Podcast Summary
How Sam Walton and Fundrise CEO Built Successful Businesses Through Innovation and Customer Satisfaction: Entrepreneurs can learn from Sam Walton and Fundrise CEO Ben Miller's innovative approaches to building successful businesses without relying on traditional venture funding. Customer satisfaction and long-term investment opportunities are key to success.
Sam Walton's creation of Walmart is a classic business story that offers many lessons, and every entrepreneur can learn from him. Fundrise's CEO and co-founder Ben Miller built the largest private investment platform in the world with over 350,000 individuals invested with Fundrise totaling $7 billion of real estate, with zero institutional funding. Miller's Capital journey is innovative as they built their business instead of raising the traditional venture route from their customers, and they successfully raised $155 million from their customers. Fundrise is launching a registered fund called the Fundrise Innovation Fund, which is interesting for founders to raise from as it offers long-term capital, alignment from the customer, and all the benefits of being public without actually having to go public.
Fundrise's Perpetual Fund and Sam Walton's Legacy - Insights for Long-Term Business Strategies: Lower asset management fees and lack of traditional LPs provide structural advantages for long-term investments. Studying the experiences of successful entrepreneurs such as Sam Walton can provide valuable insights into developing effective business strategies.
Fundrise's perpetual life fund has a structural advantage over typical venture funds due to their lower asset management fee and lack of traditional LPs and carried interest. As a result, they have no incentive to sell, making them a strong long-term holder. This model could represent the future of venture capital. Additionally, the autobiography 'Made in America' by Sam Walton and John Huey serves as a blueprint for how Jeff Bezos thought about Amazon in the early days, highlighting how Walmart and Sam were early adopters of technology in business. The 1930s Depression heavily impacted the Midwest farming community, including the Walton family who were doubly leveraged as farmers and financiers of farmers. Their experiences during this time would shape Sam and Bud Walton, ultimately leading to the formation of Walmart.
Sam Walton's Personal and Entrepreneurial Journey to Walmart's Success: Walmart's success was built on experimentation, learning from failure, and quickly scaling successful initiatives. Sam Walton's upbringing, resourcefulness, and mentality of always expecting to win played a crucial role in shaping his vision for the company.
Sam Walton's upbringing during the Great Depression, including his experiences foreclosing on farms, taught him the value of being a good human and saving money. He also learned from a young age to be an entrepreneur, selling magazine subscriptions, raising rabbits and pigeons, and becoming the youngest Eagle Scout in Missouri history. As quarterback of his high school football team, he developed a mentality of always expecting to win, which he later applied to his business. Walmart's success was built on experimenting, learning from failure, and quickly scaling successful initiatives. From putting watermelons outside the first store to achieve rapid sales growth, to consistently providing low prices and excellent customer service, Walmart continues to operate with Sam's vision in mind.
Sam Walton's Journey to Entrepreneurship and Retail: Sam Walton's early success as an entrepreneur was driven by his salesmanship and the ability to scale his business. He later transitioned to retailing by getting a job at JCPenney but left due to circumstances beyond his control.
Sam Walton was a natural-born salesman and a successful entrepreneur since his college days. He used to deliver newspapers during college and scaled his business by hiring people under him. His newspaper business made him earn $4000-$5000 a year in the 1930s. Sam's success as an entrepreneur was different from Warren Buffett, who focused on compounding. Sam got into retailing because he wanted a real job and joined JCPenney as a floor salesman. He did great in his job, and James Cash Penney himself met him. However, Sam's stint at JCPenney ended when he got commissioned for military service. He failed his physical examination for combat duty and returned to Claremore, Oklahoma, feeling depressed.
The Importance of Family Partnership in Walmart's Success: Walmart's clear and intentional business strategy and strong family partnership structure were crucial to its long-term success. A family-owned and controlled business with a small town-based strategy led to Walmart's growth into a retail giant.
The success and longevity of Walmart can be attributed to the family partnership structure that Sam and Helen set up, which ensured majority control and prevented stock from being splintered. Helen, who had a degree in finance, played an important role in the business strategy and vetoed Sam's idea of buying a Federated Department Store franchise in St. Louis. Her insistence on a family-owned and controlled business with a small town-based strategy led them to instead purchase a variety store franchise from Butler Brothers, which eventually grew into Walmart. The key lesson here is the importance of a clear and intentional business strategy, as well as the benefits of having a strong and committed family partnership.
The Power of Big Goals in Business: Setting big goals can fuel innovation and progress in business. Sam Walton's leadership style of setting ambitious targets and experimenting to achieve them was crucial in making Walmart one of the most successful retail businesses in the world.
Variety stores or five and dimes were franchise operations that served small towns and areas after the Depression and WWII. They sold every item in the store either priced at 5 or 10 and customers were serviced by clerks who provided the items they wanted. Sam Walton purchased a distressed Ben Franklin franchise in a small town in Arkansas after the end of WWII and set a big goal of making it the most profitable variety store in the state within five years. This drive to set big goals and hit them became a defining characteristic of Sam Walton's leadership style and fueled his need for experimentation. The story highlights the importance of setting big, hairy audacious goals to drive innovation and progress in business.
Sam Walton's Dedication to Learning from Competition and Utilizing Loss Leadership: Learn from your competition and innovate with loss leadership to increase sales. This strategy can be applied in any industry, including SaaS.
Sam Walton's success in retail was due to his dedication towards learning from the competition. He would visit competitor stores, take notes, and figure out what their systems were. He then utilized loss leadership to drive customers in and increase his sales. He didn't stop at Butler Brothers controlling his inventory, but went ahead to find other manufacturers and made a clandestine deal to purchase supplies. This strategy worked since he was operating on a small scale and Butler Brothers didn't notice. Sam's invention of loss leadership proved to be a successful model to get people to spend more time in Walmart. This concept isn't just for retail, but in today's pricing of SaaS products, it's a cornerstone of most businesses.
Sam Walton's Journey to Building Walmart: Sam Walton's focus on low prices, merchandise selection, and direct supplier deals helped him create a profitable store in Arkansas, inspiring him to found Walmart with these key principles.
Sam Walton learned the art of deep merchandising, sourcing his own inventory, and figuring out how to merchandise products that he personally believed would sell. He understood that always low prices and product selection are important to customers. He created direct deals with suppliers and added new products to his store, which made it the most profitable store in Arkansas and the biggest store by sales not just in Arkansas but the whole Midwest and South region. He learned the lesson that by cutting the price of an item, he could boost the sales. Unfortunately, his landlord took away the store from him, but Walton's valuable experience helped him in founding Walmart later.
Sam Walton's Approach to Business Growth and Innovation: To become a successful entrepreneur, one must have a first-hand approach, a willingness to learn from competitors, embrace competition, make business decisions based on personal interests and family needs, stay curious, learn from others, and always look for ways to improve.
Sam Walton's obsession with first-hand experience and his willingness to learn from competitors enabled him to grow his businesses and become a successful entrepreneur. He was not intimidated by competition and even loved it. He was always looking for ways to innovate and improve his stores. Also, he made business decisions based on his personal interests and family needs. When he moved to Bentonville, he observed a radical new concept from two Ben Franklin stores in Minnesota, and he decided to incorporate it into his own store. This highlights the importance of staying curious, learning from others, and always looking for ways to improve in business.
Sam Walton's Innovation Strategy for Walmart's Success: Novelty and shock value attract customers, always maintain novelty value to stay ahead of the competition in a market. Counter-positioning against competitors is crucial, but customer satisfaction is the ultimate deciding factor.
Sam Walton's decision to rename his store as Walton's Five and Dime and hit the market with the innovation of novel self-service concept caused a stir in the little town. The revenue of $90,000 in sales in the first year shows how customers embrace novelty and unique ideas. Sam's learning from this taught him that shock value and novelty always attract customers and this inspired him to always maintain novelty value in Walmart stores. Sam was always competitor-focused as he believed that countering the competitors' positioning drives a market. Customer satisfaction and lower prices that Walmart is known for can counter-position against competitors, but ultimately, customers decide.
Walmart's Equity and Profit-Sharing Model for Partnerships and Employee Incentives: Walmart's partnership model and employee incentivization created alignment of incentives for motivation, leading to increased performance, and is still influential today. This approach makes employees truly invested in the company's success, which is better than direct equity like stock options.
Walmart's equity and profit-sharing model for partnerships between store managers created a true alignment of incentives and motivated them to perform better, which became a major part of Walmart's playbook for decades. They extended their profit-sharing incentives to hourly employees and introduced an employee stock purchase program that led to many hourly associates making millions of dollars in the '70s and '80s. This model of partnerships and employee incentives is still highly influential and has been copied by other companies like Home Depot. This approach incentivizes employees to invest their dollars in the business, making them truly invested in the growth and success of the company, which is better than direct equity like stock options.
Sam Walton's Strategic Moves to Build Walmart's Success: Sam Walton's innovative approach of discounting and self-service revolutionized the market, propelling Walmart's success. Despite facing challenges in sourcing inventory and limited discounting, he focused on larger store concepts and lower margins, setting a new benchmark for retail.
Sam Walton and his brother started building family centers with larger store concepts which required more capital. They were still sourcing inventory from Ben Franklin and were limited on how much discounting they could do as they were part of Butler brothers. Discount stores were not common at that time and everyone was marking up their goods by about 45% with a gross margin of about 33%. Walmart had a gross margin between 20-24% at any given time while Target was in the 29% category. Sam Walton was the first to bring the self-service and discounting model to the market in a real way, followed by Ann & Hope stores in New England and FedMart in Southern California which was Sol Price's first successful venture.
Walmart's Discounting Strategy and Innovation: Walmart's success originated from their discounting strategy of reducing markups and going direct to manufacturers, coupled with an innovative mindset towards owning and operating their own back-end retail system.
Walmart's philosophy of getting the best price from suppliers, operating their own back-end retail system, and providing low prices to customers was a result of their strategy of discounting. They achieved this by reducing markups from 45% to 25% and going direct to manufacturers. This required owning and operating their own distribution centers, delivery systems and technology, which they did not have in the beginning. Sam Walton's hard-nosed approach to suppliers meant driving hard bargains and not accepting any kickbacks and inefficient pricing. Walmart's partnership proposal to Butler Brothers was turned down, and they went on to build their own retail back-end. Walmart's success was attributed to their innovative mindset and willingness to disrupt traditional retail practices.
Walmart's Success and Sam Walton's Vision: Sam Walton's focus on providing high-quality retail experience at everyday low prices for everyone, regardless of location or economic status, led to Walmart becoming a success story that captivated the entire country.
Sam Walton's vision of everyday low prices on everything made Walmart a success, despite initial chaos. The value proposition of being the lowest-priced store in town was key to their success and eventually captivated consumers all over the country. Walmart's slow start was actually a gradient, with Sam's entire retail entrepreneur education leading up to the founding. The insight that people in rural areas want the same retail experience as those in cities and that they were just as bright as those in cities led to Walmart's focus on serving them with high-quality retail. Walmart's opening in Rogers, Arkansas, was chaotic, but this was just the beginning and Walmart soon opened more stores, consistently selling everything for less.
Sam Walton's nimble approach gave Walmart an edge in the market: Stay connected to the ground and be open to taking risks to quickly incorporate successful ideas. Efficiency and a focus on cost can lead to scaling and becoming an unstoppable force.
Sam Walton's obsession with overseeing every store and getting numbers as fast as possible allowed Walmart to quickly incorporate successful ideas in other stores. This gave them an edge over competitors like Kmart who didn't have such a nimble approach and weren't willing to take as many risks. Despite starting off with minimal revenue compared to Kmart, Walmart's laser focus on lowest cost possible and efficient operations helped them build their own successful distribution network. This allowed them to scale quickly and steamroll over other established variety store chains like Woolco and Target. By staying connected to the ground, Walmart was able to learn quickly and make changes faster, ultimately leading them to become an unstoppable force in the retail market.
Walmart's success story: Efficient operations drive growth in a self-funded business.: To achieve success, businesses need to be operationally efficient, building core competencies, and outsourcing for tasks that aren't core competencies, like financial stack setup and operation with Pilot, providing a cost-effective alternative.
The key lesson learned from Walmart's success story is the need for efficient operations to drive growth in a self-funded business. Despite being underfinanced and undercapitalized early on, Walmart leveraged their spidey sense for merchandising, built their own logistics network, and used their own airplanes to identify profitable store locations. To achieve success, businesses need to be operational efficient to keep costs low while simultaneously being a good merchant. Building core competencies can be crucial to beat competitors and set yourself apart in your industry. However, for tasks that aren't core competencies, outsourcing may be the best option. Companies like Pilot can help startups and growing businesses set up and operate their financial stack, providing a cost-effective alternative to hiring multiple employees or traditional accounting firms.
How Pilot Takes Care of Startup Accounting and Finance Needs: Pilot's modern financial solution integrates real-time information from providers and eliminates accounting headaches for startups, allowing founders to focus on business activities.
Pilot, a software-based financial services company, offers a solution that takes care of all the headaches of finance and accounting faced by startups. Traditional accounting firms and internal finance teams are not the best options for startups as it adds to the overhead and people management complexity without offering any value to their customers or products. Pilot's human-powered and product-powered solution builds connectors with the modern financial stack, integrating real-time information from various providers such as Stripe, Brex, Gusto, Shopify, and Square. It eliminates the pain of tax prep and bookkeeping from the founder's plate and provides a team of financial experts and accountants. By taking care of all the financial needs, startups can now focus on their core business activities.
Walmart's Success Story: The Power of Technology and Talent: Investing in technology and attracting skilled talent can be instrumental in beating competitors, streamlining processes, and maximizing reach and potential. Embrace innovation and cultivate a culture of learning and growth to succeed.
Sam Walton's understanding of the benefits of technology enabled Walmart to become a technology company. The investment in computerization and distribution center technology allowed Walmart to implement customized daily orders for each individual store and ship them out with great efficiency using their own trucking lines. This allowed Walmart to expand across the country more efficiently than their competitors. Their investment in technology and talent was a key factor in beating their competition, keeping prices low, and keeping margins high. Sam's philosophy of leaving a door open for smart, tech-savvy, younger people to have big jobs at Walmart was instrumental in their success. His willingness to attend technology conferences and invest in a proprietary satellite network also demonstrated his commitment to using technology to maximize Walmart's reach and potential.
The Walmart Success Story and its Inspiring Factors: Walmart's strategic methodology, inspired by Carrefour's hypermarket model, led to its success in becoming the largest retailer in America, while Kmart and Sears' failure to compete resulted in bankruptcy.
Walmart's success lies in its methodology of building a distribution center, picking the farthest city to build a store, and slowly building stores in a radius back to the distribution center. This model allowed them to negotiate huge discounts with vendors and eventually led to Walmart becoming the largest retailer in America in 1990. Kmart's drunken acquisition spree and failure to compete with Walmart led to its bankruptcy and merger with Sears, which also ultimately went bankrupt in 2018. Walmart's success in the grocery category and its hypermarket model was inspired by French company Carrefour's operations in Brazil, which Sam Walton saw while on a trip there.
How Walmart Dominated the Grocery Market with Supercenters: Walmart's innovative Supercenters combining low prices with better logistics and fresher items helped the company capture over 20% market share in the US grocery industry, generating over $300 billion in revenue. However, Walmart's late adoption of online sales posed a challenge despite a history of pursuing opportunities.
Walmart's success in the grocery market can be attributed to their Supercenters, which combined traditional grocery stores and Walmart's low-price approach. They went from 0% market share in US grocery to becoming the largest grocer in America, with over 20% market share, while their closest competitor Kroger has under 10%. Walmart's dominance in the grocery category is due to their better logistics, fresher items, and lower prices. Walmart reinvented itself with the Supercenter concept and has generated over $300 billion just from grocery in the most recent fiscal year. Despite their success, Walmart was slow to adapt to the internet and failed to see it as an opportunity until it was too late, which is puzzling considering the company's history of pursuing opportunities.
Walmart's Online-Physical Integration and Growth Strategy: Walmart is using its physical stores to enhance its ecommerce offerings and is expanding rapidly. Competing with Amazon, Walmart is innovating with services like Walmart+ to provide customers with a seamless shopping experience.
Walmart is focused on merging their online and physical stores to provide a seamless shopping experience for their customers. They leverage their physical infrastructure to offer same-day grocery delivery, pick-up, and more. Their online sales only account for 13% of their revenue, but they are growing at a rapid pace and competing with Amazon's ecommerce business. Walmart has made strategic acquisitions like Jet.com and Bonobos, and they credit former CEO Mark Lore with jumpstarting their ecommerce business. Walmart is innovating with services like Walmart+ that allow customers to shop and checkout on their phones while in the store. Walmart is a major player in the ecommerce space and is giving Amazon a run for its money.
Walmart's Consumer Perspective and Third-Party Seller Concept: Walmart prioritizes implementation over historical data like Amazon, while also allowing third-party sellers to lease space in their stores for increased margins or lower prices.
Walmart's selection may not be as large as Amazon's, but their consumer perspective is pretty identical. Their focus is on a crude implementation first to make sure it works well. They have less historical data than Amazon does on all the shopper behavior and all that stuff to incorporate into the functionality of the website. Walmart allows third-party sellers to lease space in stores, just like McDonald's and Subways. It's like a store within a store concept. Target has those too and also a brilliant way to increase your margins as a retailer or allow you to sell at lower prices in Walmart's case. Complexity investing is the idea that investing based on resilience and optionality is the way to predict the future.
Resilience and optionality in investment opportunities Key Takeaway: The success of companies like Apple, Tesla, Walmart, Costco, and Sam's Club can be attributed to their ability to adapt and innovate, offering low prices and taking away customer promises to stay competitive.: Subtitle: Resilience and optionality in investment opportunities The success of companies like Apple, Tesla, Walmart, Costco, and Sam's Club can be attributed to their ability to adapt and innovate, offering low prices and taking away customer promises to stay competitive.
The best investment opportunities are those that possess high resilience and optionality, which is rare but exists. A good example of this is Apple and Tesla in their early days. Walmart is now a global empire with 10,500 stores and 230 million customers each week. Its supercenter concept is now the norm, with $600 billion of revenue last year. Sam's Club, a part of Walmart, has been a successful business, but it is losing out to Costco. Costco has a gross profit margin of only 13%, but its business model is entirely focused on giving the lowest price by taking away customer promises, such as an in-store experience. Costco, Sam's Club, and Price Club are all pioneers of the shopping club model.
Walmart's Seven Powers according to Hamilton Helmer: Walmart's persistent differential returns, including counter positioning and scale economies, enable them to be more profitable than competitors on a durable basis. Their power of scale allows them to price lower than any other retailer.
Walmart's original target market was small businesses and over time, they realized that consumers liked it too. Their international expansion has been mixed, with some successes in Mexico and Canada but significant losses in Europe. Their growth has plateaued at 3% since 2013. Hamilton Helmer's Seven Powers identified seven persistent differential returns that enable Walmart to be more profitable than their closest competitor on a durable basis, including counter positioning and scale economies. Walmart's scale economies are the perfect example, with the power of scale allowing them to price lower than anybody.
Walmart's Competitive Advantage and Growth Strategies: Walmart's competitive advantage lies in offering low prices, convenience, and customer-centricity. While focusing on maximizing profit margins, they have also diversified by operating own gas stations. However, some fear the third generation's shift away from customer obsession to profit maximization could harm their growth.
Walmart's competitive advantage lies in buying in large quantities, having more locations and consumers excited to buy their products, and owning their own logistics and distribution network. Their focus on offering the lowest prices, rather than maximizing profit margins, has made them recession-resistant and counter-cyclical, as they attract customers with below-average income. While Walmart lacks branding compared to Amazon, they make up for it through customer-centricity and convenience. However, as Walmart's growth has stalled, they have begun seeking opportunities to keep margins, evident in their decision to operate their own gas stations. The third generation of Waltons may have shifted the focus from customer obsession to profit maximization.
Walmart's Challenges and Strategies for Success: Learn from competitors and focus on their strengths instead of weaknesses. Serve specific customer needs well, but be aware of intense competition. Adapt and innovate to stay relevant in a changing market.
Walmart's average customer is more price sensitive and likely in an unfortunate economic position, thus they serve those people well, but the bear case list is long with good competition everywhere. Additionally, while ecommerce is not profitable for them, they are working on it and have been closing Sam's Clubs to convert them into ecommerce distribution centers, leading to labor issues. A good playbook lesson is to look for what competitors are doing right and steal it, rather than just looking for what they are doing wrong to make oneself feel better. Startup founders also tend to focus on the worst in their competition, but this is the wrong way to look at it.
Building a Successful Business: Efficiency, Pricing, and Customer Experience.: Successful founders identify inefficiencies and constantly work on improving them. In retail, pricing is crucial while in high-margin industries like media and software, convenience and selection matter. Building a strong logistics network can improve customer experience.
Identifying something that can be done better and then doing it better is the core part of being a founder. But once you have done it, now go make it better. Price really matters in retailing and industries like Walmart and Amazon. Exploiting inefficiencies and being as efficient as possible is so important. Not all industries are like that - in high margin industries like media and software, other dimensions like selection and convenience matter more. Walmart is where you witness humanity in all of its glory and the opposite. Building a logistics network can make your beer taste better.
The Complex Impacts of Walmart on Communities and Suppliers: Walmart's presence can bring both benefits and drawbacks to communities, but their reliance on low prices frequently results in negative consequences for American jobs and local businesses. The burden of addressing this issue falls on suppliers striking a balance between fair wages and affordable prices.
Walmart's impact on communities is a mixed bag. While it saves consumers money and provides jobs, it also puts local stores out of business and builds equity for shareholders rather than communities. However, its impact on supplier and vendor relationships is unambiguously negative, contributing to the offshoring of American manufacturing. Walmart's relentless pressure to lower prices ultimately leads to a race to the bottom where American jobs suffer. While Walmart acknowledges this problem, it is up to suppliers to find a solution that must balance between paying American labor the wages they deserve and pricing products that Walmart needs. Overall, Walmart's impact on the world is complex and requires a nuanced discussion.
Walmart's Journey towards Sustainability and Corporate Responsibility: Walmart has made significant progress in embracing sustainability and social responsibility through investments in more efficient truck fleets, renewable energy sources, and required background checks for gun purchases. However, the company has faced criticism for offshoring manufacturing and exploitation of opportunities in recent years.
Walmart, a company that has been praised for its exponential growth until the 80s, has faced criticism for offshoring American manufacturing causing a negative impact on the quality of products. However, the company has made strides towards embracing sustainability and positive environmental impact. Walmart is now the largest US commercial producer of solar power and invested in more efficient truck fleets. Despite being one of the biggest sellers of guns in America, the company has taken steps to address the issue and requires background checks. When grading, the Walton era and the 90s receive A+ ratings, but the company's exploitation of the next big opportunity since then has been graded as a D.
Walmart's Declining Growth Rate and Staying Power.: Despite a declining growth rate, Walmart has managed to stay the largest retailer in the world by remaining nimble and adapting to changes in the market. Recommended resources include Sam Walton's Made in America, the I Am Home Podcast featuring Ted Weschler, and The Godfather (book and movies).
Walmart's growth rate peaked at 22% in 2000 and has been declining since then as ecommerce became a thing, but they have managed to stay the world's largest retailer through tremendous upheaval and remained nimble enough to do so. Sam Walton's Made in America is an A+ among the canonical times used as main sources on Acquired. The I Am Home Podcast, the official podcast of the Nebraska Furniture Mart, is highly recommended and features an interview with Ted Weschler, one of the big managers at Berkshire Hathaway, who talks about his day-to-day and how he found his way to Berkshire. The Godfather, both parts one and two, are highly recommended, and Mario Puzo's book is even better.
The Benefits of Reading Books vs Watching Movies: To gain a full understanding and appreciation of a movie, it is recommended to read the book first. This allows for a deeper comprehension of the plot, characters, and motivations that may be missing in the movie adaptation.
Reading the book provides a deeper understanding of the story than watching the movie. The book provides more detail and nuance to motivations and plotlines that movies often gloss over. This is particularly true for older movies that leave more room for interpretation. The Godfather, for example, was never intended to be a series, but the book includes large parts of Godfather Part Two in part one. Similarly, reading 2001: A Space Odyssey helped the speaker make sense of the movie's final scene. Overall, the panelists recommend reading the book before watching the movie to get the full story and appreciate the art form of film.
