Why You Should Ignore Every Founder's Story About How They Started Their Company
This was originally published in my free weekly newsletter, How It Actually Works.
Founding Stories Are Myths
Company founding stories are almost always non-malicious lies. Take Netflix:
That didn't actually happen.
It's unfortunate because it will inevitably mislead anyone learning how to start a company.
Sam Walton's Overnight Success
Sam was already 44(!) when he opened the first Walmart and had been running his own retail stores for over 15 years.
He wondered why people focused on the beginning of Walmart:
Somehow over the years folks have gotten the impression that Walmart was something I dreamed up out of the blue as a middle-aged man, and that it was just this great idea that turned into an overnight success...
Like most overnight successes, it was about 20 years in the making.
If you're trying to build your own thing & you want to learn from "the founder of Walmart", looking at the start of the company itself is stupid because at that point he already had 15 years of experience
So let's start with Sam's very first store.
The Biggest Mistake Of Sam's Professional Life
Sam started his retail career at 27 buying his 1st store, a "Ben Franklin" variety store franchise.
As a beginner he relied on the franchise's playbook but also incorporated his own experiments.
- putting popcorn & ice cream machines in front of the store to drive traffic
- doing huge discounts but actually making it up in volume (i.e. not ironically)
- buying directly from manufactures instead of going through the franchise (which allowed for cheaper prices)
He worked hard on that single store for 5 years, grew sales 3.5x to $250k/year and became the #1 Ben Franklin franchisee in his six-state region.
But then he found out he'd made a gigantic mistake.
When he signed the store lease he didn't include an option to renew it.
The owner (a local department store competitor) saw his success & refused to renew the lease at any price, thereby forcing Sam to shut down the store.
Imagine working on something for 5 years straight, becoming the best at it, and then having a single person end it all.
Sam was devastated:
It was the lowpoint of my business life. I felt sick to my stomach. I couldn't believe it was happening to me... I had built the best variety store in the whole region and worked hard in the community - done everything right - and now I was being kicked out of town. It didn't seem fair. I blamed myself for ever getting suckered into such an awful lease, and I was furious at the landlord.
He was mad, but he accepted responsibility:
I've always thought of problems as challenges, and this one wasn't any different... I had to pick myself up and get on with it, do it all over again, only even better this time.
If Facebook or Google change their algorithms you at least get to keep your old customer base and your business assets.
But with a retail store you have none of that.
And because of the structure of the town they couldn't just open another store somewhere nearby.
The Waltons literally had to pack up their family of 6 and go find a new town.
If he'd wanted to Sam had plenty of reasons to sulk: they were starting all over in a smaller town (Bentonville) that also had its fair share of competition (3 other variety stores).
But Sam said "it didn't matter much because I had big plans."
Sam spent the next 12 years in what I call narrative limbo.
It's the crucial part of any "overnight success" that doesn't get covered in the Successful Entrepreneur genre.
No one writes about all the random tangents and mistakes you make here.
Like, say, that time Sam tried to start a shopping mall 10 years too early and lost $25,000?
Or what about the time a tornado destroyed his best performing store? All he had to say was "we just rebuilt it and got back at it."
This is important to know if you're trying to learn from Sam, but it doesn't fit into any narrative.
The lesson here is that there will be mistakes and problems on any path to success. As a recent book title says, those obstacles are the way itself.
A coworker said Sam excelled here because he woke up every day "determined to improve something", and that he was
less afraid of being wrong than anyone I've ever known...Once he sees he's wrong, he just shakes it off and heads in another direction.
You don't get any of this from Reed Hastings when he talks about $40 late fees. You think "oh I need a great idea" when the reality is the idea is nothing and your psychology & persistence is everything.
Eventually Sam got to 15 stores & by 1960 was the largest independent variety store operator in the US, doing a a total of ~$12M (in 2018 dollars) in annual revenue.
It Would Seem Obvious
It was here that Sam finally saw the opportunity for much bigger discount stores and got to work on the 1st Walmart.
He was the most successful independent operator in the US & had 15 years of experience in retail, surely it should have been easy for him to raise money from investors...?
Sam asked other store owners, entrepreneurs, competitors... basically everyone said no.
He got a measly 5% from his own brother & a store manager and had to borrow the other 95% (signing their house and all their other stores as collateral).
Even the great Sam Walton couldn't find investors to start the 1st Walmart, on the back of a near-perfect record in retail.
The 1st Wal-Mart
Finally, the point where most people look at to learn, is the end of our story.
The 1st Walmart was an ugly retail store (8-foot ceilings, concrete floor, wooden fixtures) but it worked because Walmart's prices always beat competitors.
(Even the name "Walmart" was selected with customer prices in mind: it was cheaper to buy neon signs for 7 letters than the longer names Sam considered.)
And you think Sam cared 2 cents about what anyone else thought about his stores?
The New York Times doesn't mention Sam or Walmart until 1969, 7 years after the 1st store opening, and he's just one random quote in the back of the paper:
And the Walmart 1970 IPO got a single mention on page 44 of the Times:
If you want to learn from entrepreneurs, look at the start not the finish.
This first appeared in my weekly newsletter How It Actually Works. Sign up to receive it here.
"Our competitors are not in China, but in America's Silicon Valley"
Pay attention to how he uses America as the "enemy" in their struggle.
Large organizations spend significantlly more money to solve the same problems as smaller businesses.
They also buy stuff in a totally different way than you and I.
Examples of things that have nothing to do with each other being almost perfectly correlated.
Icarus is the movie that caused Russia to get banned from the Olympics. Highly recommended.