars to stand there for you.”
      1. Removing frictions, making it easier for the customer to do business
    2. Something else amazing with online bidding was happening too. One day, Jay saw a car in San Diego sell to a buyer in Connecticut. We had never imagined cross-state bidding, let alone cross-country bidding. Jay had David call up the buyer and find out how he was bidding on vehicles he was too far away from to come look at prior to the sale. The buyer told him he knew what he was doing, but it would be helpful if Copart put pictures of the cars online too.
  23. Fill in the Gaps
    1. Copart was still physically growing too. Now that the systems were in place, I had a goal of adding six to ten yards per year in strategic locations between existing yards to not only grow the network but also to shorten tow times and cycle times, which is the time between getting a car into a yard and having it be sold and picked up. Every time we added a dot on the map, we saved towing. This was especially important because at the time, about 70 percent of our customers were using the PIP program and we were eating the cost of long tows. Any time we saw our towing costs were too high, we’d try to put a yard between locations to improve our bottom line. If we can tow a car 50 miles instead of 150 miles, that’s money in the bank. The new yards would also free up space in nearby existing facilities, which in turn could take in more cars.
    2. It was all about making the company stronger, without any debt, and having more cash in the bank. We wanted to take care of our employees, the insurance companies, and our buyers.
      1. Stakeholder win/win mindset
  24. Make Doing Business Easy
    1. As the temperatures continued to drop, so did the number of buyers who braved the cold. With fewer buyers, returns also dropped. So I had an idea: Why not bring the buyers inside, into a nice, warm building, and show them the cars on television monitors? People would no longer have to follow around auction trucks in the cold. That’s when EVA (electronic viewing auction) was born. We brought the auctioneers inside and displayed pictures of the cars on one screen and the make, model, and other information about the car on another screen so no one had to go outside anymore. Buyers loved the idea, but to make it work, it required a lot of building. We had to build an auction booth inside the building, get chairs and coat racks, and buy donuts. We had to do more interior things than we ever had before, including wiring these televisions up on stands. It took a big capital investment to get people inside, but they loved it. While about 40 percent of people were bidding online, there were still a lot of people coming to the sale at this time.
  25. Never Stop Improving on an Idea
    1. Internet buyers still wanted more. They wanted a way to increase their bids on the day of the sale too. Jay figured if there was a way people could bid online during the sale, we would get even higher returns.
    2. I learned that from the military. You don’t leave anyone behind.
      1. As a leader, you also have to be on the frontline, facing danger head on; officers have to eat last; group size should be small and manageable (Dunbar’s number)
    3. We had also seen on the news that commercial planes all over were being grounded—not because the government was grounding them but because no one wanted to fly. On the other hand, car rental companies were booming. You could hardly find a car that wasn’t already rented. I told Jay people weren’t going to fly as much after this. Instead, they were going to drive. If that was the case, they were going to wreck more cars. That meant our business was due to grow again.
      1. Willis understood the whole system, and secondary effects
    4. I talked to one of the guys at Salomon Smith Barney and asked if he thought us doing an offering would be OK even though it had only been three weeks since 9/11. I also told him why I thought this was a good time to grow. He told me no one was doing offerings at this time. Wall Street had pretty much shut down since 9/11, and although there were people who wanted to invest and there was money out there, everything had pretty much come to a screeching halt. This made me think, Well, if there’s a lot of money out there and we have a good story to tell, this may be the perfect time to do an offering.
      1. Greedy when others are fearful
    5. We went out on the road show, which we were used to from our first two offerings. Usually you go from one investment company to another, and you only have thirty minutes at each one because their calendar is full. You have twenty-five minutes to tell them about the company and another five minutes to talk numbers, and maybe, if you are lucky, five minutes of questions. Usually there are also only two bankers in the room to make orders because they are so busy. That wasn’t the case this time. In fact, it was totally the opposite. We’d go into a conference room with fifteen investors, and they wanted us to stay because they had no one else coming in—nothing else to do.
      1. Find opportunities for contrast
  26. Ask Yourself, “What’s My Job?”
    1. Because it was easier for buyers to participate and they could do it from anywhere, more buyers bid on each car. The Internet auction also retained the same excitement as live bidding, which kept the competitive atmosphere alive. With more competition, returns went up. In fact, the sale had the highest returns of the entire year. It went over like gangbusters.
    2. It was time to make a major business decision. That decision wasn’t whether we were going to roll out VB2 to all the yards—that decision was obvious, even to the auctioneers who would lose their jobs. So we had to figure out what our job was. We literally sat in a room and wrote the words, “What is our job?” on a board. We decided our job was to help buyers purchase cars easier so we could get the most money for the sellers. That was our job—to get the insurance company more money. That superseded anything else.
    3. I didn’t see it from a seller’s perspective, though. I didn’t expect returns to go up. I wasn’t thinking that by making it easier, more buyers would use it—and that buyers from all over the world would be able to use it. With all those buyers competing over the cars, it was a natural result that the returns would go up. That was the kicker for me.
      1. “Good” decisions are those which have unintended, positive knock-on effects
    4. It goes to show you that any company today has to pay attention to technology and how the world is changing and incorporate that if it wants to survive. You can’t do things the same way and expect to be around in ten years. The world moves too quickly. The moment you snooze, you lose.
    5. Our philosophy is always to be on the bleeding edge and to never let those young kids come up behind us and do what they’ve done to so many industries. We need to hire those kids instead so we can stay ahead of the curve on all the new technology.
  27. Don’t Lose What Makes You Special
    1. It was 2002 when Jay realized something bad had happened to Copart: no one knew anyone anymore. We had gotten so big we didn’t have that mom-and-pop feel anymore. This was especially evident when Jay called up a yard to talk to a general manager one day, and was surprised to find out no one knew who he was. “Jay Adair? I don’t think I know you. Do you work at Copart?” asked the employee who had answered the phone. Copart had become a much different kind of company than when Jay first started working there in 1989. It was big. It was financially secure. It had revolutionary technology. But the vision and spirit we had built the company on was no longer reaching its employees. The employees, as a result, did not act as a team or feel like they were working together. That in turn negatively impacted the company’s progress and its relationship with its customers. So Jay decided Copart needed a revolution. It needed to get back to its roots.
    2. Another catalyst for Jay’s decision to have a revolution was when Copart disbanded its fleet of tow trucks and began to contract with drivers instead. This improved efficiency and cut transportation and insurance costs. But the decision—which meant laying off hundreds of drivers—also hurt morale.
    3. About 75 percent of our workers’ comp costs were for truck drivers. Seventy-five percent of our liability claims were because trucks were driving over mailboxes or knocking down gates. When we added it all up, it was ridiculous. It’s crazy we never thought of it before. After testing it out further, the company decided to get out of trucks altogether. But they needed to find a way to do it that would be fair to the hundreds of drivers who would no longer be on the payroll. Gerry Waters took the lead in an effort to sell all of Copart’s carriers to each driver at a discount. He put together a packet of information for all the drivers that outlined how to start their own businesses, including everything from getting a business license and insurance to lists of lenders that had already been identified as willing to finance their new venture. Copart also promised to favor the new entrepreneurs when choosing subhaulers in the future. Whatever the other local guy towed for, Copart offered to pay more if the driver used to be an employee. Only about 20 percent of the drivers took the deal, with the 80 percent choosing not to take the risk of running their own businesses. Copart found that owner-operated tow trucks worked harder. Each tow represented more money for their business, while regular employees got paid the same no matter how many tows they did in a day. All of a sudden we had people doing more loads in the same amount of time for us—because they were hustling more. They were doing three loads a day instead of two. And they were working earlier and later instead of just punching a clock because it meant more money for them. They were in control of their paycheck. As Copart progressed, the subhaul program progressed with it. Copart began offering incentives for tow companies, like discounts on cell phones and insurance, to sweeten the pot and attract the best companies. It again goes back to the lesson that when something bad happens, like the union problem in Michigan, you don’t need to panic or get mad; you just need to step back and find a new way. And more times than not, that bad thing that happened will turn into a good thing if you listen to the lessons it is teaching you.
    4. There were more lessons. Copart didn’t just learn that it could operate better without its own fleet of trucks; it also learned it needed to change the way it interacted with employees. We learned it wasn’t just enough to treat your employees nice, give them good benefits, and hope they got it. That wasn’t enough to keep the unions out. We treated the employee nice, gave them as many benefits as we could, and treated them like we didn’t want them to leave—because we didn’t. But we didn’t tell them we loved them; we didn’t show them how much they meant to the company. That’s where we had fallen short. This was another reason Jay wanted a cultural revolution at Copart. We had been a nuts-and-bolts company where as long as you got the work done, it didn’t matter if you had fun doing your job or liked the people you worked with or even knew why you were doing what you did. That made us into a place that on some levels really wasn’t a great place to work because it didn’t matter if people would rather work around you than with you. That needed to change. Jay told managers at a conference in 2002 that from then on Copart was going to be a company that didn’t just hire on skill sets or IQ (intelligent quotient); it was going to hire based on attitude—EQ (emotional quotient). We were going to be a company in which people liked their coworkers and had fun at what they did. If that happened, we knew they would probably be more efficient and productive and capable of delivering legendary service. If employees are happy, that translates directly to how we treat our customers and how we can move forward as a company.
    5. Becoming a big, public company, we decided, didn’t mean we had to sacrifice having a culture where people worked hard, had fun, and were rewarded for it. Jay remembered how in the early days he was given the freedom to disagree with me and share his ideas, which helped him grow. He wanted all employees at Copart to have that same opportunity. You should be respectful of your boss but not fear your boss or be afraid to disagree with him or her. If you have the ability to speak your mind, the company benefits too because that’s when great ideas are born. We also wanted to communicate to employees that the most important thing at Copart was keeping a clear moral direction. So many people separate different aspects of life by saying “this is life” and “this is business” and give them different sets of rules. But we look at business and life and family as all intermixing. If you are happy at home, you’re happier at work and vice versa. If you do well at work, you can provide more for your family. Jay also wanted everyone at Copart to treat each other like friends and family. Take care of the company, and we’ll take care of you. Take care of customers like you want to be taken care of
  28. Have a Clear Mission, Vision, and values
    1. To communicate some of these lost ideals and vision, Copart developed a mission, vision, and values statement to guide its business principles and employees. Its mission was to streamline and simplify the auction process; its vision was to continually offer compelling, innovative, and unique products and services to propel the marketplace forward. And the first letter of each of its values spelled out the Copart name itself—committed, ownership, profitability, adaptable, relationships, and trust. But it wasn’t enough to just hang these on the wall. The mission, vision, and values also became a key element in Copart’s training and culture. The CIC—Copart identity campaign—was also launched and introduced initiatives designed to build morale, teamwork, and customer service standards. The campaign included company-wide initiatives, such as the twenty-four-hour rule in which employees must follow up with customers within one day. A weekly cheer was also introduced to bring employees together and build company pride, and employees were also encouraged to wear the company color – blue – one day a week.
    2. I also formed the Copart Private Foundation—a scholarship fund created directly from private contributions made by me and other executives. The foundation was set up to help Copart employees’ children with the costs of college and books. No one who has applied for the scholarship has been turned down. My military background and strong love for my country also prompted me to start a program at Copart that paid 50 percent salary to any employee deployed to an active US military campaign. Positions are also held for six months for those who are deployed. This policy earned Copart national recognition from the Employer Support of the Guard and Reserve (ESGR)
    3. Despite these improvements, Jay was still concerned that the senior management of Copart was still too far removed from the people working in the yards, as was demonstrated when the woman who answered the phone didn’t know who he was. As he was talking to a business associate one day, he thought out loud about how great it would be if he could meet every employee personally and travel to all of Copart’s yards, which numbered more than 110 at that time. His associate laughed at him and commented he would never be able to do it. Was he crazy? That was all the challenge Jay needed to prove him wrong. Jay promised all the employees he would come meet them personally at their yard over the next year. The world tour was born. Jay didn’t know what he was getting into, though. The world tour took on a life of its own, and the spirit and excitement that had been lost over the years returned as employees tried to outdo one another by staging stunts, games, and skits for Jay and other executives when they visited. During the 2005 tour, Jay found himself riding a donkey, being arrested, getting dunked in a dunk tank, and dressing up as Elvis. It was an opportunity for employees to turn the tables on executives and put them on the spot—and as a result, the executives became more like ordinary people in their eyes. More importantly, the world tour also had a powerful message. Jay talked to each yard about where the company had been and where it was going. He told them how Copart’s change-centric culture had made Copart a leader in the industry and how the company would keep embracing change and finding better ways to do things. He explained Copart needed to provide not just good service but legendary service—service that left customers saying, “Wow, how did they do that?” and telling others about the experience. He shared the strength of the company’s future with employees and talked about how the salvage industry was recession proof because people would always be wrecking cars. The world tour really brought the company together. We got to know our employees better, and they got to know us. We got back that mom-and-pop feel we had lost.
    4. Helping out in the Katrina disaster – Through the ordeal, Copart did not pass any of its added costs on to its customers. Copart chose to absorb the costs for a couple of reasons—first, because it was the right thing to do. Copart emerged as an important ally in the clean-up and recovery efforts, with many government agencies asking for and receiving Copart’s help. One of Copart’s first priorities after the storm was picking up vehicles at Kessler Air Force Base in Biloxi, Mississippi, so rescue operations could be made to New Orleans. Copart also absorbed the costs because it wanted to prove to its customers it was not just a vendor but a business partner they could rely on even at the worst possible time.
    5. Finally, I decided to get a second opinion. I called Richard Reese, the CEO of Iron Mountain, who already had operations in the UK. I had met Richard at a CEO group I attended and had asked him for his advice before. “Richard, what’s the most important thing I need to do in England?” I asked. Richard’s advice was quick and direct. “You need to introduce your company’s culture there.” Richard went on to explain that in the UK, business was very hierarchical, meaning managers didn’t like to talk to people many levels below them. “That’s not the way your company or my company works, Willis,” Richard told him. “We need to have that communication between management and the employees—that idea flow—for things to work well.”
  29. Other
    1. Her gut [his wife’s] was always right. She really helped me make good decisions. Joyce always told me she liked to hear about my ideas and see me excited about the next big thing I had planned. There was nothing she felt I couldn’t do, she told me. That’s a pretty amazing thing—when you have someone on your side who feels that way. She knew how much I loved Copart and loved taking it to different places and trying new things. Neither of us really knew if I could ever give that up.
    2. I have only one regret—that I now spend more time with my grandchildren than I was able to spend with my children while they were growing up. I was too busy growing the business to enjoy them as much as I would have liked.
    3. One thing I’ve taught all the executives in the company is that while you may be good in our business, that doesn’t mean you are good in any other business. Don’t get a big head and think you know it all, because that’s when you’ll lose. You’re really good in the car business. You’re really good in the recycling business. You’re not necessarily good in everything else, and you need to understand that. Stay with what you are good at, venture out if you see an opportunity, but pull your horns in if you make a mistake.
    4. Willis didn’t come home at seven at night with his shoulders down like he had just put in another day at the salt mine. His work didn’t drain him; it drove him. I wanted to be like that.
    5. Willis used to say if you get big enough, you can make an industry behave in a particular way.
What I got out of it
  1. Humility, common sense, work ethic, admitting mistakes, being in the thick of it on a daily basis, surrounding yourself with great people and doing the right thing are all key attributes of leaders, as Willis amazingly demonstrates

Sol Price: Retail Revolutionary and Social Innovator by Robert Price

Summary

  1. Robert Price, Sol Price’s son, recalls his father’s history, personality and journey founding FedMart and The Price Club. “Sol always said that luck plays a big part in what happens during one’s lifetime. This is undoubtedly true. Sol was lucky. His parents emigrated from Russia to the United States well before World War II. He was born with a brilliant mind. He was in good health for most of his life. His family moved from New York to California, which led to his love affair with and marriage to my mother. What Sol added to his good luck is what this book is all about.”

 

Key Takeaways

Sol’s Business Philosophy & Practices

  1. Sol’s core business philosophy was simple: drive operational efficiencies to save on costs; pass these savings onto customers; provide the best possible value to customers; excellent quality products at the lowest possible prices; pay good wages and provide good benefits, including health insurance to employees; maintain honest business practices; treat suppliers better than anyone else; make money for investors.
  2. Discount stores appeared in 1948 and FedMart followed the Fedco template in most every way including membership, concessionaires and a warehouse building. Perhaps the most significant difference between Fedco and FedMart was that Fedco was operated purely as a not for profit whereas FedMart was a not for profit combined with a separate corporation, Loma Supply, which operated as a for profit corporation. Customers would have to pay a minimal fee to become a member, hours were convenient for business owners, products were displayed and sold on makeshift fixtures rather than in display cases and most products, other than jewelry, were self-service, and the selection was limited. Most products were paid at a central register area in cash or with a check, no credit except for purchases of furniture or appliances. The products offered for sale included mattresses, clothing, luggage, furniture, power appliances, hardware, large and small appliances and liquor. Some of the departments were operated by concessionaires, while others were operated by FedMart. In addition, FedMart refused to stock products from manufacturers who enforced Fair Trade laws – companies such as Samsonite Luggage and Gillette Razor Blade Company.
  3. 20 years after founding FedMart, Sol sold control of FedMart to Hugo Mann in 1975 but the relationship quickly soured, inspiring Sol to later found Price Club. Happiest when challenged and new business was a clear slate – thought through all lessons learned and tried to wipe clean all assumptions. He settled on a wholesale business selling to a cross section of small businesses. The Price Club idea was finally conceived sometime in the middle of January 1976 – a wholesale business selling merchandise to small, independent businesses. The business owners would come to a large warehouse, select the products from steel rack displays, pay either by check or cash, and take the products back to their stores, restaurants, or offices. Instead of each business owner purchasing products from various suppliers who specialized in specific product categories, hundreds or even thousands of small businesses would pool their buying power by shopping at our wholesale warehouse. The warehouse would also serve as a storage facility for the various business owners so they would not have to buy and store large quantities of merchandise at their stores or offices. In effect, we would be their warehouses. The wholesale warehouse would buy directly from manufacturers and pass along the savings generated from volume purchasing directly to the store owners
  4. The word “club” was selected because customers would be required to purchase a membership. The customer would be a member of a club, a club that sold merchandise. Thus, the name Price Club was chosen. There were a number of reasons for charging a membership fee of $25, a significant amount of money compared to the rather nominal $2 membership fee that members at FedMart had paid. The most important reasons was to use the membership money to lower prices by including the fee in the calculation of merchandise gross margins. We assumed that, on average, each member would spend $1,000 a year in purchases at Price Club. The $25 membership fee was equivalent to 2.5% of $1,000. When included in gross margin, the prices of merchandise were reduced as shown in the following example:
    1. Example 1 – no membership fee:
      1. Product from supplier: $10.00
      2. Product selling price: $11.12
      3. Margin: 10.5%
    2. Example 2 – $25 membership charged
      1. Product from supplier: $10.00
      2. Product selling price: $10.86
      3. 8% markup plus 2.5% membership fee = $10.5%
    3. The $25 membership fee also operated as an incentive for the member to purchase more as a way to leverage the membership fee as a percent of purchases. In addition, the membership concept helped reduce operating expenses for the business because the membership psychologically tied the member to Price Club and eliminated the need to advertise
  5. Sol always said that teamwork is the key to success
  6. Was a very tough negotiator. He was not afraid to be tough when he felt it was necessary. He was willing to fight for what was right, even if it meant potentially losing, although Sol rarely lost. People wanted Sol in their corner because they knew he had integrity, he was smart, and he was strong. Sol’s experience as an attorney representing clients, and his own moral code, became a foundational feature of the FedMart business. Sol described his business approach as “the professional fiduciary relationship between us (the retailer) and the member (the customer). We felt we were representing the customer. You had a duty to be very, very honest and fair with them and so we avoided sales and advertising. We have in effect said that the very best advertising is by our members, the unsolicited testimonial of the satisfied customer. This fiduciary relationship with the customer was similar to the Golden Rule; the way Sol put it – if you want to be successful in retail, just put yourself in the place of a cranky, demanding customer. In other words, see your business through the eyes of the customer.
  7. Our first duty is to our customers. Our second duty is to our employees. Our third duty is to our stockholders
  8. By reducing merchandise acquisition costs for retailers and other businesses, everyone would win. Small businesses would pay less for their wholesale goods and supplies, retailers could charge lower prices – in turn improving their ability to compete against chain stores, especially the growing number of discount stores that were underpricing small businesses.
  9. Expert Fallacy – “Fortunately most of us had backgrounds that were alien to retailing. We didn’t know what wouldn’t work or what we couldn’t do.” If Sol had been an experienced traditional retail executive, he probably would have focused FedMart’s expansion in Southern California and Arizona, thereby solidifying FedMart’s market dominance in that region. Instead, Sol made his decisions from the point of view of his own experience: the fact that he was an attorney and not a retailer, and that he was an entrepreneur and not a chain store executive. He was never driven by the need to have the most stores or the most money, but by the desire to give the customer the best deal and to provide fair wages and benefits to FedMart’s employees
  10. Of course, everyone wanted to work at FedMart. The fact that Sol was concerned about giving decent wages to employees was one thing, but why would he require FedMart wages to be twice as much as the competitors? FedMart was paying industry-best wages per hour in San Diego and Phoenix. The wage decision in San Antonio was simple: employees in San Antonio worked just as hard and as well as other FedMart employees. FedMart had excellent profits in San Diego and Phoenix while paying good wages, why not apply the same wage philosophy in San Antonio?
  11. Sol always believed real estate was a good investment and the financial characteristics of the business made it a cash flow machine, allowing for easy, fast expansion
  12. Touching the medium – As The Price Company prospered, Sol focused much of his attention on the numbers, daily sales, and monthly financial operating results – the balance sheet and cash flow. He would ask someone from the Morena Price Club or a new Price Club to call him at home every night and tell him what the final sales were for the day. He was intrigued by the Price Club financials, especially how different they were from the financials at FedMart. Comparing FedMart’s financial results for the fiscal year ending August 1969 with Price Club’s financial results for the year ending August 1979, the first major difference was the cost of sales (merchandise markup). FedMart had a 30% markup compared to Price Club’s 11.7% markup. FedMart’s total operating expenses were 17% compared to Price Club’s 9%. Moreover, Price Club’s sales were approaching $1,000 per square foot, at least twice as much as a typical FedMart store. The FedMart/Price Club balance sheet comparison provided other interesting insights. In 1969 FedMart had $20m in inventory and accounts payable of $12m, a 60% payable to inventory ratio. Price Club had $8m in inventory and accounts payable of $7m, a nearly 90% payable to inventory ratio. By the end of the fiscal year in 1981, Price Club’s accounts payable ratio had increased to over 120%. In short, Price Club’s suppliers were financing The Price Company’s business
  13. FedMart developed a line of private label merchandise. It was usually sold with the label FM, or for liquor, with the names of company executives. FedMart purchased these products with specifications and standards as nearly equivalent to the national brands as possible and stocked the FM brand next to the national brand to demonstrate the savings. FedMart’s low price merchandise, limited selection, yet breadth of product offerings had a major impact on the retail world. The challenge would be to operate a geographically widespread business successfully and respond to the competition that was sure to come
  14. Sol really wanted all FedMart employees to think about and understand why their jobs were important to the success of FedMart. He was not a big fan of procedures and training manuals because he believed that manuals were a substitute for thinking
  15. As the number of FedMart’s grew, Sol concluded that FedMart would be well served with central merchandise distribution facilities.
  16. Sol’s emphasis on teaching was expressed in the phrase “alter ego,” a rather simple concept He used the following example. If the owner of a store was able to do all the jobs himself – greet customers, order and receive merchandise, do the accounting, sweep the floors and clean the bathrooms – he would. But the reality is that normally the owner can’t do all the work himself. Therefore, he must hire people to perform their jobs as well or better than he, the owner, would if he had the time. As a corollary, the owner of the store needs to use his time to do the highest-skilled work and to delegate less-skilled work to his “alter egos.” In that way, the owner will devote his time to “managing” the business and making sure that his “alter egos” are doing their jobs and doing them well. The “alter ego” was the management component of a much more comprehensive philosophy that Sol taught to FedMart’s management team and, in fact, to all employees. Sol taught by example and he taught by engaging people in challenging discussions, demanding that they use their brains. Many people, who would later become successful in their own right, learned by following in Sol’s footsteps.
  17. Sol believed in building a long-term relationship with customers. He described his business philosophy as the professional fiduciary relationship between the retailer and the customer. In his words, “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.” The underpinnings of this fiduciary relationship were consistently high quality merchandise and consistently low prices. Sol infused FedMart’s employees with the belief that they were representing the interests of the customer. Sol’s sense of duty to FedMart members was punctuated by FedMart’s return policy: “Everything we sell is guaranteed unconditionally. We will give an immediate cash refund to any customer not completely satisfied with a purchase made at FedMart. No questions asked.”
  18. Sol’s approach to FedMart employees mirrored the relationship he had with FedMart members. He felt a responsibility – a fiduciary duty – to provide excellent wages, benefits, and working conditions for employees. In a bulletin to FedMart employees, Sol said: “You must feel confident that you are working for a fine and honest company. Somehow we must make this mean to each of you that you will be permitted, encouraged, and sometimes even coerced into growing with the company to the limit of your ability. We believe that you should be paid the best wages in your community for the job you perform. We believe that you should be provided with an opportunity to invest in the company so that you can prosper as it prospers. We believe that you should be encouraged to express yourself freely and without fear of recrimination or retaliation. We believe that you should be happy with your work so that your occupation becomes a source of satisfaction as well as a means of livelihood.”
  19. Nothing demonstrated FedMart’s commitment to business integrity more than the pricing of products. According to Sol, FedMart was not a discount store. He described FedMart as a “low margin retailer.” Discount stores set their prices in relationship to a percentage off the manufacturer’s suggested retail price. FedMart priced merchandise starting with the cost of the product and taking as small a markup as possible – consistent with covering expenses and a small profit while giving the customer the best price. Sol also had a rule against pricing any product below cost, the traditional “loss leader.” His reasoning: if some products are sold below cost, other products must be sold at very high margins to make up for the losses. In fact, when grocery stores were selling items such as sugar or coffee below cost, Sol told FedMart managers to place signs next to FedMart’s display of sugar or coffee advising customers to purchase these products at those grocery stores.
  20. The trusting relationship with members was reinforced by FedMart’s unique merchandise selection – limited selection and large pack sizes. Sol proved that it was possible to do more sales with fewer merchandise items (stock keeping units – SKUs). He pioneered large package sizes as a way of lowering prices. One of the more intriguing questions is: why does limited selection result in higher sales? Part of the answer lies in what Sol called “the intelligent loss of sales.” Conventional wisdom in retailing is to stock as many items as possible in order to satisfy every customer’s needs and wants. The “intelligent loss of sales” turns that theory on its head, postulating that the customer demand is most sensitive to price, not selection. And low prices are possible only if there is integrity in the pricing combined with being the most efficient operator. What does limited selection have to do with efficiency? Because payroll and benefits represent approximately 80% of a retailer’s cost of operations, pricing advantage follows labor productivity. Fewer items result in reduced labor hours throughout all of the product supply channels: ordering from suppliers; receiving at the distribution center; stocking at the store; checking out the merchandise; and paying vendor invoices. Put simply, the cost to deal with 4,500 items is a lot less than the cost to deal with 50,000 items
  21. The reality of Sol’s FedMart/Price Club compensation approach was more complicated that simple generosity. Sol was committed to the idea that paying good wages and befits would attract better employees who would remain loyal to FedMart. Providing excellent compensation and treating all employees as part of the team would also result in better job performance, loyalty and honesty. The success of FedMart and later Price Club had a lot to do with being the lowest-cost operator but low operating expenses were never achieved by short changing employees. Because such a large portion of the expense structure in retailing is employee compensation, how is it possible to provide excellent compensation and still be the lost cost operator? Employees who are paid well and treated fairly perform better. In addition, paying high wages puts a focus on continued improvement in labor productivity. As productivity improves, the resulting expense savings are reflected in lower merchandise prices. In return for providing a great workplace for FedMart employees, Sol asked only two things of his employees: that they work hard and that they think. In order to assist employees in thinking about their work, he created a management tool that he called “the Six Rights.” He summarized his ideas as follows: I believed the business broke down into three categories – personnel, product and facilities – and that the same six rules applied to them all. You’ve got to have the right kind, in the right place, at the right time, in the right quantity, in the right condition, at the right price. Along with The Six Rights, Sol insisted that FedMart stores have low displays and wide aisles. Sol had two inviolable rules: the 54-inch height rule and the six-foot aisle rule. His reason for these rules was to make shopping more comfortable for the FedMart member by giving the shopper the feeling of an open and uncluttered shopping environment. When Sol toured the stores, he would quickly spot any infractions.
  22. Nearly everything was wrong with Price Club when first opened – “The Six Rights are all wrong.” For the most part the product selection was based on the incorrect assumption that hardware and variety stores would be major purchasers when, in fact, there weren’t many independent hardware and variety stores left in San Diego. Most products were sold by the case, but the mom-and-pop store owners wanted to purchase in less than case-load quantities. The assumption that most members would want to shop early in the morning was wrong. The choice of Morena Boulevard for a merchandise business was wrong too. The site was difficult to get to and was located away from traditional shopping areas. And, many business owners were just not willing to give up the convenience of sales people calling on them, delivery, and credit in exchange for lower prices. Eventually decided to open up to Credit Union members. They were not charged a fee but had a 5% markup on all items. This turned the business around quickly
  23. Sol had an inner compass that steered him to honest business practices. Obeying the law was foremost in Sol’s mind. Nevertheless, when he thought the law was wrong – Fair Trade laws, separate bathrooms based on race – he had the courage to find a way to get what he knew was the right answer. He was courageous and tenacious
  24. Sold would not permit FedMart buyers to knowingly do business with suppliers who treated their employees unfairly
  25. Sol placed the highest priority on delivering the best possible deal to the consumer and providing excellent wages and benefits to employees. He said that the customer comes first, the employees second and the shareholders third. Yet, throughout his business career, Sol was remarkably successful in making money for people who invested in his business deals. Sol’s concern for investors played out in the success of the publicly traded stock of companies he launched, and in the private business partnerships he created for his friends and family. Sol developed a reputation for making good business decisions.

 

On Charity & Giving Back

  1. An underlying theme of Sol’s life was his generosity and concern for others
  1. A good businessman has to find the time to take care of being involved with his family and charity; it gives him balance. If you’re lucky, you have the obligation to put a lot back into the pot.
  2. He believed that people give charity for one or more of three reasons: ego, guilt or emotion. Sol said that his main motivators were guilt and emotion, not ego. Sol’s “guilt” was related to his realization of the capriciousness of his life, his having such good fortune compared to those who were not so fortunate. For Sol, sharing his advice and financial resources with someone in need was his way of trying to right a wrong and even out the playing field. With regard to ego, Sol maintained a low profile in everything he did. He never sought publicity or recognition. His and Helen’s names were not usually attached to the gifts they made. Sol did have an ego, and a strong one at that. His ego was defined by his existential sense of the meaning of life – the idea that he always had to be thinking and doing, functioning at the highest performance level to find the right answers, whether in business, in making someone’s life better, or in improving society
  3. As a point of reference, he often cited Andrew Carnegie: “The man who dies rich…dies disgraced.”
  4. The logic for rich people to give back personally and through taxes took two paths – fairness and political pragmatism. Sol believed that fairness was a moral imperative. He would say that rich people often think that they gained their wealth on their own when, in fact, their success was the product of their teachers, along with government workers, service providers, and the employees in their companies. He believed that a just and fair society provides good wages and benefits to the working people who are, fundamentally, partners in wealthy people’s success.
  5. It is much easier to make money than deciding how to best give it away
  6. Through his philanthropy, Sol became social innovator, especially in San Diego

 

Sol’s Legacy

  1. The remarkable thing about Sol was not just that he knew what was right. Most people know the right thing to do. But he was able to be creative and had the courage to do what was right in the face of a lot of opposition. It’s not easy to stick to your guns if you are swimming against the current of traditional thought when it comes to wage and compensation plans for employees. His lessons and philosophy – that business is about more than making money and that a company also has an obligation to serve society – are still valuable reminders for many of us in business today. The fact that he instilled these concepts in so many who were around him is, in my mind, his greatest legacy.
  2. What greater legacy could there be from a father to son than leaving the gift of life skills necessary to carry on?
  3. Unlike many people who retreat into themselves as they age, Sol continued to engage with a broad range of friends, young and old. Sol’s conversations with friends were rarely retrospective. They talked about politics, ethics, the latest books they had read; they told stories and shared jokes. Sol seldom talked about his past accomplishments
  4. Even more than his willingness to fight for what he believed in, Sol never compromised his values. Sol’s retail success was grounded in an absolute commitment to bringing the best value to his customers. Just as importantly, he insisted on paying high wages and good benefits, including health care, to his employees. He had a real conscience satisfied only by giving the best deal he could to just about everyone
  5. Whatever I [Robert] have learned about business I learned from my father – everything – from how to read a financial statement to management to good judgment and fair dealings. My father taught me how to think and how to question and not to fall into the trap of assuming rather than checking things out for myself. He also taught me to be humble, to appreciate the unpredictability of life, to care for people, to remain hopeful, and always to be there for people who are in need.
  6. Many people who worked for my father were afraid to speak up, although, in truth, he always listened carefully to what other people said
  7. What really made our relationship special was the trust that we had in each other and the knowledge that, beyond the arguing, there were shared values and a loyalty and love that would endure
  8. People often have good ideas. Sol was inspired to make his good ideas happen. Sol’s actions were rooted in a value system that he learned early in life and from which he never strayed, a belief that life can and should be lived with purpose, and lived in the right way. Sol’s life was a testament to the truth that success can be achieved by acting in the right way.

 

Other

  1. Sol had a knack for putting together seemingly unrelated facts to form clever solutions
  2. Sol was more creative, enjoying the brainstorming and conceptual part of starting businesses whereas his son, Robert, was more operations-focused
  3. My father expected to be informed, fully, openly and honestly, even if he didn’t like what he heard
  4. Sol was a really smart man but what set him apart was his exceptional wisdom. A wise person is someone who knows what’s important. Moral reasoning, that is, the ability to judge right from wrong; compassion; kindness and empathy; humility; altruism; patience; successfully dealing with uncertainty. My dad’s life encompassed all these qualities
  5. Sol’s social conscience was molded by his parents’ beliefs and by their actions. He would later apply the lessons he had learned at home to all aspects of his life, the practice of law, the operation of his businesses, and his personal generosity to family, friends, and society.
  6. “I’m not a great student of the Bible. I can’t rationalize giving God credit for mercy and all the good things that happen – who takes the responsibility for the bad things?…It would be very easy for me to be an atheist except for two things: No. 1 – I’m unable to understand or cope with infinity, and No. 2 – over the years there have been many smart people – much smarter than I – who have wrestled with the concerns I have stated above and who end up – in spite of that – believing. What am I missing?”
  7. Learned the value of reputation and trusting relationships as a lawyer. Did a lot of pro-bono work for Jewish charities when he was a lawyer
  8. Incredible work ethic – taking advantage of every hour
  9. Exemplars – Always had an older person as a mentor
  10. Balance – Although Sol was intense when he was dealing with FedMart businesses, he always found time during his business trips and other travels to have fun
  11. Throughout his legal and business careers, Sol believed that he was given too much credit for his success because he felt that people did not always recognize the role luck played in his life. “Most of life is luck [and] much of what is referred to as genius…is luck.”
  12. Skin in the game – Sol personally invested in Loma Supply because he believed that FedMart would be successful. He would never ask anyone else to invest unless he invested, and Sol was willing to take some risks. This willingness to take risks was to be an important factor in his life.
  13. Sol and his companies changed consumer habits, especially with respect to pharmaceuticals and gasoline
  14. Wasn’t afraid to fire people and act boldly if he thought the company was headed in the wrong direction
  15. Influenced by Dutch chain Makro – pallets, “passport” membership, massive warehouses
  16. Sol felt that before investing a lot of money and hiring people, it would be a good idea to do some market research contacting as many small store owners, restaurant operators, and professionals as possible to confirm that the concept would work. Contacts were made with liquor store operators who sold cigarettes and candy, convenience store owners, hardware and houseware store owners, restaurant owners, and lawyers and accountants. The questions were always the same: Where do you buy your merchandise? Which products do you spend the most money on? How much are you paying? What do you like about the way you are purchasing? What don’t you like? There were some consistent threads in their answers: a few of their products represented a large proportion of total purchases; and they preferred the traditional wholesale system; which involved salesman calling for orders, truck delivery, credit and billing; and they thought that the prices they were paying were high. When asked whether they would be willing to give up some conveniences in exchange for lower prices, most seemed mildly interested but some were not interested at all. Even though the market survey was not all that encouraging, we made a decision to give the wholesale idea a try
  17. Rick was the head buyer and little by little created what would become the opening product assortment. He asked: How do we secure a location? Where to begin? Where should the warehouse be located? How big should it be? How much parking area?
  18. Sol was averse to debt for financing his business, for his customers and personally
  19. Respected velocity – Sol’s motto – “Do it now.”
  20. Sol always said he was lucky and that luck was a huge part of his success
  21. Sampling of products was a major hit. The buyers would showcase new products they liked and human’s inclination for reciprocity when they receive something free made them buy more
  22. Even though Price Club had tried to stay under the radar, people in the retail industry were taking notice. In 1978 Bernard Marcus, soon to be the founder of Home Depot, came to see the Price Club and to visit Sol. Sol inspired dozens of similar concepts – Costco, WalMart, Home Depot, Target, etc.
  23. True believer in competition because lead to better results for the consumer – gave away many secrets and best practices
  24. Having pioneered the warehouse club concept, The Price Company had lost the initiative to competitors. Rather than sticking to a well-planned business strategy, many decisions were being made reactively in response to what the competition was doing. The Price Club was like a sports team that comes into the game with a pre-planned, well thought out strategy, but once the game starts the other team has its own strategy, so the first team gets confused and does not stick with its game plan. Sol admitted he made mistakes in not franchising fast enough and being reluctant to add fresh food departments, allowing Costco and Sam’s Club to rise and expand quickly
  25. Price Club and Costco merged in 1993. Price Enterprises later spun off which Robert, Sol’s son, ran

 

What I got out of it

An inspiring man! Sol was so innovative and caring – his intentions seemed pure as he truly wanted to help the customer. He revolutionized shopping and inspired a new era of retailing. Be as efficient as possible and pass those savings on quality products to customers; no advertising, no superlatives, everyday low pricing, honest and fair dealing, win/win decisions, pay employees well and treat suppliers a step up. Good advice for any business!

Management of the Absurd by Richard Farson

Summary
  1. Human relations are often paradoxical and not logical and this book explains why many assumptions about people, relationships and “managing” we make are in fact false. “Paradoxes are seeming absurdities and people logically try to rationalize them but here we are going to try to suppress that in order to better understand real life situations.”
Key Takeaways
  1. How we think shapes what we see and paradox and absurdity are part of nearly every interaction
  2. It is important to dispel these logical yet false assumptions because when they inevitably fail, managers get frustrated and aren’t well prepared to handle these situations
  3. Managers do things right, leaders do the right things
  4. Absurdity and paradox will be with us as long as humans are around as they arise due to human nature and its flaws
  5. People must know you are a genuine person and not just a “manager.” Vulnerability is sometimes the best way to act
  6. It can be a relief to many to realize you cannot perfectly learn how to deal with others. There is no perfect way. Any technique loses its power once others realize it is a technique. The best people in any field or endeavor leave technique behind and are simply genuine and authentic
  7. Understanding how something works doesn’t mean you can make it work
  8. Praise may not be as effective of a motivator as people think. It may be a status play that managers need to be sensitive to. Better for a manager to be involved and care about the employees’ work. Praise from a third party is often the most effective
  9. The best resource to resolve a problem is sometimes the group who is experiencing or brings up the problem. Deeper fluency with their own problem and can of course see through their own eyes better than others can
  10. The people with the problems often have the best insights into how to fix the problem and if you involve them there will be much greater buy in and adherence
  11. It is amazing how resilient the individual is yet how fragile the organization made up of these individuals can be
  12. Participative approaches are often more effective in getting people involved and generating ideas but this isn’t often employed. Managers may not truly trust their people and the employees may not have the confidence at first to express their opinions
  13. The best way to improve work and output may not be through management but simply by improving relations
  14. Organizations that need the most help often can benefit the least. The mentally healthiest people can often change the most and gain from it. Often the people who need to change least are forced to in order to accommodate others – may not be fair but it sure is effective
  15. People and companies suffer most often because of fraying or lack of relations
  16. Often, the better things are the worse people feel. Revolutions begin not at the trough but only when things slightly improve. The theory of rising expectations. They are discontented because of higher level concerns. This is actually progress though it may not seem like it at first. The highest performing organizations have the highest order grumbles – self actualization. People will never be totally content. The best campuses and countries often have the most restless populace. The most effective reformers are often thrown out by the very people they have been helping – rising expectations take over
  17. Although creativity seems encouraged it really isn’t because truly creative ideas would require tremendous change. Breakthrough changes always breaks the rules. What people seem to really want is manageable creativity. Long term, respected institutions cannot be as creative as newer ones can and that is why true breakthroughs tend to come from individuals, smaller groups or others who are “outside”. Scale is the enemy of creativity
  18. Leadership is less the property of an individual and should be distributed among its members
  19. Often easier to make big changes rather than small ones as the benefits are so much more drastic. In a group that’s working well without titles or other forms of physical status it would be hard to tell apart the leader from the other members
  20. Often people learn better from others’ mistakes than successes as we can better empathize with them
  21. Failure could be one’s best teacher but it really isn’t as people don’t take the time or make the effort to truly analyze them. It is hard to look yourself in the mirror after a failure
  22. Everything works yet nothing works. Almost all management techniques work somewhat but lasting change is almost impossible to implement. Lasting changes only occur when sound practices are implemented on a continual and sustainable basis
  23. Planning is a poor way to asses the future but it can be helpful for assessing the present. The process and not the product is the important part to help with anticipative behavior
  24. The most impactful leaders do not dominate a group but serve it. Humility comes naturally to the best leaders
  25. The best leaders seem to have the confidence to trust their intuition- the accumulation of experience and learnings that they can draw and act upon. These visceral reactions are often ignored but should be paid attention to while looking for objective information
  26. Efforts to fix people usually don’t work and can be counterproductive. The best managers try to fix the situation or environment rather than the person. Circumstances are powerful influences on behavior
  27. The best managers create an ecosystem where their passion is the organizing and motivating force. This makes the tough pursuit worthwhile and draws others into the mission
  28. Love is fundamental to good leadership as leadership is all about caring
  29. Community is one of the most powerful yet fragile parts of an organization. It takes a lot of time and trust to build and can be ruined quite quickly. An insidious part of the erosion of communities is that it is often made in the name of progress and scale
  30. Amateur comes from the Greek word amator which means “love.” An amateur does what he does out of love. A manager needs to work from a place of love
What I got out of it
  1. Often opportunity lies in paradox, misunderstandings or things which seem counterintuitive. This book is filled with those situations and keeping them in mind when dealing with people will be helpful. The rule of reciprocity is always in play. Treat others as you want to be treated. Embody those things which you yourself are looking for. Genuinely having respect will be invisibly and silently communicated to others. Verbal communication is only a small fraction of all communication. The silent, meta message tends to be more powerful than the message itself

Sam Walton: Made in America by Sam Walton and John Huey

Summary
  1. Sam Walton recounts his background and Walmart’s path to retail dominance
Key Takeaways
  1. Sam’s Rules for Building a Business
    1. 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
    2. 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
    3. 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
    4. 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
    5. 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
    6. 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?”
    7. 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.
    8. 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
    9. 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
    10. 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
      1. 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
  2. Walmart’s Strategy
    1. 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
    2. 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
    3. 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
    4. A key transition point was moving from variety store to discount store
    5. 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
      1. Building this consistent customer trust is vital, think it also applies to Costco and Amazon in certain ways
    6. 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.
    7. 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
    8. 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.
    9. 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.
      1. 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
    10. 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
      1. 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
    11. “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?
      1. It is great to be great, but it is even better to be human. – Will Rodgers
      2. Walt Disney also had this capacity to put people at ease – if he wanted to…
    12. 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
    13. 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
    14. 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
      1. 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
    15. 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.
    16. 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
    17. 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
    18. 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.
    19. 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.
    20. 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
    21. 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
    22. 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
    23. 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.
  3. Sam does not consider himself reflective or one to dwell on the past
  4. His passion to compete is what sets him apart
  5. His father was totally honest and the best negotiator he had ever seen – him and the counterparty always parted as friends
  6. 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
  7. Supremely competitive with a great bias for action but his best talent was as a motivator.
  8. “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”
  9. Thinking you have the right to win often turns into a self-fulfilling prophecy
  10. Sam was one of the masters of “going positive and going first”
    1. 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
    2. “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
  11. 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
  12. Early goal was to be the best, most profitable variety store in Arkansas within 5 years. That happened
  13. Early lesson: you can learn from anybody, especially competitors
  14. 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
  15. 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
  16. 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
  17. Was a keen observer
    1. “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
    2. “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
  18. 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
  19. “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”
  20. 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
  21. Distribution was an absolute key to Walmart’s success
  22. 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.
  23. 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
  24. 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
  25. 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
  26. 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
  27. Thrived on change and no decision was ever sacred
  28. 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.
  29. 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
  30. 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
  31. 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
  32. Anybody who has ever known anything about me knows I was never in anything for the short haul
  33. I always had great curiosity and would openly ask competitors how they operated and thought about their business. I always questioned everything
  34. 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
  35. 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
  36. 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
  37. 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
  38. 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
  39. “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
  40. 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
  41. “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”
  42. 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
  43. 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
  44. We keep our prices as low as possible by keeping our costs as low as possible
  45. 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
  46. I have played to my strengths and relied on others to make up for my weaknesses
  47. Sam and top executives always had and encouraged a ‘bias for action’
  48. Most of us were too busy in the stores to even think about where it was all leading
  49. Have to give people responsibility, trust them and then check on and help them
  50. Sharing information and responsibility is key to any partnership.
    1. Scarcity of any kind leads to “hoarding” where people will not feel secure in their environment and will not be all-in
  51. Submerge your own ambitions and help whoever you can in the company
  52. Everybody likes praise and we look for every chance to heap it on them
  53. The secret to successful retailing is to give your customers what they want
  54. Customers (eventually) vote with their feet
  55. 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
  56. Once I decide I’m wrong, I’m ready to move onto something else
  57. I’ve always been a delegator – trying to hire the best people for our stores
  58. 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
    1. 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?…
  59. Enlightened self-interest
    1. 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
    2. 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.
  60. 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
  61. Great ideas come from everywhere if you just listen and look for them. You never know who’s going to have a great idea
  62. 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
  63. 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
  1. 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

Managing Oneself by Peter Drucker

Summary
  1. Today you must be your own CEO and take responsibility for your own growth
Key Takeaways
  1. 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
  2. You must be working from your strengths in order to make your greatest contribution
  3. 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.
  4. Being bright is not a substitute for knowledge
  5. Ideas do not move mountains. Plans and actions do
  6. Manners are the lubricating oil of organizations
    1. Civility costs nothing and buys everything – Mary Montagu
  7. Important to know whether you and others are readers or listeners
  8. 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
  9. It is often not very helpful and too often hurtful to try to plan too far ahead
  10. The secret of managing up is knowing how those above you work, learn, what their strengths and weaknesses are, etc.
  11. 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
    1. False duality of whether you should manage up or manage down. Must do both!
What I got out of it
  1. Some good advice on how to get to know how one thinks, learns, operates and why that is important

Flight of the Buffalo: Soaring to Excellence, Learning to Let Employees Lead by Ralph Stayer and James Belasco

Summary
  1. 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 gperson wants to be responsible. • Leaders coach the development of personal capabilities. • Leaders learn fast themselves and encourage others also to learn quickly.
  2. PS – a lot of kindle highlights here but there are a lot of gems. Worth reading the book in its entirety
Key Takeaways
  1. “They don’t care how much you know, until they know how much you care about them.”
  2. I learned that how you say things is often as important as what you say.
  3. Ken Blanchard, who taught me to concentrate on making the pie bigger not on how to get the biggest slice.
  4. I discovered that I as the leader had to change first, before I could get anyone else to change.
  5. Partnerships require advance thought about the impact of any action on the other person. That’s difficult, particularly if you guess wrong.
  6. 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.
  7. I know it is easy to talk about being different. It is a lot harder to be different.
  8. “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.
  9. Again and again I came back to the following insights:
    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
  10. What do I know that just isn’t so?
  11. The awful truth about leadership—each person must write his or her own personal cookbook.
  12. Management’s job was to establish the conditions under which performance served both the company’s and the individual’s best interests.
  13. This became a self-fulfilling prophecy—the less I expected of my people, the less they delivered.
  14. 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?
  15. Don’t stop with vision. Vision alone is no solution. Everything is execution.
  16. I also came to realize that my first reaction is usually wrong.
  17. People Rise to the Challenge—When It Is Their Challenge
    1. NOTE: Must make your idea their idea
  18. Being a leader requires continual learning.
  19. See leadership as a personal, emotional journey. Understand it happens in your gut before it happens in your or anybody else’s head.
  20. 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.
  21. 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.
  22. It is easier to complain about what we don’t have than to give up what we do have.
  23. 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.”
  24. 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.
  25. 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.
  26. 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.
  27. 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.
  28. Helping people regain their own authority and power to respond appropriately in work and life is a leadership skill of the highest order.
  29. The Person Doing the Work Must Own the Responsibility
  30. 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.
  31. 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.
  32. 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.
  33. If You Want Ownership Behavior, Pay for It
  34. 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.
  35. QUESTION: Am I creating owners or dependents? LEADERSHIP SOLUTION: If you want them to act like it’s their business, make it their business.
  36. 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!
  37. 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.”
  38. 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.
  39. 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.
  40. In the best of all worlds, what is great performance for your customers?
  41. What do you want to achieve in the next two to three years?
  42. How will you measure your performance?
  43. 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.
  44. What things do you need to learn in order to reach your goals?
  45. What work experiences do you need to help you learn what you need to achieve your goals?
  46. 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.
  47. QUESTION: Is the person becoming more capable? LEADERSHIP SOLUTION: Focus on developing the person, not the scoreboard.
  48. 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.
  49. 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.
  50. 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.
  51. QUESTION: Am I learning fast enough? LEADERSHIP SOLUTION: It’s never fast enough.
  52. 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
  53. 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.
  54. 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.
  55. 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.
    1. NOTE: except if you invert the hierarchy pyramid as it should be with the leadership on the bottom acting as servants
  56. 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
  57. Vision is the most sought-after executive characteristic.
  58. 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.”
  59. We must manage backward from the future, rather than forward from the present.
  60. 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.
  61. “In the best of all worlds, from the customer’s perspective, what is great performance?”
  62. “Wealth, like happiness, is never attained when sought after directly. It always comes as a by-product of providing a useful service.”
  63. 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.
  64. People need to see the personal benefit from their vision of great performance.
  65. 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.
  66. 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.
  67. 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.
  68. 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.
  69. In Leading the Journey we need a destination, and there’s no better destination than the customer’s location.
  70. Location is more than just a geographic spot. I learned the hard way that it is also a state of mind.
  71. The easiest and most direct way to find out where the customers’ heads are is to find out from the customers themselves.
  72. Leaders Design Systems and Structures That Help Keep the Focus on the Location
  73. 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.
  74. 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.
  75. 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?
  76. 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?
  77. What are the biggest problems you face? We follow with a specific question: • What prevents you from being a great performer?
  78. 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?
  79. Based on the above, how would you define great performance for me in the coming year that will best contribute to your great performance?
  80. 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?
  81. QUESTION: Are you a supplier or a partner? LEADERSHIP SOLUTION: Sit with the customer, or don’t get in the door.
  82. Anticipate Problems Rather than Solve Them
  83. What will it take to have a profitable textile business? 2. What will it take to never be surprised again?
  84. most new developments occur from outside an industry.
  85. 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.
  86. 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.
  87. 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.
  88. 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?
  89. 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.”
  90. 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.
  91. Thinking Strategically Manages Backward from the Future
  92. 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.
  93. 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?”
  94. QUESTION: What will it take to create what I really want? LEADERSHIP SOLUTION: Ask for enough or you will get less than you need.
  95. 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.
  96. Leaders must keep helping people prepare for the next match, rather than savoring the win from the last match.
  97. Dealing with customers provides a bear hug on reality.
  98. Getting better at delivering great performance for your customers is the only answer to the “How high is up?” question.
  99. 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.
  100. 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.
  101. Receivables. Nothing is more insidious than not collecting the cash that customers owe you.
  102. 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.
  103. 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.
  104. 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.
  105. 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.
  106. 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.
  107. 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.
  108. 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.
  109. 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.
  110. As the leader I work to keep the competitor clearly in the forefront of everyone’s thinking.
  111. Watch Your Neighbors. Customers and Suppliers Can Become Competitors. Beware of Left Field
  112. 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.
  113. 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?
  114. 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.
  115. See it from the customer’s point of view. Great products are great only when customers buy them.
  116. 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?
  117. I learned that building close relationships with customers is a tonic for arrogance.
  118. 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.
  119. “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.
  120. “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.
  121. Value Is Solving the Customer’s Problems
  122. Value Is Doing It Better than Anybody Else
  123. 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.
  124. 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.
  125. 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.
  126. Find Niche Applications for Commodity Products Find the crack—the crevice—that piece of unfulfilled demand. That’s what successful niche players do.
  127. Using locals, who understand and can relate to the customers, is one way to ensure the customer focus to identify value-added strategies.
  128. Minimize Your Dependence on Any One Customer or Product
  129. I learned that niche players usually survive by following the “avoid the big guys” strategy.
  130. 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.
  131. a niche player in a tough industry, we survive by avoiding competition. That’s good advice in any industry.
  132. customers once lost are hard to get back.
  133. 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.
  134. Price competition almost always means that customers don’t see enough differentiation among products, so price is the only way to distinguish.
  135. Pictures Create Feelings—and That’s What Customers Really Buy
  136. The Product Name Must Paint the Picture
  137. 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.
  138. If You Don’t Lose 20 Percent of Your Business on Price, Your Prices Aren’t High Enough
  139. 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.”
  140. 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?”
  141. Our measurement of great performance was to have the highest selling price and the highest market share.
  142. 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.
  143. 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.
  144. The new way to add value is through business partnerships.
  145. 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.
  146. learned that unless both parties work as hard for the partner as they work for themselves, they are both doomed to fail.
  147. The win/win game not only involves finding partners “out there.” It also involves building win/win partnerships within the organization.
  148. 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.
  149. Focus on Those Obstacles You Control or Directly Influence
  150. 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.
  151. 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.
  152. Systems are the most powerful drivers of performance.
  153. 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.
  154. 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.
  155. 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.
  156. 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.
  157. Makes performance visible to every…
  158. 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…
  159. 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…
  160. 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…
  161. 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…
  162. Pay for results, not…
  163. Too many people are rewarded for working hard, rather then getting the “…
  164. 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 “…
  165. Once a month money will be paid out to all that have achieved their Great Performance weekly goals.
    1. NOTE: goal gradient effect respected
  166. 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?
  167. Systems are powerful message carriers that too often prevent the achievement you want. Structures do also.
  168. 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.
  169. Multidiscipline teams where everyone is present. Parkinson’s law was written based upon the absence of teams.
  170. 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.
  171. 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?
  172. 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.
  173. People Who Know How Well They Are Doing Will Do Well People need measurements to excel.
  174. People want so much to measure their performance that if they aren’t given a way to do that, they will develop their own.
  175. Your operators must be the experts on your process, because they are the only ones who can control it.
  176. The only people who could ever produce great products were those who actually made them.
    1. NOTE: touching the medium
  177. 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?
  178. 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.
  179. 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.
  180. 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.
  181. It sounds so simple. Get the information to the people who use it. It’s common sense. Unfortunately, it’s not common practice.
    1. NOTE: touching the medium
  182. 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.
  183. 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.
  184. 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.
  185. 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.
  186. 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.
  187. 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.
  188. The Best Way to Get Teamwork Is to Give the Team Work
  189. 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.
  190. 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.
  191. QUESTION: What systems are causing my people problems? LEADERSHIP SOLUTION: Change the systems to change the people.
  192. Until great performance is everyone’s responsibility, it will be no one’s.
  193. 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.
  194. QUESTION: Who’s in the best position to be responsible? LEADERSHIP SOLUTION: Get the right people to own the right responsibility.
  195. 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.
  196. 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.
  197. What is the problem? I ask because how you define the problem will largely determine how you go about solving it.
  198. Keep the two levels of ownership separate. Keep the responsibility for performance with the performer, and the responsibility for empowering with the leader.
  199. 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.
  200. 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.
  201. Leaders continue to coach and support because they are genuinely interested in that individual’s success.
  202. 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.
  203. 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.
  204. Conversations are the vehicles leaders use to develop ownership. Use all instances, even seemingly insignificant cases, to precipitate discussion and learning about great performance.
  205. 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.
  206. In every possible situation, Focus Conversations on Learning about Performance.
  207. When the leaders stop conferring benefits, people assume responsibility for delivering great performance for their customers.
  208. 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.
  209. Leadership isn’t processing papers. It’s about making things happen.
  210. Great Leaders Prevent Problems, Not Solve Them
  211. 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.
  212. We need substantially different actions to get us substantially different results.
  213. 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?”
  214. 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.”
  215. 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.
  216. 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.
  217. 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.
  218. 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
  219. 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.
  220. I learned that others would do much more if I expected more and accepted less.
  221. QUESTION: Do you like what you see in the mirror? LEADERSHIP SOLUTION: Your organization is a reflection of what you accept.
  222. 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.
  223. 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.
  224. Speed gave them focus. Henry learned in this hare and tortoise race, it is speed on the track that wins.
  225. Do What You Do Best-Give Away the Rest to Someone Else
  226. 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.
  227. 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?
  228. 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.
  229. 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.
  230. I Never Heard of Anyone Lying on His Deathbed Who Said, “I Fired That Person Too Soon”
  231. The premium is on learning fast enough to cope and to stay ahead of the pack. Learning is the key. Faster is the pace.
  232. I became a student of everyone and a follower of no one.
  233. 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.
  234. Learning New Leadership Patterns Isn’t What You Know, It’s What You Do
  235. 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.
  236. The worst mistake may be the best learning opportunity.
  237. Knowledge is nothing without action. Nothing changes until you do something. What you do will directly determine what you learn.
  238. Anything Worth Doing Is Worth Doing Poorly—At Least in the Beginning
  239. Doing it just right is not what’s important. Starting is. You can’t start getting better until you start.
  240. Since the greater risk is in doing nothing, you can minimize the risk by starting.
  241. 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.
  242. 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.
  243. 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.
  244. What’s the Worst Thing That Could Happen to Me-and What Can I Do About It if It Does?
    1. NOTE: fear setting
  245. 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.
  246. 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.
  247. Sharing my fear helped to both disarm any opposition and to avoid cover-up behavior.
  248. 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.
  249. 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.
  250. 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.
  251. 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.
  252. What About You Reminds Me of What I Don’t Like About Me?
  253. 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.
  254. Elicit the Right Help in Changing— Some Help Is No Help at All
  255. Focus on Performance to Overcome Anger
  256. Most of the time I discovered that open confrontation and discussion of the issues resulted in swift improvement.
  257. 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.”
  258. “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.
    1. NOTE: reminds me of me
  259. 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.
  260. 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.
  261. Stubbornness often signals to me that I may be disguising my real concerns.
  262. 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.
  263. 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.
  264. Keep the responsibility for performance with the performer.
  265. Getting customers to say, “I want this. I don’t accept that,” is an excellent way to introduce reality and authority into performance discussions.
  266. the stream of continuing conversations about great performance serves as an early-warning signal to potential causes of divorce.
  267. I learned in the customer case discussed just above that how you handle the divorce is as important as the completion itself.
  268. Business reflects, and is a reflection of, life. How we handle business is how we handle life. Business is life.
  269. 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.
  270. 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.
  271. 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.
  272. 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.
  273. People in organizations obsessed with learning will succeed.
  274. As a thirsty person seeks out a water fountain, I’ve learned to seek out experiences. I deliberately put myself in new situations.
  275. Tomorrow Belongs to Those Who Prepare for It Today
  276. While action matters, it’s the right action that matters most.
  277. 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.
  278. 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.
  279. Effective leaders let their actions speak so clearly that you don’t have to hear their words.
  280. 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
  1. 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

Steve Jobs by Walter Isaacson

Summary
  1. A very motivated man who had an uncanny ability to produce world-changing products. He was able to see into the future, know what customers wanted when they didn’t, build hype around the product launches and more. A genius on many fronts who also struggled relating to people at times and had a somewhat estranged family situation
Key Takeaways
  1. Jobs was adopted by a nice but uneducated family. Father loved to build electrical things and cars
  2. Woz and Steve met because of their love of pranks and of electronics
  3. Went to Reed but soon dropped out. He spent some time in India to further study Zen Buddhism and other approaches to enlightenment.
  4. Woz created the first personal computer in June 1975 – Apple 1
  5. When he was 23 he impregnated Brennan but wouldn’t own up to it for many years. “He was an enlightened being who was cruel”Jobs let Xerox invest in Apple if they showed him their newest inventions. They agreed and showed him the graphical user interface and this would change the industry forever
  6. Jobs was eventually outvoted and became a non executive chairman of Apple and eventually left to start Next. It was mildly successful and when it was bought by Apple, Steve was part of the package
  7. Jobs fanatical diets reflected one of his core beliefs – asceticism leads to greater feelings later on. Things often lead to their opposites
  8. Only wanted things around him that he could admire (furniture, appliances, etc)
  9. Toy Story was an incredible success and soon after Pixar went public after Jobs had invested over $60m
  10. Jobs was fanatical about controlling the whole process. Software and hardware should be inextricably linked and with the new retail stores, he could control the buying process as well
  11. Jobs was not very forthcoming about his health to the public or even his board
  12. The iPad and multi touch technology actually came before the iPhone and had to be retrofitted
  13. The attention to detail of every aspect of the design and process is beautiful and inspiring
  14. Jobs was reluctant to let third parties design apps but then relented
  15. After many ups and downs with his health, jobs died on October 5, 2011
What I got out of it
  1. Jobs was a maniac for detail and wanted to control the entire process, every input. He was often harsh and his reality distortion people frustrated and alienated a lot of people but he accomplished more than nearly anyone in this field

The 10 Commandments for Business Failure by Don Keough

Summary

  1. Don Keough lays out some basic principles of things to avoid if you want to be successful in life and in business
Key Takeaways
  1. The greatest achievement of good executives is to get things done through other people, not themselves
  2. Businesses are the product and extension of the personal characteristics of its leaders
  3. Change of any kind is difficult – emphasize flexibility and adaptation
  4. The best leaders give all the credit and take all the blame
  5. Management is a craft, not a science
  6. The ultimate resource is people
  7. Enthusiasm = leadership
  8. A brand or brand name is the most powerful force in business
  9. 10 Commandments
    1. Quit Taking Risks – don’t let success lead to complacency
    2. Be inflexible – don’t allow yourself only one way of seeing / doing things
    3. Isolate yourself – it is so easy but don’t fall into this trap, value bad news more than good
    4. Assume infallibility – blame poor results on external forces or other people
    5. Play the game close to the foul line – reputation is priceless; be trusted, not feared, not loved. but trusted
    6. Don’t take time to think – often less is more; must ask the right questions and think about second and third order consequences
    7. Put all your faith in experts and outside consultants
    8. Love your bureaucracy – eliminate as much unnecessary bureaucracy as possible
    9. Send mixed messages
    10. Be afraid of the future – to stop taking risks is a serious risk
    11. Lose your passion for work, for life (bonus) – must strive to make an emotional connection with your “audience” whoever that may be
What I got out of it
  1. Great reminders of what not to do in order to be successful

Only the Paranoid Survive by Andy Grove

Summary

  1. This book is about the impact of changing rules. How to find your way through uncharted territories and how to recognize/act on a 10x strategic inflection point
Key Takeaways
  1. Strategic inflection point – a time in the life of a business when its fundamentals are about to change. Every strategic inflection point is characterized by a 10x change and each 10x change leads to a strategic inflection point
    1. A bit of a misnomer as it is not a single point, rather a long, tortuous strugle
  2. Understanding the nature of strategic inflections points and what to do about them will help you safeguard your company’s well being
  3. Action after review – immediately review your decisions/actions and learn from them. What could you have done differently, better, earlier, etc.
  4. Middle manager tend to be the first people in the business to realize that the rules of the game are changing
  5. Everybody needs to expose themselves to the winds of change – expose selves to customers,
  6. Six forces affecting a business – competitors, suppliers, customers, potential customers, substitutes, the force of complementors
  7. Transitions in business have no party, no celebration, they are subtle, gradual changes
  8. Difficult/impossible to know “right” steps to take in these situations, judgement and instinct are all you have
  9. As an industry becomes more competitive, companies are forced to retreat to their strongholds and specialize in order to become world class in whatever segment they end up occupying
  10. By learning from the painful experiences of others, we can improve our ability to recognize a strategic inflection point that’s about to affect us. And that’s half the battle
  11. Whether a company is a winner or a loser depends a large part on its degree of adaptability
  12. No surefire way to determine what is a signal or simply noise
    1. Is your key competitor about to change?
    2. Is your key complementor about to change?
    3. Do people seem to be “losing it” around you?
  13. Cassandras – early warning system
  14. Avoid the trap of the first version – can’t judge the significance of strategic inflection points by the quality of the first version
  15. Broad and intensive debate the most important tool to draw out strategic inflection points
  16. Fear, fear of speaking out, voicing your opinion, debating bosses, etc., may be the most detrimental culture within a company
  17. How management reacts emotionally to a crisis is one of the best tellers for how the company will deal with strategic inflection points
  18. Inertia of success – senior people in a company have gotten where they are due to some characteristics but some of these characteristics may hold them back and cause them to fail during a strategic inflection point
  19. Takes a strong person to admit the magnitude of the problem you are struggling with
  20. Strategic dissonance – saying one thing and doing another
  21. Must form a mental image of what the company will look like when you “get to the other side” – clear, crisp so you can communicate it to others. Must also define what the company will not be
  22. For anybody, but especially mangers, how you spend your time has enormous symbolic value
  23. The most effective way to transform a company is through a series of incremental changes that are consistent with a clearly articulated end result
  24. Your tendency will almost always be to wait too long to take action. Being an early movers entails risks but the rewards often outweigh the risks
  25. Take one major task on at a time – doing one thing well requires all your focus and energy
  26. Only the paranoid survive – people are always chasing you so commit to one direction and run as fast as you can
  27. The greatest danger is standing still
  28. Almost impossible to over communicate or oversimplify – especially with large groups. Don’t worry, you’re not repeating yourself, your reinforcing the strategic message
  29. You can’t change a company without changing its management
  30. Avoid random motion
  31. Improvement almost always only comes through small, consistent steps with clarity and conviction
  32. Looking back is tempting but terribly counterproductive
 
 

What I got out of it

  1. Interesting and telling story of Andy Grove and Intel – the battles they went through, how many times they could have gone out of business or missed a major trend. Really good lessons for anybody in the business world

Creativity, Inc. by Ed Catmull

Summary

  1. One of the founders of Pixar, Ed Catmull, describes Pixar’s history and their creative process. Amazing to hear how difficult of a battle it is to have a great company that lasts.
Key Takeaways
  1. The culture at Pixar is unlike any other but what really sets it apart is its willing to acknowledge that it will face many problems and be blind to them
  2. Released toy story to huge acclaim and had to battle Disney to do it their way. Catmull lost his way a bit after this as one of his life goals had been achieved
  3. Wanted to understand why fantastic leaders of great companies often make very obvious, stupid mistakes. What was blinding them? – found that often so preoccupied with competition that they ignored other destructive forces
  4. Founders of Pixar (jobs, Lasseter and Catmull) goal was to create a company and culture that far outlived them. This book is about how that culture was built
  5. Best managers make room for things that cannot see, must loosen the control (not tighten it), and encourage candor
  6. In this period when computers and graphic design were improving by leaps and bounds, Catmull (now at Lucas Film) experienced tremendous push back from people who were afraid of change that would slow them down short term but improve their productivity 1,000 fold long term. Must have buy in from the community you are trying to serve!
  7. Visual polish matters much less if you get the story right
  8. John Lasseter got fired from Disney and then joined Lucas Film. Steve came in s year later when he bought the department from Lucas film and the three of them founded Pixar
  9. When good situations coexist with bad, people are unlikely to complain as they’ll be labeled complainers. Watch out for these situations and be proactive in getting a constructive feedback from people
  10. Pixar mantras – story is king, trust the process
  11. Pixar managed to do the impossible – revamp Toy story two in record time and make it better than the original
  12. Meeting the team right is more important than getting the idea right. They can either fix a mediocre idea or throw it out
  13. Merely saying something or repeating a mantra means nothing without action and dedication to that mantra
  14. Hallmark of a great organization is people feeling the freedom to be honest and candid. Lack of candor, over time, will degrade team dynamics and quality of work
  15. Candor only works if the person on the receiving end of the feedback is open to change
  16. People want honesty and direction from their leaders but also to let them know when they messed up and to be included in the correcting of course decisions
  17. Best leaders are able to understand and communicate to people’s different points of view (condominium metaphor where every person lives on a different floor and has a different view – point of view)
  18. Catmull goes on a meditation retreat every year in order to become more mindful
  19. Very difficult but important to determine what is impossible and what is simply a humongous reach
  20. Can’t let past success make you afraid of taking risks and perhaps failing
  21. It is vital not to become attached to your idea. Jobs and the leaders at Pixar were able to let go of ideas if proved wrong and not take criticism personally
  22. Principles for creativity:
    1. Give a good idea to a mediocre team and they’ll screw it up, give a mediocre idea to a good team and they’ll work wonders (get the team right)
    2. When looking to hire, give potential to grow more weight than current skill level
    3. Always hire people smarter than you; do not discount ideas from unexpected sources
    4. Must coax ideas out of your staff; managers job is to address reasons people aren’t candid
    5. Never be convinced you are right – always be open
    6. Do not measure outcome independent of process
    7. Must be willing to fix things as they pop up and understand their nature if they were unseen
    8. Not manager’s job to prevent risks but to make it safe to take them
    9. Trust means your trust them even when they screw up
    10. Finding and fixing problems is everybody’s job
    11. Show early and show often (iterate)
    12. People should be able to talk to anybody
    13. Do not create too many rules as it belittles people
    14. Impose strategic limits to force people to think differently
    15. It takes substantial energy to move a group
    16. Don’t confuse the process with the goal
What I got out of it
  1. Really interesting overview from Catmull on Pixar’s process. Inspiring to hear how much he and the whole team at Pixar cares