Chapter 100 - Sam Walton: Made in America
Today’s Chapter is based on the book “Sam Walton: Made In America”, an autobiography by Sam Walton.
I previously wrote on this book:
Sam Walton was an American businessman best known for founding Wal-Mart, which became the world’s largest retail chain. He opened the first Wal-Mart store in 1962, revolutionizing retail by successfully targeting rural areas and offering discount prices. His innovative strategies and leadership transformed Wal-Mart into a global powerhouse, making him one of the richest individuals in the US.
Here’s what I learned:
Innovate Through Others
“Good artists copy; great artists steal.”
— Pablo Picasso
One of the reason for Sam Walton’s success was due to his ability to be never content with the status quo. He possessed a restless spirit, constantly seeking new ways to improve and innovate. He believed that complacency was the enemy of progress and that continuous experimentation was essential to stay ahead of the competition. As he once said, “I think my constant fiddling and meddling with the status quo may have been one of my biggest contributions to the later success of Wal-Mart."
One way for Walton to overcome this status quo was to be constantly seeking to learn from others. As a matter of fact, he was a voracious student of the retail industry, constantly visiting competitors’ stores and studying their methods. He wasn’t afraid to borrow ideas and adapt them to his own business, always seeking to improve and to refine his approach.
Sam Walton was famous for always bringing with him a yellow legal pad in order to write notes when visiting other retail stores. He mentions, "I probably visited more headquarters offices of more discounters than anybody else—ever. I would just show up and say, 'Hi, I'm Sam Walton from Bentonville, Arkansas. ... and I'd like to visit with Mr. So-and-So' ... about his business." One of Sam Walton’s biggest influence is Sol Price, often known as the father of the retail industry.
"I guess I've stolen—I actually prefer the word 'borrowed'—as many ideas from Sol Price as from anybody else in the business." — Sam Walton
However for Walton, learning from others was not limited to learning from his competitors. In his opinion, he could learn from everyone and everything. He viewed every experience as an opportunity for growth and innovation. As he once said when he first started into the retail business, "It was a real blessing for me to be so green and ignorant, because it was from that experience that I learned a lesson which has stuck with me all through the years: you can learn from everybody."
As such, one thing that Walton emphasized in the company was the significance of listening to employees and customers during the innovation process. He understood that great ideas often came from those who interacted with the products and services daily. this collaborative spirit fostered an innovation environment at Wal-Mart, where employees felt empowered to contribute ideas.
"We always said that the best ideas come from the people on the front lines. They know what works and what doesn't."
— Sam Walton
Finally, even though Walton admits to borrowing many ideas from others, it would be wrong to say that he was not an innovator. As a matter of fact, his drive for innovation led him to embrace new technologies and strategies even when others were skeptical. For example, he recognized the potential of self-service retail and pioneered its adoption, transforming the shopping experience. Wal-Mart was also the first to implement technology for inventory management and data analysis. Walton mentions that “We recognized that computers were going to be important in the future of retailing. That's why we became the first retailer to really invest in computer systems to manage our inventory and our distribution.”
Considering he was competing in a rapidly evolving retail landscape, he understood that innovation and experimentation was not optional, but essential. His willingness to think outside the box and to test new ideas in order to break the status quo set the stage for Wal-Mart’s groundbreaking practices. As he once said, "We weren't afraid to try things that had never been tried before."
"The minute you think you've got it all figured out, you can be sure that someone is working harder than you to take your place." — Sam Walton
Focus on the Customers
“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
— Sam Walton
One of the core theme in Sam Walton’s autobiography is his unwavering commitment to providing exceptional customer service. Walton’s journey in the retail business began in small towns, hence why he developed a keen awareness of the unique characteristics of each community as well as its inhabitants. As such, he was able to succeed by meeting his customers’ needs and preferences. As he once said, "Every town has its own personality, and we needed to embrace that.", and "If you don't understand the customers in their environment, you might as well pack up and go home."
As such, at the heart of Wal-Mart’s success lies in Sam Walton’s obsession with providing value to his customers. He mentions, “I learned this early on in our business: the secret of successful retailing is to give your customers what they want. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.”
This customer-first mentality wasn’t just a slogan, it was deeply embedded in how he approached every aspect of his business. He believed that if you served customers better than anyone else, success would naturally follow. This philosophy led him to implement a practice that was revolutionary at the time: discounting.
Sam Walton's understanding of the power of discounting wasn't a stroke of genius; it was a lesson learned early on, a simple principle with profound implications. He discovered that by lowering prices, even slightly, he could dramatically increase sales volume, resulting in greater overall profit. This wasn't about sacrificing margins; it was about understanding customer behavior and recognizing the allure of a good deal.
Here’s how he explains it, "Say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater."
This focus on low prices was a core element of Walmart's customer-centric philosophy. Walton believed that providing value to the customer was paramount, and that meant offering quality goods at the lowest possible price. He instilled this belief in his employees, emphasizing the importance of passing savings on to the customer whenever possible. This dedication to low prices and customer satisfaction became the driving force behind Walmart's growth. It resonated with customers, who flocked to the stores for the unbeatable deals and the guarantee of satisfaction. Walton mentions that "The idea was simple: when customers thought of Wal-Mart, they should think of low prices and satisfaction guaranteed."
"We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money."
— Sam Walton
This concept of focusing on the customers’ needs and passing savings to the customers reminds me of Jeff Bezos’ obsession with customers. As a matter of fact, Jeff Bezos founded Amazon with the idea of making it Earth's most customer-centric company in the world. This concept came to him through the mental model of inversion. As a matter of fact, he realised that: “under all kinds of regulatory frameworks that I can imagine, customers are still going to want low prices. They’re still going to want fast delivery. They’re still going to want big selection. These are so fundamental and what we do.”
In his 1997 Letters to Shareholders, Bezos mentions that the company must focus relentlessly and passionately on the customers in what he calls “Obsess over Customers”. As such, Amazon has been primarily built on three pillars of customer experience:
Large Selection of Products
Convenience
Low Price
As such, it is important for the company to keep a consistent high standard and to be always looking for ways to strengthen the three pillars of customer experience.
“In our retail business, we have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs will remain stable over time. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery. Our belief in the durability of these pillars is what gives us the confidence required to invest in strengthening them. We know that the energy we put in now will continue to pay dividends well into the future.”
— Jeff Bezos
Watch Your Costs
“Make no expense but to do good to others or yourself; i.e., waste nothing.”
— Benjamin Franklin
Sam Walton’s journey at Wal-Mart is a great example of how important the principle of frugality is in business. In fact, he believed that to succeed in the retail industry, it was essential to offer customers the best possible value by passing the company’s savings to the customers. As he once said, "If we can save a little money here and there, we can pass those savings on to our customers."
Frugality was rooted in his own life experiences which instilled in him a deep appreciation for every dollar. This belief in frugality was not simply a cost-cutting measure; it was a core aspect of Wal-Mart's identity. Walton demonstrated that maintaining a lean operation could lead to significant savings for both the company and its customers. He encouraged everyone in the organization to think creatively about cost reductions, whether through operational efficiencies or strategic negotiations with suppliers.
Walton’s commitment to low prices became legendary, and he frequently reminded his team that every small saving counted. He explains that "We made a rule that if we were going to spend a dollar, we better have a good reason for it. Every penny was important." He truly believed that every penny saved was a penny that could be passed on to the customer, reinforcing the value proposition that became synonymous with the Walmart brand. He even cautioned future generations against extravagant spending, emphasizing the importance of maintaining this core value.
This philosophy created a culture of accountability and resourcefulness among employees at Wal-Mart. Walton’s emphasis on frugality was further reflected in his personal lifestyle; despite his immense wealth, he remained humble and lived a lifestyle that aligned with his principles. He often drove an old pickup truck and was known for seeking out the best deals, which resonated with the company values he instilled.
"Our customers are always looking for bargains, and if we can find a way to save money, we owe it to them to do just that."
— Sam Walton
Through Walton's leadership, Wal-Mart established a reputation for offering low prices without compromising quality. This approach to value not only attracted customers but also fostered loyalty. The company's ability to deliver consistent savings set it apart from competitors, amplifying its growth and expansion across the nation and beyond.
As he once said, "Sometimes I'm asked why today, when Wal-Mart has been so successful, when we're a $50 billion-plus company, should we stay so cheap? That's simple: because we believe in the value of the dollar." This commitment to frugality wasn't about being cheap; it was about respecting the value of money and recognizing that every dollar spent by the company ultimately came from the customer's pocket. It was a principle that guided his decisions and shaped the culture of Walmart.
This reminds me of the concept of “Scale Economics Shared” that we have learned previously from Nick Sleep. Sleep, with his partner launched the Nomad Investment Partnership focusing on investing in companies that shared their scale efficiencies with their customers. Sleep explains that, “Scale Economics Shared operations are quite different. As the firm grows in size, scale savings are given back to the customer in the form of lower prices. The customer then reciprocates by purchasing more goods., which provides greater scale for the retailer who passes on the new savings as well. Yippee. This is why firms such as Costco enjoy sales per foot of retailing space four times greater than run-of-the-mill supermarkets. ‘Scale economics shared’ incentivises customer reciprocation, and customer reciprocation is a super-factor in business performance.”
"In the office we have a white board on which we have listed the (very few) investment models that work & we can understand. Costco is the best example we can find of one of them: scale efficiencies shared. Most companies pursue scale efficiencies, but few share them."
— Nick Sleep
Beyond the Book
Listen to "#234 Sam Walton: Made In America" by Founders Podcast
Read "Inversion and The Power of Avoiding Stupidity" by Farnam Street
Read "Learning from Nick Sleep" by Investment Masters Class
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