Made in America — Sam Walton on Thinking Small and the Rules for Business

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Made in America — Sam Walton on Walmart, thinking small, and rules for building businesses

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Extraordinary, ordinary people

Walmart founder Sam Walton opened his first Walmart in 1962 in Rogers, Arkansas. Today, the company boasts over 4,700 stores across the United States, and employs over 2 million associates. What exactly did Walton do to make Walmart work?

As Walton suggests in his autobiography Made in America, Walmart “is a story about the kinds of traditional principles that made America great” — one of entrepreneurship, risk-taking, honest hard work, and unwavering perseverance.

It is a reminder that there is “no limit to what plain, ordinary working people can accomplish if they’re given the opportunity and the encouragement and the incentive to do their best”. Walmart is the result of ordinary folk building extraordinary things.

Walton himself is grateful he began his career in retail “so green and ignorant”. Humble beginnings taught him that “you can learn from everybody”. It is one of his many tips for success in business.

“I don’t know that anybody else has ever done it quite like me: started out as a pure neophyte, learned his trade, swept the floor, kept the books, trimmed the windows, weighed the candy, rung the cash register, installed the fixtures, remodeled the stores, built an organization of this size and quality, and kept on doing it right up to the end because they enjoyed it so much. No one that I know of has done it that way.”  

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Walton’s rules for business

Today, we want to take a page from the ultra competitive but ever gracious Sam Walton himself. We want to know the principles that he uncovered over a lifetime in retail. But what we’ll find is no secret formula. Just a collection of energy, integrity, and common sense.

Perhaps that is what we need now more than ever, as business charlatans, financial gurus and get-rich-quick schemes continue to dominate our bookshelves. So let us begin with Walton’s advice for honest, upstanding capitalists.

Hard work, good teams, and high goals

Well, to begin, Walton says you won’t find hard work, good teams, and high goals on his rules for business. “If you don’t know that already… you probably won’t be going far enough to need [his] list anyway”. Former Walmart president Jack Shewmaker recalls working “a minimum of sixteen hours a day” during the company’s early years. So hard work goes without saying.

Commit to your business

You have to “commit to your business”, of course. “Sheer passion”, Walton notes, helped him to overcome many shortcomings. If you’re out there every day trying to better everything you set yourself upon, “pretty soon everybody around will catch the passion from you like a fever”.

Walton knew early on that “the discount idea was the future”. But even his co-founder and brother Bud Walton was “pretty skeptical” at the start. How can you possibly make discounting in small-town America profitable? Indeed, it only seems obvious today in hindsight.

“We’re in it for the long run”, Walton says. Had he listened to the naysayers, old-fashioned retailers and Wall Street projections, he “never would have gone into small-town discounting”. While you should learn from others, sometimes you just have to back yourself and commit.

Prepare to swim upstream

If you’re committed to the marathon, you best be ready to “swim upstream”. In their early days, Walmart was “underfinanced and undercapitalized in these remote, small communities”. They didn’t have the buying power or distribution networks of their larger, established peers. 

But “many of [their] best opportunities”, Walton recalls, “were created out of necessity”. They had to be better and leaner to survive. He suspects that had he been well-capitalized from the start, he may not have tried as hard to make Walmart tick in little offshoot towns.

Indeed, larger players could have tried it but didn’t. The “Ben Franklin program”, Walton remembers, “was too cut-and-dried to permit it”. Once a Ben Franklin retailer himself, Walton says he needed “another ten years before [he] took [discounting] seriously”. Ultimately, though, Walton “never could leave well enough alone”. “Constant fiddling and meddling with the status quo” was his natural proclivity.

“Go the other way. Ignore the conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find your niche by going in exactly the opposite direction. But be prepared for a lot of folks to wave you down and tell you you’re headed the wrong way. I guess in all my years, what I heard more often than anything was: a town of less than 50,000 population cannot support a discount store for very long.”

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Exceed your customer’s expectations

Now that you’re in the long game, the guiding principle is simple: “the secret of successful retailing is to give your customers what they want”. Better yet, try to “exceed your customer’s expectations” if you can. “When customers [think] of Walmart, they should think of low prices and satisfaction guaranteed”. That was Walton’s goal.

Think like a customer and you’ll see the many things that matter to them: “a wide assortment of good quality merchandise; the lowest possible prices;… friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience”; and so on. Indeed, companies like Walmart and IKEA become giants by succeeding on many fronts simultaneously.

As former Walmart CEO David Glass explains:

“So many times we overcomplicate this business. You can take computer reports, velocity reports, any kind of reports you want to and go lay out your counters by computer. But if you simply think like a customer, you will do a better job of merchandise presentation and selection than any other way.”

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America.

Think small, think one store at a time

To think like your customers, Walton says you have to “think small” and “think one store at a time”. “The bigger Walmart gets, the more essential it is that we think small”, Walton warns. That’s the paradox of big business. You become a dominant company “by not acting like one”. 

Walton admits that at Walmart’s gargantuan size, there comes with it a lot of “pressure to regiment”, “standardize”, and centralize. But if you overdo it, there’ll be “absolutely no room for creativity, no place for the maverick merchant”. 

Discount retailers know, of course, that they have to lower prices and improve their experience to survive. Smart retailers, however, know that you cannot do it in a one-size-fits-all sort of way. As Walton stresses, you have to do it “store by store”, “customer by customer”. 

For example, two Walmarts in Panama City, Florida and Panama City Beach, are only five miles apart. Their merchandise mix and customer base, however, are “worlds apart”. The former attends to residents in town, while the latter serves tourists mostly.

A “headquarters-driven system”, Walton notes, would “end up with a bunch of unsold work boots [and] overalls” at the Panama City Beach store; and not enough water guns, fishing rods, and pails and shovels to go around. 

“I don’t know any other large retail company — Kmart, Sears, Penney’s — that discusses their sales at the end of the week in any smaller breakdown than by region. We talk about individual stores.”

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America.

Listen to everyone in your company

To think small, Walton says you have to “push responsibility and authority down”, and “force ideas to bubble up”. Managers must “listen to everyone in [the] company”, especially to the operators and merchandisers on the ground. A headquarters-driven system otherwise risks being too “out of touch with the customers of each particular store”.1

“Truthfully, I never viewed computers as anything more than necessary overhead…In other words, a computer can tell you down to the dime what you’ve sold. But it can never tell you how much you could have sold. That’s why we at Wal-Mart are just absolute fanatics about our managers and buyers getting off their chairs… and getting out into those stores.”

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America.

[1] As an aside, Walton’s attitudes were inspired in part by the autonomous manufacturing lines he saw in Japan and Korea. What’s curious, is that Taiichi Ohno — the father of Toyota’s Production System — was actually inspired by supermarkets he saw in the United States following the Second World War. Both men were certainly on to something big.

Real merchants

For this reason, Walmart gives their “department heads the opportunity to become real merchants at a very early stage of the game”. It gives each store a better chance to adapt to the unique quirks of their locales; and allows home base to observe local experiments and to spread the best ideas to other stores 

“The folks on the front lines — the ones who actually talk to the customer — are the only ones who really know what’s going on out there. You’d better find out what they know… To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America.

Greeters everywhere

Former Walmart vice chairperson Tom Coughlin recalls a particular store visit he had with Walton decades ago. Upon walking in, they saw an employee at the entrance greeting every customer with a warm hello. The tactic was immediately clear: to warn would-be shoplifters without intimidating honest customers. 

Walton loved the idea so much that he wanted greeters at every Walmart store. Unsurprisingly, headquarters didn’t like it initially. It was expensive. But they weren’t on the floor and didn’t experience the effect that a sincere hello can have. Today, even in this age of automation and sensors, greeters remain a common retail practice. 

“Successful business is going to do just what Walmart is always trying to do: give more and more responsibility for making decisions to the people who are actually on the firing line, those who deal with the customers every day. Good management is going to start listening to the ideas of these line soldiers, pooling these ideas and disseminating them around their organizations, so people can act on them”.

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Build a partnership with your associates

Walton admits that he did not appreciate the principle of partnership until later in his career. He was too “chintzy” and competitive at the beginning to notice the paradox of business: “the more you share profits with your associates… the more profits will accrue to the company”. As they say, unhappy employees make for unhappy customers.

“More than anything, though, I want to get across once and for all just how important Walmart’s associates have been to its success… Take care of your people, treat them well, involve them, and you won’t spend all your time and money hiring labor lawyers to fight the unions.”

Sam Walton. (1992). Sam Walton: Made in America.

Communicate, communicate, communicate

A true partnership, of course, is more than profit sharing. Communication is everything. Walmart, for example, makes the conscious decision to share as much information as they can — from the cost of goods to profit margins and freight costs — with their associates.

“Sometimes a simple attitude”, Walton explains, “is as valuable as all the technology in the world”. If you’re committed to listening and sharing, why wouldn’t you inform and empower your operators too? The company can only be as productive as the workforce on the ground.

“The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. If you don’t trust your associates to know what’s going on, they’ll know you don’t really consider them partners. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors. … Executives who hold themselves aloof from their associates, who won’t listen to their associates when they have a problem, can never be true partners with them.”

Sam Walton. (1992). Sam Walton: Made in America.

Motivate, appreciate, and celebrate

Walton says you must always be looking for “more interesting ways to motivate and challenge your partners”. When work stagnates, don’t be afraid to cross-pollinate. Have employees switch roles to learn and discover something new. When good work is done, don’t forget to appreciate and celebrate. “Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise”, he reminds. At the same time, do make sure to “find some humor in your failures”. “Loosen up, and everybody around you will loosen up”. Business should be fun. “When all else fails, put on a costume and sing a silly song”. That’s the Walmart way.

“What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates. I also was worried that we might lose the team concept, or fail to keep the family concept viable and realistic and meaningful to our folks as we grow. Those challenges are more real than somebody’s theory that we’re headed down the wrong path.”

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Control expenses better than your competition

Finally, you’ve got to run a lean ship. Walton was not only a natural promoter and motivator, but a “chintzy” operator. Walmart maintained among the lowest expense-to-sales ratio for decades. Costs is the one category where “you can always find the competitive advantage”, Walton says.

Like other leaders born during the Great Depression, Walton had an “ingrained respect for the value of a dollar”. His parents shared the same “approach to money”. “They just didn’t spend it”. Walmart, likewise, didn’t buy a jet until they approached $40 billion in sales. Walmart managers “[stayed] in Holiday Inns and Ramada Inns… [and dined] at family restaurants”.

“Most people say my office and those of all the other Walmart executives look like something you’d find in a truck terminal. We’re in a one-story office-warehouse building. The offices aren’t real big, and the walls are covered with inexpensive paneling. We never had fancy furniture or thick carpet, or suites with bars for our executives. I like them just like they are. We sure as heck won’t win any interior decorating awards, but they’re all we need, and they must be working fine. Just ask our shareholders.”

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Bureaucracy buildup

Layers of bureaucracy tend to build as the company ages. Enduring success depends in part on how well the company controls cost and waste. It is imperative not to relax your standards, even when times are good. The lean company is better placed to survive failed experiments and unexpected downturns than the careless spender.

David Glass recalls one particular problem that “drove Sam crazy” — a time at Walmart when they were unable to mark merchandise prices reliably. The company responded by hiring ‘test-scanners’ to roam around the store to double check their prices. As Glass reflects:

“The natural tendency when you’ve got a problem in a company is to come up with a solution to fix it. Too often, that solution is nothing more than adding another layer.”

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America. 

While Walmart overhauled their back-office processes to get pricing right on the first go eventually, the initial knee-jerk test-scanner response served only to add more layers. It was circumventing the problem, not fixing it. And it was an expensive band aid at that.

“You never set out to add bureaucracy. You just get it. Period. Without even knowing it. So you always have to be looking to eliminate it. You know, when Tom Watson, Sr. was running IBM, he decided they would never have more than four layers from the chairman of the board to the lowest level in the company. That may have been one of the greatest single reasons why IBM was successful… A lot of this goes back to what… the Japanese [learned] a long time ago: do it right the first time”.

David Glass in Sam Walton and John Huey (1992). Sam Walton: Made in America. 

Secondary waste

Taiichi Ohno made the same observation in his book Toyota Production Systems, distinguishing between primary waste and secondary waste. Primary waste, like overproduction and excess materials, tend to create secondary waste by way of more workers, managers, storage, maintenance, logistics, and whatnot. Similar problems exist in service industries. Hire an unnecessary executive and you’ll end up creating more busy work and meetings.

“Sometimes I’m asked why today, when Walmart has been so successful, … should we stay so cheap? That’s simple: because we believe in the value of the dollar. We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money. Every time Walmart spends one dollar foolishly, it comes right out of our customers’ pockets.”

Sam Walton and John Huey (1992). Sam Walton: Made in America.

Magic formulas do not exist

All of this might seem obvious to you. But they are indeed the plain old rules that Sam Walton lived by. There are no secret recipes. Sometimes, all it comes down to is execution. And if these ideas were so easy to implement, we’d have more Walmart clones in the world today. 

Walton is sometimes portrayed as a bumbling out-of-nowhere success. But his principles, values, and tenacity were long in the making. He didn’t stop after a major setback or moderate success. He committed entirely to a good idea and continued swimming upstream. 

When a legal error booted a young Sam Walton from his own burgeoning Ben Franklin store, he “felt sick to [his] stomach”. But he “didn’t dwell on [the] disappointment”. He was just going to “do it all over again, only even better this time”. Some ten years later, at the age of forty-four, a savvier Sam Walton opened the first Walmart store. The rest is history.

Sources and further reading

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