Chapter 8: Learn From Competitors, but Remain Faithful to the Vision

Overview

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

Most everything I've done I've copied from someone else.

—SAM WALTON

What Would Sam Walton Do?

In the seat of the CEO: You are the founder and CEO of a small, $8 million publishing company that produces short "how-to" manuals for the weekend woodworking set. You started the company almost a decade ago, after searching unsuccessfully for books to help you with your weekend projects (everything from wooden bird feeders to sleds for the kids). Once you realized that there were few books on woodworking projects out there (at least, few of the kind you were looking for), you decided to leave your publishing job and start your own publishing company. It had always been your dream to run your own business, and you figured that surely there were plenty of other people who shared your passion for woodworking and would buy your products.

Today, your dream is a reality, although you're far from a typical publisher. Unlike most other how-to books, yours are not sold in bookstores. Instead, they are sold in hobby stores and through some national home-improvement chains. While these chains don't usually carry books, your unique format—88-page, highly designed books that lie flat thanks to a special binding—have strong visual appeal. Just as important, you promised your distributors that you would not price the books above $10 (they are priced at $7.95 to $9.95), and that the distributors could retain 20 percent of the purchase price of every book they sold. Again, this was a winning proposition.

Thanks to a strong "push" from your distribution channels and an equally strong "pull" from readers, the series caught on immediately. It seemed that the weekend warriors could not get enough of them.

Today you have more than 100 woodworking project books on your list, and you decide to hire an editor-in-chief to assume responsibility for day-to-day product development. His job is to sign authors to write books for the company, figure out what to publish, and grow the business. This won't be easy, as you see it, since you've already covered just about every woodworking topic you can imagine. After a lengthy review of the options, the new editor-in-chief comes to you with several ideas to change the business and make it more profitable.

His first idea is to expand some of the best-selling books (perhaps up to 150 pages) and raise their retail price to $12.95. (You have never raised prices.) He also proposes expanding the distribution of your line to include traditional bookstores (such as the national chains). Finally, he recommends that the company grow via acquisition, by buying a small cookbook publisher that is up for sale. While the price of the cookbook company seems reasonable, you know nothing about cookbooks; however, your editor-in-chief published several successful cookbooks in his first publishing job almost 20 years ago, and he says that he has great confidence in his ability to manage this new business successfully.

How do you feel about your editor-in-chief's plans? Which parts do you agree to? Do you take the plunge into the cookbook market? Or do you find another way to grow the company? What do you do?

What would Sam Walton do?

Even the quickest glance at the 2002 Forbes list of the 400 wealthiest individuals is likely to reveal a startling fact: Five of the wealthiest people in the world share the same last name. This is because they are related—by marriage or birth—to one of the greatest entrepreneurs of the twentieth century—a folksy merchandiser who loved to compete by taking on huge competitors. He was what one American president called "an American original," and his unique rags-to-riches story is the stuff of legend.

His name, of course, was Sam Walton.

Born in Kingfisher, Oklahoma, Thomas Walton was a farmer, banker, and farm-loan appraiser who did not believe in taking on debt. The secret to success, Thomas told his children, was "work, work, work." His son Sam learned that lesson well. As a child, he also got his first taste of retailing—on the customer's side of the counter when family holidays included visits to local stores.

Sam Walton kept visiting stores for the rest of his life, long after he opened his own first store (in 1945). It was a wise practice, since the fast-moving retail industry threatened to leave behind those who failed to spot trends and adapt to them. Walton did not get left behind. He was constantly tinkering with his products and his presentation. And although his early stores were successful, Walton did not hesitate to make a radical change in his retail formula. In 1962—the same year in which Kmart, Woolco, and Target got their starts—Walton opened his first Wal-Mart store. Discounting was then sweeping across America, and Walton wanted his piece of this new retailing phenomenon.

Former Wal-Mart CEO David Glass, who worked with Walton for many years, remembers him as someone who was driven "to improve something every day." This was more than a philosophical stance; it was a practical necessity: His first stores simply were not as good as those of his competitors. "At the start," Walton later admitted, "we were so amateurish, and so far behind." Over the next four decades, though, the company founded by Sam Walton would become not only the world's largest retailer, but also the world's largest company. (In 2002, Wal-Mart topped the list of Fortune 500 companies.)

How did he do it? According to Glass, "Sam's philosophies were really pretty basic, pretty simple, pretty straightforward—which is probably why they worked as well as they did."