Chapter 2 - Sam Walton: Made in America
This Chapter is based on the book “Sam Walton: Made in America”, an autobiography by Sam Walton, the founder of Walmart.
Buy it on Amazon here:
https://www.amazon.com/Sam-Walton-Made-America/dp/0553562835
Here’s what I have learned from the book:
Transfer Wealth Before It Grows
“The best way to reduce paying estate taxes is to give your assets away before they appreciate”
— Sam Walton
Sam Walton, founder of Walmart, learned the value of money at an early age. It was taught in his household that children needed to provide for the home and to be contributors rather than just takers. And in that process, Sam learned how much hard work it took just to get a few dollars.
After being inspired by his father-in-law, Sam decided to include all of his children as partners in the company. Similarly to Estee Lauder (see Chapter 1 - Estee: A Successful Story ), by having a family partnership in place, his children participated in all the decisions concerning such as how much they paid to each other. More importantly, this family partnership ended up being a great strategy to reduce paying estate taxes as the transfer of ownership was done at an early stage.
Learning What Others Have Mastered
“I believe in the disciple of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”
— Charlie Munger
Sam Walton was a proponent of learning from others and copying what they had mastered. He believed in studying successful companies and then implementing their strategies within his own business. For example, he famously visited various retail stores to observe their operations and implemented successful ideas in Walmart stores. He is famous for bringing a yellow legalpad at all time to write down notes while visiting other retail stores. During family road trips, he would also make spend some time along the way to visit other retail stores. This philosophy of learning from others was a key factor in the success of Walmart.
Scale-economics-shared
“Zak and I observe several business models that work in the long run, and scale economics shared is one of these... that is why companies that share scale with the customer make up around sixty percent of the portfolio.”
— Nick Sleep
Nick Sleep is the co-founder of Nomad Investment Partnership, a fund that, for more than ten years, provided its shareholders with a rate of return of 20% p.a. (vs 6.5% p.a. by the Index). In his investment letters, Nick Sleep shared the idea that there are only a few business models that work in the long run, and scale economics shared is one of those.
Scale economics shared businesses are those that passes their benefits from economies of scale to the customers by reducing their prices or by improving its offering. By doing so, they make it harder and harder for smaller competitors to offer as much value to their customers which allows the company to increase its market shares in a flywheel effect.
Sam Walton has certainly built Walmart as a perfect example of a scale economics shared business. In Walmart’s case, due to its massive size and efficient supply chain, it is able to offer its products at lower prices than its competitors. This allows Walmart to attract customers who are looking for the best value for their money, and it also makes it difficult for smaller retailers to compete with Walmart's prices. Additionally, Walmart's size and purchasing power give it an advantage in negotiations with suppliers, allowing the company to secure better prices for the products it sells. This further strengthens Walmart's position in the retail market and makes it difficult for competitors to replicate its success.
As such, it is not surprising that Sam Walton’s Walmart story is such an inspiration for many founders such as Jeff Bezos from Amazon.
Satisfaction Guaranteed
“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
This idea of passing the benefits of Walmart’s cost-saving measures to the customers was just one of Sam Walton’s various ways of improving customer satisfaction. In fact, he was always looking for ways to improve the customer’s shopping experience, whether it was through new product offerings, store layouts, or customer service. This can be illustrated by the two most important words that were on the first Walmart sign: “Satisfaction Guaranteed”.
“Outstanding leaders go out of their way to boost the self-esteem of their personnel. If people believe in themselves, it’s amazing what they can accomplish.”
— Sam Walton
Sam Walton always believed that motivated and trained employees would necessarily lead to better customer services. As such, he always treated his associates as partners in the business and would encourage them to hold a stake in the company. Furthermore, he also gave his employees a great deal of autonomy, empowering them to make decisions that would benefit customers without having to go through layers of bureaucracy. He truly behaved as a servant leader in a partnership by listening and by sharing everything he could to his associates.
Beyond the Book
Read “Chapter 1 - Estee: A Successful Story” by Biography Nuts
Read The Full Collection of the Nomad Investment Partnership Letters to Partners
Listen “#234 Sam Walton: Made in America” by Founders Podcast