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The CEO Dream Team - Walton, Schwab, Marcus And Blankby Andrew Beattie (Contact Author | Biography) Good ideas are a dime a dozen. The magic that turns a person's vision into a profitable enterprise lies in the execution of those ideas. The great entrepreneurs, the ones that took their vision and built exceptional businesses from the bottom up, needed managerial skills and financial acumen – not just creativity and imagination.Sam Walton By 1950, the fates had seemingly stymied Sam Walton's attempts at building a retailing empire. His turnaround operation at a Ben Franklin store in Arkansas was lost over a lease. The landlord, seeing that Walton had turned the store into the leading one in the region by consistently pricing lower than nearby competition, refused to renew so he could give the store to his own son. Walton moved to a new location and insisted on a 99-year lease this time. He continued to consistently beat his competitor's price and was soon running 16 variety stores, but Walton saw trouble on the horizon. Large discount stores like Kmart were emerging to push out small-scale variety stores. After unsuccessfully pleading with Ben Franklin to change their strategy and open large discount outlets, Walton decided to go it alone. (Find out more about starting your own business in Starting A Small Business In Tough Economic Times and Start Your Own Small Business.) Walton knew he couldn't go head to head with the larger stores because he had less capital to work with. Instead, he focused on rural locations that his bigger competitors ignored in favor of dense population centers. The rural focus posed challenges in both warehousing and shipping, so Walton built huge warehouses in areas between several stores. Walton's shipments to the warehouse were much larger than they would have been to any single store, allowing him to save on shipping costs through volume discounts from suppliers. From the warehouse, the newly-christened Wal-Mart stores kept a constant inventory flow, reducing storage costs and keeping an accurate tally of demand via new electronic scanners. The stores then passed these cost savings on to customers, making a very small profit on each sale but making up for it with a huge volume of sales. Walton took the company public in 1970, and was ready to go head to head with other discounters in larger cities. Wal-Marts weren't opened in the expensive malls or leasing areas of city centers, but on the outskirts where land could either be purchased outright or leased affordably. Then, Walton depended on his consistently low prices to attract customers to his store. Cost consciousness, a commitment to increasing efficiency and the ability to negotiate volume discounts with suppliers gave Wal-Mart a pricing edge that few retailers have yet to match. Charles Schwab In much the same way as Sam Walton started off in the sticks of retailing, Charles Schwab made his name in a largely ignored segment of investing – the individual investor. Using money borrowed from relatives, Schwab was running a small brokerage firm, Charles Schwab & Co. These were lean years for small firms that couldn't land institutional clients willing to part with large fees. It all changed on May Day, however, when the SEC moved away from fixed-rate commissions. While most brokerages lowered fees to lure in more institutional clients, they were either maintaining or increasing the pound of flesh they took from small investors. Schwab saw his chance to go the other way and took it. (Find out how to go it alone in Start Your Own Financial Planning Firm.) Charles Schwab & Co. began offering discount brokerage services to any investor who wanted to buy or sell a stock. Schwab changed the structure of his company to streamline costs to justify the discounted rate. Gone were the research, advice and bonuses. In their place was a salaried staff executing orders via an automated computer system. Again, the volume of orders made up for the lower profit realized on each fee. Schwab used the profits to make his brokerage more attractive to individual investors with 24-hour service, cash management accounts, insurance, more branch offices and a commitment to educating potential investors until they felt confident in investing for themselves. Schwab's vision was much larger than his available capital, so he sold his company to the Bank of America, in hopes of reaching individual investors everywhere. Unfortunately, Schwab found Bank of America too cost-heavy, and he bought his own company back in 1987 – it turned out to be one of the most successful LBOs of the era. In 1990, Schwab embraced emerging technology once again to become a leader in internet trading. Schwab democratized investing, making it as easy and affordable for individual investors to make and lose money in the market as it is for the large institutions. (Read Full-Service Brokerage or DIY? to learn more about the difference between these two types of brokerages.) Bernie Marcus and Arthur Blank The rise of Bernie Marcus and Arthur Blank offers a synthesis of what made Walton and Schwab successful entrepreneurs. Marcus and Blank were part of the management at Handy Dan, a hardware retailer. In the 1970s, the two began applying discounting principles at their outlets, noticing the same increase in overall profits on which Walton built Wal-Mart. Unfortunately, Marcus and Blank abruptly found themselves out of a job when a raider bought up their parent company and fired the management. Raising cash from investors, Marcus and Blank decided to start their own hardware chain. They wanted to combine discounting on a wide array of products with superior customer service. Their niche, as they saw it, was in supplying their customers with both the supplies and the knowledge needed to carry out home improvements by themselves. Although the low prices were important, it was the staff that turned out to be the clincher for most customers hesitant about the move from calling professionals to do-it-yourself. Home Depot held educational sessions about every aspect of home improvement. Soon, terms like "tongue-in-groove," "caulking" and "plumbing trap" were no longer the exclusive vocabulary of professionals. Home Depot kept on the leading edge of consumer education, publishing guide after guide and making, "You Can Do It. We Can Help" the company mantra. Loyal repeat customers provided a solid base for Home Depot to expand rapidly, going public in 1981. It became the world's largest hardware retailer and used its position at the top to pass on lower prices to its customers. Marcus and Blank are no longer involved in the day-to-day management, but the corporate culture they created has kept Home Depot at the top of a very competitive industry. Conclusion: Working For The Customer The tie that binds these three stories is the idea of working for the customer. Walton, Schwab, and Marcus and Blank were successful because they were constantly looking for ways to attract and retain customers. This manifested in diverse ways (cost-conscious strategies, negotiating with distributors, commitments to client education), but the same principle was at the heart. Although strong management skills and vision are important, it's the relentless drive to bring the customer what they want at the best price that helped these entrepreneurs and their firms succeed. This same drive has powered the careers of entrepreneurs from Henry Ford to Michael Dell. Sam Walton said it best, "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." (Find out if you have what it takes in our article: Are You An Entrepreneur?) by Andrew Beattie, (Contact Author | Biography) Happy Birthday Mr. President: Here's Your Astrological Forecast! President Barack Obama turns 48 on August 4, and we could think of no better gift -- for him and for us -- than a glimpse into the future. So, we turned to Astrology.com for a special reading just for the First Leo, taking into account the biggest days on his calendar in the coming year. Will the stresses of the job have an impact on his seemingly storybook marriage? Will the State of the Union remain strong -- or are we heading for turmoil at home and abroad? Here's what the heavenly bodies have in store for President Obama in 2009-'10: Tuesday, Aug 4, 2009: Barack Obama's 48th Birthday With "a friendly, cooperative, harmonious tone to your interactions today," it's shaping up to be a lovely birthday for the leader of the free world. And as with any birthday, "social activities and being touch with friends are high on your list." A bit of birthday advice? Take a day for yourself, Mr. President. "Avoid heavy discussions and try not to focus on dry, practical matters. Simply sharing a pleasant time with someone you love is more in tune with your feelings today." Saturday, Oct 3, 2009: Barack & Michelle's 17th Wedding Anniversary Are rocky times ahead for the First Couple on the eve of their anniversary? "Your usual routine is likely to be disrupted now, either by 'freak' accidents beyond your control or by your own impatience with the status quo. Sudden unexpected events, and breaking free of confining situations and relationships, are very likely." Say it ain't so, O! Sunday, Jan 17, 2010: Michelle's 46th Birthday Will the potential for drama at home mount around the time of the First Lady's next birthday? "Sudden intuitions and dreams grip you with an urgency now that can be very disorienting and confusing," reads Obama's forecast. "During this time period, you will periodically feel the need to escape from your daily routine and immerse yourself in a more magical, awe-inspiring world." Clearly the president needs a break! Perhaps a vacation would be the ideal gift for both the president and his bride; it would certainly be far preferable to other avenues of escape. "You are driven more by your fantasies than you realize," warns our astrologist, "and you are prone to make sudden, impulsive decisions that you can regret later because they are neither practical nor feasible." Tuesday, Jan 26, 2010: State of the Union Address (official date to be announced) Putting aside those pesky domestic distractions from the week before, the president will need to focus on more serious affairs of state. "It becomes clear to you around this time that certain pursuits are leading to a dead end and therefore must be abandoned. You feel clear about what your goals are, but there are lots of questions right now about how to get there." Could this mean that health care reform is in jeopardy? Is there an impending stalemate between the House and Senate? What's a president to do? "You may also form an alliance with an older or more experienced individual whose experience can aid you as well," suggests our astrologist. Paging Bill Clinton... Thursday, June 10, 2010: Sasha's 9th Birthday Summer is shaping up to be a happier time of year for the Daddy-in-Chief, especially at the dawn of his baby's 10th year: "Friendships and love relationships are favored as you are openly affectionate, warm, and also quite responsive to loving gestures from others. It's not enough for you to simply feel loving toward another -- at this time you really want to express it and show it physically." Sunday, July 4, 2010: Malia's 12th Birthday Daddy's First Daughter shares a birthday with the country itself! "Friendship and cooperative endeavors flourish now. You achieve a harmonious balance of giving and receiving, of talking and listening, and any social or joint activity will benefit." Also: fireworks! Thursday, July 8, 2010 - July 10, 2010: G8 Summit (official dates to be announced) As heads of state from the Group of Eight powerhouse nations convene in Canada, the eyes of the world will be on Obama. Fortunately for him, and us, "at this time you are able to be very clear and aboveboard with other people, bringing out your desires and differences between yourself and others in a way that is unlikely to offend or stir up hostility. Because you appear confident, others are inclined to follow your lead now." Suggestions: A state-of-the-art watch, oil paints, champagne, fine clothing, a leather briefcase, season tickets to the opera or theater, a piece of tasteful art, wine-tasting classes, a gift certificate for a gourmet restaurant, fancy cuff-links. What would you get for Obama? And remember, keep it classy. The man's a Leo! |
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