by Derek Lidow
Sam believed in giving people opportunities, but he did not tolerate mediocrity and he set high expectations appropriately. He understood that if you set expectations so high that a person or team can’t meet them, it demoralizes that person or team. If you set expectations too low, then the skill set of the team does not improve fast enough to overtake the competition. Sam set high expectations that he knew from experience could be met, perhaps with some help. If someone fell behind in opening a new store, then Sam sent in as much help as necessary to get it on track. If the person in charge learned how to plan store openings more effectively from the experience, then Sam was okay with that—and that person felt good about what he had accomplished and learned. Those who didn’t learn from the experience or were unwilling to accept help soon understood that they no longer had a bright future with the company.
Sam used his team effectively. While he set most of the priorities for the company based on his continual search for better ideas, he was entirely open to ideas from anyone. Because he took no pride in ownership of an idea and was quick to give credit to others for good ones, everyone felt proud to contribute. Sam’s hands-off delegation demonstrated respect for people’s skills, making them proud and eager to perform to the full extent of their ability.
Sam was not only open to suggestions and ideas from others—he also sought out new ideas and techniques to fulfill his vision of selling more at a lower cost. Early on, when he realized that computers could possibly help Walmart, he took a weeklong class at IBM on using computers in retail businesses. He didn’t become the expert himself, but he learned enough that he understood how to support the experts he hired.
Continually seeking out new ideas gets many entrepreneurs in trouble. Organizations cannot accommodate continual changes in direction, strategy, or processes. What is effective for others is not necessarily effective for everyone. A great deal of time, resources, and money can be wasted on implementing ideas that could never work in the context they were intended. Sam experimented with the ideas that appealed to him—he never bet the farm. Every new idea or technique he tried had a simple, straightforward, easy-to-understand and easy-to-measure objective—almost always an objective associated with sales going up, or cost or inventories going down. The ideas had to be straightforward because they had to be implemented by dozens, hundreds, thousands, or even millions of people.
Not every experiment worked. Sam tried opening up arts and crafts stores. He also tried selling manufacturers’ excess inventories. He experimented by testing an idea in a location or two, usually within already empty buildings that he didn’t have to lease for a long period—similar to what we call a pop-up today, but on a larger scale and with the possibility that the location could stay in business if the experiment worked.
One experiment that worked well was Sam’s Club, which was designed to mimic the super-discount Price Club.[16] After hearing about the Price Club’s success at selling product in bulk directly to consumers, Walton flew to California to visit the store and learn all he could about how it operated. He even invited Sol Price out to dinner to hear whatever he was willing to tell. He flew back to Bentonville the day after his visit and created a team of three individuals who had reputations for liking to do things differently. He asked them to find some empty cheap building in a well-trafficked suburb within a day’s drive to set up a copycat to see if the concept would work in the Midwest. Within months they were established and validating that many Midwesterners loved buying in bulk—that is, everything except bulk wine.
Sam, entirely a bedrock entrepreneur, likely could not have succeeded any other way. He didn’t open up his first Wal-Mart until he had been in business for himself for seventeen years. No outside investor would have waited that long for Sam to finally create a concept that would take another eight years to go public. Further, Wal-Marts were not highly profitable at first—they didn’t equal the profitability of Sam’s Ben Franklin franchise stores until about the time Walmart went public. Most investors would have considered the first Wal-Mart a failure and resisted opening a second. In its first year of operation, the initial Wal-Mart lost money and was barely breaking even by the time the second Wal-Mart opened in Harrison, Arkansas. Sam’s instincts and understanding about what he could do to improve on the first store in opening a second were spot-on, in spite of opening day fiascos with exploding watermelons and donkey dung.
Until he took Walmart public, Sam relied entirely on bank loans to fund expansion. He even bought the local Bentonville bank thinking it would help him find the loans to grow the business. Most local banks knew Sam personally, and many had loaned him the money to buy inventories and grant mortgages for the stores he built. They supported him because his business was profitable and had been profitable from his first Ben Franklin store days. But they still insisted on collateral—Sam had to personally guarantee each loan he took out—something high-risk entrepreneurs are well advised never to do, lest they go personally bankrupt using other people’s money.
Even after Walmart went public it remained a bedrock organization, with the Walton family and employees retaining control of 80 percent of all the shares. Sam could still experiment with arts and crafts stores and distribution centers and not worry that his job was at stake based on whether the experiments worked. Walmart retains its status as a bedrock organization today because the Walton family, its foundations, and its corporations still own almost 50 percent of the company’s stock.
It’s All About Skills
Every entrepreneur faces a unique set of hurdles in trying to take a particular idea about how to make customers happy and grow it into a valuable and self-sustaining enterprise. The hurdles differ, depending on whether you want to sell discount panties, specialized accounting software, sausages, autopsy services, iPhone apps, or whatever. But the underlying skills required to get over all entrepreneurial hurdles and build productive, competitive, and self-sustaining enterprises are the same.
Entrepreneurial success boils down to understanding how to put together productive, competitive, and self-sustaining enterprises. Sam possessed five core skills that we find in almost all accomplished entrepreneurs:
Self-awareness. Sam always listened and watched to see what could be improved and thought about what to do to make those improvements. He remained acutely aware of what he did and didn’t know and what skills he did and didn’t have. As soon as he realized he had a gap, he acquired and practiced the requisite skills. Self-awareness is itself a skill, not something you’re born with. You can learn it—learn how to identify your capabilities and your personal modes of learning and self-improvement.
Relationship building. Sam was clearly an extrovert. Meeting people energized him. But being extroverted doesn’t attract and build a team whose members dedicate their lives to achieving someone else’s vision the way people dedicated themselves to achieving Sam’s. Sam was highly skilled at building relationships—creating strong, shared objectives with others. It’s a skill that you can learn and master, whether you’re an introvert or an extrovert. (Walt Disney, whom we’ll meet in the next chapter, was an introvert who could also create strong relationships with people whose help he needed.) The objectives that Sam set up to share with the people around him tended to be simple and based upon the results that were reported to him every week: sales, wages, and inventories. He also made it clear to his people that he sincerely cared about them and their families, and shared their objectives to be successful husbands, fathers, and community leaders. Sam constantly asked about what was happening with his employees’ families, and his employees knew he cared about their answers.
Relationship building is rarely taught in school, though you can read about it in books. Some life skills coaches know how to teach and help people practice it. Where did Sam learn to build such strong relationships? We don’t know, but he likely learned some of it from his mother, a beloved member of her local community. He also likely learned some of it from the coaches of the athletic
teams he played on when he was growing up. Sam was usually team captain, a position from which you can practice relationship building while getting feedback and advice from a good coach. But Sam most likely mastered relationship building by deliberately practicing with people to whom he wanted to get closer. When he set a goal of getting to know somebody, he accomplished it and then figured out how he could do it better the next time (which is precisely the way I learned most of my relationship-building skills).
Motivating others. Sam was great at making people he had never met before or barely knew feel good about helping him. People often described Sam as charismatic, believing it to be an inborn trait. But the ability to motivate other people is a skill you can learn and practice. Sam’s technique is classic: he made people feel good about themselves in the context of doing something important—for Walmart, or perhaps the church Sam and his family attended. He likely learned this skill captaining sports teams. You can imagine him saying something like, “it’s amazing how well you penetrated the defense in last night’s game; what’s your new technique?” People on the receiving end not only feel good about themselves, but also want to rise to the occasion again.
Relationship building and motivating others are different skills. Sam didn’t always compliment the people he worked closest with. He could be scathing when people failed to meet his high expectations. “Who bought those 500 women’s jackets with the fake fur that all had to be returned because they’re junk?” That doesn’t build a new relationship, but it can certainly be motivating.
Leading change. From day one at his first store, Sam was always changing things, usually resulting in some sort of improvement. But people don’t like change and will often passively-aggressively or covertly resist it. Most change is poorly envisioned and poorly aligned with what people think of as important, and so it’s is viewed as confusing. The associates and managers of Walmart expected change, embraced change, and viewed change as positive—many changes every week, in fact. They embraced change because Sam explicitly let them know why each change was important, what was expected, and how they would benefit from it. They knew the entire organization would provide each and every person with the support and resources needed to make the changes happen efficiently and successfully. And because change was extremely well delineated, communicated, and supported, it was viewed as low risk. Sam avoided the management sin that many fall into, which is asking somebody to change something, change it perfectly, and change it without getting any support and without using any resources. Sam pushed through enormous amounts of change every week, but everyone knew the entire organization, and Sam personally, had their back.
Even extensive changes, like shifting to a centralized, quick-turnaround distribution center, were done so that everyone knew what was expected to happen. Not that there weren’t surprises, or mistakes, or disappointments, but Sam’s weekly meetings meant that adjustments and mitigations were made quickly. Under Sam’s leadership, Walmart became the gold standard in relentless, speedy, positive change.
Sam mastered his change leadership skills by engaging in what is now referred to as deliberate practice. Every week, Sam outlined changes to be made, and every week he’d receive feedback from his management team about how the changes were implemented, what went right, what went wrong, and what could have gone better. Sam, who was always open to suggestions, improved his leadership practices based on his own analysis and from the advice he received.
Enterprise basics. This, too, is a learned skill, not one you’re born with. Sam understood that he had to make a profit, and to do so he would make his customers happy by offering them unusually good deals. He created simple routines (i.e., processes) that made repetitive tasks, like ordering, as productive as possible, so he and the organization could focus on relentlessly implementing improvements (i.e., projects). He diligently created a culture of people who loved to undertake projects and use processes to make customers happy by keeping costs and prices as low as possible.
Understanding when and how to use routines, processes, and projects to create an effective retail operation is not rocket science. Back when Sam worked at a J. C. Penney, he learned about the routines that keep a department operating smoothly and productively. Perhaps he even experienced an improvement project or two that rolled through his department there. In the army during World War II, he got a further taste of projects and processes—experience that he likely applied by analogy to his stores.
In sum, every entrepreneur needs to become competent at these five basic skills to survive and prosper: self-awareness, relationship building, motivating others, leading change, and enterprise basics. With the exception of enterprise basics, these skills apply to all good leaders.
Industry-Specific Skills
Depending on exactly what type of business you’re starting, you will also likely need some additional specific skills. How do you know what specific skills you need? Just study successful entrepreneurs in the field. If you are interested in starting a retail business, then study Sam Walton and Jeff Bezos. Write down all the things they appear to do effectively, day in and day out. You don’t need to be as good as them, but you need to be good enough. “How Good” is the subject of the next chapter.
Three Ways to Acquire the Skills You Need
How do you learn these how-tos? Every entrepreneur learns and implements their skills in different ways, but almost everyone learns them on the job or in some intense group activity, like sports or volunteer organizations.
Virtually no one learns entrepreneurial leadership skills in the classroom. First, schools rarely teach them. Second, even students who may have taken a class that did teach one or more of these skills likely forgot what they learned. Chances are they never practiced the skill to the extent necessary to feel confident exercising it many years later in the intense atmosphere of a startup.
Sam began learning and practicing his leadership skills from an early age: playing on sports teams, observing and listening to his job supervisors, and participating in and leading volunteer organizations. When he was in high school and college, his peers and teachers saw him as a leader. Sam practiced leadership more than most of his peers because he volunteered to organize activities and events for practically every club or team he joined. He invested significant time and thought in becoming more and more adept at leading organizations. He always focused on results, and he was always short of time, which meant that he was always trying to get teams to work more effectively. And because Sam spent so much time on extra-curricular activities, he was a much better leader than he was a student.
A great deal can be learned from a boss or supervisor, even at a part-time or summer job—if your boss runs an effective business or department (a big if). You can also learn leadership skills by organizing activities beyond school or the workplace, as Sam did. For example, starting a local volunteer chapter of some national organization can give you direct experience in relationship building, motivating others, and leading change. If the national organization has a program to help people start local chapters, that’s also a great way to get feedback and coaching. National Outdoor Leadership School (NOLS) teaches basic self-awareness and relationship-building skills to many.
The hard part about learning from a boss is choosing the boss and business to work for. Large organizations often do the choosing, and not the other way around. Just make sure that you choose an organization that embraces change and trains its people.
School can teach you industry-specific skills. Sam learned his retail operational skills from Ben Franklin. Culinary schools prepare chefs with the specific skills required to run restaurants. Many dental schools teach their students the basics of running a dental practice. Today, programming skills that you learn in many schools can be important for designing effective application software.
Besides learning on the job or at school, Sam used a third way to acquire essential skills. He hired already skilled people and gave them the authority and responsibilit
y to take ownership of tasks they could execute with more expertise than he could. As we learned from Sam, great entrepreneurs look to meet capable and skilled people and lure them to work for them as needed.
Clearly, the lack of a decent education didn’t hold back Vidal Herrera, the founder of 1-800-AUTOPSY, whom we met in chapter 3; he barely made it through high school. Like most entrepreneurs, he got his training on the job. He also was open to learning everything he could about how to succeed as an entrepreneur. Like him, you need just enough prior education to be able to quickly acquire the skills required to succeed in your targeted end market.
Progress, Not Perfection
Sam wasn’t perfect. In particular, he was disorganized. To look at pictures of Sam at work in his office is to see great piles of paper—on his desk, on the floor, on chairs. Sam’s well-organized assistants knew what out-of-date reports, legal pads filled with his illegible notes, or old copies of trade magazines and newsletters to take and file away in their offices, or else he would have buried himself in paper.
Sam also was insensitive about other people’s time. He regularly pulled people away from what they were doing, at home or at work, to ask them questions that could have waited. He was notorious for standing people up, even people who had come long distances to meet with him. And he wasn’t punctual either, except for his Saturday morning meeting, for which he spent hours preparing. Sam was so focused on thinking about how to improve Walmart that he operated strictly according to his own assessment of what was his highest priority at the moment.
Sam’s relentless setting of higher and higher expectations burned out many people who worked for him, particularly store managers and buyers. He didn’t promise lifetime employment, but his people knew that and didn’t expect Walmart to keep them employed once they no longer felt enthusiastic about their jobs.