September 28, 2018

Built From Scratch by Bernie Marcus and Arthur Blank

The Big Idea: Clarify your core values and make sure everyone knows them.

Core Values
1. Excellent customer service
2. Taking care of our people
3. Developing entrepreneurial spirit
4. Respect for all people
5. Building strong relationships
6. Doing the right thing
7. Giving back to our communities
8. Shareholder return

Ch 1: Two Regular Guys

  • Two Guys discount retail was destroyed by overexpansion.
  • Bernie started off as a controller for Handy Dan hardware stores.

Ch 2: Origins

  • There is transactional banking and there is relationship banking.
  • The vision for Home Depot was created in 1976. There were too many small chains, no national companies, and prices are too high.
  • Home Depot would buy directly from manufacturers for increased margins and build immense warehouse stores for higher sales volumes.

Ch 3: The Financier

  • Ross Perot nearly invested $2mm for 70% of Home Depot, which would now be worth $50bn+.
  • Home Depot found seed capital elsewhere.

Ch 4: The Merchant, Act I

  • Merchandising is a core competency for Home Depot.
  • For Home Depot, merchandising is knowing what to buy and how to sell it in the stores.

Ch 5: The First Stores

  • Atlanta was chosen over Boston, Dallas, and LA, because of demographics and economics.
  • Home Depot got the cash it needed for inventory because of its relationships with bankers.
  • The stores were meant to look more like warehouses than showrooms.
  • Some deep discount sales brought customers into the first stores, which led to word of mouth.
  • Home Depot lost money in 1979 but quickly turned it around and made a profit in 1980.
  • Home Depot went public in 1981, which financed expansion into Florida.

Ch 6: The Associates

  • Take good care of the customer.
  • Empower associates to make decisions.
  • Pay people what they are worth.
  • Hire the best people and pay them more than the competitor.
  • Offer stock options or a stock purchase program to let all employees be owners.
  • Do what you can to keep associate turnover low.
  • Take care of associates and they’ll take care of customers.
  • Work hard and also work smart. People need a balanced life.
  • Don’t ask your managers or associates to do anything you wouldn’t do.
  • Sometimes you need to untrain bad habits that associates pick up at other companies.
  • Don’t be afraid to hire senior citizens.
  • Invest time in training and developing people.
  • Home Depot offers apron badges for key accomplishments.

Ch 7: The Customers

  • New executives always spend time in the stores.
  • Associates are expected to walk customers to the product, not just point.
  • How-To Clinics were developed because Home Depot cared about customers and their projects.
  • The Home Depot return policy is flexible because they trust the customer.
  • Associates are expected to be responsible for customer service.

Ch 8: Building the Brand

  • Low prices are just the beginning.
  • Home Depot’s size made national advertising finally cost-effective.
  • Home Depot wanted to become synonymous with home improvement.
  • Home Depot copied the Wal-mart employee stock ownership plan (ESOP).
  • Everyday low prices was a better strategy for more consistent sales than occasional sales discounting.
  • Home Depot spent millions on the 1996 Summer Olympics in Atlanta and became part of the fabric of America.

Ch 9: The Competition

  • Home Depot is far ahead of Lowe’s.
  • When you copy somebody and don’t really understand what they’re doing, you’re never going to be as good as the original. That’s Lowe’s problem.
  • Home Depot can never beat specialty stores and so they will continue to exist.
  • Core values remain the same but everything else is subject to innovation and disruption.
  • Retailers can’t ever stay the same. Times change and retailers either adapt or die.
  • The focus is always on the customer. Home Depot doesn’t need to beat the competition, they need to win the customer.

Ch 10: Growth

  • Walmart founders always have retained humility, despite their incredible success.
  • Walmart reached $10bn in sales by concentrating on stores, particularly control of merchandise, distribution, finances, and infrastructure.
  • Home Depot gets lower prices by paying invoices immediately instead of net 30.
  • Home Depot makes buying decisions on the local level, instead of centrally.
  • Vendors generally ship inventory directly to stores, instead of to a distribution center. This saves time and money.
  • Secure twice the capital you think you need. It gives you the confidence and financial strength to do what’s best for the long-run.
  • Hire people who are overqualified at first and let them grow with you. Payroll is an investment, not an expense.
  • In the early days, Home Depot managers worked 12 hours a day, 7 days a week, to open new stores.
  • It’s not easy being a public company, but without the IPO, Home Depot would still be a chain of four stores in Atlanta.
  • The board of directors agreed to cap annual growth at 25%, to protect the Home Depot culture from expanding too rapidly.
  • During expansion, Home Depot learned the importance of planning and then learning when to adjust and improvise.
  • The 24-hour Home Depot concept was driven by customers.
  • Home Depot stocks contractor brands for the pros, but they have become popular with the DIY.

Ch 11: The Merchant, Act II

Ch 12: Strategic Partners

  • Bankers and vendor relationships were key, especially since Home Depot did not use distributors.
  • Home Depot works with vendors to improve their products.
  • Eventually, Home Depot developed or bought in-house brands of tools, such as Ridgid.

Ch 13: How We Manage

  • Humility is key. Accept that they are people smarter than you and hire them.
  • What works in Atlanta might necessarily work in Maine.
  • Give your managers firm boundaries at first and then loosen them as they earn your trust.
  • Some things are the same from store to store. Some things are flexible. Some things are completely dependent on the store.
  • Hire people who are overqualified and let them grow with the company.
  • As you scale, keep a close eye on fiscal discipline.
  • Success depends on teamwork.
  • Communication is key. Avoid bureaucracy by keeping lines of communication open.
  • Store walks are great for keeping executives close to the stores.
  • Employee stock ownership program comes with a 7-year vesting period so it had a chance to build value over time.
  • Best Practices program is how good ideas spread from one store to the entire chain.
  • Teach employees core values and you won’t have to micro-manage.
  • Use 360 feedback to develop people.
  • Establish team-building programs to establish trust and improve communication.
  • Never let the cancer of bureaucracy into your organization.
  • Executives serve managers. Managers serve associates. Associates serve customers.
  • The main office in Atlanta is not called “Headquarters.” It’s called “Store Support Center.”

Ch 14: The Communities We Serve

  • Do the right thing and give back to the community.
  • Don’t just encourage stores to do community service, give them a budget for it.

Ch 15: The Future

  • Growth will come from the core business, professional customers, international expansion, specialty stores, convenience stores.
  • Future leaders will be better than the founders.
  • It’s the leader’s job to train people to be better than him.

Ch 16: Legacy

  • It’s important to stay close to the stores and to the associates.
  • The founders still walk around stores and talk to associates.
  • Opportunities are still out there for anybody with the courage to reach out.
  • Starting Home Depot looks easy now, but there was often a lot of pain, a lot of struggle, and many lucky breaks.