Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Tue, 19 Jul 2022 03:54
We kick off Season 11 with the incredible story of the retail “granddaddy of them all” Walmart, and its founder Sam Walton. Once you study Walmart, you realize just how deep its heritage runs through Amazon and so many iconic modern companies we cover on Acquired. This episode was an absolute blast, and we even uncovered a new addendum to the hallowed “focus on what makes your beer taste better” playbook theme!
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Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.
I love how this book is called Made in America and the Sony story is made in Japan. Like I don't know who stole from who there or if it was just the natural title they both chose and didn't even consider it but it's amazing. Welcome to season 11. Episode 1. The season premiere of A Quiet. It's a podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts. When we did our Sony episode we discovered that many Steve Jobs'isms really started as Akyo Marita isms and in all of the research for today's episode we learned that many of the mental models and quotes ascribed to Jeff Bezos were really the original thoughts of Sam Walton. But of course that is also not entirely true either since Sam Walton's greatest gift was the ability to digest, learn, adapt, test and integrate new ideas from others. Today we explore Sam's creation which ushered in a new era of American retail and now global retail from the post World War II period all the way to today. Some astonishing stats on the company is the largest by revenue in the world doing nearly $600 billion a year in sales. Although Amazon is close behind now. It's true. It is the world's largest employer other than public entities like governments employing nearly 2.3 million people around the world. It is still controlled by the Walton family who owns just over 50% of the business a full 60 years after it was founded. Oh we're going to get into how and why that is the case. One other fun step for you. Today 90% of America lives within 10 miles of a Walmart. But there are three places where that is not true and a fourth kind of where it's technically true but not in spirit. Do you know what those places are? No. San Francisco, Seattle, No way. Boston and the fourth place is Manhattan and New York City. It is not technically true because there is a Walmart across the river in New Jersey that is less than 10 miles away but in spirit that is true. What two and a half hours to get there or something? Yes. Wow. So you're saying it's not a company that is built on the urban core. Is that where you're going, David? It's the biggest company in the world. It services all of America except where we live. Yeah, it's fascinating. This really is one of the most classic business stories in America or in the world period. And I kind of can't believe that we're not covering it until now. So let's start season 11 with the bang. There are so many lessons that are totally applicable today and every entrepreneur can learn from Sim Walton. For our presenting sponsor, this episode we are going to break some news about a fascinating new product and strategy that is very relevant for all the founders wondering where their next round of capital will come from. It is fundraise. Longtime listeners know about their real estate investing product but their company journey and philosophies are absolutely fascinating and their CEO and co-founder Ben Miller is with us here today. Welcome Ben. Thanks for having me guys. You've built the largest private investment platform in the world for retail investors. And just so listeners have some numbers around that that's over 350,000 individuals invest with fund rise totaling $7 billion of real estate. You've done this with zero institutional funding. So can you tell us the story of your capital journey and how it leads to this big announcement? We started fund rise shortly after the great financial crisis and the goal was to try to build a better financial system that was different from what just blew up. The last bubble happened because of imprudence and competence, bad incentives and a little bit of greed. So I was concerned when we started fund rise that if we were owned and funded by the same types of financial institutions, they would actually prevent us from doing what we were trying to do. So I know that you raised from sort of one individual early on and then by the nature of the product, fund rise lets individuals invest in real estate. You basically look and realize we can actually fund our business instead of raising the traditional venture route from our customers. I think I have this number right. You've raised $155 million into fund rise the operating company itself from your customers. Right. It was a complete regulatory innovation. From a scale point of view, we dwarf most venture funds. So why would we turn around and raise money from venture fund with all of their incentives for short term flips. They have to raise their next fund. Our customers, they're clearly like our business right. They're invested in our product. Why can't they also basically participate and help build the company? So what I understand that you're doing now is you basically said, oh my gosh, it worked raising from these individuals on the fund rise platform for fund rise was great. I suspect we can do this for other companies too. So what are you launching? So we are launching a registered fund called the Fund Rise Innovation Fund. And what we're going to do is take all the advantages that we got just a long-term capital aligned from the customers, all the benefits of being public without actually having to go public will handle all the regulatory burden and invest in private tech companies. That's awesome. There's a lot of founders that listen to the show. Many that will raise a growth stage round here in the next six, 12, 18 months. Why is it interesting for them to raise from the Fund Rise Innovation Fund? So the fund is a billion dollar fund offering. It's a perpetual life fund. So it has no incentive to ever sell. You go public, we're a long-term holder, right? Google, Facebook, all these companies, why would you sell when you're in public? The only reason is because the venture investors had to pay their LPs and take their 20% carried interest. We don't take a 20% carried interest and we don't have normal LPs. It's just 1.85% asset management for your year, which is much less than the 220 of a typical venture fund. So we're just structurally better incentives. I think it's the future of venture capital. Well, listeners, if you're considering raising a growth round in the next year, you should definitely, definitely explore raising some of it with Fund Rise and their Innovation Fund. Just shoot an email to notvc at fundrise.com. That's notvc at fundrise.com. And if you're an individual looking for exposure to growth stage tech companies, especially in this new, more interesting climate, potentially to be a growth stage investor, you can go to fundrise.com slash innovation. Our huge thanks to fund rise. Well, after you finish this episode, you should come discuss it with the 12,000 other smart, curious members of the acquired community at acquired.fm slash slack. And if you are dying for more acquired, go check out the acquired LPs show. You can search for that in any podcast player. The next episode will be an interview with Patrick Campbell on all the juicy details of how his $200 million acquisition of profit well went down step by step deal point by deal point. And if you want that early, it is already live for paid acquired LPs at acquired.fm slash LP or by clicking the link in the show notes. So cool. Patrick, totally bootstrapped profit well almost like Sam Walton, totally breached your heft. Well, yes, well, without further ado, David, take us in and listeners as always, this show is not investment advice. David and I may have investments in the companies we discuss. And this show is for informational and entertainment purposes only. Indeed. Well, we do have to thank the man, Sam Walton himself and his co-author, John Huey for his autobiography made in America, which is just amazing. It's the backbone of the history we're going to tell here. We first got turned on to it going back and rereading the everything store and finding out that it was one of Bezos's favorite books and you know, formed the blueprint of how we thought about Amazon in the early days. And I think what's cool reading it is it just struck me that Sam and the Walmart story is like the bridge between the business America that was John Rockefeller and Standard Oil and Amazon and Jeff Bezos. Like this is the connective bridge between those two realities. In many ways, he was the last of the Rockefeller type tycoons, but the first of the sort of modern mega corp, not tech business, but almost tech business era founders. Oh, very much tech business. This is what shocked me reading the story is how much Walmart embraced technology and Sam embraced technology and I think they were arguably the first corporation in America to embrace computing as a business paradigm. Certainly to embrace their own private satellite network, but yes, I'll save this for you. Okay, we start back in March 1918 in King Fisher, Oklahoma, which is right in the middle of Oklahoma, not too far from Oklahoma City. At the time in 1918, the population of King Fisher was 2500 people. Today, it is much larger bustling metropolis of 5,000 people, but of course, those 5,000 people have just about every retail need of their service in a first class way by the local Walmart Super Center that is located just south of town. Walmart grew at a much faster rate than the 2X that King Fisher grew in a century. This is crazy. King Fisher, 2500 person King Fisher around this time is also the birthplace of the Coleman company. You know, like the outdoor camping gear? Yeah, starting in King Fisher, Oklahoma. Didn't Jim Weber from our Brooks episodes start his career at Coleman? Oh, I think that might be right. Oh, yeah. We're on like an accident at all CPG retailing kick here. I know. So great. Well, anyway, back in March 1918 in King Fisher, one Samuel Moore Walton was born to Thomas Gibson Walton and Nancy Lee, their first oldest child. And at the time of his birth, Tom and Nancy were farmers, but it was 1918. This was right at the end of World War. One, we're heading into the roaring 20s in America. People are raising their standards of living, the countries modernizing. They wanted to move up in the world. And so his dad goes from working on the farm himself to getting into farm financing. He becomes a mortgage broker for farms working with his brother in the business. This is a theme that's going to recur in the Walton family. And speaking of brothers, in December 1921, Sam gets one for himself, one James Lawrence Walton, but better known as bud. Shortly after bud is born, the family moves from Oklahoma to Missouri, where they move around a bunch. Before ultimately settling down in the lovely, we can personally say truly genuinely lovely town of Columbia, Missouri. Home of capital camp. Yes, home of the University of Missouri capital camp and permanent equity and our friend Brand Beach are there. Yep. So the 20s were good times for the Walton family. Unfortunately though for Sam and bud, maybe fortunately for Walmart, they don't really get shaped by the 20s. You know, they're still like little kids growing up in the 20s. What really shapes them is the 30s and the 30s were very, very different for the middle of America, all of America. But the hardest hit part of the country during the depression was the Midwest farming community because of the dust bowl. So if you've ever read the grapes of wrath or any of the great novels, Steinbecker, otherwise from that period, it was terrible. People lost everything crops failed. And what was the Walton family doing at this time? They were like doubly leveraged. It wasn't just that they were farmers. They were financiers of farmers. So they're living in this nice town of Columbia at this point. Thomas has to go travel around to all these farms that he'd financed and foreclose on them. Literally kick people out of their farms, out of their homes. And he would bring Sam and bud along with him for this. I remember reading in Made in America, I sort of thought that what Sam was going to say is that his father worked with these farmers the best he could to help them save the business where they could or cut a deal. But no, what he actually just said was and he just did it in the most humane and decent way possible. And you're like, whoa, there were not deals or negotiations to be struck. It is we are foreclosing and we just have to be a good human to you. Well, this is definitely happening. I mean, that's probably why he brought the kids along, right? Probably hard for somebody to attack him or get too mad if he had his two little kids there with him. I wonder, yeah, crazy times. But yeah, so all of this makes an impression on Sam. And Sam says in the book in his very same way, quote, all of this must have paid an impression on me as a kid. Although, I don't ever remember saying anything to myself like I'll never be poor. But he says one thing, my mom and dad shared completely was their approach to money after all this quote, they just didn't spend it. I think we've already kind of made the point, but the Walton family goes on to be the wealthiest family in the world. Still, all of Sam's future generations are worth a few hundred billion dollars, depending on the day that you look at Wal-Mart's market cap since it's nearly all invested in Walmart. But it's a multi hundred billion dollar family. Yeah, incredible to go from that to this in two generations. So like many kids during the Depression, Sam and bud is the grown up. They do all sorts of odd jobs around the house to help out the family. Their mom goes in Columbia and gets some cows and sort of restarts part of the farming business. She starts a milk business that they help out. You know, milk in the cows delivering to neighbors in Columbia. Sam starts selling magazine subscriptions. He also starts selling rabbits and pigeons that he raises in the backyard. I don't know who was buying the rabbits and pigeons, but that's what he does. He learns retailing at a young age though. Indeed. And then of course, like every good acquired protagonist, he gets a newspaper route for the Columbia, Missouri, and just like Warren Buffett. That's right. That was on Berkshire Part One. That episode we did. Yeah, I think that was part one. Yep. Oh, that's right. Because he delivered the Washington post before later going on to become a major shareholder. So besides all of these sort of proto entrepreneurial ventures that Sam is undertaking as a teenager, he also becomes at age 13. The youngest Eagle Scout ever certified in Missouri history. Ben, you were an Eagle Scout. How old were you when you became a I got one just in the next time when I was 17 and a half. You must get one before you turn 18. That is the last day that you can get one. You cannot become a Boy Scout. And this is the rules now. I don't know if it's the rules then, but until you're like 12 or 11 and a half or something like that is when you sort of graduate Cubs. So Sam got his Eagle at age 13. So it must have been the only thing he did for that year and a half or whatever. Like that's the fastest advancement to go through whatever five or six ranks in that short period of time. Maybe he counted raising the rabbits and pigeons. That's right. Maybe some Arab edges in there. So the other thing, this is pretty crazy that young Sam as a teenager exhibits. He becomes the quarterback of the football team in this high school. Sam, if you've ever seen any photos or video, such an incredible folksy dude listening to his talks is just amazing. He's five foot nine and very slight. So you wouldn't think that he's going to be a great football athlete. Of course, we're talking about American football here. This is incredible though. I think they win the state championship every year because he never loses a game. This is crazy. He writes about this in the book. He says, I think that record had an important effect on me. It taught me to expect to win, to go into tough challenges, always planning to come out victorious. Later on in life, I think came art or whatever competition we were facing just became Jeff City High School, the team we played for the state championship in 1935. It never occurred to me that I might lose. To me, it was almost as if I had a right to win. Thinking like that often seems to turn into sort of a self-fulfilling prophecy. And man, was that Sam Walden? There's like two sort of contrasting ideas that I've heard different VCs and different founders of spouse on both sides. One is, you know, you learn from your mistakes and you learn from failure. The other is, if all you've ever done in your entire career is be in really high performing very successful environments, then that is kind of all you know how to do and that's the bar that you hold yourself to. And I think there's totally merit to both. I think both of these forces shape Sam, right? Like the depression, the dust bowl, foreclosing on farms, his dad struggles, and he never loses a game. All of that goes right into Walmart. So much of Walmart is trying something doing an experiment, watching it fail on some small scale, choosing not to roll it out or watching it succeed and then choosing to rapidly roll it out across as many stores as possible. We'll get into this. But the very first store opening, they put a whole bunch of watermelons outside. It was swelteringly hot. And they started exploding in the parking lot and getting water melon juice all over all the customers in their cars. That was actually Walmart number two. Oh, sorry. I was in Harrison. We'll get there. But yes, legendary story. So after high school, he goes on to college locally at the University of Missouri. The only way he can go, oh, because his family has no money. It's the depression. Is he attends on a ROTC scholarship? So he still has to like pay his living expenses and mom and dad and the family aren't going to help out. There's no money in the family. So he keeps his newspaper out. But like he's busy. You know, and he actually has like political aspirations on campus. He becomes the president of the class. He's greeting everybody. He's in ROTC's busy. So he hires a few people under him to actually like do the delivery of the newspapers and health kind of scale the business. By the end of college, he's making four to five thousand dollars a year from his newspaper activities, which that's like huge. We're going to get into what his first job pays him in a minute. But four to five thousand dollars a year in the 30s during the depression. That's a lot of money. Yeah, it's crazy. There's a great quote in the book from the circulation manager of the Missouri and says, we hired Sam to deliver newspapers and he really became our chief salesman. When school started, we had a drive to get the kids in the fraternities and sororities to subscribe. And Sam was the boy we had do that because he could sell more than anybody else. He was good. He was really good. It's so interesting that this story parallels Warren Buffett's story in so many ways, but the reasons that they're successful are different. Warren's is about understanding the value of compounding. And it's not that Sam didn't, but if that Sam was a salesman, he's a merchant. He's a retailer. Like he understands how to learn what people want and then go procure the thing in the way that they want it and deliver that to them. They're different superpowers that manifested both in building really successful, periodical distribution sub companies. Warren basically stayed in entrepreneurs. Sam is clearly this natural entrepreneur. When it comes time for graduation though, he decides, you know what? I think I'm just going to go get a regular job, even though he's making so much money from his newspaper businesses. So he interviews with two companies who come recruit on campus, JC Penney's and Sears. And he goes with the offer from JC Penney. Which is interesting because Sears was the dominant retailer. Everyone bought everything for their homes, including some homes from Sears. Yes. I think the first house we lived in in Seattle was a Sears catalog home. Wow. Yeah, so like this is what's funny. And you know, and Sam is like, he really keeps it real in the book. You know, you could tell this like backward looking narrative of he connected all the dots. He wanted to go learn retail, learn the craft from the best, in which case he would have gone to work for Sears. But no, here it's, I had big plans for after graduation. I figured I would get my degree and go on to the Wharton School of Finance in Pennsylvania, Buffett, just like Warren. But as college wound down, I realized that even if I kept up the same kind of work routine I'd had all through college, I still wouldn't have the money to go to Wharton because he would have to pay tuition. So I decided to cash in what chips I already had. I visited with the two company recruiters who came to campus. Now I realized the simple truth. I got into retailing because I was tired and I wanted a real job. Wow. It would not bring him any rest though. No, no, no, no. Maybe this first job at pennies or as he calls it penny, I don't think he colloquializes the way that people did in our era. A guy who is called JC Penny pennies. Right. Well, he ultimately ends up getting to meet James Cash Penny himself. Wait, the guy's name is James Cash Penny. I know, isn't that awesome? James Cash Penny. That's almost as amazing as Price Club being founded by a guy named Saul Price. We are going to talk a lot about Saul Price. Yes. So he's tired. He just wants a regular job. But he's this natural born salesman. So he goes to work in the Des Moines Iowa store of JC Penny as like a floor salesman. And he does great. I mean, literally James Cash Penny comes and meets with him himself. The story that Sam tells is JC shows him how to tie packages, merchandise that is sold with the least amount of twine and paper possible, but still make it look nice to save money. But of course, pretty quickly, this only lasts 18 months because in December 1941, Pearl Harbor happens and the US of course, centers World War II. And Sam had been in our OTC. He's commissioned. He's going to join the Army. He was looking forward to this. So bud, his brother joins the Navy becomes a decorated bomber pilot in the Pacific. You know, Sam thinks he's going to go probably off to Europe, but he fails the physical exam for combat duty. Turns out he had a heart irregularity. And so he's kind of depressed. He's unhappy about this. Bud's going off to join the Navy. And Sam is going to stay home in America at a desk job. So before he gets his commission, he leaves Des Moines and he goes back to Oklahoma. I'm not exactly sure why he just sort of traveled back to Oklahoma. He says in the book that he was sort of depressed at the time. And he ends up in Clare more Oklahoma, which is a small town outside of Tulsa, which it's interesting to point out we've mentioned six seven towns so far. And I don't think most people would have heard of a single one of them. There's a parallel here between Walmart's success and the fact that most people haven't heard of most of any reference that we've made so far. And there one night at a bowling alley in Clare more, he meets and falls in love with a girl named Helen Robson. And Helen was from Clare more, but her father, L.S. Robson was unlike Sam's family, a very wealthy and successful businessman, financier, trader in the broader Tulsa area. And he ends up taking a big shine to Sam and would become hugely influential along with Helen because he marries Helen, of course. And Sam would say the Robsons were very smart about the way they handled their finances. Helen's father organized his ranch and family businesses as a partnership. And Helen and her brothers were all partners. Helen has a college degree in finance, which back then was really unusual for a woman. And Mr. Robson advised us to do the same thing with our family, which we did way back in 1953. And that partnership that Helen and Sam set up is today Walton Enterprises, which owns 36% of Walmart. And then individual family members and trusts, I think mostly Bud's family, owner of the other 11-12%. Yeah, this is the interesting seed plant of Walmart being a family business from the very get-go. They organized it interestingly. Each store was actually its own company so that different people could sort of hold chairs in each store, the management, different people who wanted to invest in the store, that sort of thing. But at a really high level, Walmart always was a family partnership. It was always something where the economic and spiritual ownership and decision-making always was the Walton family. And of course, Sam's the guy. But there was a lot of family meetings to make decisions for the business. And this is why because the family were all partners in Walton Enterprises, they couldn't just sell their stock. The partnership, the family as a whole, had to decide to sell. And that allowed them to keep majority control of Walmart all through the history. Sam talks about this. He says he thinks it's the big reason why corporate raiders or larger companies like Kmart never came and acquired them because the stock was never splintered. It was all within the partnership. And he actually writes, one of the real reasons I'm writing this book is so my grandchildren and great-grandchildren will read it years from now and know this. If you start any of that foolishness, like changing the structure, selling off stock, you know, going off and doing, you know, fancy things. Buying NBA and NFL teams. Buying NBA and NFL teams, which they do now, I will come back and haunt you. So don't even think about it. I love that wording. So Sam and Helen get married and Sam gets posted in a bunch of places all around the country doing kind of internal intelligence work for the army. He goes to Utah, plenty of other places. And he decides that when the war ends and he gets out of the army, he's going to go back into retailing. But now he has the support of Helen and her family and her father LS and their finances. So he knows I now have access to some amount of capital. Like I can be an entrepreneur. I don't necessarily have to work for somebody. So when the war ends, LS initially wants them to move back to Claremore. But Helen and Sam kind of decide together. They're like, well, we want your support. But we don't want to be totally under your wing and in your shadow. So Sam, he's got big ambitions. He and a buddy decide that they want to buy a federated store, department store franchise in St. Louis. They're going to be big. You know, he'd come from JC Penny and Des Moines. He wants to be a big city department store owner magnet entrepreneur. Helen vetoes this outright. We would not be talking about Walmart if Sam had moved the family to St. Louis. So Helen says, look, one, I don't want you doing any partnerships with non-family members. Sam says her family had seen some partnerships go sour and she was dead set on the notion that the only way to go was to work for yourself and for your family. And two, she says, I don't want to live in a big city. I want to go live in a small town like where I grew up in just like Claremore. I don't want to live in Claremore itself. But we are not allowed to move to any town that has a population of more than 10,000 people. I mean, her whole thing was I want to raise my kids the way that I was raised. And she looked at Sam and said, you are raised the same way, small town. And like, that's what we're going to do. And so whatever business he did had to be family owned and controlled and have a small town based strategy. And so like, what seems so intentional and so genius actually stems from the fact that she just vetoed his original idea. Totally. I mean, it's crazy. She had an undergraduate degree in finance for a woman at that time. She was very involved, obviously in the strategy of the business. In the 30s and 40s, the number of women with undergrad finance degrees in the US was probably tens of thousands. It could not have been a large number. Yeah. And also like Kudos to the family and LS and his wife for encouraging her to say, she had brothers like it would have been easy for him to say like, okay, the boys are all going to take her over the business. Right. Which is like what we saw in the New York Times family or yeah. Or the rock of hellers too. So Sam, you know, he doesn't stay down for a long. I think he was a little disappointed that his wife had overruled him. But you know, he finds a way. So he goes back to the company that owned federated, which is a company called Butler Brothers. They were franchisers of federated. They were based in Chicago. And he asks, well, do you have any department store locations that might be available in a small town of say 10,000 people or less? And the Butler Brothers guys are like, we don't really do department stores in towns like that. But we do have another sort of spin off operation that we run, which is our variety store franchising business. Like there literally wasn't enough people they believe to support a department store. Variety stores are they're like glorified general stores. I mean, when you think about a town that's like two, three, four thousand people, it really is like if you visited an old west town and looked at a general store, it's like that on steroids. You know, it's like that. But a few decades later, you know, variety store businesses. Yeah, that's exactly it after the depression and after World War II. That was how small towns and areas were serviced to retail. And they're mostly franchise operations. This particular one was Ben Franklin was the brand name like Benjamin Franklin, general store type place. And when you say franchise operation, it's because it's way too much of a burden to like source your own inventory, carry your own inventory, maintain all those different vendor relationships. If you're in one of those towns, you're serving two thousand people, you're kind of the one store there. What you really want is to sign a contract and just get the shipment of the stuff that goes into the Ben Franklin stores in all the small towns. Yeah. And just be literally the merchant serving your customers. That mindset dominated. It's worth a pause here to talk about what these stores were because it's a very foreign concept to anything we're familiar with today. These variety stores, they were also called five and dimes. If you've ever heard that term, like a 5 cent 10 cent store. And the reason for that is that most of them every item in the store was either priced at 5 cents or 10 cents. That was the level of sophistication here. The other big, big difference between how these stores operated in modern retail today, which say I'm really invented was they weren't self service. Oh, he didn't invent that. He stole that. We're going to get to it. We're going to get to it. Okay. So you would walk into these stores and there would just be a counter area up front that had clerks and you would tell the clerk what you wanted. And then the clerk would go back into the store, pick out what you wanted, bring it up to the front and check you out. Because like there wasn't really choice. You're like, I need a hose and they would go get the hose. It's not like, well, let me see all the different brands and sizes and colors. It was like, I know you have hoses here. Can you get me one? The merchants were making the decisions on the inventory. It was all just being handed down on high from Butler brothers back in Chicago. Yeah. I did not understand when reading this book, when he kept referencing stores that they were not stores where you walked around and got your own stuff off the shelf, that that is a modern concept. That is crazy. I don't know exactly how the department store model worked. Like, you know, JC Penney's or Sears where Sam had worked. But I think it was also not really what we're familiar with. I think when Sam was working as a salesman and Des Moines at Penney's, you know, it was sort of like an even higher touch version of this. I believe if we're like a customer would come into the store, the salesperson would greet them and then sort of like escort them around and curate their shopping trip. Very, very different experience. Yeah. So Butler brothers, Sam's having this conversation with them. They're like, well, probably you want a Ben Franklin franchise. And it just so happens, we've got the perfect store for you in the little town of Newport, Arkansas, the current owner of the Ben Franklin franchise there wants to sell. In Newport, it's a little town's about 7,000 people. It's in Eastern Arkansas. Now, if you know where Ben andville Arkansas and Walmart is today, it's not in Eastern Arkansas. And Sam's like, great, I'll take it. Say unseen. Now, you have to ask yourself, it is 1945 in America. The war has just ended. And unlike 1945 in Japan, like we talked about with the Sony story, retail in the US is booming. Everyone's coming home. There was the GI bill. Everyone's got new homes. Everyone's certain families. Like, there's a lot of stuff to buy. There's a lot of stuff to buy. It doesn't matter if you're a department store in a big city or a variety store in a 7,000 person town. Like everybody in retail should be making money hand over fist right now. So the question that Sam didn't ask himself and should have was, why does this guy want to sell? He says in the book, a guy from St. Louis owned it and things weren't working out at all for him. He was losing money and he wanted to unload the store as fast as he could. I realize now that I was the sucker butler brothers sent to save him. I was 27 years old and full of confidence, but I didn't know the first thing about how to evaluate a proposition like this. So I just jumped in with both feet. My negativity about contracts and such would later come back to haunt me in a big way. Wow. So he and Helen buy this store. This distressed asset at not a distressed price. Yes, they buy it for $25,000, $5,000 of their own savings and $20,000 loan from LS from Helen's father. And Sam, he says, this isn't what I dreamt but I'm still going to set big goals. He decides that he's going to set a goal that this store is going to become the most profitable variety store in Arkansas within five years. It's quite the turnaround and is also the first indication of Sam setting these big harry audacious goals. He has this subsequent obsession with set a goal, hit it, set a goal, hit it. And that really does drive all of his need for experimentation because he finds himself in these situations where he has a goal set and he must invent some way to hit it. Well, it also sets the stage for what was to come. He sets this goal and then he gets there and this is not a realistic goal. He says, only after we close the deal, of course. Did I learn that the store was a real dog? It had sales of about $72,000 a year, but its rent was 5% of sales, which I thought sounded fine at the time, but which it turned out was the highest rent anybody had ever heard of in the variety store business. No one paid 5% of sales for rent. And it had a strong competitor, a sterling store, which was another franchise across the street, whose excellent manager, John Dunham, was doing more than $150,000 a year in sales double mine. Yikes. So not only is it unlikely that he's going to be the most profitable store in Arkansas, it's unlikely he's going to be the most profitable store in Newport. Yeah. So what does Sam do? He goes right across the street into Dunham's store and he starts trying to figure out why Dunham is twice as successful as he is. Yeah. And this is a thing that speaking of the first time Sam does something that he then does forever, he becomes notorious for going into competitor stores, bringing it a little notebook, later bringing it a little tape recorder, and just seeing what he can get away with, interviewing clerks, interviewing associates at these stores. Anytime he's traveling with the family on vacation or anything, he's just going into all these other stores and observing and taking notes and figuring out what their systems are, what's working, what's not working. So here he learns that valuable lesson for the first time. So great. I was going to bring this up later, but I think he says in the book that he believes he has spent more time in K-Mart than any non like individual store employee of K-Mart, including K-Mart senior management. Yeah. And also, we keep referencing K-Mart. When I was growing up, I was like, Walmart K-Mart, I think K-Mart's kind of like Walmart about the same scale, same size, kind of a little lower end. Like that was my perception as a kid of K-Mart. I didn't realize that K-Mart for a very long time was much, much larger than Walmart. They were kind of Walmart's big brother incumbent. They were the gorilla. I don't know what year this was, but I remember some quote from Walton where he's talking about when we reached 5% the scale of K-Mart. And it's like, whoa, that really puts it into perspective. How big a lead they had. So you mentioned no pad. It's actually a yellow legal pad that Sam uses. Sorry, David. Famously, he has his yellow legal pad and he's going into competitor stores. He starts like diving in dumpsters, trying to get sales receipts and inventory orders and stuff, figure out how these stores are operating. And he quickly realizes from both Dunham across the street. And also, he's doing this all over the countryside, going into small variety stores all over Arkansas, just trying to learn. He realizes that price and running promotions, cutting prices on big, marquee kind of attractive items like health and beauty aids, toothpaste, mouthwash, makeup, that kind of stuff. That really drives customers in. He's like, okay, you know, he starts doing that. He has some success. But there's a problem, right? Like we talked about Butler Brothers is the franchise or they're controlling all the inventory. You know, Sam is the merchant is just getting whatever they send to him at whatever cost they prescribe. And Butler Brothers, they're doing great. They get about a 25% markup on all the inventory and they don't even do anything. It's almost like they set up the whole system just to keep these prices high out in the countryside and they just get a, you know, 25% skim off the top. Yep. So what does Sam do? He starts figuring out who the manufacturers are of some of these goods. And for manufacturers that are also located there kind of in the south and the Midwest, he starts driving around and knocking on their doors and asking if they'll do side deals with him and just like sort of, you know, clandestinely sell him some of the merchandise that he otherwise would be ordering from Butler Brothers and that they would be selling to Butler Brothers. They just give him a deal directly on that. And you know what? Like he's operating a small enough scale that Butler Brothers doesn't really notice. And to be frank, like there wasn't good tracking or accountability at this point. I mean, there wasn't computers yet. So there's no computerized inventory here. You'd have to really be paying attention to figure out, oh, maybe Sam's not ordering quite as much of this stuff from us as he should be. He's driving around himself. There's no management. He has some clerks working in the store, but it's just, say, I'm in, you know, hell and run in the place. So he's out. He drives to visit them. He's got to get a deal done on the spot. So he goes, he knocks on the door, meets these people and is like, I want to buy it right now. I've got a trailer hooked up to my pickup truck outside. Can you just load the inventory right into the back? And I'll drive it back to Newport. Yeah. Because so he says, I bring them the inventory. I bring it back, price it low and just blow that stuff out of the store. Which this is an invention. Like this is a brand new concept that we kind of take for granted now, but is totally a Sam Walton invention to meet his own needs, which is creates something that is astonishingly low price to get people in the store, take no margin on it. Make it a loss leader. Who cares? But get people in the door, spending time in your store and they look at other stuff. And this would become a cornerstone of Walmart forever after this. And for every other retailer, even a pricing of SaaS products now, where you look at it and it's like, oh, I'm on the free plan. Right. It's not that he invented loss leadership as a category, but he figured out how to make it work in the retail model. Yes. He figured out how to really merchandise, operationalize, you know, downhums across the street was running promotions, right? But denim wasn't thinking about, oh, well, maybe I could sell even lower if I go home, I pick up truck out to these manufacturers and get goods at a lower price. Right. And of course, once you're hauling your pickup truck to go meet the vendors directly, it's not that far of a cry to say, well, what don't I have in the store that I'm getting from Butler Brothers? Like, what could be interesting? You start getting good at doing these direct deals and sourcing your own inventory and figuring out how to merchandise products that you personally believe will sell. And this is really where he started to hone that skill craft and sixth sense for deeply knowing the American consumer or let's say consumers in this area and his communities and having a real spidey sense of what would make them go crazy and have really product market fit in people's homes. Price selection convenience, right? That's the Holy Trinity of retail. But nobody really knew this yet. And frankly, all of those things are important, but for the majority of people out there in the world and in America at the time. And certainly the vast majority of people in these small towns, like selection and convenience life was inconvenient period. So like you're going to go through some inconvenience to get things selection. There wasn't much of no matter what. And we just came out of the Great Depression. Price is very important. Customers will go to great, great lengths to get lower prices. People would make date trips. People would drive five hours to other cities to get a deal on goods. It's crazy. He says, here's the simple lesson we learned, which others were learning at the same time and which eventually would change the way retailers sell and customers buy all across America. Say, I bought an item for 80 cents. I found that by pricing it at $1, I could sell three times more of it than by pricing it at 120. I might make only half the profit per item. But because I was selling three times as many, the overall profit was much greater. Simple enough, but this is really the essence of discounting. By cutting your price, you can boost your sales to a point where you can earn far more at the cheaper retail price than you would have by selling the item at a higher price. And always low prices, always Walmart. There it is. So we're not quite at Walmart yet though. Did you know that our slogan for a long time was always the lowest price always. But then there was like a FTC lawsuit against them where they changed to always low prices because it was like false advertising that didn't always have the lowest price. Once they got to a certain scale at Walmart and it was bigger. I think the original company wide slogan was always low prices always. And then at some point they changed it. I think in the 70s, to always the lowest price. Like we're going to push it even farther and they got away with it for like five or six years. And the government had a little something to say about that. Yeah. So all this sounds like Sam says there. It sounds simple, right? But like people didn't know this stuff yet. Like retailing had not professionalized. We're not that far removed from Rockefeller, like the general store like post World War II. This is all new. So this is incredible. He actually hits his goal. So by year five of the Newport store, he's doing a quarter million dollars, 250,000 in sales. At a 30 to 40,000 dollar annual profit. Remember, he bought the thing for $25,000. And that's including the crazy 5% rent charge in his expenses. So his operating margin on this is 24%. He's making very, very real profits on this little store that he's gotten. If he had a better rent deal, it could be like 28%. But at those numbers, it is the most profitable store in Arkansas. And the biggest store by sales, not just in Arkansas, but like the whole Midwest and South region. So like he has found a winning formula here, which is interesting because I'm pretty sure at this point, he's got a bunch of direct deals cut with the suppliers. And he's added a bunch of products of his own. He's really merchandising. So he's really showing up on Ben Franklin's radar on the Butler Brothers corporations radar. And they kind of know what he's doing at this point. But it's good for them, even though it's good for Sam, it's also good for them because volume and customers. Right. He's by far the best performing Ben Franklin store in country at this point. Unfortunately, though, like I said, there's a reason that Walmart is not headquartered in Newport, Arkansas. Butler Brothers wasn't the only related party to Sam who figured out what was going on here. His landlord that had pulled one over on the previous owner and had the super-ownerous rent terms also figures out, of course, how great Sam is doing despite having the dextect against him. And he decides he wants to take over the store. So he goes to Sam in year five is when the lease expired and there wasn't an option in the contract to renew the lease. So the landlord goes to Sam is like, you know what son? You've done a great job. I thank you for turning this property in mind around. I'm going to take it from here. And like just to contextualize this, it's a 7,000-person town. There's not really many other available storefronts. He's got tons of shelves in there with tons of good. It's like a meaningful amount of inventory that's being carried on the business. It's not like you can be like, oh cool, I'll move next door. That option does not exist. So his landlord comes to him and says this and he's like, wait, oh my god, oh my god, I have no other options. He says it was the low point of my business life. I felt sick to my stomach. I couldn't believe it was happening to me. It really was like a nightmare. I say this is a saving grace, although the reality is Helen's father would have financed Sam's next venture, no matter what. But sort of the saving grace for Sam's pride at least was that the landlord did buy out the value of the Ben Franklin franchise license and the hard assets, the inventory, the fixtures, etc. in the store. So he pays Sam and Helen $50,000 to take over the store. I'm going to guess that's sort of a what two X return. And what was what was the operating income from the previous year? 30 to $40,000. Yeah, wow, brutal. But at least they get the $50,000 out. So this is now 1950. And Sam and Helen hit the road again, looking for a new town to bring their traveling circus to and have a little bit more knowledge on lease negotiation. Yes. So they go up to the other corner of the state in northwest Arkansas. That's where they start looking around for the next place to set up shop for two reasons. One, closer to Helen's family in Oklahoma and Clare Moore. And two, like I said, Sam keeps it real. He was like, you know, there's some really good quail hunting up there. And I really wanted to be closer so I could drive my bird dogs out and go hunting. Yes. And more specifically, it's not just that there's good quail hunting. It is that he will be very close to four states, which each have their own quail hunting season so that he can get the maximum amount of quail hunting in with an easy drive from his house. Yes. So great. Lots of business decisions being made here on family. We need to be in a small town. We need to only work with family. Sam, I need to be able to hunt quail in the maximum amount of time that I possibly can. So the opportunity that they find and settle on is in a little town of three thousand people. So less than half the size of Newport that already in this town of three thousand people had three variety stores operating. Newport had two for seven thousand people. This town has three for three thousand people. As Sam says, he loves competition. And that town is Bentonville, Arkansas. Yes. Sam probably almost as surely as rolling over in his grave right now. The new Walmart campus. The new Walmart campus that they're building. It looks absolutely gorgeous, which I'm sure he would be furious about. Yes. If you thought Warren was, you know, a penny penchant, very plain no frills, no fancy things, entrepreneur, Sam Walton, hard to argue, who's sort of more frugal and less showy. I mean, Sam eventually got into airplanes for very, you know, practical use, but Sam is not a showy guy. Actually, the anecdote that he and John Hewley open made in America with is I think it's 1985 when Forbes ranked him the richest man in America. And all these reporters, you know, start descending on Bentonville. They want to go interview the richest man in America. And he still drives an old pickup truck that has cages in the back for his bird dogs because he goes, you know, hunting in the four states nearby. And it's this big sensation that the richest man in America drives a beat up old pickup truck with cages in the back. And he's like, well, what am I going to drive my dogs around in a Rolls Royce? All right. So they arrive in Bentonville, Bentonville in the world are forever changed, but it doesn't happen all at once. No. So the store that they buy is another Ben Franklin franchise that had done $32,000 in revenue the year before. Quite a distance from the $250,000 that they left Newport with. And Sam decides he's like, all right, well, this is a small market. This is a small store. There's a lot of competition. But I have big ambitions. He's got his ear to the ground in retail. And particularly in the Ben Franklin franchise, he, you know, sort of network. He hears through the grapevine that there are two Ben Franklin stores up in Minnesota that were trying a radical new concept. They were redoing the whole way the store was laid out the way it worked. They were removing the upfront counters or turning them into checkout counters and letting customers go into the store, browse the merchandise, pick it up themselves, select it themselves, and then check out. So he's like, I got to go, I got to go see this. He takes the overnight bus up from Arkansas, up to Minnesota and checks them out. He's taking notes the whole time on his, you know, yellow legal pad. And he says about that trip, I liked it. So I did it too. I love how he's so obsessed with firsthand experience. He couldn't just hear about this in that implement. And he's like, I must see it for myself because he so fervently believes that he picks up insights from like actually spending time in stores and actually talking to customers. And it seems like he does that sort of more than any other entrepreneur we've ever talked about on this show, this obsession with firsthand experience. I think everybody can apply this to their business. I was thinking about it reading the book. You know, I started so many passages like this. I'm like, I already listened to lots of other podcasts. Unlike when we started acquired and I didn't listen to any other podcast, we should find the best ideas and incorporate them. Yeah. There's a great quote about this when Walmart actually gets started later that I'm gonna tease it for now. So on July 29th, 1950, just about what is that? 72 years ago, they re-open the Ben Franklin store that they bought. Still a franchise? Still a franchise. Still a Ben Franklin franchise. Still working with Butler Brothers for most of the inventory, quote unquote. But they want to send a message that this is a new era doing the self-service new store in Bentonville. So they rename it Walton's Five and Diem. And it becomes the third self-service variety store in the entire country. And it's fascinating that they picked this name because part of the reason why you do a franchise is the brand. Sure, it's nice to get the inventory and the negotiated relationships and prices and all this stuff. But really what you're buying is people know what a Ben Franklin is. And so they would come to the store and what Sam is saying is, eh, I feel pretty good about building my own brand. I know I'm in one way or another paying to use the Ben Franklin brand, but we're not going to use it. It really was rational because even though Sam on the margins is doing his own direct deals with manufacturers at this point, it's a ludicrous concept that somebody in a little store in Arkansas could source all of their inventory and do all of their logistics by themselves like, yes, that is completely freaking crazy that a store servicing 3,000 people in a little town would handle all of that themselves, but they launch with the new name. You know, it's the new concept itself service. It causes quite a stir. Now, I believe I couldn't find this exactly, but I believe in that first year when Walton's five and dime is open. Remember the previous Ben Franklin iteration of the store had done I think what $32,000 I said a year in revenue, something like that. Walton's five and dime does $90,000 in sales the first year. Now, I don't know what the competitive dynamics were between the three stores in Bentonville, but remember the town only had 3,000 people. So if you assume the previous three stores roughly had equal market share, you know, it's a big assumption, but let's just for argument's sake, that would mean that the whole market size of Bentonville, the whole tam is $90,000 and they did $90,000 in revenue. So what was happening here? Yeah, is there massively expanding tam? Did they expand the market because people are just buying more stuff than they otherwise would have? I don't know what happened to the other two stores, whether they went out of business or not. Certainly, they wouldn't have right away. I think what happened was this caused such a stir that people started coming to shop at Walton's five and dime from other towns. I think it was the first time that Sam realized that shock value would bring customers much like I didn't need anything the first time I went to an Amazon go to like try the cashier list checkout. People sort of came for novelty value here and that taught him the lesson of oh, maybe we should always have novelty value. Maybe there's like reasons why people should be coming to Walmarts even if they aren't necessarily looking to buy something. Yeah. And if you think about it, or like put yourself in the shoes of customers back then, and Sam talks about this a lot in the book, you know, for so long and we'll get into the competition with Kmart, everybody thought Walmarts, Sam, all their customers, they were just like hicks and the sticks, right? Just completely like morons out there. Nothing could be farther from the truth. Like he says, like my customers were also sophisticated retail customers. They knew about what was going on in the cities. They had relatives there. They'd go visit. It's not like they didn't want first class shopping experiences in their own home towns. So clearly this makes a big splash. So Sam realizes that he might have a tiger by the tail here. And so he starts looking unlike a new port where he was satisfied, you know, the store kept growing. He did $250,000 a year in sales. He starts looking to open up more locations more five and times. He also doesn't want to have all of his eggs in one basket and one lease like he did a new port. Right. Didn't he open a store directly next store to one of his competitors just so that his competitor couldn't expand their store? Yes. It's like it wasn't a high performing store for him, but he was like at least it didn't let them get the square footage. Yes. Clearly he's a very competitor focused. Yeah, it's funny. Like there's so many Jeff Bezos'isms that when you read this book and you learn about Walmart and Sam Walden, you realize that they were originally Waldenisms, Samisms. But the whole Amazon like where customer focused, we're not competitor focused. Sam would have said absolutely not. We're absolutely competitor focused. We are focused on taking the best stuff from our competitors and implementing it here. All right. Yeah. Well, we're here. We have to say it. So eventually a Walmart does go in back in Newport and there is a little store that is run by a family member of the landlord that screwed over Sam that does get put out of business by that Walmart going in. And Sam makes the point. You can't say we ran that guy. The landlord's son out of business. His customers were the ones who shut him down. They voted with their feet. To me, this is that perfect overlap of are you competitor focused or customer focused? Well, both. You have to win in a market by counter positioning in some way and Walden did it by discounting. But that obviously has an impact on your competitors and you need to be able to counter position against someone like a competitor. So in the big realization is, oh, customers always want lower prices and satisfaction guaranteed and all the other Walmart isms that will have impacts on your competitors and you have to pay attention to those competitors. But ultimately the customers decide. Sam is willing to blame the customer for putting the competitor out of business. So in 1952, just a short while later, Sam opens up a second store in nearby Fayetteville, Arkansas. Because again, it's just Sam and Helen when she can help it out with the bookkeeping managing the first store, Sam needs to hire somebody to go manage Fayetteville because he's working in Benville. So he brings on a guy named Willard Walker, who is managing a variety store in Tulsa before that. And the way they convince him to move to Fayetteville and take over this sort of new concept is they make him an offer he can't refuse. They make him a partner in the store. Then this is what you were referring to. Earlier, they give him a percentage of the profits that that individual store makes. And in fact, they set up that store and all future stores as their own partnerships. This is something I didn't understand until reading the book becomes a huge part of the playbook for Walmart's for decades, which was every store manager in a new store opening was given at first equity in individual partnerships. And then later profit sharing incentives in that individual store. So like that sets up a true alignment of incentives. I don't think anybody else was doing this at that point in time. And then even better. So all the pool of existing store managers, whenever they open up another store, Sam and Helen give them the opportunity to invest dollars in the new stores and the new partnerships. So now you're incentivized on success of the whole network. And you're incentivized to information share and you want everybody to do better. They get carry and they should make a GP commit exactly. And actually, this is super brilliant. I was thinking about this with regard to tech companies today and everything. And like, even though employees of tech companies get much better economic deals with stock options, I think psychologically, this is a better way to do it. What Sam was doing. You're putting your own money at work and you're incentivized both on your own personal performance in the store, which is like an RSU type equivalent. You can't really do this in a tech company, but it's scoped to your performance. Like it's independent of other store performances. But then you also in the, you know, the equivalent of tech company equity, it's not just that somebody gave that to you or the company gave it to you. You put your dollars into it, which is what a stock option is supposed to simulate because later you later you put your dollars in if you feel that it's a valuable thing to own. And you, but I don't think people think about it like that. No. Well, people think about options like it's direct equity. That's the biggest problem with options. Most people do not understand what they're actually getting. But yes, no employees are ever asked to invest in the business. That is definitely not what seems to happen in 99.9% of startups. And then reading more in the book about this. So during this period, and in the early Walmart corporation period, it was just the store managers here doing this, not the hourly employees. There was a gigantic chasm. I mean, there's still a big chasm today, but two completely different classes of humans in those early days between the store managers who were salaried and employed by the partnership. And of course, the to be called associates, but the hourly workers who were not. And so the couple interesting things. One, the people who were the store managers, this wasn't quite like white collar workers get somewhere in between. Most of these people didn't have college degrees. They were salaried. And then they got equity in these partnerships. But you know, it wasn't like these were Wharton graduates that were coming in and doing this intentionally not those folks were kind of discriminated against in the Walmart culture, especially in the early days of like think you're better than us college boy. Totally. One of the first managers was nicknamed the bear and he had one eye. There's some crazy stories out there. They were, you know, bringing donkeys into the store like we're talking Walmart. So like take us to Walmart. How did we get from the Walton's Fimbledon? On the employee front, after Walmart went public, Sam instituted both profit sharing at the store level with the associates with the hourly employees, but then also an employee stock purchase program. And this is cool. So Home Depot modeled their employee stock program purchase program after Walmarts. And it's brilliant. It's the same thing. You put up your own money, but you can do it pre-tax dollars out of your paycheck at a 15% discount to the stock price. This what Microsoft let me do when I was a PM there. In addition to your stock based compensation, they call it an ESPP at employees stock purchase program. Microsoft only let us have a 10% discount. So very kind of Walmart to give a 15% discount from market price. So their stories in the book of hourly associates that made millions of dollars in the 70s and 80s off of the employee stock purchase program. It's pretty cool. Wow. Speaking of Home Depot, did you know that's a venture capital backed company? Yes, it's an amazing story. Yeah, we should do that at some point. And totally inspired by Sam and Walmart and everything. Okay. So back to the 50s in Arkansas. Remember we talked all the way back in the beginning of the episode about Sam's brother, bud. Well, bud had gotten into the Ben Franklin business himself after the war in Missouri. One day, Sam is visiting Kansas City. And he hears about a new suburb development going in just southeast of the city called Rushkin Heights. And it's going to have a shopping center, this newfangled concept right in the middle of this suburb subdivision. And there's going to be a grocery store and a drug store and real estate for a big Ben Franklin store. So Sam calls up bud. And he's like, we got to go in 50, 50 on this. This is a huge opportunity. And they do. And it is a banger, $250,000 in annual sales the first year in Rushkin Heights. And then $350,000 the year after it just keeps growing and growing. Sam says, when I saw that shopping center catch on the way it did, I thought, man, this is the forerunner of many, many things to come. The only problem was Rushkin was actually kind of a red herring. This was the future. This was the forerunner of many things to come. But it was still a little bit ahead of its time. This was really a 1960s thing, not a late 50s thing. Sam is convinced though that it's the future. So he starts going around in Arkansas and Missouri, evangelizing the towns and city planners about putting in these shopping centers for which they would be the anchor tenant. But it's super slow going. Dealing with local government, it's hard. It takes a long time. He wants to move fast. So he starts trying to put his own real estate deals together for multi-tenant shopping centers and fails. And so eventually he goes back to Helen's advice. He's like, well, these multi-tenant shopping centers, I see the power in Rushkin, but it's dependent on too many other people. But if I'm willing to invest some capital, I could just put bigger stores in in these same locations myself. And that's what he starts to do. Does he become his own landlord then and just buy the land? Or what requires more capital? That's a good question. I don't know at this point if they were doing real estate themselves, but certainly they're like building out bigger store concepts, required capital to build the stores. It's not like there were existing structures there. And then to outfit them with all the fixtures and all the inventory for the larger stores. But he and Bud together start doing this. They call these new stores, quote-unquote family centers. And they start doing like unheard of numbers, a million dollars, two million dollars. I know they're still sourcing the inventory from Ben Franklin from Bollard Brothers. Yes. So they don't yet have their own distribution inventory logistics network setup. That was the big step of Walmart. These were still just like much larger versions of Ben Franklin's and they were working with them to get all the inventory to them. And they've already at this point they've been so many rules with Ben Franklin like changing the store layout and concept and where they're going and starting to dictate more terms naming them on their own. And so at this point they're really starting to treat Butler Brothers as more of a component of the Walton business rather than Walton being a franchisee of Butler Brothers. Exactly. So these quote-unquote family centers that Sam and Bud were building, they're still Ben Franklin franchises. They're just, you know, the Walten's are now taking over more and more of control of the concept. They're self-service, they're larger format, but it's still part of the Butler Brothers cartel, shall we say? Yes. And because they were part of Butler Brothers, Sam and Bud were limited on how much discounting they could really do. They were aggressive on pricing probably more so than other merchants at the time and they had self-service, the large format, you know, all this interesting stuff. But the prices weren't like that much different than other stores. It's worth knowing that we don't think about the notion of discount stores today being counter-positioned against something like all big stores have things at kind of the lowest price you can find them because they're all discounters now. I think it's 87% of market share in America is discounters. Yeah. So there's either like specialty high-end retail, which is often directly from the manufacturer, sort of like vertically integrated or specialty source or something, or if you're buying things at it, we consider a big regular store. They're all discounters and at the time there were no discounters. Everyone was marking up their goods by about 45%, which means that the gross margin, like if you're buying something and then marking it up 45%, it means your gross margin is about 33% as a retailer. And that was on top of the markups in the middle from the franchise operators. The competition was so low that you totally could just do this for reference just so people have a sense today. Walmart probably has a gross margin between 20 and 24% at any given time. And every store had like a 33% gross margin. Even the like target is sort of like a high-end discounter. It's sort of like a nicer stuff, more expensive. They're in the 29% category, but everyone was 33% or above gross margin at this point in history. Before this episode, I didn't think of target as a discounter. Right, but that's what it is. It's a discounter. It is this model that Sam is about to perfect here. Yes. So you said there were no discounters yet at this point in time. Just like with self-service, that's not totally true. And actually even more so, you know, self-service, there were the two Ben Franklin's in Minnesota that was doing it. You could argue they were first, but Sam was really the first to bring it to market in a real way. There were folks bringing this new discounting model idea to market. Was it Ann and Hope? Was that the most successful? Yes. It was Ann and Hope stores in New England and contemporaneously. At the same time, it was FedMart and Salt Price down in San Diego in Southern California. Which I didn't know Salt Price had a, I mean, I should have known this, but I just haven't been a student of Salt Price. I didn't realize he had a big venture before Price Club that FedMart was his first very large successful thing. I didn't know. I bet 90% of our listeners didn't know you probably did know. Salt Price, you know, FedMart and then Price Club, which he starts later, that's Costco. Costco was a merger of Costco in Seattle in the Northwest. With Price Club, Costco is the legacy of Salt Price. Isn't there something like Jim Senegal worked at Price Club or was like a disciple of Salt Price? Yes. And then left to do the same concept up in the Northwest and then they ended up merging together. It's all the same DNA. That's Costco. Basically, everyone's marking up their goods 45%. And nobody has done other than Ann and Hope and a few other select folks that haven't really rolled it out at scale or really popularized the movement. No one has done discounting. But what is discounting? Two major components. One is big loss leadership. So blow it out in order to get people in the store, do it in dramatic fashion and then people buy other stuff. Two is we make it up on volume. Just don't mark stuff up that much period across the whole store. Decide that you're only going to mark things up 25% instead of 45%. And then, you know, when you do that, of course, you don't make as much money per item, but everybody buys more stuff in your store. This hadn't really been proven yet. Yeah. And there's another component. What you're saying, which is Sam's original lesson of you actually make more profit dollars selling items at the dollar than you do at 120. Because you sell three times as many. Yep. But there's also the piece in the middle, the franchisor, the Butler Brothers piece. Remember, they're taking 25% from the manufacturer to Butler Brothers and then out to the stores. And that's how most everything operated. These discounters, they're like, not we're going to go direct to the manufacturers for everything. Just like Sam was starting to do in this, but on the margins, we're just going to completely not be a franchise operation. We're going to own and operate everything. And we're going to operate our own backend, our own supplier relationships, our own distribution. There's a great quote. This is again later in Walmart's development. And it's when Sam Walton is sort of informing the Walmart vendor relations team and merchandisers on how to deal with vendors. And he's telling them, don't leave in any room for a kickback because we don't do that here. And we don't want your advertising program or your delivery program. Our truck will pick it up at your warehouse. Now what is your best price? And if they told me it's a dollar, I would say fine, I'll consider it. But I'm going to go to your competitor. And if he says 90 cents, he's going to get the business. So make sure a dollar is your best price. If that's being hard knows, then we ought to be as hard-nosed as we can be. You have to be fair and upfront and honest, but you have to drive your bargain because you're dealing with millions and millions of customers who expect the best price they can get. If you buy the thing for a buck 25, you've just bought someone else's inefficiency. Totally. I love that. I mean, it is brutal, but that encapsulates the philosophy so well. And there's so much baked into that that people don't even realize to get to the point where you could do that. You need to operate the entire back end of retail yourself. Sam and Bud and Walmart, they're starting from they don't have anything. To get to a point where you can have conversations with suppliers like that, you need your own shipping carriers, trucks. You need your own distribution centers. You need your own ordering systems. You need your own technology. Like they don't have any of that. You need to forecast. You need to be able to understand we're going to sell it off of these units to go buy a crap ton at this super low price. We need to be able to be so confident in that that we can tell the supplier to spin up new inventory and so that we will buy it to increase their production. Okay. That's all the future. So in this moment. Okay. So in this moment, Sam, of course, goes out. He goes in shops, he travels to the Northeast, he shops in and in hope he goes out, he meets all price, who he already knew. And we're in like 1960s. Lee 50s. Okay. Lee 50s early 60s at this point before 1962. And he sees what they're doing. You know, they're doing this proto discounting in big cities. And you know, rings around big cities, not necessarily in like the primo real estate downtown, but like where you have access to logistics hubs and you can sort of scrounge together and make this work. The idea that Sam could copy this and go do it back in Arkansas, it's crazy. What manufacturers are going to ship stuff to Arkansas, especially big volume stuff. Yeah. So he goes, he meets with Saul and Anna and hope. And he's like, you know what? I think I can make this work. I think I can do it. Now, even he knows what a huge undertaking this is. So he actually goes back to Butler brothers. And he's like, we've been great partners. We've really innovated on a lot of stuff together. I have seen this discounting model. I think it's the future. I know customers like low prices. I've got these new large format stores. Why don't we work together on this? I need you to handle the backend. You have the scale to be able to do this. You already distribute out to small towns like mine. Let's partner on this and do it together. And Butler brothers says no. By the way, this is like when Vitalik goes to the colored coins guys and says, hey, let's partner on this thing together distributed world computer. I think it's the future. And they're like, no, and he's like, okay, I'll go start a theorem. Yes. That is this moment for Walmart. And you know, and Butler brothers defense, they sign their own death warrant here. But that was the rational thing to do. This is like a counter positioning thing. If they had done this, they had all these other Ben Franklin franchises out there. So if they had done what Sam is proposing, and essentially taken out their markup on goods that they would provide to Sam stores, what are all the rest of their franchises going to say? It is literally the innovators dilemma because they have too much baggage to actually pull this new thing off. And to be more specific about that, there is too much ongoing revenue that they would cannibalize in the short term by messing up all those relationships they had with their other franchisees where they would probably turn too much of that and risk the whole business. So they could not take advantage of what could be the new wave. Yeah. And the thing that Sam knew the minute he saw discounting was all of those stores are dead anyway. Yeah. Just matter of time. Somebody is going to come bring discounting to Arkansas and Missouri and Texas and Florida and everywhere else. And those stores are dead. It's that insight that people far out from cities want the same thing as people in cities. And so they're just as bright, they want the same things in life. They just happen to not live in cities. And so let's not be pejorative. Let's serve them with high quality retail experience. Totally. So 1962, Sam and Bud Secure site in Rogers, Arkansas, which is pretty close to Bentonville. It's got to say, you know, they're going to do this. It's going to be chaos like, but they're going to figure out the back and do this, you know, new discounting concept. They just need a name. And Sam's got a bunch of candidate names for what to call this new retail concept. And he's talking with one of the early store managers, Bob Bogel about his ideas. And he says, what do you think? And Bob says, you know, you've got all these fancy names, but it's pretty expensive building the neon signs of, you know, Walton's five and dime and Ben Franklin. Like, that's a lot of letters. What if you just take part of the Walton name, keep that and make it a place to shop and call it Walmart seven letters. That'll be pretty cheap. I love it. And the legend is born. And, you know, Sam's basically not mad about this. Obviously saving money on neon was appealing to his nature. But the other reason he really liked it was he really admired sole price and sole price head Fedmer. Yep. And so that's why he really took a shine to it. So July 2nd, 1962, which we should say at this point, Sam is in his mid 40s. I think he's 44. I want to say. Yeah, it's worth pointing out. People often say like, Sam Walton didn't start Walmart until he was 44. But as you can tell, because we are very deep in the story and in this episode here. And we are just now at the formal founding of Walmart, everything that Sam had done in his whole career was leading up to this moment. And it's a gradient. It's a slow start. Walmart in some ways started 20 years before. Yeah, totally. Did it start in Newport, you know, Sam's education while started well before that. But, yeah, retail entrepreneur education started then. But I think Ben and Vell is Walton's five and I think is when you can say really started. Yep. But anyway, July 2nd, 1962, the very first Walmart opens in Rogers, Arkansas. And as you can imagine, it was like chaos. You know, Ben, you were telling the story earlier about the watermelon's popping. That was actually at store number two, which was Harrison. Is this the one with the donkey rides? Yeah, they had donkey rides and trying to pull together a backend for the first time on their own. Total, total freaking chaos. Right. So not only that is sourcing all this stuff on their own for the first time, but they're also opening a store that is a pretty unfamiliar store concept to people. But an appealing one, come here and you can get everything that you used to but for less money. Like a lot less money. And it's a large square footage store. So it's also bigger than most people are used to for a shopping experience. So I think you think about run into a Walmart today is kind of a chore. Like, oh, it's this big parking lot and it's a big standard store. The goal is to make it anything but the goal was to make it like a UFO is landing in your small town, come see it. Totally. They did all sorts of crazy promotions and circus carnival type stuff. But at the end of the day, it had low prices on everything. Every day low prices, David. Always the low price. Always. And boy, did customers just love it. So there's a quote from Charlie Kate, who was the store manager of that first Walmart in Rogers. And he says from day one at Walmart, Mr. Walden made it clear that this wasn't just Ben Franklin with low prices on some items. He wanted real discounting. He said, we want to discount everything we carry. When other chains around us were discounting, he said, we advertise that we sell it for less and we mean it. So whatever anyone else did, we always had to sell it for less. If an item came in and everybody else in town was selling it for 25 cents, we'd sell it for 21 cents. Literally everything in the store is the lowest price in the whole area. That was the value proposition, which should ring eerily true to Amazon 40 years later. So that store does a million dollars in the first year, which was great. But now, remember, some of the family center stores were doing two million dollars. So it was very promising. But Rogers was still a pretty small town. So I did later that year or the next year, they open up two more Walmart's one in Springdale, which was a much bigger town. And that pretty much immediately becomes the highest sales store in the whole Walton Empire. And then a third Walmart, the second one, technically in Harrison, which we've been talking about. And that was also a smaller town. And as Sam puts it, they were basically trying to answer two questions with each of these. Like one, would people in a small town defect and start shopping in this new crazy chaotic environment just because of price? And then two in Springdale, which was a larger town, like would this idea scale up to a larger town to and the answer to both of those was emphatically? Yes. So at this point, they do know they have a tiger by the tail. And so they sort of have line a site to, okay, I bet we can get to like 10 stores. And I think Sam even gives an interview where he talks about that that's all he would ever want to expand to something like 10 or 15 stores that he doesn't have like a global ambition. And in part, the reason for that is he is extremely into overseeing these stores himself. He wants to be able to visit every single one. He wants to be able to really understand what's going on in the ground. He wants to be able to take the best ideas from one and bring them to the other. He's not really a control freak as much as he's uncomfortable with being disconnected from what's going on in the stores. And so his belief was, well, if we expand outside of this state or this tri-state area and we start getting more and more stores, I don't know that it expands beyond 10, 15, 20 somewhere in there because I can't run it the only way that I know how to run it if it gets bigger. I mean, for the longest time, we've already said it, but there was no middle management. It was like hourly employees in the stores, store manager, Sam and Bud. That was it. And this is how the sort of legendary, anybody who knows about Walmart corporate culture knows about the Saturday morning meeting, which they actually made monthly, I think, in like the mid-2000s. And then now it's optional. Again, Sam would be rolling over in his grave. But this was a mandatory Saturday morning meeting for all of the store managers in person, either in Bentonville or like they do it in some motel around the region where they were operating, where like they'd all get together every week. And they would share P&L information, what's working, what's not working. Certainly K-Mart wasn't doing that. And Sam, despite objections from a lot of people, including his wife, didn't feel bad about it because he was like, look, you're working retail. And you got hourly employees that have to be in your store today. I feel like you can come to a meeting today. And a big part of this was he was obsessed with getting numbers as fast as possible, getting the sales numbers in his hands. So he could understand them and pour over them, then immediately getting them into the management's hands as fast as possible. So they could look over them and make changes in their stores. But then as they got more and more stores, it was really about how fast can we incorporate things that are working into stores in other places so that we can very, very quickly learn. Yeah. And remember, all these managers were equity owners in their own stores. And in most cases, in the stores of all the other managers too. Yeah. So yeah, okay, we keep talking about K-Mart. This is crazy. Also, in 1962, the same year as the first Walmart, Woolworth launches Woolco, which obviously doesn't exist anymore, but as a discounting concept store. They're attempt at discounting. Yep. The Dayton Hudson company in Minneapolis launches Target in 1962, which does it target feel like a newer company than Walmart? I know. Right. Literally started the same year. Yep. And SS Kresge, which was a huge nationwide variety store chain based in Detroit, they start their own new discounting concept K-Mart. But it's worth knowing all three of these are existing variety store chains that were used to making 33% on every single item they sold in their store. And if you look at four horses, this Woolco target K-Mart, which would come out of SS Kresge and Walmart, you probably wouldn't have bet on Walmart to be the dominant one that wins in the discount wave. But they steamrolled the other three. Those other folks because they came out of existing companies they weren't as willing to discount as much. There may be some truth to that, but I think the story is actually a little more nuanced. I think especially K-Mart, they were the gorilla and they were really well run. And I think the parent companies, especially Kresge, were willing to take losses and have lower margins in K-Mart. The way Walmart won and that is just this amazing story we're going to tell now is because all of those others, like the problem wasn't the mindset of margins, it was that they came out of these existing operations and they used the existing logistics backend and distribution backend for their stores. And at first, that was by far the best. So within five years, by like 1967ish, K-Mart has 250 stores all across the country doing $800 million in sales. And the new Walmart concept, Walmart revenue was still only around $10 million at that point in time. So they are like a nat five years later and K-Mart is like darling of Wall Street. Because they're having to build everything from scratch. Like go to negotiate with every single manufacturer of every item that they sell, try and figure out how to warehouse it, figure out the logistics network for the very first time. Yeah. And they're like in Arkansas and Missouri in like a regional area, K-Mart's now everywhere. Like they could just leverage this network that they had, all their distribution backend and like go everywhere, all at once. But the problem was that all of their existing distribution backend was tailored to the old model. It wasn't tailored to this new model of store. And that worked fine when there was no competition. But it wasn't lean and mean focused on getting the lowest cost, most efficient operations possible. Because they weren't that worried about margin on the backend. So as Walmart starts to build out on their own, going from chaos to building out their own distribution network, they're always 100% laser focused on lowest cost possible, most efficient possible as much cash flow, as much inventory turns as possible. Like they had to be the only way they were going to grow was if they could get excess cash flow to grow to invest in new stores, the only way they could do that while keeping prices low was to make their operations as efficient as humanly possible. Because they were not taking outside capital. So they had to only reinvest cash flows coming out of the business. Totally. Sam has this amazing quote. He says, the things that we were forced to learn to do because we started out underfinanced and undercapitalized in these remote small communities contributed mightily to the way we've grown as a company. Had we been capitalized or had we been the offshoot of a large corporation the way I wanted to be because remember he wanted to do the deal with Butler Brothers, we might not ever have tried the Harrison or the Rogers or the Springdale's or all these other little towns we went into in the early days. It turned out that the first big lesson we learned was that there was much much much more business out there in small town America than anybody including me had ever dreamed of. And of course that they built their own logistics network to service it. It's very clear that what they did was to quote Chathen at Benchmark the sort of go slow to go fast. They had to build a lot of infrastructure early, but they're really obsessed with getting the operating costs down on a sort of per unit basis as much as possible. So that as they do reach big scale they can continue to be very, very profitable. It's interesting that there's a dual pronged approach here between lean mean focusing on getting your costs every penny you possibly can down because your margins on selling these items are going to be so thin. There was a second component though which is be a great merchandiser. You both have to be super operationally efficient, but you have to be a good merchant too. And part of this was Sam's spidey sense for what consumers wanted and making sure that they were sourcing that from vendors that they were putting stores in the right places. I mean we haven't talked about the planes yet, but this is probably a good time. Oh yes, let's talk about the planes. So Bud was a pilot in the war and pretty early in the book Sam talks about that he and Bud owned like 20 planes over the course of Walmart's life, but only one was a jet or sort of later they became jets because early on when they didn't have any pilots, they had no pilots. So early on what they would do is the two of them would take prop planes fly to places to survey where they want to put a store they would identify from the air what seemed like an interesting location by flying sideways sideways so they could look out the window down at the town directly below them and then they would go and figure out who owned that land and negotiate with them. And it was this we can do it ourselves we can do it super lean and we are not going to like hire any middleman to like go around all the towns for us and identify spots now we'll just fly over and figure out where we want to put a store and we'll figure out how to reach consumers in a way that is like bringing them the best merchandise at the absolute lowest operating cost to us. Totally when I read that story I was like, oh this is amazing CEO of company decides he needs a plane to be able to travel around faster he's spending too much time in the cars like okay here we and then say I was like I'm gonna buy a second hand prop plane with a washing machine motor and I'm gonna learn how to fly and fly it myself. Amazing. I was thinking also about this whole incredibly important piece of the Walmart story with the literally build their own infrastructure for everything from scratch you know and it reminded me of what we talk about all the time on the show right of the Jeff Bezos don't build your own infrastructure focus only on what makes your beer taste better and I think we now have to have a caveat to the Bezos law which is that yes that is true in most cases but if what you're doing is like in a whole new area and best in class infrastructure for what you need doesn't exist in a case like this the infrastructure actually can make your beer taste better. Oh if it's actually your core competency yeah I mean this is new core competency that actually did need to be done in house most of the time that argument doesn't hold water but if it truly is core which this did become core to beating came art and all the others and having much better economics at them at scale then yeah you have to do in house which I think makes this the perfect place for the 99% of other companies out there and especially most tech companies and startups to talk about our second sponsor of the episode our friends over at pilot because they do something that you almost certainly do not need to be doing in house as your core competency pilot sets up and operates the entire financial stack for startups and growing companies including finance accounting tax even higher level CFO services like investor reporting all of which otherwise you would be hiring a bunch of employees to do for yourself or like an old school accounting firm with pilot they take care of all of that obviously we talk all the time on the show about Jeff Bezos and AWS and what we're just saying focus only on what makes your beer taste better pilot is one of the very very best examples of that not just in and of itself it is also backed by Jeff Bezos himself and Sequoia and index and lots of other great investors so for the vast majority of companies hiring your own finance team will net you absolutely zero incremental new customer or product value not to mention adding to all the overhead and people management complexity that you have to deal with the other traditional option before pilot and I used to work with lots of companies that did this was go find like a old school accountant in your local area to handle your finances for you except old school accounts aren't typically well versed in the nuances of say ss business so that was not a great solution not to mention these things aren't products so pilot is both human-powered and product-powered because it has sort of built 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and bookkeeping from your company for good and thanks to our friends pilot co-founders waseem jeska and jeff all acquired listeners if you use that link you will get 20% off your first six months of service 20% big discount indeed thank you pilot all right so discounting well they grew the number of discounting stores pretty dramatically up through their 1970 IPO and people still weren't really paying attention because they were this company in the southern midwest they seemed regional but let's just take you through some figures by 1968 they had 24 stores they filed to go public in 1970 with 32 stores and around a thousand employees and the public markets the reception the bankers like this was not a household name so even though it was a consumer brand you would sort of treat it the way that you treated like an enterprise IPO today it's not like the Airbnb IPO they get a lot of reception some stats on the actual IPO well first of all it was postponed because the market fell apart on them much like many startups are going through right now but in October 1st of 1970 it went public only 800 shareholders participated in the IPO they sold 300,000 shares at 15 dollars so that's sort of the actual IPO the night before and some quick math shows they raised four and a half million dollars in that IPO it started trading for around 1560 so they had a modest little pop the next day but they really were not having meaningful research coverage a lot of the research coverage they were getting was kind of skeptical it sounds a lot like Amazon's research coverage early days as if this whole house of cards could fall apart at any given moment the next year in 1971 they did grow top line revenue 77% so despite the Walmart that we know of today where they're a very slow growth company and I say that not to criticize them but because we're often talking about pretty new tech companies on this show but if we look at you know the 2010s the annual growth rate for Walmart is in the like 2 to 3% range so not a fast growing company by top line revenue by any standards now but shortly after IPO despite not attracting a lot of attention that was not the case no we'll link to it in the show notes but I pulled open the 1972 annual report which is a gem oh such a good find and compared to the stuff that you need to write now for your annual reports which is like mostly compliant stuff that you don't even even page through this is like remarkably legible it's a pretty thin document most of it seems to be written from Sam himself they grew 77% their first year after IPO in fact by 1977 the market cap was still only 135 million dollars as a public company growing quickly seven years after IPO in 1977 they did half a billion dollars in sales growing at that rate I did some math on the kegger by decade so Walmart's compound annual revenue growth rate for the whole decade of the 1970s was 40.1% 40.1% for the whole decade and then in the 1980s it was 32.4% and that was starting from like a 25 billion dollar revenue base those two decades propelled them to be and somehow still hold the crown for the highest revenue company in the world you look at Amazon and some people that you think might be approaching them approaching but still not better still Walmart is king yeah so there's really two last really important pieces of the story that I think we need to fill in here one kind of during this period actually starting like right after those first early years of the first Walmart's and that is computers so yes this is wild in 1966 so just four years after the first Walmart goes in Sam Walton who at this point is what 1966 he's just about 50s like 48 years old I think yep he starts hearing about computers because he's always got his ear to the ground he's talking to everybody he's always looking for new ideas he's cheap so he doesn't want to spend money on computers but he's starting to get the sense that in the same way that discounting disrupts everyone that came before in the variety store era computer backend retailers were probably going to disrupt the classic retailers today who don't use computers so he goes up to Pekipsi New York and enrolls himself as chairman CEO of Walmart in a seminar at IBM on how to use computing technology and business there's a great quote from a guy named Abe Marx who was president of the national mass retailers institute and was also at that seminar he says without the computer Sam Walton could not have done what he's done he could not have built a retailing empire the size of what he's built the way he built it he's done a lot of other things right too but he could not have done it without the computer it would have been impossible and then Sam right after that says what does I hate to admit to something like that I expect Abe is probably right I love that I literally had that in my notes to someone glad that you grab that quote this was the start of Walmart becoming a technology company they were always interested in experimenting with the most cutting edge stuff but Sam didn't understand technology well but he understood the benefits of technology and so the way that he made sure Walmart could sort of benefit from this is he always left the door open for smart tech savvy younger people to come and have big jobs at Walmart and then he would push back aggressively on their plans and say like do you really think that we need to move our whole inventory system over to computers that's super expensive like convinced me that we need to do that but the fact that he went to these conferences and rolled in this stuff created this headcount meant that he was open to it he just wouldn't be the one to make the decision because he probably wouldn't have picked the right technology choice or might have done it too early or too late and so I think this was like an interesting compromise for him to do this later on there was a proposal made for a $24 million satellite network private satellite network specifically for Walmart this was like predial of this was in the 70s right was it that early 70s or 80s yeah I think this was in the 70s and 80s I yeah you're right 1987 so let's see market cap at this point is probably around $10 20 billion somewhere in there so they invested $24 million to link all stores with a two way voice and data transmission and a one way video communication from Bentonville and basically there was not enough bandwidth available on any other communication lines yeah whatever was being used at the time to sink back in a very fast manner all of the sales data from stores and you know we talked about how Sam was obsessed with getting the data as quickly as possible and learning from it and disseminating those learnings they ended up okaying a $24 million per proprietary satellite network and then because Sam had this philosophy remember he thought it couldn't scale past 1520 stores of needing to sort of visit all of the stores themselves and have that personal communication the satellite network enabled Sam to sort of virtually visit these stores from the home office and broadcast satellite transmissions of himself and they eventually instituted this for the Saturday morning meeting to where he would broadcast over their proprietary satellite network in 1987 so the satellite network becomes part of this but this whole technology investment computerization it's even more than just information sharing it gets back to what I was saying about logistics about efficiency about margins about keeping prices low and about beating competition so as they start to invest in computers and they start to bring the talent in to the company to do this including the first person who Sam brings in the who he meets at this conference guy named Ron mayor who ill-fatedly Sam would briefly make CEO of Walmart then discovery was not ready to retire yeah exactly which is a very TSMC story totally similar to Morris Chang and he's very gracious to Ron in the book he says like look the problem was me I was not ready to retire but Ron and team that he builds in in the technology they build the first concept of a distribution center you know think be okay marty's like great they have warehouses right like you would order goods from your vendors from your suppliers coming into a warehouse you know and then you chip them out elsewhere but like they just sit in the warehouse and then you pick stuff up from the warehouse and go elsewhere Walmart as they're investing in technology they start taking daily individual orders for custom you know whatever skews in whatever amounts each store in the Walmart network needs they buy in like big big bulk in big packaging from their vendors that comes into what used to be called a warehouse is now called a distribution center in one side Walmart does a whole bunch of stuff in the middle of the warehouse they unbox all the stuff they take it out of the packaging they re-box it up into the individual orders for each individual store every single day and then they ship it back out the other side customized to each store and then originally they were doing this with common logistics carriers like UPS FedEx or other carriers then they start building their own trucking lines and so they can just get so efficient with this so this is how as Walmart starts to expand out from the south and from the Midwest across the country and Kmart is just going off city by city extending their supply lines Walmart's got this behemoth of a distribution network that is way more efficient and so when they go head to head in a geography Walmart can price lower still be making a profit and Kmart just bleeds cash in those stores yeah it's amazing how far Walmart has come because the first store didn't use a distribution center they would have to order from all the manufacturers and all the vendors drop ship directly to the stores you can only sell what you have in the store and so when they opened the first distribution center what they basically did was because they saw the growth of cities moving outward so like the suburbs are starting to happen they would build the distribution center sort of like hub and spoke they would pick the city that they wanted to go into that was furthest from that distribution center and they would build a store there and then they would start building slowly back toward the distribution center so you basically planted your flag out in the middle of nowhere but would become an area where a lot of people lived as suburbia sort of blossomed who's one day drive of a truck from the distribution center right yes and so then at some point they've got dozens of stores that are driving distance filled in this whole sort of radius back to the distribution center so they could make a lot more margin because they could get the price down as much as possible because they could negotiate these huge discounts with vendors because they have the distribution center which will send all the stores that are connected to it is a pretty brilliant methodology and I don't really realize they invented this concept of a distribution center I always forget that before Walmart there was the franchise variety stores but there really wasn't large scale discount retail that used this sort of model so by 1990 Walmart passes Sears to become the largest retailer in America and again all through the 70s all through the 80s Kmart was the gorilla and then by the early 90s Kmart which had been so dominant they start really feeling the squeeze from Walmart because Walmart is now pretty much nationwide at this point pretty much but still not yet in 1990 they finally opened a store in California it took until 1992 for Oregon and 93 for Washington so all these quote-unquote coastal elites who are like under rating Walmart it's kind of for a lack of exposure the first store opened in Washington in 1993 and Amazon was founded in 1994 wow of course on the coasts and then in the big cities you kind of don't feel the dominance of Walmart in the same way so here's some really fun history that I had no idea about in the mid to late 80s Kmart is at the height of its power the height of its pride right before you know Walmart is finally gonna tip them over during that time they go on a sort of drunken acquisition spree did you know about this no so Kmart between the mid 80s and the early 90s acquired sports authority office max builder square walled in books and borders and this just had all sorts of light bulbs going off in my head kind of reminds me of the New York Times during that era too right knowing my tech history knowing our tech history here on acquired Louis borders the CEO and founder of borders books started web then during the tech bubble and I always wondered as like why on earth did Louis leave borders that he started and was founder of and then go start this web then thing it was because Kmart bodies company wow I never knew what happened to borders and so by the time like kind of early mid 90s when the ratings on the wall came are it starts selling off all of these acquisitions that they had made to just try and raise cash they ultimately file for bankruptcy in January of 2002 and then in 2004 Kmart and sears merge wait Kmart and sears merged yes in 2004 we're gonna take these two legacy you know previously biggest retailers out there storied brands and we're gonna merge them together and it's gonna work and I you know vaguely was aware of this and I thought like oh well uh Amazon killed them all no Walmart killed them there's no way that Kmart or God forbid sears at that point could compete against Walmart so that combined entity itself went bankrupt in 2018 but Walmart by this point in time this is like the Sony PlayStation version of Walmart like the last big hurrah they had launched the super centers this is nuts in fact super centers is so dominant now that they've actually deprecated the name Walmart super centers are just called walmart's now walmart's were the legacy of the variety stores they didn't have groceries they had hard goods and groceries was always this very attractive category it's the biggest category of retail in America dude it's an enormous amount of consumer spend after house and cars I think grocery or at least food as the next category is the largest thing the household spend money on yes this also explains why I've always wondered why is Amazon so obsessed with grocery over the years which they haven't cracked by the way famously they've sort of struggled to nail it yep and they bought whole foods and you know all foods is great and all that but base us always talked about we're always trying to crack grocery this is why it's enormous but difficult there's a cold supply chain that you need to nail that's totally different than shipping plastic around and Walmart nailed it but it wasn't Sam so Sam passed away in 1992 before he did in the late 80s he was on a trip in Brazil whenever he would go around the world and Walmart had started to expand internationally at this point of course he would go check out other retailers shop the competition and in Brazil care for the French company their operations in Brazil they had these big centers called hypermarkets and these hypermarkets were like a combination of a Walmart and a grocery store dude we should open a merch store and call it the acquired hyper market so I actually tweeted this on the 4th of July what I was doing research Sam just like he had with self-service retailing and then with the discounting model he was like I've seen the future I'm gonna come bring it back we're gonna do it at Walmart and again he was right and again like some of the others he was wrong on timing so he launches a spin-out of Walmart in the late 80s and early 90s called hypermart USA and there are photos you can find online this is what I tweeted until I 4th I think they only built three of them it is the most 90s America thing you have ever ever ever seen it's a great logo red white and blue all over the place this just enormous enormous footprint store square footed like a cathedral of capitalism they were pretty amazing but they were too big it didn't catch on so then he battled cancer for the last few years of his life as his health was failing he had already handed over the CEO role to David Glass the company and then after his death started a smaller scale version of a hypermarket that they called super centers that was like not as blown out as what carer 4 was doing in Brazil but combined grocery like a traditional grocery store and the traditional Walmart dude I lived right next to one in North Carolina in 2008 and it was awesome it was the only thing in my like little suburb off the highway where I lived for one summer there was a you know some other stuff in the shopping center but you kind of had like the Walmart super center and it was amazing you go and you get all your groceries they have everything else I'm so sold on that concept it's not surprising at all to me that that massively took off well and not only that it was so convenient to have it all in one and you know entertainment value all of the things they brought the Walmart approach of low prices to grocery too so most items by and large on average across the board the grocery items in a Walmart super center are 15% cheaper than a comparable grocery store which if you're like a middle or lower income family that's hundreds of dollars a month that you're saving which is incredibly meaningful to you as a family so Walmart goes from 0% market share in US grocery at the beginning of the 90s to I think by the end of the decade in the 90s they had become the largest grocery in America which they still are they are the largest grocery store in the United States today well now they are not just the largest grocery store they are the largest grocery store by a factor of over 2x the number 2 player whoa which is croger who's two croger yep so Walmart has over 20% market share of US groceries croger has under 10% and then Albertsons and Costco are tied at 5% each wow and is Albertson safe way now do they merge I think that might be right so if you add up all of those together they're still less than Walmart oh my god crazy that's like Amazon's dominance in e-commerce if you add up two through nine in e-commerce and Walmart is second place to Amazon it is still not equivalent to Amazon's total sales in a year and in fact I think it's something like two through nine added together are still 50% shy of Amazon's e-commerce revenue in a year in the last most recent fiscal year grocery accounted for 55% of Walmart's total revenue which is over 300 billion dollars alone just from grocery for a part of the business that didn't exist for the first 30 years I mean that is an iPhone scale company reinvention and barely existed when Sam died it reminded me of Ted and Todd within Berkshire Hathaway buying Apple the best Berkshire Hathaway investment probably ever yes that happened in the public markets after Warren had brought on Ted and Todd crazy one last little bit about super centers I think the war was already won with Kmart but this was really the death now with super centers because Kmart tried their own hypermarket concept called super Kmart's I remember that and this is where the Walmart distribution strategy just completely trounced Kmart it trounced Kmart in hard goods but now you're talking about groceries the items need to be fresh they expire after a few days you need to figure out how to preserve it's also an even lower margin business so like here's Walmart with better logistics getting better fresh items in their stores at lower prices is totally game over for Kmart and frankly it's kind of crazy that a lot of the other traditional grocery chains even have the market share that they do I mean I can understand like specialty and higher end stuff like whole foods or sprouts or the like but Walmart is just so dominant in the grocery category okay so we talked a little bit about technology at Walmart and they were undoubtedly the best at putting in backend systems to build a real impressive data network and use that data in the 80s and 90s but of course so the internet happens and Walmart is pretty slow to adapt to that I spent some time on the way back machine kind of looking at their website over the years and they did not take the internet very seriously at first all the way through the 90s all the way through the early 2000s I don't think they thought it was an existential threat the way that it truly was for the business so they make a few really big moves to try and bolster this team you say they didn't realize it was an existential threat and that's true but just telling the Walmart story now in their DNA they hadn't historically been a company motivated by threats they saw opportunities and they pursued opportunities like super centers why they didn't pursue the online opportunity is really puzzling yeah it's almost like no one made the compelling enough case for why they need to invest in building out the internet team until it was kind of too late that really was the style of make the pitch to leadership of why this needs a massive investment and amazon was poting executives from Walmart left and right totally so the first step that they take here is do you remember the company Cosmix David KOS MIX yes yes I do I remember using it Walmart bought them in 2011 for 300 million do you know what the founders did beforehand no I remember it was like a meta search company yeah it was called jungly it was not for us search it might have been like meta search for e-commerce in India or something like that so amazon had bought jungly and then those two guys vanke and on and inside of amazon started mechanical Turk oh cool so interesting amazon history there so they leave they start Cosmix Walmart buys it for 300 million that becomes Walmart labs which was run as a totally separate company and is now sort of merged into walmart's global internet division but that was where this sort of like okay we need to start taking this really seriously the c-commerce thing is going to be really disruptive and you know they've acquired a variety of other companies over the years including but no boss or bonobose I've never exactly known how to say it other than I like their pants and of course then in 2016 we did an episode on this now we're entering the timeline where acquired was already a thing by the time this happened which is crazy because now it means we're dinosaurs they bought jet.com for $3.3 billion I would love to talk to mark Lori about all this yeah so obviously mark started quidzie diapers dot com sold that to amazon got into a nice tiff with Jeff Bezos left started jet did he raise a billion dollars or was it a billion dollar valuation there was some ludicrous for the time pre-launch financing that happened and it basically didn't work the actual jet dot com thing Walmart shut down it was a club right there it was more like Costco well it changed originally was and then I can't wait for it wasn't it wasn't it wasn't it was but there were multiple strategies and the quote is we tried a lot of things we innovated not all them are going to work we learn from our failures and the party line from mark and from the Walmart team were that jet served its purpose to get a bunch of really talented e-commerce focused engineers and product people together and then it served as a great vehicle to serve as the core at this point of Walmart's e-commerce business and they really have made a good comeback right yeah so mark Lori left in 2021 and wal-mart's currency you dog milk millen does credit him for jump starting their e-commerce business which I think is growing and this is before covid because covid statistics messed up everything for e-com but in 2019 I think grew 37 percent which when Walmart itself as a whole was growing like 2 percent yes and at this point hard to say if this is a small number big number but only about 13 percent of wal-mart's revenue comes from e-commerce now that's 75 billion dollars right and it is growing much faster than amazon's e-commerce business but it's because amazon's e-commerce business is at ludicrous scale you know it's five or six times larger than wal-mart's e-commerce at this point but the Walmart strategy here is quite interesting because it leverages their distribution centers and their stores they want to make e-commerce not a separate thing they really want to make it feel like you're shopping at wal-mart whether you're shopping online or in person and there's sort of a seamless experience between the two and so they leverage their stores to do things like same day grocery delivery or pick it up at the store or buy it and we're flexible whether you sort of feel like you bought it in the store and you want to come grab it from us or whether it wants to arrive at your house we'll have to see how that strategy plays out versus amazon coming at it from the other direction and having to build physical infrastructure to come through on those promises they're doing some cool stuff they launched wal-mart plus which is a prime competitor right which is a prime competitor but like you're saying about this sort of like integrating it all into one experience physical and e-commerce one of the cool things about wal-mart plus I wish there were a wal-mart in San Francisco A so I could save money on stuff I buy but B so I could try stuff like this I'm very curious if you would shop there that's a good question I mean I love Trader Jizz yeah so I shop at Whole Foods and Trader Jizz I bet I would buy stuff at wal-mart but one of the cool things that's part of wal-mart plus is you can shop with your phone in the store you can scan check out buy stuff as you're going through the store on your phone all done seamlessly and then just walk out which I think it's obviously Amazon's working on this too with their just walk out technology but to me that's like a big value prop like one of the reasons I don't like shopping at Trader Jizz target even Whole Foods too like physically anywhere is the checkout lines it's just like yeah like I hate it yeah yeah but I'm not used to waiting for anything anymore because the internet makes it so I don't have to I think about stuff like this and I'm like why am I doing this it's not just like the ways to my time it's like this is unnecessary in this day and age right and I'd be happy to check out on my phone as I go through a store I started in preparing for this episode trying to understand like how is the digital experience of wal-mart these days versus Amazon's experience because I obviously am well versed and Amazon packages arriving in my house every day so I started buying some stuff on wal-mart I bought some like garden lamps because I needed to install some lights and I will say the consumer perspective so far for me has been pretty identical to Amazon I don't think this selection is as large but I'm not convinced that I take advantage of Amazon's sort of infinite selection I think I look for Amazon's choice or the wire cutter pick or something that has five stars and over a thousand reviews and just buy that thing and that methodology is very available on wal-mart and I was trying to dig in like and study from a technology perspective what are examples of things that Amazon is more advanced on and actually this was a great use of Tias good friends of the show over there I read a transcript from a call with a former Amazon director it's an interesting quote it's just a little microcosm says I can tell you at wal-mart it is almost exclusively just the title and the product description used for search and as far as I can tell there's no metadata that's put into their search algorithm today Amazon absolutely has the additional metadata that they've built into their algorithms and it's a constantly changing and ongoing process they're very sophisticated in what they do for search there's tons of stuff hitting keywords user generated content all that seller input is totally baked into the search algorithm and that sort of makes sense that on wal-mart it would be sort of like a focus on a crude implementation first make sure it works well enough but they also just have less historical data than Amazon does on all the shopper behavior and all that stuff to incorporate into functionality the website I suspect we will talk a lot more about this dynamic throughout the season but Amazon right is you know both a first party seller and a marketplace because of that marketplace dynamic there's just exponentially more skews on Amazon then on walmart.com right so Amazon had to do this wal-mart does have third party sellers online and they do actually lease space in stores to vendors that's another part of the modern wal-mart business model is you can just basically lease square footage stock at you of your own people who work there on your own payroll and they're the ones who put all that merchandise in there and of course they can check out conveniently at the wal-mart checkout but the revenue goes to you and you just pay wal-mart for that space this was so fascinating I knew that there were McDonald's and subways in wal-mart's like sort of the store within a store concept and like target has those two and also brilliant way to increase your margins as a retailer or allow you to sell at lower prices in wal-mart's case but what you're saying is even more than that which is super cool items on the shelves and like display areas in wal-mart's that are integrated into the store especially like greeting cards that sort of thing things require like heavy customization in the way that it's presented those are owned operated and run by third party vendors well we want to get to the final figures on the business from today and then I want to do a bear case and a bull case on the company from here and then we'll do the playbook go through and talk about what the things were that made wal-mart successful and of course we have to do powers analysis and powers we got a good amount of episode left here I know but for our next sponsor we have something extremely unusual this segment is brought to you by our great friends at NCS capital we reached out to Britain and Brad and Joe and John to propose the idea of doing a paid sponsorship and they did jump on it but had one caveat they tell us that the only thing we could ask listeners to do is read one of their white papers think about it and offer feedback to help further refine the thesis indeed many of you already know NCS from the special episode we did with them last fall on complexity investing and semiconductors but for those of you who don't know they're a long only global equity fund that manages money for institutional and accredited investors they have over a billion dollars under management and the team work together for many years before starting NCS in 2019 there among our very favorite thinkers on acquired they've been such great contributors to our thinking here on the show yes so today we want to talk about an idea that really started the NCS investment philosophy 10 years ago which is complexity investing this grew out of research work by the famous Santa Faye Institute the idea kind of applied to investing is that it is literally impossible to predict the future because every market and every company is a complex adaptive system this means that an investor simply cannot take in the vastness of inputs to a company like competitors or geo-political changes or new technology inventions hence the complex part to consider how all of these inputs then interplay with each other and cause the system itself to change hence adaptive to predict the future with any level of precision like Walmart is such a perfect example of this who could have predicted that these little small town guys from Arkansas would beat Kmart so if you're willing to accept that you can't predict the future then the question is what do you actually do as an investor and NCS is thesis that they lay out in the paper is that you should invest based on two dimensions resilience and optionality resilience meaning how resilient is a given company to varying degrees of change is it a company like Walmart which given all the change happening in the world the internet all that they're still the largest company by revenue in the world and they can withstand large shocks to the operating environment or is it more like a say a Tesla in the early days which was highly path dependent and like a million little things could have completely derailed the company yeah of course resilience alone is not sufficient to tell if something is a good investment obviously early Tesla shares paid off hugely and resilience was not the core value prop of making that investment so this is where the second dimension optionality comes in so optionality is very similar to how we think about venture capital all about asymmetric upside a million little things could have derailed Tesla but would the payoff have been worth the risk if the narrow set of outcomes were things worked perfectly actually happened like if the variant of the multiverse where all those things actually did work was the one that happened what would the payoff have been and the answer is a very large payoff because that is the version of the multiverse that we live in that did indeed happen yes so the key insight that NCS believes is that you can basically plot every business on the intersection of these two dimensions how resilient is it and what degree of optionality does it have and the best opportunities to invest come from businesses that have high degrees of both which are totally rare but absolutely exist a good illustration of this today might be Apple for example if you're interested in these ideas if you think they're cool like we do you should go check out the white paper that NCS wrote on complexity investing it also has some really fun diagrams and illustrations in it yes it's not white paper in the like boring scientific sense it's interesting to read there's great illustrations you can do that by clicking the link in the show notes even though we're not clients of NCS it is well worth reading yep and finally since they really do want feedback you can of course email Brinton or Brad or any of them from the email addresses on the paper when you download it or even better we're going to do a zoom call with them to talk about all these ideas together so there is a second link in the show notes for you to add it to your calendar for Tuesday August 16th 2022 at 4 p.m. Pacific time and we would love to see you there our huge thanks to the team at NCS capital thank you NCS all right so Walmart today we have talked some about this but I think it's worth recapping what the shape of the company is actually at this point so there are in 24 countries which we haven't discussed there are global empire at this point there's 10,500 stores each week 230 million customers visit one of these stores 230 million customers it's wild the super center concept is basically Walmart now mm-hmm it wasn't like some of the stores are super centers most stores are now super centers if you just think about the like standard Walmart discount store in 1996 there were about 2000 of them now there are 368 because the super center is the new thing so the business is super centers they did close to 600 billion dollars of revenue last year they did 25 billion dollars of operating income that's only about a 4% operating margin for those counting at home they do have a 24% gross margin which is interestingly higher than in Sam's heyday what he sort of believed the discounting business model should bear if I were to sort of postulate I think because discount stores have just become stores I think there actually is room for a little bit more margin then sort of originally believed the other piece of the business that we haven't talked about at all but is a interesting both piece of Walmart's business and competitive vector to Walmart is Sam's clubs which were started in 1983 I believe and has been a very successful part of the company I believe what is like 10 15% of revenue of Walmart today it's been a pretty successful part of the company but it's losing to Costco yes Costco has been this amazing story that is like the Walmart of Walmart's you know and Walmart has it too with Sam's club but it's interesting you bring up margins Costco does 217 billion dollars a year in revenue Sam's club does about 75 billion how is it that they have all of Walmart's advantages and yet I think it's like 11% of Walmart's revenues which is obviously very material but somehow they did not become dominant in this category especially you know we were talking about Walmart plus and this membership option you know Costco doesn't really have much of an e-commerce digital business these days I'm sure they're investing in it but Walmart really was kind of positioned to have best of both worlds here of membership subscription business with Sam's club plus e-commerce it feels like there's a lot more that they could be doing and there are some crazy stats about Sam's club like somehow in the 90s one in three US households had a Sam's club membership I don't know if you have the numbers but I bet it's way less now I think it's declined yeah okay so it's worth a little bit of a margin analysis here and in particular gross margins because we were citing some numbers earlier if you look at Walmart's 24ish percent gross margins so that's basically what they get from the goods that they sell on the shelf you see okay it's less than target which makes 29 30% of anything that they sell on the shelf well Costco's gross profit margin is only around 13% and that's come up like when they first went public and they think 92 it used to be like 10% but the whole business of Costco is totally doing what Walmart did to the variety stores to Walmart and the other discounters it's really the idea that well what if we have even less promises to customers about the experience that you get in store and we give it all back to you in price so like what if you can't buy small quantities of things what if there's not really someone to help you get something off the shelf what if it's all just in a freaking warehouse it's all about what can we take away and will customers still deal with to get the lowest price so sell price of course as we talked about and Jim Senegal who worked for him were big pioneers of the shopping club you know Costco price club Sam's club model the original target market for it was not consumers it was small businesses oh I didn't know that and that was the core of the market and then over time I think as Costco grew I think they realized oh consumers like this too yeah yeah it's interesting we cite Jeff Bezos saying your margin is my opportunity that was totally Sam Walton's thing to variety stores and totally is Jim Senegal's thing to Sam Walton well we're talking about things that Walmart has not executed on to Sam's level of rigor shall we say over the years you know international again it's like Sam's club it's a decent part of the business it's 18% of revenue 18% of revenue it's about half of the stores are international stores they have some success stories I think Mexico has been extremely successful for Walmart Canada has also gone well but they have some big losses in Europe they pulled out of Germany right they pulled out of Germany in the UK they bought the big retailer chain asda for about ten billion dollars when I think that was in the late 90s I believe and they operated that and they were a decent sized player but never as big as Tesco and some of the other retailers in the UK they actually ended up trying to sell it a couple years ago to Saintsburys for ten billion dollars the UK government blocked that deal and then they ended up selling it off to private equity I think for about six billion dollars just a couple years ago so you know neutral at best we'll see how Flipkart plays out for them they own what 75% of that right so then there's India in Flipkart Walmart bought 77% I think stake in Flipkart back in I think it was 2018 for over 16 billion dollars which is a huge huge price I think part of it was I'm not as studied on the history of this I think Walmart had wanted to enter India for a long time had been negotiating with the government trying to make it happen for years and years and years couldn't and I think part of the idea I believe a bang Flipkart was this will be our vector to bring Walmart into India I don't think it's gone super well I read I believe they're about 20 or so 20 or 30 you know Walmart owned physical locations in India now but you know that's not worth a 16 17 billion dollar purchase price no definitely not well I mean the last thing that I think is important to understand about Walmart is their growth has really just come down if we look back all the way back till let's see 1982 they were growing about 40 to 50% a year and that has basically been on a slow steady decline all the way until about 2013 where it's been about flat at 3% since then so they're trying to make all these big investments and this is revenue by the way so it's not like oh well that's just because they're reinvesting in e-commerce and and no like the top line is just not moving very far you're over here these days now to be fair it is the biggest top line of any company in the world so the law of large numbers is at work but as we've talked about it's not likely fully saturated the tam if you include e-commerce and you include international had they executed well on both of those and grocery well and well they did on grocery but on discount clubs in the Costco in Sam's Club if they'd executed well on all those their growth could have been much much higher yep all right let's do power and then we'll get into bear case bulk case great power so for new listeners in the show and as a reminder for all of us old timers Hamilton Helmer's seven powers there are seven of them and what he's identified as persistent differential returns so basically what enables Walmart to be more profitable than their closest competitor on a durable basis yep and the seven are counter positioning scale economies switching costs network economies process power branding and cornered resource we got to separate the takeoff phase from where they are today because I think it's a totally different set of powers okay okay and the takeoff phase no doubt that it was counter positioning I mean this small town strategy they were just doing something that all of the big established companies couldn't it wouldn't do they were not set up to do it with their distribution chains they were not frankly set up to serve those customers well they didn't understand those customers well they kind of ignored them and it didn't seem like a big opportunity no and in fact it kind of reminds me of door dash thinking back on that big episode we did the day of the door dash IPO where they sort of looked at the suburbs and they were like wait this business even though everyone's doing food delivery in the cities it actually makes more sense in the suburbs Walmart realized that same thing they were like well the cities are gonna build out and those people are gonna want something like this in their towns and so we can serve the people who are there now and we will be positioned to serve way more people as those suburbs build out yep totally so massive counter positioning I think that's such a good point in beginning here absolutely right I think as they built it up though I mean scaled economies yes this is the perfect example of scale economies literally the perfect example I mean Hamilton uses Netflix in the book which is another great example but this is the single best example of scale economies in the world they can price lower because they have the power of scale and the distribution and logistics network and the operations that they built behind it there is no reason why anyone should be able to have a lower price than Walmart Walmart is going to buy in larger quantities than any other retailer for basically any item that they sell they're gonna have more locations to get that thing to consumers in the most convenient way to them so they're going to have the most consumers excited to buy it which kind of feeds back into that quantity thing they own and operate their own logistics fulfillment distribution network so even though they've taken on a lot of sort of risk in doing that and a lot of fixed cost to the extent that they're utilizing all that at 100% utilization or as close to 100% as possible they don't have to pay anyone else margin to use their network every element I can possibly think of has all of the margin squeezed out of it which is also interesting when you think about Amazon and everything Amazon has been doing for the last especially five ten years they're doing all the same things Amazon air building their own logistics all the Amazon vans that you see around yep absolutely okay do we have any others on here switching costs I mean with Walmart plus you know maybe but like not they interestingly don't have branding and this I think is a place that they're different than Amazon because for Walmart the definition of branding as Hamilton puts it out there is would you pay more for a good that came from this brand than a different brand and at Walmart no you go there because it is the lowest price and I will not buy something for that's more expensive at Walmart than somewhere else Walmart brand does not mean that to me but at Amazon they have kind of moved away from the we always have the lowest price they have convinced you that it is so convenient to shop on Amazon that even if they're a little more expensive in price that's kind of okay and I think it's really interesting that they've taken a different path there I don't think Amazon was ever just about being the lowest price I think it was more about we're the best combination of price selection and convenience yeah it's the customer centricity they're both deeply customer centric based those sort of adopted the centric part of customers centricity or at least that is the way that he refers to it but same Walton in about eight different ways in his book tells you that the only thing that makes Walmart tick is listening to the customer and it just so happens that the vector that they optimized for more than anything else was price and Amazon was convenience I think it might be worth a minute to discuss process power do we think Walmart has process power and there are two areas I'm thinking about with this one is the operations themselves and everything we've talked about I don't think you could airlift that out of Walmart and put it somewhere else now you could argue that it's a outgrowth of scale economies that they have it but I'm also wondering there's this DNA at Walmart or at least there used to be under Sam of what you just said the lowest price is the thing that matters the most and they could have and I think most other companies would have taken their distribution and operation advantages and increase their profit margins and that is like a nathema at Walmart it's always like we will keep the lowest prices possible for our consumers and we will take the absolute bare minimum margin possible pass it all along the consumers rather than taking it for the company and the question is is that still true or are they looking for opportunities to keep margin now given growth has stalled right and at the end of the day public late stage CEOs are paid to get more earnings per share right did you see what they were doing with gas stations in the last few years no they used to have this partnership where there was a gas station company that operated in Walmart parking lots and Walmart has said going forward we will be operating our own gas stations in those parking lots the speculation on that is that they just want some of the margin from selling gas at this point they're big enough where they think it's worth it to invest in owning that and I think there's probably some truth to that at this point in their growth and saturation Walton Enterprises and the structure of the family and the ownership of the stock I think did go a long way to reinforcing this mentality even after Sam passed away but now that we're mostly on to the third generation of Walton's as you said I think Walton family members own more professional sports franchises than any other family out there and then when there's spouses yes yeah right so the focus on keeping all the money in Walmart keeping prices as low as possible because we don't care about profit margins we care about waiting and keeping customers it's not necessarily there as much agree okay bear and bowl we've hit a lot of these points already but in my bull case there's they kind of should win same day grocery delivery since they have these super centers everywhere you could make a bull case from the blending of e-commerce and in store to the one seamless experience you could make a bull case based on how well they've done in groceries they'll continue to execute really well there there's another one that is especially in this environment we're going into Walmart is kind of recession resistant and in some ways even counters cyclical because of their obsession with the lowest price they actually should do great in a economic downturn which I believe they did in 2009 I think so too Walmarts average customer is below the average income of the US broadly which to me basically means they just don't have the top 1% shop there and that drops their average below the average of the country that's sort of an interesting way to look at it is the averages are stupid especially at this scale because they hide all the interestingness of the distribution but their average customer is far more price sensitive and far more likely to be in a unfortunate economic position in a downturn than other companies so they serve those people well those are of my few bull cases that makes sense to me the bear case list is unfortunately long we've hit a lot of it already one of which is just competition everywhere and good competition everywhere at this point Costco wins on lower margins and lower prices Amazon wins on convenience in most cases and is far more competent at e-commerce and technology croaker and safeway and Albertsons are extremely compelling businesses in the grocery segment I mean old but very stiff competition and then you have this other movement happening which is the gigantic proliferation of family dollar and dollar general where there's a different customer base that especially in these sort of food desert type locations those businesses have done tremendously well and are kind of it's not that they're pushing walmart out but there's lots of scenarios where someone would opt to choose to shop at a family dollar versus going to the bigger walmart experience so I think I don't know that I 100% have the full history on the dollar store industry but I learned a little bit of it through walmart research I believe that dollar stores as we know them today grew out of the remnants of the old variety stores like the Ben Franklin's really like when they got disrupted by the discounters Bentley brothers and Ben Franklin didn't survive but I think kind of the shell of what all of those stores were especially because remember they were fixed prices they were the five and dimes right so like I think that eventually became the dollar store industry fascinating well I have a whole new internet rabbit hole I need to go down after this listeners if you know anything about this definitely hit us up in slack and we'd love to chat about this yes for sure I think there's a bear case around e-commerce even though they're growing quickly 37% pre pandemic e-commerce still not a profitable segment for them it's crazy to think that you could be doing 75 billion in e-commerce revenue and that hasn't reached scale that makes it profitable I guess it's just a massive massive fixed costs on the employee base to make that happen I don't know but when I have in the past used walmart e-commerce it's because they run some crazy deals so I wonder if they're also like running really low margin or even discounting below cost on some stuff and because they don't break it out I don't know if that means it's not profitable I don't know where what profit we're talking about there Amazon for a long time was not profitable because they were reinvesting in more distribution centers and you know stuff like that so maybe it's that but there's a work in progress going on with walmart e-commerce yeah they have in recent years been closing a large number of sams clubs and I think a lot of that real estate they've been converting into e-commerce distribution centers yeah I know they did in Washington there's a labor point to make here too which is that I think in closing all those sams clubs they basically lay off all the employees and then say all right now you can interview at this building that will be converted into an e-commerce distribution center and we can figure out if you're a fit it makes sense but I think it's like one of 100 death by a thousand cuts things going on between walmart and labor right now well will do value creation value capture in a minute and there's a whole another episode we could do on is walmart good or bad for the world all right playbook will do playbook and then I want to get to that point I'll go first because I have one I realize that I had teased this quote hours ago in the beginning of the episode and I never actually said it but this perfectly encapsulates so many wonderful great playbook lessons to take from sam walton and the walmart story but this is my favorite and this is a quote from Charlie Kate the manager of that first walmart store number one where he says he's talking about sam saying I remember sam saying over and over again go in and check our competition check everyone who is our competition don't look for the bad look for the good if you get one good idea that's one more than you went into the store with and we must try to incorporate it into our company we're really not concerned with what they're doing wrong we're concerned with what they're doing right and the reason that this grabbed me so much organizational dynamics and behavior and just human behavior is such that your competitors you always want to like look for what they're doing wrong and make yourself feel better by like like they suck look how much better we are than them that's such a good point especially I don't know if you see this but being vcs and you know we invest in so many wonderful founders and work with folks but this is really like a disease that I've noticed over the years that startup founders and management teams they look for the worst in their competition and they make themselves feel better about how great they're doing where guilty of it too but that is so the wrong way to look at it right a much better way to look at it is it doesn't matter what they're doing wrong look at what they're doing right and steal it most time you talk to a founder and of course like most times we talk to founders they're pitching for investment so they're going to have a different posture but it's oh yeah that is another company in our space yeah here's why they're doing it wrong here's why that's the wrong approach if you look at a jensen Huang take on this his would be like oh it turns out actually everyone else doing three-sided polygons that was right so we're going to do everything we can to immediately move to that you're right Sam woke up every day and thought how can we go find something a competitor is doing right and steal it now a core part of being a founder I think especially these days is is identifying something that you don't like in the world or that could be done better and then doing it better that's how companies and products get started yes but once you've done that you've done that you're doing it now go make it better like it doesn't matter what everybody else is doing wrong so I just love that one agree there's one that we've talked about a bunch so I'm just going to like summarize it identify a wave and write it I never would have known that discounting was a wave that happened before starting this research and if you were operating a variety store in 1955 you may not have known that discounting was a wave that was going to come but Sam was in the right place at the right time with the right insight and then built the company to ride the discounting wave and it's fascinating to me how just in the course of 50 years or 70 years it can go from wait will this even be a thing to there was ever a point in time where it wasn't a thing it was different he both rode that wave but also created that wave yep reminds me so much of Jeff Bezos sitting in the offices of D Shaw in the early 90s being like holy crap the internet is going to be a wave yep for sure a big one is don't buy anyone else's inefficiency if you're going to compete on price you must avoid buying anyone else's inefficiency at all costs and it means having often very contentious relationships with your suppliers PNG and Walmart were enemies for years even though PNG had to sell in Walmart and Walmart had to be buying PNG products before they kind of figured out how can we both do this because we do both need to serve the same customer and that took a long time and so that ruthlessness of being willing to not buy anyone else's inefficiency even though it can create tension in the relationship if you're a business that's winning on price somebody will be doing that in your space so you kind of have to if you want to win yep I don't know that this is a playbook per se but in a industry like a retailing and Walmart's business and Amazon's business and the like price really really really matters selection inconvenience you know matters to and that's why Amazon's a thing and all foods exist and specialty retailers and all that but price really really really matters and so what you're saying is absolutely applicable in cases like that when price really matters your margins really matter and your margin is my opportunity and exploiting inefficiencies and being as efficient as possible is so important but not all industries are like that there's danger of over rotating to that say you're in the media industry that is a high margin industry or the software industry that is a high margin industry not to say prices don't matter of course they do but like there are other dimensions that matter more in those industries you need to think about what industry you're in before you start applying this stuff yeah that's a great point the last one is an ill-formed thought but I kind of want to just get it out there and it might be word vomit but Walmart in so many ways is a microcosm of America or really at this point of the world there are so many customers there are so many employees they touch so many facets of life and they have such a large share of wallet for a lot of people that everything that can happen will happen and so like labor problems yes for sure significant tensions there environmental impact employees doing everything you can think of because there are 2.2 million of them so if you cope with some statement of like Walmart employees are so wonderful that is true and Walmart employees steel is also true and Walmart employees hate their boss is also true you and I did some serious spill-unking on the Walmart subreddit I spent a couple hours on there and it's easy to get depressed because the most vocal people create threads there and you're like God is this a terrible terrible corporation it's one of these things where you realize at this point in the world and at this point in the company's history at their scale they are just everything yep you walk into a store and you get a microcosm of America at this point it's not even a microcosm it's a macrocosm when you're talking about 2.2 million people that work there and would you say 240-ish million people shop there every week yeah Walmart is where you witness humanity yes in all of its glory and the opposite of glory all right I got one more which is again I said earlier in the episode but I think we now have to institute a caveat or an exception to what has been our most golden lesson on acquired which is the focus on what makes your beer taste better I guess it is still always in service of making your beer taste better dude Walmart building a logistics network made their beer taste better fair point but that wasn't obvious I don't think that's true in fact it was completely non-obvious in that came art just borrowed Cresguis distribution network and everybody thought that that was the way to go yeah and it certainly was for the first decade first probably two decades yeah that helped them get a massive lead and there'd be some very very credible argument that I totally would have bought which is if you think you can get two decades of lead with this strategy there probably will be something that materializes during that time we're being that far ahead means you just win yeah and Sam says in the book his name is Henry Cunningham I want to believe who was the CEO of Cresgui when they launched came art he says that Cunningham was like an amazing retailer brilliant and great competition and that Sam believes had Cunningham still been running came art as came art started to decline the company would have made different choices passing they had a whole bunch of CEO turnover and all sorts of controversial stuff all right so we're onto the segment where we're going to make a case to each other for Walmart being good for the world and bad for the world it's almost like a bowling bear on the business but the global impact let's save the employees thing for the moment and first talk about impact on communities because I think there's an easy narrative to paint kind of the same narrative that got painted with Starbucks of bad for communities because it puts the local store out of business and certainly I don't think Sam Walton would say that they didn't I think he would say that we put a Walmart in a community and it was better for consumers and so then people needed to adapt of course existing merchants hated us but did consumers hate us no I don't think so at all I think it was better for them one especially for customers in well everywhere saving money and saving significant amounts of money on your everyday purchases that's huge if you are living in middle class or lower class that is enormous that makes an a huge difference in your life yeah that said there's probably more interesting things you could buy that have more soul in the local stores merchandising that may not show up in a Walmart supply chain there might be more meaningful personal relationships you could build with people who run the stores then you would have the opportunity to a Walmart I'm trying to think of all the things in a consumer experience that are better from a locally owned store there's the fact that when you buy something the equity that gets built from that transaction happening happens in your community versus the equity accruing 50% to the Walton family and 50% to a bunch of public shareholders every transaction any business makes a cruise either positive or negative equity to the business that participated or facilitated the transaction even if that Walmart employees a bunch of local people the equity still being built by other shareholders so there is a lot I think I said we could do a whole another three four hours on discussing this I read the book The Walmart Effect as part of research it's really good it's really even handed really well done it's about I think it was written in 2006 and it goes really deep into all these questions labor impact on communities all sorts of stuff highly recommend reading frankly we're not going to be able to do anywhere near as good a job discussing all that as the book does and as other forums do but to my mind like the biggest takeaway I had from it was if you just look at individual communities I think you can make a pretty good argument and this is Sam's argument like you were saying that Walmart is good on balance a because saves consumers money that's super important provides a lot of jobs you could argue about the quality of those jobs but a lot of jobs that otherwise would have gotten destroyed discounting was going to happen yeah the local shops were not going to survive the local variety stores and it could be someone that doesn't have the types of incentive programs that Walmart has right maybe it's not enough but they do offer the ability for part of people's pay to go into Walmart stock and that can appreciate over time and you can decide whether to cash it out or take it in Walmart stock like there are ways to make hundreds of thousands of dollars on top of your pay by being a Walmart employee yep now here's the way though where Walmart's impact is a little more unambiguously pernicious both for the world and specifically for America despite all that great stuff and that's actually in the supplier relationships and the vendor relationships as Walmart got so big and got so much leverage and they're so unrelenting on pushing down prices and then as the relationships you talked a little bit about the PNG relationship but with all their vendors you know Walmart is the biggest customer of all of the vendors and suppliers that they work with they exert so much pressure for vendors to lower their prices ultimately that leads to a couple things led to offshoring of American manufacturing Walmart was a huge contributor at some point the majority of items sold in Walmart were made in China I think during the 80s it went from like 6% to like 40% and now like I mean if you take out grocery I'm sure most stuff in Walmart is not made in America yep you know when Walmart recognized this was a problem and tried to address it but if you're a supplier and there are a bunch of examples in the book of lawnmower companies vlasic that makes pickles all sort of like you just at a certain point you cannot pay American labor the wages that you need to pay them and price products where Walmart needs them priced like it just does not work you have to off short it so that's one issue and you know you could argue about whether that's good or bad but certainly now you know post covid here in 2022 all sorts of reasons where we see there's a negative side of the ledger of offshoring American manufacturing that's one two is quality of products which is also related like the other thing that whether you're making stuff in America or elsewhere if you keep pushing down those margins so far like you gotta use lower quality materials in your product there's just this constant barrage to push down quality push down labor cost and all that like comes at a real cost and quality wasn't afterthought I mean even in 92 when Sam publishes book was only in the last decade where they were realizing how important quality was in addition to price now one area where all of this had a huge pretty much unambiguously negative externality that I think has gone a long way towards being corrected was environmental impact you can just imagine all the dynamics we're just talking about like having a positive environmental impact does not fit into that equation right you're not using the slightly more expensive power source when you're a vendor to Walmart you're using the cheapest no matter how dirty it is now for current management and the previous generation of management of Walmart to their like big credit in the mid 2000s they got religion on this yep and embraced sustainability and positive environmental impact as a way to generate more efficiency so like Walmart I think is now the largest US commercial producer of solar power well because they put solar panels on the roofs of the wal-mart and then now in parking lots too and then it ends up being cheaper they also invested a ton in more efficient truck fleets both in the type of fuel the shape of the trucks I want to say they literally doubled the efficiency of the trucking fleet over a decade by just yep little things they did here and there to chip away and that makes a huge impact because they're one of the largest trucking fleets in the world I mean if you look there's those graphics that fly around there like what's the largest employer in any state and like most of the lower Midwest and much of the south is Walmart and then there's the other ones that float around that's like what's the number one profession in every state and for half the states it's truckers and you're like hmm I wonder who those truckers work for in a lot of those states so yes it's a massive part of not only the American economy but of our energy usage I think it's worth bringing up now especially given everything that's happened recently and where we live and what not Walmart is one of the biggest well was and still is one of the biggest sellers of guns in America and they've paired back the air 15 and the ammo and the you know they stopped selling some things but like only after there was a shooting in their store right right now they still sell guns obviously Sam himself obviously was an avid hunter who'd used guns all the time yep but it wasn't just after the shooting in the store they've required background checks for a long time well before that they stopped selling handguns in the 90s and now after the shooting in the store they don't sell guns to people under 21 in 2015 they stopped selling assault rifles so I'm sure it's one of these issues where like people on both sides say they're not doing nearly enough or they're doing way too much too much yeah but it's I think it is a good example of a middle ground you can argue whether it's enough or not enough or too much but it like it's a middle ground all these things really come back to that point of Walmart operates at such scale that it is literally just a snapshot of humanity yeah and so if it's a facet of our national conversation or things happening in the world it's going to be happening at Walmart totally and let's move on to grading how do you think we should grade this one yeah I think we should go for it I think we should give an overall grade to Walmart the company encompassing the whole body of work the Walden early days the first several decades the 40.1% annual compounding in the 70s the 32 and a half in the 80s three right now yeah three two I think it's less than three now I think it's growing slower than the American economy well maybe not this year but in recent years I think let's do the whole totality well I mean the way to do it on a year by year or annualized or even decade basis would be the same way that we did Berkshire which is effectively look at their annual growth rate set some hurdle rate and then decide what constitutes an A plus and what constitutes an F and do it on a fine grade basis year by year we're not actually going to do that and is it a cop out to say that like it's an A plus plus from founding through the 80s and mid 90s and then it's been a D on exploiting the next big opportunity since then that's how I feel it feels weird to roll those into one letter well I think if we were going to break it out into sub grades for eras I think I would actually do three eras I would do the Walden era including the 70s and 80s A plus plus plus plus yeah plus right you can't say enough pluses there then I think actually the 90s is also an A plus and like literally grading for shareholders we're not grading for the multi stakeholder world that we live in of their communities the grading just purely the business and for shareholders I think the 90s also an A plus the super centers like amazing what a huge innovation and that was not really Sam that led that and was also a big part of driving the nail in the coffin of Kmart and is now 55% of the business dude so let me tell you about the 90s in 1992 they came in growing 34% and by 1997 they were growing at 12% okay okay fair that was like the quintessential decade of their decline deGret 3 accelerated all a super centers came online it accelerated from 97 it was down at 12% and then it peaked again in 2022 percent but then it's been all downhill from there interesting interesting I mean you could say all their job really has been since 2002 is to stay the same size as e-commerce became a thing literally just defending the castle would have been an A plus and maybe that is actually a pretty reasonable way to analyze it not that it would have been a good idea to invest a dollar necessarily in 2003 and pull it out today but what is a win if you are already the world's largest retailer stay the world's largest retailer through a transformational technology wave which they've done I mean Sears didn't do that no but we'll put this graph up on the screen if you look at the gap that Amazon closed in total revenue since the time they were founded to Walmart they're going to catch them no doubt about oh yeah for sure and it's a little bit of a deceptive graph because part of it is AWS so there's a high margin revenue in there there's a completely second business oh it doubted all accounts like Walmart could have done that right scoreboard right you look at the scoreboard right okay so maybe then 90s is not an A plus but I still like the super center innovation is huge but I yeah and then I do think that the 2000s and particularly the 2010s pretty uninspiring for Walmart it's a little silly because like what actually should you be going for if Sam Walton cared about the acquired scoreboard they should have been done in like 1995 or even 2002 we're penalizing them for continuing to exist and doing worse than they did before so I don't know I'm unwilling to grade this as one single thing I'm willing to say it was an A plus up through Sam Walton's death and then since then I'll go from like a D to a B because they have actually continued to be the world's largest retailer through tremendous upheaval in the world and stayed nimble enough to do that all right how about perhaps a less controversial or more straightforward way of grading I would grade made in America as an A among the canonical tomes that we've used as main sources on acquired okay like shoe dog made in Japan yeah of that ilk yeah sure so Sam's co-author who we've mentioned of made in America John Huey do you know anything about who John Huey is no no idea he after writing the book became the editor and chief of time oh wow and do you know who he replaced as editor and chief of time is it someone else's co-author Walter Isaacson no way yeah oh no one's co-author but wow you know was written as and because Sam was dying of cancer so it really has a feel of Steve Jobs and Isaacson Steve Jobs book and like you know reading it like Sam knows the end is near he's writing this as he's dying it's really good just highly recommend for sure okay I'm sick of this grading that's not really grading so let's do carve out and also I just got a text your Walmart order was delivered thanks for shopping with us reply hell from one so I have to go run and pick up my one my Walmart order oh oh you gotta go get it my carve out is a podcast that almost certainly no one has listened to because our audience overlap has to be approximately zero which is the I am home podcast which is the official podcast of the Nebraska furniture mark which many of you will now know is who listen to our Berkshire episodes will know is a Berkshire Hathaway company and this is the venue that Ted Weshler chose to go and give a wonderful interview and so it is so cool to hear one of the big managers at Berkshire these days and I think Ted's the one that did the Apple investment given interview a very rare interview on the Nebraska furniture marks I am home podcast so that is my carve out so great to my cue I haven't actually listened to it yet though to do even talks like Warren it's crazy so okay here's what I'm curious about though is the content of the podcast about discussing furniture no it's about what's your day to day like give us your story how did you find your way to Berkshire so fun I mean that's obviously better but I am kind of curious what Ted's you know furniture preferences are I think he does talk about that he bought a bunch of furniture for his house from the Nebraska furniture mark I love it is he like a modern guy is he a classic guy listen tune in find out we're talking Mediterranean here like I don't think Mediterranean find the guess my carve out he is a carve out that has been on acquired before it was your carve out but in a different form oh and that is the godfather the film you did do it as a carve out right parts one and two parts one and two yes both parts so good which I also have recently rewatched so good but you know what is even better that I read for the first time and I can't believe I hadn't read it until the last month or two is at the book is Mario Puzzo's book the godfather it's so good I think it was better than the movies it's as good as the movies yeah careful there buddy and I watched both after reading the book as with anything when you read the book you understand so much more about what's going on why motivations because I feel like especially in movies made back then you can argue whether this is good or bad see both sides but they left a lot more ambiguous like they didn't like explain everything as much as movies do now which is great which is so great it's back when film was an art form it reminds me not as much as this but I also did the same thing with 2001 a space Odyssey a couple years ago I read the book and I had never understood like the movie I was like this is crazy you're like what the hell is the last scene yeah but then you read the book and you're like oh now I totally understand what's going on and I get it and it's awesome it's a little bit like that with the godfather with the book and large parts of godfather part two are interspersed in the book in part one it was never intended to be a series like it's all just one book so you get a lot more kind of like as you go like Vita's history like the Italian backstory is actually part of the first main volume and when Michael is off in Sicily hiding after he murders the turkey and the police captain all right on my list adding it it's good it's good with that listeners are thank you to fund rise pilot and nzs capital thank you so much for being on this journey with us after you finish come discuss with the other 12,000 smart clever kind appreciative members of the acquired community at acquired dfm slash slack if you want more acquired I know this episode's gonna clock in like three and a half hours or something insane but if you're like you guys I need more we just dropped an awesome awesome interview with Patrick Campbell going through like things that don't often get discussed about acquisitions for his over $200 million acquisition of profit well by paddle that will be coming to the public feed soon that you can find by searching acquired LP show in the podcast player of your choice and is already live at acquired dot fm slash LP for paid subscribers and we've got a job board go check it out at acquired dot fm slash jobs we hear on the acquired team look at every single one of those and our jobs that we think are interesting so if you're looking for your next stick consider that all right David anything else I don't know what else we could say this one all right listeners with that we'll see you next time we'll see you next time