Building on Bedrock
Building on Bedrock
What Sam Walton, Walt Disney, and Other Great Self-Made Entrepreneurs Can Teach Us About Building Valuable Companies
Derek Lidow
Copyright
Diversion Books
A Division of Diversion Publishing Corp.
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New York, NY 10016
www.DiversionBooks.com
Copyright © 2018 by Derek Lidow
All rights reserved, including the right to reproduce this book or portions thereof in any form whatsoever.
For more information, email info@diversionbooks.com
First Diversion Books edition January 2018
ISBN: 978-1-63576-175-7
Table of Contents
Dedication
Epigraph
CHAPTER 1: Truth Matters Essential Understanding
Learning from Role Models
CHAPTER 2: Who Someone To Care About
Big Numbers
Differences Matter
When “Who” Means “We”
Who Fails
CHAPTER 3: What Desperate to be Needed
What’s In Front of You
Ideas Are Not a “What”
The Unifying Principle of Entrepreneurship
“What” You Do is About Social Status
CHAPTER 4: Why Getting Below the Surface
It’s Not Money
Why Ideas Aren’t Enough
It is Always a Test
Getting at the Real Why
Why Not
CHAPTER 5: What If The Importance of Mondays
Angel Dreams
CHAPTER 6: How To It’s All About Skills
Industry-Specific Skills
Three Ways to Acquire the Skills You Need
Progress, Not Perfection
How to Split Up
CHAPTER 7: How Good
CHAPTER 8: How Much How Much Depends on the Test
How Much Motivation
How Much of an Idea
How Much Leadership
How Much Attention
How Much of a Team
Time Versus Money
How Much Money
How Many Mistakes
How Much of a Jerk
CHAPTER 9: Where Where Mentors Are Plenty
Where Challenges Are Met
Where to Tech
Where There’s Culture
Beware of VEEs
Where’s the Family?
CHAPTER 10: When Mapping Out a Starting Point
Family Matters
When to Quit
CHAPTER 11: Whether
CHAPTER 12: So What Pioneering the Future
Entrepreneurial Responsibilities
Ensuring Ethical Entrepreneurs
Undermining Our Bedrock
Dangerous Myths
The Dividends of Ethical Entrepreneurship
Notes Chapter 1: Truth Matters
Chapter 2: Who
Chapter 3: What
Chapter 4: Why
Chapter 5: What If
Chapter 6: How To
Chapter 7: How Good
Chapter 8: How Much
Chapter 9: Where
Chapter 10: When
Chapter 11: Whether
Chapter 12: So What
Acknowledgments
About the Author
Connect with Diversion Books
In memory of my parents, Eric and Leza Lidow.
“High expectations are the key to everything.”
—Sam Walton
CHAPTER 1:
Truth Matters
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves
Or lose our ventures.
—William Shakespeare,
Julius Caesar, Act 4, Scene 3, Brutus: Lines 224–230
By opening day for store number two, the team felt fried. For the two weeks leading up to the grand opening, they had been working for as many hours as they could stand to get the store ready. Rebuilding and installing old fixtures salvaged from another store that had recently gone bankrupt had been a huge struggle. The team had unloaded truckloads of merchandise late into the night and had barely finished moving in and placing the merchandise on the shelves, on tables, and in front of the store. On top of that, the July heat had been punishing, the building wasn’t air-conditioned, the restrooms hadn’t been working, and the parking lot wasn’t fully paved.
A great deal was at stake. Store number one had struggled to make money and was not as successful as hoped. Sam Walton had borrowed as much money as the bank would loan him, using everything he and his wife owned as collateral. He needed Wal-Mart store number two to prove that a discount retail chain focused on small towns could be highly profitable. If store two performed like store one, Sam and his team would have to put their growth plans on hold.
To get as much attention for the opening as possible, Sam advertised great deals on brand-name staples like toilet paper and detergent. To give the opening a family feel, Sam arranged free donkey rides for kids in the parking lot right in front of the main entrance. He also bought every ripe watermelon that any farmer within a day’s drive could deliver. The team had piled them four feet high along the front of the store (and along the edge of the unpaved areas of the parking lot to keep the customers away from tripping over the old wooden forms still lying around).
Opening day was the hottest day of the summer, with temperatures in the upper 90s. But the heat didn’t keep the crowds away. To buy at the advertised low prices, they began lining up even before the store opened at nine in the morning. The team worked with hardly a break all day manning the cash registers and keeping the shelves, tables, and floors stocked with the items that were being snapped up. The customers were clearly excited.
With all the crowds and all the business, nobody noticed or really cared that some of the watermelons were breaking open in the heat, their juices flowing onto the sidewalk and into the parking lot—nor did anyone notice or care that the man running the donkey rides didn’t have time to pick up all the donkey droppings as soon as they hit the ground. Over the course of the day, the watermelon juices and the donkey dung covered growing portions of the sidewalk. The acrid donkey-watermelon mix was soon tracked inside and permeated the store.
A top financial officer of a well-established Midwestern drug store chain was perhaps the only person that did care. His company had heard that Sam Walton had some interesting ideas about how to get customers excited, and he had driven from Missouri to check out the opening. He was appalled by the smells and broken watermelons, and by the merchandise piled high on tables instead of laid out neatly on the shelves. He reported back that the opening was the worst he had ever seen; anyone in his company who ran an opening like the one he witnessed would have been fired on the spot.
But the top financial officer had ignored the store full of customers and the long lines at the cash registers. He had judged the opening by conventional big-city store aesthetics, missing the real story. Sam and his team understood that in the rural heartland, everyone was used to animal smells. He understood how to make his customers happy by making their dollars go much farther, and that his customers would feel better served in a humble-looking (and smelling) store.
That Midwestern drug store chain long ago went out of business. But its top financial officer eventually began to understand what was pleasing Sam’s customers and that Sam was willing to change things in ways his company would never co
nsider. David Glass later joined Wal-Mart and became an exemplary student of Sam’s, excelling at leading rapid changes aimed at pleasing evermore customers. He eventually became Walmart’s CEO.[1]
Sam, like the other entrepreneurs you will meet in these pages, provides a useful corrective to what we think we know about starting a business. Yes, Walmart is now one of the most valuable companies in the world, but it didn’t get that way overnight, and its success didn’t depend on “network effects” or venture capital. It depended on some hard and humble truths about entrepreneurship that have gotten lost amid all the publicity about a few young Silicon Valley billionaires—truths that would-be entrepreneurs and their loved ones ignore at their peril.
Essential Understanding
No matter what you do in life, you need to understand entrepreneurship. The facts are: Over 60 percent of working men and women in the US want to start their own business, and if you’re male, the chances are about fifty-fifty that you will actually attempt to be an entrepreneur sometime during your working life; if you’re female, the chances are about one in three.[2] More than 30 percent of the population in the United States at any point in time is either engaged in entrepreneurship or directly related to someone that is. Since funding from friends and family constitutes an important source of revenue for many startups, you stand a great chance of being asked to invest in a startup sometime in your life, regardless of how much money you have in the bank.
But entrepreneurship is not what most people think it is. And if you act on what you think, you will likely make a big mistake, lose money, destroy relationships, and waste precious years of your life. Conversely, what you think you know could make you too afraid to seize the lucrative entrepreneurial opportunities around you.
A simple remedy for your lack of knowledge may be to do nothing—nothing risked, nothing lost. That’s what most people do. But that won’t work, because confronting entrepreneurship is not a choice. Modern life forces you to make decisions that are, at their core, about entrepreneurialism. The company you work for, your boss, co-workers, relatives, and friends all have as much say as you do about whether entrepreneurship will impact your life! You could lose your job, or someone you can’t stand might replace your wonderful boss, forcing you to decide whether being your own boss is the right thing for you. You are also likely to be asked to support a friend or relative in starting a company, whether through a loan, an investment, or part-time work. To make the right decision—whether it’s about being your own boss or investing in your favorite cousin’s startup—you must understand entrepreneurship.
We all dream to some extent about achieving a combination of the fortune, fame, and control over our lives that we associate with successful entrepreneurs. Those are admirable aspirations in a society that counts on entrepreneurs to innovate, create new jobs, and grow our economy. Society encourages us to take the entrepreneurial bait, but how can you know if being an entrepreneur will end as a dream come true or a nightmare from which you cannot awake?
This book will help you answer that question by focusing on whether or not you should take the entrepreneurial bait, and if entrepreneurship is the right thing for you—as a founder, co-founder, or investor. Based on research, and told through the stories of real entrepreneurs, it will help you answer all of the critical questions about entrepreneurship: the who, what, when, where, how, how much, and why. The answers probably aren’t what you think.
Unfortunately, almost everything we read about entrepreneurs is highly filtered, glorifying entrepreneurs whether they ultimately succeeded or not. Most highly successful entrepreneurs retain PR people to get the media to tell the positive elements of their story. There is nothing wrong with that. When I was a CEO, I had PR people on my staff; they were good for business. But the stories that were written about me, or that are written about the super-successful entrepreneurs featured on magazine covers, are not the stories we should be telling people we care about—people who want to follow in our footsteps.
A few unsuccessful entrepreneurs have blogged about their mistakes or misfortunes, purporting to offer guidance to would-be entrepreneurs. You should take their guidance with a grain of a salt—they cannot be counted on to be objective. How often do we misdiagnose or ignore our own ailments, or dismiss our own incompetency and quirks? I failed on my first try at entrepreneurship, and I didn’t understand why my effort to start a tabletop retail concept was doomed from the beginning. It took years of working with mentors and coaches and reading avidly on the subject of leadership and performance to figure out where I went wrong. Most entrepreneurs have neither the background nor the time to accurately unravel what went wrong with their enterprises.
Learning from Role Models
Throughout history, people have learned how to conduct their lives by adopting role models. Having realistic role models helps people achieve their objectives, entrepreneurial or otherwise, at home or in the world at large. When someone succeeds, they give us the confidence to go after our own dreams; when someone fails, they teach us to beware of making the same mistakes.
Most successful entrepreneurs differ dramatically from the ones we read about. It is these unheralded and not-recently-heralded successes that we need to study. They can be great role models—and there are millions of them. They have succeeded as entrepreneurs and achieved impressive levels of fortune, respect (as opposed to great fame), and control over their own lives. These are the entrepreneurs we can aspire to be like, whose accomplishments we can hope to match by following their examples. Their stories reflect the real truth about entrepreneurship. And it is their stories that this book will tell, warts and all.
You will meet some remarkable people here—realistic and broadly applicable role models who can help you understand the critical elements of embarking on your own startup or investing in a friend’s. What you will learn may surprise you. These lessons include:
What types of ideas lead to successful companies and how innovative do your ideas need to be? Entrepreneurship is not usually about tech and dazzling breakthroughs—all types of ideas can create great companies. Innovation is not about doing something completely new, but rather doing something that succeeds in getting people to change for the better.
What abilities do you need to succeed? You need very few.
What essential knowledge is needed? Most of what you need to know you will learn on the job.
Whom do you need to know and when should you ask for help? Most entrepreneurs either fail to ask for help or accept it naively, thereby making expensive mistakes they could have avoided.
How do you find and pick your partners and smoothly part company with them when they start to slow you down? Deciding to work closely with strangers, friends, family, and lovers all have their upsides and downsides.
How much money do you need to start your company and to be able to afford to make a few mistakes? It doesn’t take much.
Where and how do you raise funds to grow fast? Beware of strangers bearing money.
How do you deal with the “fog of war” that is an everyday challenge in knowing what to do? When it comes to dealing with unknowns and risky situations, self-confidence is overrated.
When and how can you stay in control as you grow your company? Though this is rarely discussed, it’s extremely challenging; even great entrepreneurs sometimes lose control.
What are the mistakes you need to avoid at all costs versus the mistakes you expect to learn from? Some mistakes will bring you down, while other types of mistakes provide valuable education at a cheaper cost than any entrepreneurship classes you could take.
Role models illustrate what it is really like to be an entrepreneur. They can help you decide if entrepreneurship is the right thing for you—or for your cousin that’s asking you for an investment. Their stories are interesting, easy to read, and hard to forget. And I tell their stories with plenty of detail so you can fully understand what went right and what went wrong. Was it luck, talent, passion, charm
, a rich uncle, or other things that were the keys to this person’s success? That might be the keys to your success?
Many of the stories we hear or read about concern entrepreneurs who succeeded under very specific circumstances or at particularly opportune times. Luck and serendipity can certainly play a role in entrepreneurial achievement, but you gain nothing by emulating actions that led to a few random successes. The stories I have chosen to tell are relevant to everyone, not to the lucky few.
I call most of the people you will meet in these pages bedrock entrepreneurs. That term describes the 99.5 percent of all entrepreneurs who create more than 90 percent of all the new wealth generated by entrepreneurs in developed economies. Bedrock entrepreneurs are normal people. They are not the smartest, best-educated, most aggressive, tech-savvy people on the planet. And they grow their businesses in less risky ways than the “it’s OK to crash-and-burn,” “shoot-for-the-moon,” “use-other-people’s-money” high-risk entrepreneurs we read so much about.
Being a bedrock entrepreneur does not mean slow growth, low aspirations, or small enterprises. It means control, low risk, and patience. Sam Walton (Wal-Mart) was a bedrock entrepreneur, as were Ray Kroc (McDonald’s), Walt Disney, and Estée Lauder. So are Bill Gates and Michael Dell. It seems safe to say that all these great entrepreneurs would understand and empathize with the role models in this book as people very much like themselves.
Take Jordan Monkarsh, founder of Jody Maroni’s Sausage Kingdom. Jordan was the son of a butcher. A religion major in college, he never took a business course, yet he quickly created the country’s largest maker and seller of specialty sausages, all from his small savings. His story applies to anyone who aspires to create a large business selling products to consumers. It illustrates what’s important to know and what’s not. It’s also a story that will help you visualize the many answers to the question, “What does it mean to be a successful entrepreneur?”