Sam Walton – Inconceivable Results from Insignificant Origins
Posted by Orrin Woodward on February 21, 2011
In many leadership circles, the consensus is, that the best leader of modern times, one who started with nothing, but became the wealthiest man in the world, is Sam Walton. His immense hunger to learn and improve is what separates him from the rest. Even after achieving multi-billionaire status, Walton routinely visited other retail establishments, looking for any idea that might improve the operation of his discount store dynasty, known simply as Walmart. He never lost his humility, a necessary prerequisite for hunger, even after Walmart became the number one largest retailer in the world. In Chris Brady and the author’s book, Launching a Leadership Revolution, we list hunger as the single most important factor creating all leadership, because without it, no change is possible. In other words, it’s the hungry person (mentally not physically) that confronts reality, willing to change; it’s the hungry person that is never satisfied with good when great is possible; and, it’s the hungry person who pushes past the pain associated with all real change. In fact, leaders come in all shapes, sizes and personalities, but all have one trait in common – they are all hungry. Hunger, like anything in leadership, can be developed, as discussed in an earlier chapter on the alignment of the conscious with the subconscious mind. Walton had a winners tenacious attitude, producing results in every field where he applied himself. Jack Welch, a man who understands good leadership, said, “Sam Walton understood people the way Thomas Edison understood innovation and Henry Ford, production. He brought out the very best in his employees, gave his very best to his customers, and taught something of value to everyone he touched.” Sam Walton’s story exemplifies the magnifying effects of leadership in producing inconceivable results from insignificant origins.
Walton, as a young boy, hit the ground running, starting his business career early. His parents, Tom and Nan Walton, were mismatched, to put it mildly. Walton shared in his must read autobiography, Sam Walton: Made in America, “They were always at odds, and they really only stayed together because of Bud and me. . . . I’m not exactly sure how this situation affected my personality – unless it was partly a motivation to stay so busy all the time – but I swore early on that if I ever had a family, I would never expose it to that kind of squabbling.” Walton’s first leadership lessons were instructions in what not to do, similar to General Norman Schwarzkopf’s, who said he had learned more from bad leadership than good leadership, learning first hand what demotivated the troops. Walton’s dad, who foreclosed on defaulted farm loans during the depression, developed a small thinker’s mentality, valuing security over any potential risk associated with success. He was frugal, not just with expenses, but also with personal investments, a good plan to remain poor. Again, Walton learned a valuable lesson. He absorbed his dad’s frugality in expenses, but ignored it, when it came to investments, believing that only through investments could he start his own business, which he fully intended to do. Thinking big and not squabbling were two of his original principles developed on his way to business immortality. He applied both principles in his first significant business venture, a newspaper route, that expanded across the Missouri countryside. Walton, always kind and courteous to his customers, quickly realized that one man could not do it all. His solution, was to subcontract out the newspaper routes, setting up others kids in business, while maintaining control of the financial accounting. Through this win-win arrangement, many hard working kids who struggled with financial literacy, became successful in business; at the same time, Walton made an extraordinary side income, literally financing his own college education, making more than his professors by profiting $4,000 to $5,000 per college year (over $70,000 in todays money), until his graduation in 1940.
Walton’s intense hunger was fueled further when he accepted an offer for $75 a month at the J.C. Penney store, as a management trainee, in Des Moines, Iowa. His salary was minimal compared to his paper routes, but Walton desired to learn the retail trade from one of the top companies, understanding that learning comes before earning. Walton was an immediate success as a salesman, topping the list of sales numerous times, but the personnel manager told him, because of his haphazard approach to recording sales slips along with cash register transactions, “Walton, I’d fire you if you weren’t such a good salesman. Maybe you’re just not cut out for retail,” proving the truthfulness of the saying, “The smallest minds with the smallest ideas will criticize the biggest minds with the biggest ideas.” But, in the personnel manager’s defense, Sam admitted later, that he “never learned handwriting all that well.” Walton was befriended by Duncan Majors, his mentor and store manager. He was Majors’ top student, working with him six days a week, then spending Sunday afternoons at his house, playing ping pong, cards, and learning all he could about the retail business. After an eighteen month stint, Walton left J.C. Penney, joining the service during World War II, but he never ceased to dream of one day owning his own retail store. Moreover, while stationed in the army at Salt Lake City, he checked out every book on retailing at the local library, reading voraciously on the latest trends and techniques, supplementing his books learning with innumerable trips to the local department stores. Walton was a huge positive thinker even then, saying, “Thinking like that (positively) often seems to turn into a self-fulfilling prophecy,” having faith, that when his opportunity arose, he would win, just like he had in sports, entrepreneurship, and education, and college elections throughout his youth.
After his military release, in 1945, Sam, Helen, his wife, and their young son, settled in the small community of Newport, Arkansas, with a population of around 5,000 people. Having raised $25,000 through his savings, and a loan from Helen’s dad, L.S. Robson, the Walton’s were the new proud owners of a pre-existing, money losing, Ben Franklin five-and-ten-cent store. Walton considered Robson, a successful lawyer and businessman, one of his mentors, saying, “He influenced me a great deal. . . . My competitive nature was such that I saw his success and admired it. I didn’t envy it. I admired it. I said to myself: maybe I will be as successful as he is someday.” The Ben Franklin store was Walton’s first opportunity to prove himself, he was filled with positive expectancy, sharing, “I’ve always believed in goals, so I set myself one: I wanted my little Newport store to be the best, most profitable variety store in Arkansas within five years.” But the Butler Brothers, the owners of the Ben Franklin franchise, had repressive rules for their franchises, not allowing Walton, or other franchisees, much room for innovation, requiring that eighty percent of all merchandise had to be purchased from them. The excessive markups profited the Butler Brothers greatly, but prohibited Walton from entering the discounting field as he wished. Adding to Walton’s troubles, was a rental agreement that totaled nearly twice the average for other variety stores, being a whopping five percent of total sales. Walton, in his impetuous desire to close the deal, didn’t object, but found out later, as he said in his own words that it, “was the highest rent anybody’d ever heard of in the variety store business. No one paid 5 percent of sales for rent.” This may have seemed like a sure recipe for failure, an inexperienced first time owner, a small money losing store, in a small town, with an excessively high rent, but that recipe mix neglected the positive effects of a leader of the caliber of Sam Walton.
Walton’s strengths were on display, at least in embryonic form, in his decisions, attitudes and actions at the Newport store. Richard S. Tedlow, in his powerful read, Giants of Enterprise, captures the leadership of Walton when he wrote, “First he learned all the rules. Then he broke all the rules which did not make sense to him – which meant almost all of them. . . . Sam Walton did not become a billionaire because he was a genius (although he was without question smart, shrewd, and astute). The real reason for his success was that he had the courage of his convictions.” Not shockingly, Butler Brother’s tight controls and Walton’s independent actions clashed, forcing Walton to work around them, searching for less expensive suppliers of merchandise, ignoring some of the higher item mark ups that Butler Brother offered, in an effort to reduce prices, satisfying his customers. But, the Butler Brothers, even though unhappy with Walton’s free wheeling methods, tolerated his independent streak, focused instead, on his massive improvements in total sales volume. Sales increased over 45% the first full year, moving ahead another 33% the following year, and then expanding the third year by another 25%! This surprising turn of events, shocked the Butler Brothers, who thought they were selling a capsizing franchise to a naive rookie. Instead, he changed the perpetual loser into one of the franchises elite performers, surprising everyone except the indomitable Walton himself, whose personal hands on leadership had turned the tide. Despite having purchased a money losing franchise, one that the Butler Brothers were elated to unload, Walton had achieved success against the odds, later writing, “I was the sucker Butler Brothers sent to save him (the former owner).” By his fifth year, Walton had a compounded growth rate of 28% annually, making Walton the leading variety store owner in the entire state of Arkansas, achieving his goal to be the best within the five year period he had set.
Walton’s story had all the makings of a “and they lived happily ever after,” but it was not to be. Like many elite leaders, Walton suffered a severe setback, one that would have proved fatal to a lesser man, in his quest for excellence. By 1950, Walton had a problem, it involved the lease, that the impatient Walton had signed back in 1945, which didn’t include a renewal clause. This left him open to the whims of the rental owner, on whether to sign a new lease with Walton or to lease it to someone else. The rental owner, seeing an opportunity to set his son up in business, refused to renew the lease contract, leaving Walton with no options, but to sell his store inventory and fixtures to him . In a flash, Walton had lost five years of dreaming, planning, working, and executing, receiving a mere $50,000 for five years of tireless work, a bitter pill to swallow for the Walton family. He shared, “It was the low point of my life. I felt sick to my stomach. I couldn’t believe it was happening to me. It was really like a nightmare. I had built the best variety store in the whole region and worked hard in the community – done everything right – and now I was being kicked out of the town. It didn’t seem fair. I blamed myself for getting suckered into such an awful lease, and I was furious with the landlord. Helen, just settling in with a brand-new family of four, was heartsick at the prospect of leaving Newport. But that’s what we were going to do.” It would have been easy for him to get bitter, blaming the world for this seemingly unjust action, but Walton refused to play the blame game. Through the pain and heartache, Walton had learned several valuable lessons. First, he learned to have a trusted legal team review all of his future contracts, ensuring the written words agreed with the verbal expectations for both parties. Between Walton’s son, Rob, and his father-in-law, both lawyers, he was protected in the future from rashly signing any legal contracts. Second, Walton didn’t pass the buck, admitting fault for signing the document without proper inspection. It is this characteristic, probably more than anything else, that separate leadership producers from leadership pretenders. Simply put, leaders refuse to pass the buck or play the victim card. Third, he allowed the pain of this setback to fuel his fire, rather than quench it. In other words, leaders turn rejection into energy, while others turn rejection into excuses. Walton had pulled off a business miracle, becoming the top variety retailer in Arkansas, but his reward, for the exceptional achievement, was the forced closing of his store and banishment from Newport society, a surprise ending to an otherwise rags to riches story.
Every person has to make a choice when setbacks occur in life. Either one can learn from the bitter experience, leading to winning more in the future, or alternatively, one can lean on the bitter experience, leading to whining more in the future. Walton, as a leader chose to learn from his mistakes, but not to throw out the baby with the bathwater, because many great things were still accomplished during the five years. So he made a mistake, but why sacrifice his future on the altar of past mistakes? Walton swallowed his pain and pride, moving forward, wiser than he was five years before. He believed he could do it again, even better than before, no longer bound by an exorbitant rental agreement and having learned how to work around the higher markups with the Butler Brothers’ items. This time, Walton would not be the inexperienced amateur, but a professional retailer who had achieved record breaking results. The Walton family moved to Bentonville, Arkansas, opening up Walton’s 5 & 10, changing the name, even though it was still under the Butler Brother’s umbrella. His new project would be an uphill battle, with Bentonville being half the size of Newport, but having three variety stores competing for the small town’s business. In addition, his new store averaged less than half the volume that his old Newport store, which had been losing money, had averaged before he took it over, but Walton was not deterred, later writing, “It didn’t matter that much, because I had big plans.” He immediately invested $55,000, $5,000 more than he had received in the sale of his Newport store, banking on his ability to produce results. In less than six months, his new store had tripled its sales, proving that his leadership formula worked wherever it was applied. From 1950 to 1962, Walton expanded operations across the southwest, building the largest independent variety store operation in the entire United States, while receiving little fanfare or publicity. Walton recalls, “That whole period – which scarcely gets any attention from people studying us – was really successful.” The years before Walmart, when no one had heard the name of Sam Walton nationally, were the years where his leadership style was developed, plying his craft in near anonymity, investing over 10,000 hours in a quest for leadership mastery, a quest he more than fulfilled.