Chapter 118 - The IKEA Story Ingvar Kamprad
Today’s Chapter is based on the book “The IKEA Story Ingvar Kamprad” by Bertil Torekull.
Ingvar Kamprad was a Swedish entrepreneur and founder of IKEA, the world's largest furniture retailer. Born in 1926, Kamprad started IKEA at the age of 17 in 1943, initially selling small items before focusing on furniture in 1948. He revolutionized the furniture industry with innovations like flat-pack, self-assembly products, and his commitment to affordability and cost efficiency, leaving a lasting legacy in retailing.
Here’s what I learned:
Adapt Through Innovation
“Our need will be the real creator.”
— Plato
Ingvar Kamprad’s leadership at IKEA is a perfect example of how challenges can turn into opportunities through innovative problem solving. As a matter of fact, many of IKEA’s innovations did not come through a deliberate strategy from the outset but evolved as a response to practical difficulties. Kamprad’s willingness to rethink traditional methods allowed IKEA to carve out a unique niche, demonstrating that innovation often arises from necessity.
One example of this is the development of the self-assembling furnitures and of flat-packing which became an industry standard but first started as a solution born out of logistical woes. Kamprad explains that "Perhaps it could be said that reality forced the innovation upon us. We had begun to experience a worrisomely high percentage of damaged furniture in transport—broken table legs and that kind of thing, and the European insurance companies were beginning to grumble. The more "knockdown" we could produce, the less damage occurred during transport and the lower the freight costs were; that was the logic of it."
This forced adaptation not only solved the immediate problem of damaged goods but also revolutionized the furniture industry, reducing shipping costs, storage space, production costs and ultimately, the price for consumers. As Kamprad mentions, "It was not difficult for me to see the advantages of self-assemble furniture and the superiority of flat parcels. Flat parcels saved enormously on storage and freight, and in the long run they were to be the prerequisites for the next step: customers taking home parcels of large furniture themselves."
As a matter of fact, this issue with logistics led to the introduction of “Max”, the first self-assembly table that marked the beginning of a design philosophy called “democratic design” which is functional, affordable, and adaptable to mass production. Kamprad mentions that “A design that was not just good but also from the start adapted to machine production and thus cheap to produce. With a design of that kind, and the innovation of self-assembly, we could save a great deal of money in the factories and on transport, as well as keep down the price to the customer.”
"In IKEA's business philosophy, the whole matter should be inscribed as a golden rule: regard every problem as a possibility. New problems created a dizzying chance. When we were not allowed to buy the same furniture that others were, we were forced to design our own, and that came to provide us with a style of our own, a design of our own."
— Ingvar Kamprad
This lesson is invaluable for modern businesses. By embracing challenges as catalysts for innovation, whether through new product designs or process improvements, companies can stay ahead of the curve. Kamprad’s story teaches that the most groundbreaking ideas often emerge when leaders are willing to question the status quo and adapt creatively to their circumstances.
This reminds me of what we have learned from Bernie Marcus and Arthur Blank’s experience at The Home Depot. In fact, when they were both fired from Handy Dan, Ken Langone made sure to remind them that this was a perfect opportunity for them to build the company that they have always dreamed about. Marcus mentions that Langone told him “You have just been kicked in the ass with a holden horseshoe. This is the greatest opportunity! (…)you never know where life is going to take you. This is a great opportunity for you to do your own thing— let's go into business together.”
Not only this, but for Bernie Marcus and Arthur Blank, their bad experience at Handy Dan played an important part in developing Home Depot's values. For example, their previous boss, Sandy Sigoloff would reward staffs based their loyalty to him rather than on their competence. As such, at Home Depot, they made sure that their associates were well compensated for their hard work and contribution to the company.
“Our theory had always been that if we were going to get rich, we wanted our associates to get rich with us. If we were going to benefit, they were going to benefit as well. That has always been a part of our philosophy. There were men and women busting their rear ends, killing themselves, working day and night for The Home Depot; if we made it, we wanted them to make it as well. From the day we opened the stores, that was a philosophy of the company.”
— Bernie Marcus & Arthur Blank
Reduce Costs For The Customers
“Every time Wal-Mart spends one dollar foolishly, it comes right out of our customers’ pockets. Every time we save them a dollar, that puts us one more step ahead of the competition—which is where we always plan to be.”
— Sam Walton
Another key feature of IKEA’s business model is Ingvar Kamprad’s unwavering commitment to keeping prices low while maintaining quality. This focus on cost consciousness and customer-centric pricing was not just a marketing tactic but a deeply held belief that shaped the company’s operations and culture. This fundamental concept led Kamprad to focus on reducing costs notably by cutting out unnecessary intermediaries.
As a matter of fact, he noticed the stark disparity between factory prices and retail markups, which often inflated prices fivefold. This observation led to the creation of a cornerstone of IKEA’s philosophy: deliver quality products at the lowest possible price by streamlining distribution.
“Why does a product that is so cheap to produce get so expensive so quickly once past the factory gate? Why are we so sluggish on the last stage to the customer when we're so rational on the production floor?”
— Ingvar Kamprad
Kamprad’s solution was radical for its time: bypass traditional retailers and sell directly to consumers through catalogs, exhibitions and mail orders. Kamprad mentions, “Mail order and furniture store in one. As far as I knew, that business idea had not been put into practice anywhere else. We were the first.” This approach not only slashed costs but also gave IKEA control over pricing and customer experience.
As such, we can quickly deduce Kamprad’s huge disdain for wasteful spending. As he once said, “Wasting resources is a mortal sin at IKEA. It is hardly an art to reach set targets if you do not have to count the cost. Any architect can design a desk that will cost five thousand kronor. But only the most highly skilled can design a good, functional desk that will cost one hundred kronor.”
"That is why we push cost awareness at all levels with almost manic frenzy. Every krona that can be saved is to be saved.”
— Ingvar Kamprad
But more importantly, Kamprad understood the significance of sharing that cost savings with the customers. By consequence, IKEA always offered incredible prices to its customers even if the profit margin was lower for the company. As he once explained, "Our pricing policy is fundamental. The stumbling block is when we price ourselves out of the market. Our economists constantly go on that we must keep our 'total gross profit margin' to a certain percentage. I say to the economists, 'What the hell is 'percentage' anyhow?' Percentage is something mysterious. The only thing that interests us at IKEA is what is left in our pocket when the season is over."
For example, Kamprad mentions that he once got upset because IKEA was advertising mugs for ten kronor when he believed it should have cost five kronor at the very most. As he explains, "If we had taken ten kronor for that mug, and not five, then we would, of course, have 'earned' more on each mug—perhaps one and a half kronor—and had a better 'gross profit margin.' But we would have sold only half a million of them instead of almost twelve million, on which we now earn one krona each."
It is clear from this pricing policy at IKEA that Kamprad is a believer of this concept called “Scale Economics Shared” from Nick Sleep. Sleep once explained 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.”
Another entrepreneur who mastered this concept was Sam Walton at Walmart. As we have previously learned, Walton was a huge believer in discounting. He discovered that by lowering prices, even slightly, he could dramatically increase sales volume, resulting in greater overall profit. This wasn't solely about sacrificing margins; it was about understanding customer behavior and recognizing the allure of a good deal.
Here’s how Walton 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
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.
Build Something Sustainable
“I always say we’re running Patagonia as if it’s going to be here a hundred years from now, but that doesn’t mean we have a hundred years to get there.”
— Yvon Chouinard
Ingvar Kamprad’s vision for IKEA was not solely to build a successful company but to create a sustainable business legacy that would endure long after he was gone. He believed in the concept of “eternal life” for IKEA, ensuring that the company would continue to thrive even after his passing. As he once said, “As long as there is human housing on our earth, there will be a need for a strong and efficient IKEA.”
In order to do so, it was important for Kamprad to articulate and adhere to a clear vision that could be easily followed. His vision of providing well-designed furniture to the majority of people led him to create IKEA’s business motto. He explains that “On the wall behind them where they can all read it, like a religious quotation, is IKEA’s business motto: ‘We shall offer a wide range of home furnishing items of good design and function at prices so low that the majority of people can afford to buy them.’” This motto serves as a constant reminder of the company’s purpose, aligning every decision with the goal of serving the many.
In order to ensure that this motto is maintained religiously within IKEA even after his death, Kamprad codified the company’s ethos into nine commandments:
The Product Range Is Our Identity: IKEA offers a wide range of well-designed, functional home furnishing products at prices that are so low that as many people as possible are able to afford them.
The IKEA Spirit Is a Strong and Living Reality: IKEA builds on enthusiasm, a desire for renewal, thrift, responsibility, humbleness toward the task, and simplicity. "We must look after each other and inspire. Pity the man who cannot or does not want to partake."
Profit Gives Us Resources: IKEA will achieve profit—"a wonderful word"—through the lowest prices, good quality, more economical development of products, improved purchasing, and cost savings.
Reaching Good Results with Small Means: "Waste is a deadly sin."
Simplicity Is a Virtue: Complex regulations paralyze, "exaggerated planning is the usual cause of death to companies," and simplicity gives strength. IKEA people do not drive flashy cars or stay at luxury hotels.
Doing It a Different Way: "If from the start we had consulted experts about whether a little community like Älmhult could support a company like IKEA, they would undoubtedly have advised against it." IKEA goes its own way, turning to shirt factories to make cushions and window factories to procure good frames for tables, charging more for umbrellas when the sun is shining but selling at bargain prices when it rains.
Concentration Is Important to Our Success: "We can never do everything everywhere, all at the same time?"
Taking Responsibility Is a Privilege: "The fear of making mistakes is the root of bureaucracy, the enemy of development. Exercise your privilege, your right, and your duty to make decisions."
Most Things Still Remain to Be Done—A Glorious Future!: “You can do so much in ten minutes." "Let us continue to be a group of positive fanatics who make the impossible possible."
Beyond the Book
Read “The Ingredients For Innovation” by Farnam Street
Read “Turning Adversity Into Advantage” by Farnam Street
Read “Learning from Nick Sleep” by Investment Masters Class
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