Chapter 13- Built From Scratch: How a Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion
Today’s Chapter is based on the book “Built From Scratch”, an autobiography by Bernie Marcus and Arthur Blank, the two co-founders of The Home Depot.
Buy it on Amazon here:
https://www.amazon.com/Built-Scratch-Regular-Nothing-Billion/dp/0812933788
Here’s what I learned from the book:
Obstacle is the Way
Objective Judgment, now at this very moment. Unselfish action, now at this very moment. Willing Acceptance - now at this very moment - of all external events. That's all you need.
— Marcus Aurelius
In the Book Obstacle is the Way, Ryan Holiday goes over how we can face obstacles and failures in life and how to turn them into an advantage or an opportunity. He believes that all obstacles can be overcome through a discipline of three critical steps:
“It begins with how we look at our specific problems, your attitude or approach; then the energy and creative with which we actively break them down and turn them into opportunities; finally, the cultivation and maintenance of an inner will that allows us to handle defeat and difficulty.”
— Ryan Holiday
In Bernie Marcus and Arthur Blank's case, they were able to overcome an obstacle (their firing from Handy Dan) into a golden opportunity through the creation of The Home Depot. Ken Langone made sure to remind Bernie Marcus of this when he learned about his layoff at Handy Dan.
“No, no, you don't understand!" Langone insisted. "You have just been kicked in the ass with a golden horseshoe. This is the greatest opportunity! Now we can open up that store you talked about when we were in Houston!"”
— Bernie Marcus
“"Bernie," he [Ken Langone] continued, "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."”
— Bernie Marcus
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.
“No matter what I was paid, it wasn't enough. Real money is in equity, and that I didn't have.”
— Bernie Marcus
“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
This is eerily similar to Sam Walton's story at Walmart, where he would encourage his store associates to hold stake in the company. This is not surprising considering the fact that the idea of “Everyday low pricing” at the Home Depot was also originally suggested by Sam Walton:
“Everyday low pricing at The Home Depot was an idea that originated with Sol Price and the Price Club but was encouraged by Sam Walton. Wherever Walton traveled, he would visit a Home Depot store. So it should not be too surprising that while visiting Wal-Mart's corporate headquarters in Bentonville, Arkansas, Walton and Glass convinced Bernie to try everyday low pricing at The Home Depot.”
— Arthur Blank
Inverted Management
“Our greatest asset, and the key to our success, is our people.” — Isadore Sharp
Another of Home Depot's core value is to care for its people. As a matter of fact, Bernie Marcus and Arthur Blank believed that their sales associates are the spinal cord of Home Depot as they are the ones interacting with the customers and building the image of the company. As such, it was important for them to take care of their people and they achieved this by understanding that every position in the company is critical:
“They are the ones who will have the product knowledge and be able to show the customer how to use it. They are the heroes of the company, the ones who create a cult among our customers. We're trying to make our customers bleed orange.”
— Bernie Marcus & Arthur Blank
As such, it was important for the co-founders of Home Depot that all senior executives work in the stores to understand what happens on the sales floor. They also insisted that they would not ask their associates to do anything they wouldn’t do themselves.
“If an associate picked something up off the floor, it was because we did it first. We set the example. Few people ever felt that they were working for somebody. Hopefully, it was more like they were working with somebody. Everything was hand in hand.”
— Bernie Marcus & Arthur Blank
“Arthur and I go into stores alone and walk around, talking to customers and associates on the sales floor, learning what’s really important to the Home Depot. I love being there, because that’s where the real action is, not in my office.”
— Bernie Marcus
Furthermore, in their management structure called the inverted pyramid, Bernie Marcus and Arthur Blank would consider themselves at the complete bottom. Similarly, they believe that the main office is only there to provide support to the stores and its sales associates who are the key to the success of The Home Depot.
“But what makes us so different from anyone else in our industry is that we take the inverted management structure so seriously. Hourly associates really do lead The Home Depot; every day, their decision making and independence makes our stores better, and that reinforces customer loyalty.”
— Bernie Marcus & Arthur Blank
“The sign at the front entrance of our main offices in Atlanta says "Store Support Center." Not "World Headquarters." It is not a corporate ivory tower. It is truly the store support center. We want everybody in this building to know that we are here to support the stores.”
— Bernie Marcus & Arthur Blank
“And that is exactly what we say to our people at the Store Support Center. In our inverted management structure, everyone's career depends on how the associates in the stores function. If the people in the Store Support Center or divisional offices don't feel like they are selling a product to customers in the stores, then they are part of a bureaucracy, and they will stymie the stores, not help them.”
— Bernie Marcus & Arthur Blank
This idea of seeing people as key assets rather than expenses is very similar to the philosophy of Isadore Sharp, the founder of Four Seasons, who once said “If employees are really doing their job, they’re not a cost, they’re an asset, our primary asset.” This is obviously true in The Home Depot case considering that one of their main competitive advantage is having knowledgeable salespeople that can teach their customers in how to use the products.
Cultivating the Customer
“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
Right from the start, Bernie Marcus and Arthur Blank understood the importance of customer services as a retail store. In fact, they believe in doing more than just customer services, it is all about customer cultivation. They define “cultivating the customer” as taking care of the customer today to make sure that they will remember The Home Depot and come back for their next home DIY project.
“At The Home Depot, cultivating the customer is much more important than creating a bottom line. We teach our associates that if you can save a customer money, do it. We're not looking to fleece the customer. If I can save them $100, why not do it? That reflects one of our values: caring for the customer. Care for them today and they'll be back tomorrow.”
— Bernie Marcus & Arthur Blank
This is also the reason why the company’s main customer services’ philosophy is “Whatever it takes”. Bernie Marcus and Arthur Blank explains that they would need to do whatever it takes to satisfy their customers’ needs even if it meant they needed to go far out of their way to do so. This is especially true when they were first staring The Home Depot and were struggling to survive.
For example, in the early days, when a customer walked out of the store because the company was not carrying an item, they would ask the client for their name and address and would promise to deliver them the product as soon as possible. They would then purchase it at another store and personally deliver it to the customer’s home. That’s how they often expanded their merchandise section.
“First I would run back inside and order it so we'd have it in the future. Then I would personally go buy whatever it was at West Building Supplies, Handy City, or a wholesale house and personally deliver it to the customer's home, carefully removing the other store's price sticker and charging the customer a lower price than I paid out of pocket.”
— Bernie Marcus & Arthur Blank
Another way of cultivating the customer was by offering a return policy that allowed customers to bring back a product no matter what. The purpose was to improve customers’ trust toward the company and to encourage them to engage in new projects.
“We want people to trust us. We encourage customers-weekend warriors and pros alike-to buy more than they need, and whatever they don't use, to bring back. We give them their money back, no questions asked, no hassles. We do it because it encourages people to do projects.”
— Bernie Marcus & Arthur Blank
Store Image
“Our stores reflect our brand and our values. They're a physical manifestation of what we stand for and what we offer our customers."
— Howard Schultz
Marcus and Blank had various important concepts they implemented in the way they managed the interior look of each one of their Home Depot stores to make sure that it fit with the image of the company.
First, the Home Depot was supposed to be a warehouse and as such, it was important for it to look like one. As such, it couldn’t be too organised nor too clean to illustrate that the store was busy and that their products were selling.
“The Home Depot was supposed to look like a warehouse! We wanted sawdust! We wanted skid marks on the floor! We didn't want it to look like a hospital; we wanted it to look like a warehouse.”
— Bernie Marcus & Arthur Blank
“Another important concept for us inside the store was that the merchandise not be constantly "fronted." We didn't want products pushed to the front edge of the shelves. If everything is perfectly lined up, that tells you it is not selling, there is no action. Besides, it takes too much energy to maintain the facade of fronting everything.”
— Bernie Marcus & Arthur Blank
Second, as it had to look like a warehouse, it was important to give the illusion that there were plenty of inventories. As such, the company used various ways of giving the impression that it had a greater inventory than it actually did:
“If the store had four layers of paint cans, the cans on the bottom layers were empty. They were on the showroom floor for show. They gave the illusion of greater inventory.”
— Bernie Marcus & Arthur Blank
“A week before we opened, there just wasn't enough merchandise to fill the store floor to ceiling, so Pat called up the Delmar Cabinet Company on the west side of town and asked them to loan us 500 boxes of all different sizes. We folded them up and put them on the tops of the racks all around the first two stores, 250 boxes a store, so they looked full of merchandise.”
— Bernie Marcus & Arthur Blank
Finally, Bernie Marcus and Arthur Blank were inspired by the way supermarkets would place their products. In fact, they would put the most popular items at the back of the store to make sure that clients had to walk through the whole store and, hopefully, get drawn to items they didn’t think they needed to buy before reaching what they were truly there for.
“Customers came in the entrance, went down one aisle, hit lumber in the back, and came back up the next aisle. The right-hand side of the store was paint and hardware, the left-hand side was electrical; at the front of the store were wood-burning stoves.” — Bernie Marcus & Arthur Blank
“We did that following the logic of supermarkets. Lumber was our meat. When you go into a grocery store, you never see the meat up front, because you want everybody to buy all of the condiments before they get to the meat.”
— Bernie Marcus & Arthur Blank
“So we put the lumber in the back, making customers hunt for the 2x4s, passing by saws, doors, stain, varnish, paint, thresholds, weather-stripping, and locks. Walking around the whole store, they were drawn to items that they didn't even think that they were coming in for.”
— Bernie Marcus & Arthur Blank
Beyond the Book
Read "The Obstacle is the Way - Turning Adversity Into Advantage" by Farnam Street
Watch "The Obstacle Is The Way | Summarised by the Author (Ryan Holiday)" by Daily Stoic